This is an income tax credit for conducting research in North Dakota.
Eligibility: The credit is equal to a percentage of the excess of qualified research expenses (QRE) over a base amount:
- 25% for the first $100,000 of excess QRE in a tax year.
- 8% for excess ORE over $100,000 in a year (different percentages may apply from 2007-2016).
For taxpayers who earned a credit in North Dakota before January 1, 2007, the maximum credit allowed in any year is $2 million and any credit over this amount is not allowed in any year.
In the case of a passthrough entity, the credit is passed through to its owners based on their respective interests in the entity.
For tax years after 2018, a taxpayer may elect to use an alternative simplified method to calculate the credit, under which the credit is a percentage of QRE in excess of 50% of the average QRE for the preceding 3 tax years. The credit is 17.5% of the first $100,000 of excess QRE plus 5.6% of the excess QRE over $100,000. (If any one of the prior 3 years had zero QRE, other rates apply.)
A taxpayer may choose on a year-to-year basis to use either the regular method or the alternative simplified method to calculate the credit, which is then binding for the year.
If a credit exceeds a taxpayer’s tax liability, the unused portion of the credit must be carried back 3 tax years and carried forward up to 15 tax years. If a taxpayer (limited to an individual, C corporation, estate, or trust) first conducted research in North Dakota after December 31, 2016 and if the taxpayer is certified by the North Dakota Department of Commerce as a qualified research and development company, the taxpayer may elect to transfer up to $100,000 of unused credits to another taxpayer. To qualify, the taxpayer must be a primary sector business with gross annual revenues under $750,000, see Transfer of Unused Tax Credit below.
Transfer of Unused Tax Credit:
If a taxpayer is a qualified research and development company, the taxpayer may sell, transfer, or assign up to $100,000 of its unused tax credit to another taxpayer. A qualified research and development company is one that the North Dakota Department of Commerce Division of Economic Development and Finance certifies as meeting all of the following requirements:
- It is a primary sector business.
- It conducts qualified research activity in North Dakota for the first time after December 31, 2006.
- It has annual gross revenue of less than $750,000.
Filing Requirements: Claim when filing North Dakota income tax, attach a schedule or worksheet showing the computation.
Application Process: A taxpayer must make 2 different applications:
- Application for Certification as a Qualified Research and Development Company - 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
- One of the following Clearance Forms may be needed:
If a taxpayer obtains certification as a qualified research and development company, and the taxpayer elects to transfer an unused research expense tax credit to another taxpayer, the transferor and transferee must jointly complete and file Form CTS – Credit Transfer Statement – within 30 days after the date the transfer (or purchase) agreement is executed. See the instructions to Form CTS for all the eligibility and reporting requirements. Contact us at 701-328-1249 to determine if you qualify.
Century Code Reference: N.D.C.C. § 57-38-30.5