Income Tax Exemptions | Credits

An income tax credit for investing in an agricultural commodity processing facility is certified by the North Dakota Department of Commerce Division of Economic Development and Finance. An agricultural commodity processing facility includes a livestock feeding, handling, milking, or holding operation that uses as part of its operation a by-product produced at a biofuels production facility.

Eligibility: Investment must consist of an exchange of cash or a fee simple interest in North Dakota real property for an equity (ownership) interest in the facility.

The credit is equal to 30% of the investment. No more than $50,000 of credits may be used in any year. An unused credit may be carried forward up to 10 years. A taxpayer is allowed no more than $250,000 of credits for all tax years. If the taxpayer is a passthrough entity, the credit is passed through to its owners based on their respective interests in the entity.

Filing Requirements: Once certified, an agricultural commodity processing facility must report each qualified investment using the Ag Commodity Processing Facility Investment Reporting Form.

Application Process:

• Application for Certification as a Qualified Business for the Agricultural Business Investment Tax Credit – North Dakota Department of Commerce Division of Economic Development and Finance.

• One of the following Clearance Forms may be needed:

  • State Clearance Record Form

  • Property Tax Clearance Record Form

• For more detailed information: Agricultural Commodity Processing Facility Investment Tax Credit Program – Program Provisions

Century Code Reference: N.D.C.C. § 57-38.6.

C corporations that have income from business activity that is taxable in both North Dakota and another state(s) is required to apportion its income using an apportionment formula with equally weighted property, payroll, and sales factors.

A multistate C corporation may elect to use an alternative apportionment formula with a single sales factor (2019 and after) – sales 100% (no property or payroll factor).

• The election is binding for 5 tax years, and then may be renewed.
• If a new election is not made, the standard equally weighted three-factor apportionment formula must be used for a minimum of 3 tax years.
• The election is not available to a passthrough entity.

Filing Requirements: A calendar year corporation must file on or before April 15th. A corporation reporting on a fiscal year basis must file on or before the October 15th.

Century Code Reference: N.D.C.C. § 57-38.1-09

A taxpayer is allowed an income tax credit for the purchase or capital lease of new or used automation and robotic equipment that upgrades or advances a manufacturing process, resulting in improved job quality or increased productivity in North Dakota.

Eligibility: To qualify, the business must be certified as a primary sector business and the machinery and equipment must be approved by the North Dakota Department of Commerce Division of Economic Development and Finance.

The credit is equal up to 15% of the purchase cost or the equipment’s fair market value if a capital lease. An unused credit may be carried forward up to 5 tax years. The total credits allowed for all qualifying purchases by all taxpayers is limited to $3 million per calendar year. Of the $3 million annual total amount, $500,000 of tax credits is reserved each year for the first-time claimants for automation equipment and $500,000 of tax credits is reserved each year for first-time claimants for animal ag equipment. This amount is prorated among the taxpayers if the qualifying purchases result in credits exceeding $3 million. If the total amount of credits earned for a year is less than $3 million, the unused portion is added to the following year’s $3 million limit.

If the taxpayer is a passthrough entity, the credit is passed through to its owners based on their respective interests in the entity. The credit allowed to a corporation included in a consolidated North Dakota income tax return may be used to reduce the aggregate tax liability of all corporations in the return.

Filing Requirements: Within 1 year after claiming a credit, the business must file a report with the Office of State Tax Commissioner to document satisfaction of the requirement to improve job quality or increase productivity.

• Credit Earned in 2024 - Report of Improved Job Quality or Increased Productivity for Automation Credit
• Credit Earned in 2023 - Report of Improved Job Quality or Increased Productivity for Automation Credit
• Credit Earned in 2022 - Report of Improved Job Quality or Increased Productivity for Automation Credit
• Credit Earned in 2021 - Report of Improved Job Quality or Increased Productivity for Automation Credit 

Application Process:

• Automation Tax Credit Application – North Dakota Department of Commerce Division of Economic Development & Finance
• Primary Sector Certification – North Dakota Department of Commerce Division of Economic Development & Finance

Century Code Reference: N.D.C.C. § 57-38-01.41

Tax Credits for Producing or Blending Biodiesel or Green Diesel and for Crushing Soybeans or Canola

A C corporation is allowed an income tax credit for adapting or adding equipment to retrofit a facility or to construct a new facility in North Dakota that either produces or blends biodiesel fuel or green diesel fuel, or crushes soybeans or canola.

The credit is equal to 10% of the direct costs incurred and is allowed in each of 5 tax years, starting with the tax year in which the production, blending, or crushing begins. An unused credit may be carried forward up to 5 tax years. A corporation is allowed no more than $250,000 of credits for all tax years.

Eligibility:

• A licensed supplier of biodiesel fuel or green diesel fuel having at least a 5% blend is allowed an income tax credit for blending the fuel in North Dakota.
  • The credit is equal to 5 cents for each gallon blended.
  • An unused credit may be carried forward up to 5 tax years.
• A licensed seller of biodiesel fuel or green diesel fuel having at least a 2% blend is allowed an income tax credit for adapting or adding equipment to the seller’s facility in North Dakota to enable it to sell the biodiesel or green diesel blend.
  • The credit is equal to 10% of the direct costs incurred and is allowed in each of 5 tax years, starting with the tax year in which the facility begins selling the biodiesel fuel or green diesel fuel.
  • An unused credit may be carried forward up to 5 tax years. A seller is allowed no more than $50,000 of credits for all years.
• For the biodiesel and green diesel supplier and seller credits only: If the supplier or seller is a passthrough entity, the credit is passed through to the entity’s owners based on their respective interests in the entity.

Filing Requirements: Claim when filing North Dakota corporation income tax, attach a schedule or worksheet showing the computation.

Application Process:

• The following Clearance Form may be needed:
  • State Clearance Record Form

Century Code Reference: N.D.C.C. §§ 57-38-01.22, 57-38-01.23, and 57-38-30.6.

This is an income tax credit for employing an individual with a developmental disability or severe mental illness.

Eligibility: For each eligible individual hired, the credit is equal to 25% of the wages paid to the eligible individual, up to a maximum credit of $1,500 per year. This credit is allowed in each year the eligible individual is employed. An employee of a subcontractor is considered an employee of the contractor to the extent of any wages paid under the contract.

The total credit amount a taxpayer may claim in a tax year may not exceed 50% of the taxpayer’s tax liability before credits.

In the case of a passthrough entity, such as a partnership or S corporation, the credit is calculated at the passthrough entity level and passed through to its owners in proportion to their ownership interests. The 50% tax liability limitation does not apply at the passthrough entity level but is applicable to each owner other than another passthrough entity.

Filing Requirements: Claim the credit on the applicable form as follows:

• If an individual, see Schedule ND-1TC.
• If an estate or trust, see Schedule 38-TC.
• If a partnership, see Form 58, Schedule K.
• If an S corporation, see Form 60, Schedule K.
• If a C corporation, see Form 40, Schedule TC or Schedule CR, Part III.

Application Process: An employer must apply for and obtain certification from the North Dakota Department of Human Services, Vocational Rehabilitation Division, that the individual has a severe disability, is eligible for the agency’s services, and requires customized employment to become employed. If these conditions are met, a certification letter will be issued to the employer.

Century Code Reference: N.D.C.C. § 57-38-01.16

An eligible employer is allowed an income tax credit for continuing to pay part or all of the wages of an eligible employee while the employee is on active duty in the U.S. armed forces.

Wages for this credit mean the sum of:

• Gross wages before reduction by payroll taxes, elective contributions to a defined contribution plan, and any other payroll deduction, plus
• Employer’s contributions to the employee’s defined contribution plan.

A defined contribution plan means a 401(k), 403(b), profit-sharing, stock bonus, money purchase, or any other plan meeting the definition of a defined contribution plan under Internal Revenue Code Section 414.

Eligibility: An eligible employee is an individual who is:

• A legal resident of North Dakota,
• A member of the National Guard or a reserve component of any branch of the U.S. armed forces, and
• Mobilized for federal active duty under Title 10 of the United States Code during the employer’s tax year.

To be eligible for the credit, an employer must:

• Continue to pay part or all of the eligible employee’s wages during the period of mobilization, and
• The federal active-duty wages received by the eligible employee are less than the wages that the employer would have paid if the eligible employee had not been mobilized.

Filing Requirements: To claim the credit, complete Schedule ME - Credit For Wages Paid to Mobilized Employee and include it with the applicable return. See Individual Income Tax for forms.

Century Code Reference: N.D.C.C. § 57-38-01.31

This is an income tax credit for employing an individual under an internship program located in North Dakota.

The credit is equal to 10% of the compensation paid to the intern. The credit is allowed for up to 5 interns employed at the same time. An employer is allowed no more than $3,000 of credits for all tax years. If the employer is a passthrough entity, the credit is passed through to its owners based on their respective interests in the entity.

Eligibility: An intern must be enrolled in a college or vocational technical education program majoring in a field related to the work to be performed and must be supervised and evaluated by the employer. The internship must qualify for academic credit.

Filing Requirements: Claim when filing North Dakota income tax, attach a schedule listing the names of employees, their social security number and wages paid.

Application Process:

• The following Clearance Form may be needed:
  • State Clearance Record Form

Century Code Reference: N.D.C.C. § 57-38-01.24

A primary sector business may qualify for an income tax exemption for up to 5 years.

Eligibility: Must be a primary sector business that is new or expanding its North Dakota operations. Primary sector is a business that adds value to product, process, or service that produces new wealth in North Dakota. Primary sector certification must be gained from the North Dakota Department of Commerce Division of Economic Development and Finance.

A project is not eligible for an exemption if any of the following apply:

• A tax exemption was received under tax increment financing
• It is out of compliance for any tax obligation
• The exemption fosters unfair competition or endangers existing business

Filing Requirements: Claim when filing North Dakota corporation income tax, attach a schedule showing the computation of exempt income for each corporation.

Application Process:

• Application for New or Expanding Business Income Tax Exemption (Project Operator's Application for Income Tax Exemption)
  • The following Clearance Form may be needed:
    • Property Tax Clearance Record Form
• Primary Sector Certification – North Dakota Department of Commerce Division of Economic Development and Finance
• The application must be filed no later than 1 year after the commencement of operations within the new business or expansion.
• The business must provide notice to competitors as prescribed by the State Board of Equalization.
• At a public meeting, the State Board of Equalization considers the application and any testimony, and grants or denies the exemption.

Century Code Reference: N.D.C.C. § 40-57.1

A program is available that assists a new or expanding primary sector business with training new employees. The cost of the training under the program is paid for in whole or in part with the income tax withheld from the new employees.

Under the North Dakota New Jobs Training Program, your business may be able to obtains funds in the form of a loan, a reimbursement grant, or under a self-financing option. State income tax withholding from the new positions created are matched for up to 10 years, until the maximum reimbursement is reached, or until the loan is repaid, whichever comes first.

For more information about this program, contact Job Service North Dakota.

For more information about primary sector designation, contact the North Dakota Department of Commerce Division of Economic Development and Finance.

Century Code Reference: N.D.C.C. ch. 52-02.1

There are 3 income tax credit available to taxpayers for making a charitable contribution to a nonprofit private school in North Dakota, learn more at: 

Nonprofit Private School Contribution Credit

There is an income tax credit for conducting research in North Dakota, learn more at:

Research Expense Credit

An income tax credit is allowed to a C corporation for making a contribution to the Rural Leadership North Dakota Program conducted by the NDSU Extension Service.

Eligibility: The credit is equal to 50% of the total contributions made during the tax year. Contributions may be designated for a specific individual. The credit is only allowed in the tax year of the contribution; an unused credit may not be carried over to any other tax year.

Filing Requirements: To claim the credit complete Schedule TC or Schedule CR, Part III, of Form 40, the North Dakota corporation income tax return, and enclose a copy of a receipt for each qualifying contribution or cancelled check (front and back). See Corporate Income Tax for forms.

Century Code Reference: N.D.C.C. § 57-38-01.34

This is an income tax credit for investing in a qualified primary sector business as certified by the North Dakota Department of Commerce Division of Economic Development and Finance.

Because of changes in the law, the applicable rate, limitations, and other features of the tax credit have changed over the years. For a summary of the applicable rates, limitations, and other features on a year-by-year basis, see Seed Capital Investment Tax Credit Program – Rates, limitations, and other features of the tax credit by tax year.

• Seed Capital Investment Tax Credit Program: Program Provisions

Eligibility: A taxpayer holding a controlling interest in, or deriving over 50% of annual gross income from, a qualified business is not eligible for the credit. A qualified investment means an exchange of cash for an equity (ownership) interest in the qualified business. The credit is equal to 45% of the investment. No more than $112,500 of credits may be used in any tax year. An unused credit may be carried forward up to 4 tax years. If the taxpayer is a passthrough entity or an angel fund, the credit is passed through to the entity’s owners or the fund’s members based on their respective interests in the entity.

Only the first $500,000 of eligible investments in a qualified business are eligible for the tax credit. The total amount of tax credits allowed for investments made in all qualified businesses in any calendar year is limited to $3.5 million.

Filing Requirements: A certified business must report each qualified investment it receives within 30 days by completing and submitting the Qualified Seed Capital Business Investment Reporting Form.

Application Process:

• Application for Seed Capital Qualified Business Certification - North Dakota Department of Commerce Division of Economic Development and Finance
• Primary Sector Certification – North Dakota Department of Commerce Division of Economic Development and Finance
• The following Clearance Form may be needed:
  • State Clearance Record Form

Century Code Reference: N.D.C.C. § 57-38.5

This is an income tax credit for employing extraordinary recruitment methods to recruit and hire employees for hard-to-fill positions in North Dakota.

The credit is equal to 5% of the compensation paid during the first 12 consecutive months to an employee hired to fill a hard-to-fill employment position and is allowed in the first tax year following the tax year in which the employee completes the 12 consecutive month employment period. An unused credit may be carried forward up to 4 tax years. If a taxpayer is a passthrough entity, the credit is passed through to its owners based on their respective interests in the entity.

Eligibility: An employer must pay an annual salary that is at least 125% of North Dakota’s average wage and must have employed all the following recruitment methods for at least 6 months to fill a position for which the credit is claimed:

• Contracted with a professional recruiter for a fee.
• Advertised in a professional trade journal, magazine, or other publication directed at a particular trade or profession.
• Provided employment information on a website for a fee.
• Paid a signing bonus, moving expenses, or atypical fringe benefits.

In addition, if an employer claims the credit, the employee hired in the hard-to-fill position is allowed a deduction for the signing bonus, moving expenses, or atypical fringe benefits paid by the employer that are included in the employee’s federal taxable income.

Filing Requirements: Claim when filing North Dakota corporation income tax, attach a schedule listing the names of employees, their social security numbers, wages paid, and employment start date. See Corporate Income Tax for forms.

Application Process:

• One of the following Clearance Forms may be needed:
  • State Clearance Record Form
  • Property Tax Clearance Record Form

Century Code Reference: N.D.C.C. §§ 57-38-01.25, 57-38-30.3(2)