North Dakota income tax is required to be withheld from North Dakota oil or gas royalty payments to nonresident individuals and entities that carry on business, or derive gross income from sources, in North Dakota.
The income tax withholding applies to payments to a royalty owner that represents its share of receipts from its nonworking interest in the sale of oil or gas extracted from within the boundaries of North Dakota. The amount that is subject to North Dakota income tax withholding is the gross amount of the North Dakota oil or gas royalty payment.
- This amount should be included in the amount reported in Box 2 of the federal or state-only Form 1099-MISC or Form 1042S.
Income tax on the gross royalty is withheld at the top individual income tax rate. Taxpayers with income tax withheld claim credit for the withheld tax on their North Dakota income tax return.
For more information see the Guideline - Oil and Gas Royalty Payments.
Century Code Reference: N.D.C.C § 57-38-59.4
The withholding amount is determined by multiplying the gross amount of the North Dakota oil or gas royalty by the highest marginal individual income tax rate reduced by 0.75%. The highest individual income tax rate is 2.90%, resulting in a withholding tax rate of 2.15% (2.90% - 0.75%).
This withholding tax rate applies to all types of royalty owners.
For detailed information about exceptions see the Guideline - Oil and Gas Royalty Payments.
A remitter is a person who distributes a royalty payment to a royalty owner.
There are 3 exceptions to the withholding requirement:
- Remitter is an oil or gas producer whose production in North Dakota in the prior year was less than 350,000 barrels of oil or 500 million cubic feet of gas.
- Must file annually a Form RWT-1096 – Royalty Withholding Annual Return and Transmittal.
- Remitter makes oil and gas royalty payments to any of the following entities:
- The United States or any of its agencies, or any state and its political subdivisions.
- A federally recognized Indian tribe with respect to on-reservation oil and gas production pursuant to a lease entered under the Mineral Leasing Act of 1938 [25 U.S.C. 396a – 396g].
- The United States as trustee for individual Indians.
- A publicly traded partnership, as defined in Internal Revenue Code § 7704, that is not treated as a corporation.
- An organization that is exempt from North Dakota income tax under N.D.C.C. § 57-38-09.
- The same person or entity as the remitter.
- A publicly traded partnership or an organization exempt from North Dakota income tax must provide Form RWT-EXM – Exemption Status for Royalty Withholding for Publicly Traded Partnership and Tax Exempt Organization to each remitter and the Office of State Tax Commissioner.
- Upon written request to the Office of State Tax Commissioner, a remitter may be allowed to not withhold North Dakota income tax from an oil or gas royalty payment that is less than a statutory threshold:
- Quarterly Payments – payment less than $600
- Other than Quarterly Payments – when annualized payment is less than $1,000.
A remitter is a person who distributes a royalty payment to a royalty owner
Every remitter must register with the Office of State Tax Commissioner by completing and filing an Application to Register for Royalty Withholding. A remitter must register even if any of the exceptions to the withholding requirement apply or the remitter does not withhold any tax for any reporting period.
Businesses with 10 or more information returns are required to electronically file 1099s. Businesses with less than 10 information returns are also encouraged to electronically file their quarterly return and 1099s.
Starting in tax year 2022, taxpayers are required to electronically file all information returns.
A remitter is a person who distributes a royalty payment to a royalty owner. If a remitter is required to withhold $1,000 or more of North Dakota oil and gas royalty payments in the last calendar year, they are required to withhold North Dakota income tax and electronically file a Form RWT-941 – Royalty Withholding Return and pay tax due.
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