Partnership Frequently Asked Questions
Q: Am I required to file a North Dakota partnership return?
A: Form 58, Partnership Income Tax Return, must be filed by a partnership that meets both of the following:
- It is required to file a Form 1065, or Form 1065-B; and
- It carries on business, or derives gross income from sources, in North Dakota during its tax year.
If the entity is a limited liability company that is classified as a partnership for federal income tax purposes, it is treated like a partnership for North Dakota income tax purposes and must file Form 58 if it meets the above conditions.
If a partnership is an investment partnership and elects out of the partnership rules under I.R.C. § 761(a)(1) and does not file a federal partnership return, the partnership must file a Form 58 if it carries on investment activity, or derives any gross income from sources during its tax year. A Form 1065 must be completed on a pro forma basis and attached to Form 58.
If an entity is a bank, trust company, bank holding company, or other financial institution defined under N.D.C.C. § 57-35.3-01(2), it is subject to the North Dakota financial institution tax and must file Form 35, Financial Institution Tax Return. Do not complete nor file Form 58 if required to file Form 35.
Q: How does the partnership determine if its income is business income which must be apportioned?
A: Generally, all income derived from the partnership’s activity is business income and is subject to apportionment. For the definitions of business and nonbusiness income, see North Dakota Administrative Code § 81-03-09.
Q: What is the passthrough withholding requirement?
A: A partnership, or a limited liability company filing as a partnership, is required to withhold North Dakota income tax for every nonresident individual partner whose distributive share of North Dakota income is $1,000.00 or greater. The partnership must withhold at the highest individual income tax rate. The applicable rate for each year is set out in Form 58 and its instructions. The total withholding must be paid in full with the partnership return when it is filed.
Q: Are there any exceptions to the withholding requirement?
A: A partnership does not have to withhold North Dakota income tax from a nonresident individual’s distributive share of North Dakota income if:
- The distributive share for the taxable year is less than $1,000; or
- In lieu of filing his or her own North Dakota individual income tax return, the nonresident individual partner agrees to be included in a composite individual income tax return filed by the partnership.
A publicly traded partnership as defined by section 7704(b) of the Internal Revenue Code that is treated as a partnership for federal income tax purposes is not subject to this withholding requirement if it reports each unit-holder with a North Dakota distributive share of income over $500 on Form 58, Schedule KP.
Q: Who is an eligible partner that can be included in a composite return?
A: An eligible partner is an individual who is a nonresident of North Dakota and does not have any North Dakota income from other than the partnership or any other partnership, S corporation, trust, or limited liability company (filing as a partnership or S corporation). The composite return and the partnership’s payment of the income tax calculated on it satisfies the North Dakota income tax filing and payment obligations of the eligible partners who elected to be included in it.
Q: Is the partnership required to make estimated income tax payments?
A: No. There is no requirement for the partnership to make estimated income tax payments. However, if the partnership expects a tax due on its return, an estimated payment can be made using Form 58-ES. Also, if an extension is granted and the partnership expects a tax due, an extension payment may be made using Form 58-EXT.
Q: How does the partnership report income, gains, and losses to its partners?
A: A partnership is not subject to North Dakota income tax. Instead, the partners are responsible for reporting and paying any applicable North Dakota income tax on their shares of the partnership’s income reportable to North Dakota. The amount of income or loss that a partner must report to North Dakota and the forms and procedures that apply depend on the type of partner.
The partnership reports the income or loss to every nonresident individual, estate, or trust partner on a North Dakota Schedule K-1 (Form 58).
Unless there are any North Dakota statutory adjustments or credits to report to the partners, a North Dakota Schedule K-1(Form 58) is not required to be issued to any resident individual, estate, or trust partner. All income of a resident individual, estate, or trust partner is taxable to North Dakota, regardless of its source.
Special rules apply for determining the amount of income or loss taxable by North Dakota in the case of a corporation, partnership, or LLC partner. A corporation, partnership, or LLC must file a North Dakota income tax return if it derives income from a partnership which does business, or derives income from sources, in North Dakota.
Q: How does the individual partner know how much withholding or composite tax has been paid on their behalf?
A: The amount of withholding or composite tax paid on behalf of each nonresident individual partner is reported to the partner on the North Dakota Schedule K-1 (Form 58).
Q: When and where do I file my North Dakota return?
A: The Form 58 must be filed on or before the 15th day of the fourth month following the close of the taxable year. For calendar year filers this date is April 15th. Mail the return to Office of State Tax Commissioner, 600 E. Boulevard Ave., Dept. 127, Bismarck, ND 58505-0599.