A taxpayer incurring qualified research and experimental expenditures within North Dakota may be entitled to an income tax credit.
Tax credits that exceed the current income tax liability, must be carried back for three years and then carried forward for up to 15 years. A claim to carry back credits must be filed within three years of the due date or extended due date of the return for the taxable year in which the credit was earned.
If a taxpayer acquires or disposes of the major portion of a trade or business or the major portion of a separate unit of a trade or business in a transaction with another taxpayer, the taxpayer’s qualified research expenses and base period must be adjusted in the manner provided by I.R.C. § 41(f)(3).
Corporate taxpayers in a consolidated combined return may apply the credit against the aggregate tax liability on their North Dakota income tax return. NOTE: This provision does not apply to tax credits received or purchased from other taxpayers.
Qualifications
Taxpayers incurring research and experimental expenditures within North Dakota that exceed the North Dakota base amount. Research and experimental expenditures must be “qualified research” as defined in section 41(d) of the I.R.C. [26 U.S.C. 41(d)] and must be done within the state of North Dakota.
A taxpayer that holds an interest in a passthrough entity that qualifies for this credit may claim its share of the tax credit in proportion to its interest in the entity. The credit must be claimed in the same taxable year in which the taxable year of the passthrough entity ends.
Property Tax Clearance Record form is required.
Credit Amounts
- The credit is based on the amount of qualified research expenses incurred in North Dakota in excess of the North Dakota base amount. The amount of the credit is 25% of the first $100,000 in excess of the base amount, plus 8% of the amount over $100,000 in excess of the base amount. (Note that in prior tax years, different percentages were applicable.)
- For a taxpayer which first earned or claimed a credit in a tax year beginning before January 1, 2007, the maximum credit that may be earned for a taxable year is $2 million. Any credit earned in excess of $2 million may not be carried back or forward.
- “Base amount” means base amount as defined in section 41(c) of the I.R.C. [26 U.S.C. 41(c)], except it does not include research conducted or sales outside the state of North Dakota.
- “Qualified research” means qualified research as defined in section 41(d) of the I.R.C. [26 U.S.C. 41(d)], except it does not include research conducted outside the state of North Dakota. The qualified research expenses may not exceed 50% of the base amount.
Alternative Simplified Computation Method
Beginning with tax year 2019, a taxpayer may elect to compute its credit using the Alternative Simplified Computation (ASC) method. The ASC method largely mirrors the ASC method included in federal law. A taxpayer may elect to use the ASC method regardless of whether the ASC method is used on its federal tax return. Under the ASC method, the North Dakota credit is equal to the sum of the following:
- 17.5% of the first $100,000 of North Dakota alternative excess research and development expenses for the year.
- 5.6% of the North Dakota alternative excess research and development expenses in excess of $100,000 for the year.
“North Dakota alternative excess research and development expenses” means the amount by which qualified research expenses incurred in North Dakota exceed 50% of the average qualified research expenses incurred in North Dakota for the three tax years preceding the tax year for which the credit is being determined. Under the ASC method, if zero qualified research expenses were incurred in any of the three preceding tax years, the North Dakota credit for a tax year is equal to the sum of 7.5% of the first $100,000 of qualified research expenses plus 2.4% of qualified research expenses in excess of $100,000. As a reminder, the ASC method may not be used to calculate the North Dakota research credit for any tax year prior to 2019.
Application Process
Not Applicable.
How to Claim
If you're filing as a/an: | Claim the credit on: |
| Individual or Sole Proprietor | Schedule ND-1TC, Tax Credits |
| C Corporation | Form 40, Corporation Income Tax Return Schedule TC |
| S Corporation | Form 60, S Corporation Income Tax Return Schedule K |
| Partnership | Form 58, Partnership Income Tax Return Schedule K |
| Fiduciary | Form 38, Fiduciary Income Tax Return Schedule 38-TC |