2016 North Dakota Century Code Title 57 Taxation Chapter 57-38.1 Uniform Division of Income Tax Act
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CHAPTER 57-38.1
UNIFORM DIVISION OF INCOME TAX ACT
57-38.1-01. Definitions.
As used in this chapter, unless the context otherwise requires:
1. "Business income" means income arising from transactions and activity in the regular
course of the taxpayer's trade or business and includes income from tangible and
intangible property if the acquisition, management, and disposition of the property
constitute integral parts of the taxpayer's regular trade or business operations.
2. "Commercial domicile" means the principal place from which the trade or business of
the taxpayer is directed or managed.
3. "Compensation" means wages, salaries, commissions, and any other form of
remuneration paid to employees for personal services.
4. "Nonbusiness income" means all income other than business income.
5. "Public utility" means any business entity which owns or operates for public use any
plant, equipment, property, franchise, or license for the transmission of
communications, transportation of goods or persons, or the production, storage,
transmission, sale, delivery, or furnishing of electricity, water, steam, oil, oil products, or
gas.
6. "Sales" means all gross receipts of the taxpayer not allocated under sections
57-38.1-04 through 57-38.1-08.
7. "State" means any state of the United States, the District of Columbia, the
Commonwealth of Puerto Rico, any territory or possession of the United States, and
any foreign country or political subdivision thereof.
57-38.1-02. Taxpayers - Applicability.
Any taxpayer having income from business activity which is taxable both within and without
this state, including a public utility, shall allocate and apportion the taxpayer's net income as
provided in this chapter.
57-38.1-03. Nonresident taxpayer.
For purposes of allocation and apportionment of income under this chapter, a taxpayer is
taxable in another state if:
1. In that state the taxpayer is subject to a net income tax, a franchise tax measured by
net income, a franchise tax for the privilege of doing business, or a corporate stock
tax; or
2. That state has jurisdiction to subject the taxpayer to a net income tax regardless of
whether, in fact, the state does or does not.
57-38.1-04. Certain items - Allocation.
Rents and royalties from real or tangible personal property, capital gains, interest, dividends,
or patent or copyright royalties, to the extent that they constitute nonbusiness income, must be
allocated, net of related expenses, as provided in sections 57-38.1-05 through 57-38.1-08.
57-38.1-05. Rents and royalties.
1. Net rents and royalties from real property located in this state are allocable to this
state.
2. Net rents and royalties from tangible personal property are allocable to this state:
a. If and to the extent that the property is utilized in this state; or
b. In their entirety if the taxpayer's commercial domicile is in this state and the
taxpayer is not organized under the laws of or taxable in the state in which the
property is utilized.
3. The extent of utilization of tangible personal property in a state is determined by
multiplying the rents and royalties by a fraction, the numerator of which is the number
of days of physical location of the property in the state during the rental or royalty
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period in the taxable year and the denominator of which is the number of days of
physical location of the property everywhere during all rental or royalty periods in the
taxable year. If the physical location of the property during the rental or royalty period
is unknown or unascertainable by the taxpayer, tangible personal property is utilized in
the state in which the property was located at the time the rental or royalty payer
obtained possession.
57-38.1-06. Property - Capital gains and losses.
1. Capital gains and losses from sales of real property located in this state are allocable
to this state.
2. Capital gains and losses from sales of tangible personal property are allocable to this
state if:
a. The property had a situs in this state at the time of the sale; or
b. The taxpayer's commercial domicile is in this state and the taxpayer is not taxable
in the state in which the property had a situs.
3. Capital gains and losses from sales of intangible personal property are allocable to this
state if the taxpayer's commercial domicile is in this state.
57-38.1-07. Interest and dividends.
Interest and dividends are allocable to this state if the taxpayer's commercial domicile is in
this state.
57-38.1-08. Patents and copyrights.
1. Patent and copyright royalties are allocable to this state:
a. If and to the extent that the patent or copyright is utilized by the payer in this
state; or
b. If and to the extent that the patent or copyright is utilized by the payer in a state in
which the taxpayer is not taxable and the taxpayer's commercial domicile is in this
state.
2. A patent is utilized in a state to the extent that it is employed in production, fabrication,
manufacturing, or other processing in the state or to the extent that a patented product
is produced in the state. If the basis of receipts from patent royalties does not permit
allocation to states or if the accounting procedures do not reflect states of utilization,
the patent is utilized in the state in which the taxpayer's commercial domicile is
located.
3. A copyright is utilized in a state to the extent that printing or other publication originates
in the state. If the basis of receipts from copyright royalties does not permit allocation
to states or if the accounting procedures do not reflect states of utilization, the
copyright is utilized in the state in which the taxpayer's commercial domicile is located.
57-38.1-09. Business income.
1. Except as permitted under subsections 2 through 4, all business income must be
apportioned to this state by multiplying the income by a fraction, the numerator of
which is the property factor plus the payroll factor plus the sales factor, and the
denominator of which is three.
2. For the first two taxable years beginning after December 31, 2015, a taxpayer that is
not a passthrough entity may elect to apportion business income to this state by
multiplying the income by a fraction, the numerator of which is the property factor plus
the payroll factor plus two times the sales factor, and the denominator of which is four.
a. The election must be made on the return as originally and timely filed in the form
and manner prescribed by the tax commissioner.
b. The election is applicable for all companies in a unitary group and for all
companies filing a consolidated North Dakota return.
c. The election is binding for five consecutive taxable years after making the
election, at which time the election lapses. The election under this subsection
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3.
4.
also includes the election to use the sales factor under subsections 3 and 4 for
the taxable years those subsections apply.
d. Unless a taxpayer makes another election under subsection 4 in the taxable year
immediately following the final year of the binding effect of the election under this
subsection, the taxpayer must file under subsection 1 for a period of three taxable
years before it may make a new election under subsection 4.
For the first taxable year beginning after December 31, 2017, a taxpayer that is not a
passthrough entity may elect to apportion business income to this state by multiplying
the income by a fraction, the numerator of which is the property factor plus the payroll
factor plus six times the sales factor, and the denominator of which is eight.
a. The election must be made on the return as originally and timely filed in the form
and manner prescribed by the tax commissioner.
b. The election is applicable for all companies in a unitary group and for all
companies filing a consolidated North Dakota return.
c. The election is binding for five consecutive taxable years after making the
election, at which time the election lapses. The election under this subsection
also includes the election to use the sales factor under subsection 4 for the
taxable years that subsection applies.
d. Unless a taxpayer makes another election under subsection 4 in the taxable year
immediately following the final year of the binding effect of the election under this
subsection, the taxpayer must file under subsection 1 for a period of three taxable
years before it may make a new election under subsection 4.
For taxable years beginning after December 31, 2018, a taxpayer that is not a
passthrough entity may elect to apportion business income to this state by multiplying
the income by the sales factor. A taxpayer electing to file using a single sales factor
must comply with the following:
a. The election must be made on the return as originally and timely filed in the form
and manner prescribed by the tax commissioner.
b. The election is applicable for all companies in a unitary group and for all
companies filing a consolidated North Dakota return.
c. The election is binding for five consecutive taxable years after making the
election, at which time the election lapses.
d. Unless a taxpayer makes another election under this subsection in the taxable
year immediately following the final year of a prior single sales factor election, the
taxpayer must file under subsection 1 for a period of three taxable years before it
may make a new single sales factor election.
57-38.1-10. Property factor.
The property factor is a fraction, the numerator of which is the average value of the
taxpayer's real and tangible personal property owned or rented and used in this state during the
tax period and the denominator of which is the average value of all the taxpayer's real and
tangible personal property owned or rented and used during the tax period.
57-38.1-11. Property owned and rented.
Property owned by the taxpayer is valued at its original cost. Property rented by the
taxpayer is valued at eight times the net annual rental rate. Net annual rental rate is the annual
rental rate paid by the taxpayer less any annual rental rate received by the taxpayer from
subrentals.
57-38.1-12. Average value of property.
The average value of property must be determined by averaging the values at the beginning
and ending of the tax period but the tax commissioner may require the averaging of monthly
values during the tax period if reasonably required to reflect properly the average value of the
taxpayer's property.
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57-38.1-13. Payroll factor.
The payroll factor is a fraction, the numerator of which is the total amount paid in this state
during the tax period by the taxpayer for compensation and the denominator of which is the total
compensation paid everywhere during the tax period.
57-38.1-14. Compensation.
Compensation is paid in this state if:
1. The individual's service is performed entirely within the state;
2. The individual's service is performed both within and without the state, but the service
performed without the state is incidental to the individual's service within the state; or
3. Some of the service is performed in the state and:
a. The base of operations or, if there is no base of operations, the place from which
the service is directed or controlled is in the state; or
b. The base of operations or the place from which the service is directed or
controlled is not in any state in which some part of the service is performed, but
the individual's residence is in this state.
57-38.1-15. Sales factor.
The sales factor is a fraction, the numerator of which is the total sales of the taxpayer in this
state during the tax period and the denominator of which is the total sales of the taxpayer
everywhere during the tax period.
57-38.1-16. Local tangible personal property sales.
Sales of tangible personal property are in this state if:
1. The property is delivered or shipped to a purchaser, other than the United States
government, within this state regardless of the f.o.b. point or other conditions of the
sale; or
2. The property is shipped from an office, store, warehouse, factory, or other place of
storage in this state and:
a. The purchaser is the United States government; or
b. The taxpayer is not taxable in the state of the purchaser.
57-38.1-17. Other sales.
Sales, other than sales of tangible personal property, are in this state if:
1. The income-producing activity is performed in this state; or
2. The income-producing activity is performed both in and outside this state and a greater
proportion of the income-producing activity is performed in this state than in any other
state, based on costs of performance.
57-38.1-17.1. Gain or loss on the sale of a partnership.
Gain or loss on the sale of a partnership interest is allocable to this state in the ratio of the
original cost of partnership tangible property in the state to the original cost of partnership
tangible property everywhere, determined at the time of the sale. In the event that more than
fifty percent of the value of the assets of the partnership consist of intangibles, gain or loss from
the sale of the partnership interest is allocated to this state in accordance with the ratio of total
North Dakota income to total income of the partnership for its first full tax period immediately
preceding the tax period of the partnership during which the partnership interest was sold. This
section applies to the extent, that prior to the sale of the partnership interest, the partnership's
income or loss constituted nonbusiness income.
57-38.1-17.2. Taxation of two or more member limited liability companies.
For purposes of this chapter, a limited liability company having two or more members that is
formed under either the laws of this state or under similar laws of another state and that is
considered to be a partnership for federal income tax purposes is considered to be a
partnership and the members must be considered to be partners. A limited liability company
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having two or more members that is not treated as a partnership for federal income tax
purposes must be treated as a corporation for state tax purposes.
57-38.1-17.3. Taxation of single-member limited liability companies.
For purposes of this chapter, a limited liability company having a single member that is
formed under either the laws of this state or under similar laws of another state and that is
considered to be a corporation for federal income tax purposes is considered to be a
corporation for state tax purposes. A limited liability company having a single member that is not
treated as a corporation for federal income tax purposes is disregarded as an entity separate
from its owner for state tax purposes.
57-38.1-18. Additional methods of determining business situs.
If the allocation and apportionment provisions of this chapter do not fairly represent the
extent of the taxpayer's business activity in this state, the taxpayer may petition for or the tax
commissioner may require, in respect to all or any part of the taxpayer's business activity, if
reasonable:
1. Separate accounting;
2. The exclusion of any one or more of the factors;
3. The inclusion of one or more additional factors which will fairly represent the taxpayer's
business activity in this state; or
4. The employment of any other method to effectuate an equitable allocation and
apportionment of the taxpayer's income.
57-38.1-19. Purpose.
This chapter must be so construed as to effectuate its general purpose to make uniform the
law of those states which enact it.
57-38.1-20. Citation.
This chapter may be cited as the "Uniform Division of Income for Tax Purposes Act".
57-38.1-21. Effective date.
The provisions of this chapter apply to all income accruing after January 1, 1965, for
taxpayers operating on a calendar year basis, and apply to income accruing in 1965 after the
beginning of their fiscal year for taxpayers operating on a fiscal year basis.
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