North Dakota — Corporate Income / Franchise Tax

Every corporation that does business in North Dakota, has sources of income in North Dakota, or has federal unrelated business taxable income (UBTI) must file Form 40—Corporation Income Tax Return.

Source: Corporate Income Tax, N.D. Office of State Tax Commissioner

North Dakota's corporate income tax applies to C corporations doing business in or deriving income from sources within the state. The state uses federal taxable income as the starting point for computing North Dakota taxable income, subject to state-specific adjustments prescribed in N.D.C.C. § 57-38-01.3.

Source: N.D.C.C. § 57-38-01.3

## Tax-exempt corporations with unrelated business income

A corporation that is exempt from federal income tax but has federal unrelated business taxable income (UBTI) must file Form 40 and is subject to North Dakota corporate income tax on that income. Returns of tax-exempt organizations reporting UBTI are due on the 15th day of the 5th month following the close of the tax year.

Source: Corporate Income Tax, N.D. Office of State Tax Commissioner

A corporation that is exempt from federal income tax purposes and has no federal UBTI is exempt from North Dakota corporate income tax and does not need to file a North Dakota return for that year.

Source: Corporate Income Tax, N.D. Office of State Tax Commissioner

## S corporations and pass-through entities

North Dakota recognizes the federal S corporation election under N.D.C.C. § 57-38-01.4. S corporations, partnerships, and LLCs taxed as partnerships or S corporations are generally treated as pass-through entities for North Dakota income tax purposes and do not pay corporate income tax at the entity level. These entities file separate informational returns (Form 60 for S corporations, Form 58 for partnerships).

Source: S Corp and Partnership Tax, N.D. Office of State Tax Commissioner

## Insurance companies

Insurance companies paying North Dakota insurance premiums tax under N.D.C.C. § 26.1-03-17 are exempt from the corporate income tax under N.D.C.C. § 57-38-09(3). However, to the extent an insurance company has earnings from business activities not subject to insurance premiums taxes, those earnings are subject to corporate income tax.

Source: Corporate Income Tax Study, N.D. Legislative Council

North Dakota imposes a graduated corporate income tax on North Dakota taxable income at three rates: 1.41% on the first $25,000 of taxable income; 3.55% on taxable income exceeding $25,000 but not exceeding $50,000; and 4.31% on all taxable income exceeding $50,000.

Source: N.D.C.C. § 57-38-30

Multistate corporations apportion business income to North Dakota using an equally weighted three-factor formula: property, payroll, and sales. The apportionment percentage equals (property factor + payroll factor + sales factor) ÷ 3. Alternatively, a corporation may elect to use a single-sales-factor formula (100% sales, 0% property and payroll) beginning with tax year 2019. The election is binding for five consecutive tax years and must be made on the originally filed return.

Source: N.D.C.C. § 57-38.1-09, Corporate Income Tax, N.D. Office of State Tax Commissioner

Every corporation that "does business in North Dakota" or "has sources of income in North Dakota" must file Form 40—Corporation Income Tax Return. North Dakota does not define a specific dollar amount, transaction count, or bright-line threshold for corporate income tax nexus. The state's published guidance does not specify what activities constitute "doing business" but indicates that nexus means a corporation is present in the state and subject to a filing requirement.

Source: Corporate Income Tax, N.D. Office of State Tax Commissioner

## Annual return due date

Form 40—Corporation Income Tax Return is due on April 15 for calendar-year corporations. For fiscal-year filers, the return is due on or before the 15th day of the 4th month following the end of the tax year. The due date may vary if it falls on a weekend or state holiday.

Tax-exempt organizations with UBTI: Returns of tax-exempt organizations reporting federal unrelated business taxable income are due on the 15th day of the 5th month following the close of the tax year (May 15 for calendar-year filers). A signed Form 40 is required along with federal Form 990-T.

Cooperatives: For cooperatives that file federal Form 1120-C, returns are due on the 15th day of the 9th month following the close of the tax year (September 15 for calendar-year filers). The due date may vary if it falls on a weekend or state holiday.

Source: Corporate Income Tax, N.D. Office of State Tax Commissioner

## Extensions

A corporation may request additional time to file its North Dakota corporate income tax return by receiving a federal extension or a North Dakota extension. North Dakota accepts a timely filed federal extension as an extension to file the state return. If the federal return is extended, the corporation does not need to file a separate North Dakota extension or notify the Office of State Tax Commissioner. The extended due date for North Dakota purposes is the same as the federal extended due date.

If a federal extension is not obtained, or if an extension of time beyond the period covered by a federal extension is needed, a North Dakota extension may be obtained by completing and filing Form 101. This is not an automatic extension—there must be good cause to request a North Dakota extension. Form 101 must be postmarked on or before the due date of the North Dakota return.

An extension to file is not an extension to pay. Payment is still due on the original due date.

Source: Corporate Income Tax, N.D. Office of State Tax Commissioner

## Estimated tax requirements

Estimated payments are required if a corporation's income tax liability is expected to exceed $5,000 for the current taxable year and the previous year's state income tax liability exceeded $5,000. When required, quarterly estimated tax installments are due.

Source: Corporate Income Tax, N.D. Office of State Tax Commissioner

The specific due dates for estimated tax installments (15th day of the 4th, 6th, 9th, and 12th months of the taxable year) are confirmed by the Office of State Tax Commissioner's published deadlines calendar.

Source: Corporate Income Tax Deadlines, N.D. Office of State Tax Commissioner

North Dakota requires a corporation engaged in a unitary business with one or more other corporations to file using the combined report method. The combined report includes members of the unitary group irrespective of the country or countries in which the corporations are incorporated or conduct business—this is a worldwide combined reporting regime without a default water's edge limitation.

Source: 2023 North Dakota Corporation Income Tax Return Instructions, p. 4

## Unitary business test

Whether a group of corporations is engaged in a unitary business depends on the facts and circumstances of each case. If unity of ownership exists, any of the following facts or circumstances creates a presumption that the unities of operation and use also exist, meaning the corporations are engaged in a unitary business:

• All activities of the group are in the same general line or type of business;
• The activities of the group constitute different steps in a vertically structured enterprise (e.g., drilling, refining, and retail sales in an integrated oil company); or
• The group is characterized by centralized management.

Source: 2023 North Dakota Corporation Income Tax Return Instructions, p. 4

The combined report must include all corporations that meet the unitary business test, including foreign corporations. The specific rules governing which entities must be included in the worldwide combined report—and the treatment of intercompany transactions—are set forth in N.D. Admin. Code ch. 81-03-05.3.

Source: N.D. Admin. Code ch. 81-03-05.3, §§ 81-03-05.3-01 through 81-03-05.3-04

## Starting point for North Dakota taxable income

The starting point for computing North Dakota taxable income is federal taxable income. However, if the combined report excludes any corporation that was included in a federal consolidated return, the starting point is the pro forma federal taxable income for only those combined group members that were part of the federal consolidated return. North Dakota does not compute a single pro forma starting point to reflect inclusion of entities not part of the federal consolidated return; instead, the combined report adjusts federal taxable income by North Dakota statutory adjustments and eliminates intercompany transactions between members of the worldwide group.

Source: 2023 North Dakota Corporation Income Tax Return Instructions, p. 4

## Water's edge election

A corporation required to file its North Dakota return using the worldwide unitary combined report method may elect to use the water's edge method under N.D.C.C. ch. 57-38.4. The water's edge election generally limits the combined group to domestic corporations and certain specified foreign entities, thereby excluding most foreign corporations from the combined report.

The water's edge election must be made on the return as originally and timely filed and is binding for five consecutive taxable years beginning with the year of election.

Source: N.D.C.C. § 57-38.4-02

A corporation electing the water's edge method is subject to an additional tax of 3.5 percent of taxable income, levied in addition to the regular corporate income tax imposed under N.D.C.C. § 57-38-30.

Source: N.D.C.C. § 57-38.4-02(3)

Source: Corporate Income Tax, N.D. Office of State Tax Commissioner

## Filing schedules and apportionment

Corporations filing using the combined report method must file Form 40 with Schedule WW (Combined Report Method Income Schedule). The combined group computes North Dakota taxable income for all members of the group, then applies a single apportionment percentage using North Dakota's three-factor formula (or the single-sales-factor election, if made) to determine the North Dakota taxable income subject to tax.

Source: 2023 North Dakota Corporation Income Tax Return Instructions, p. 4