Income Tax Incentives
Research Expense Credit
An individual, estate, trust, partnership, corporation, or limited liability company is allowed an income tax credit for conducting research in North Dakota. The credit is equal to a percentage of the excess of qualified research expenses in North Dakota over the base amount in North Dakota.
“Qualified research expenses” and “base amount” have the same meaning as defined under federal income tax law (I.R.C. § 41). The applicable percentage is 25% for the first $100,000 of excess expenses in a tax year. For excess expenses over $100,000 in a year, the applicable percentage for tax years 2007 through 2016 is:
- 20%, if qualified research in North Dakota first begins in 2007 through 2010, or
- 7½% for 2007, 11% for 2008, 14½% for 2009, and 18% for 2010 through 2016, if qualified research in North Dakota began before 2007, or
- 8%, if qualified research in North Dakota first begins after 2010.
For tax years after 2016, the applicable percentage for excess expenses over $100,000 in a year is 8% for all taxpayers, regardless of when qualified research first begins. For taxpayers who began qualified research 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, such as a partnership or S corporation, the credit is passed through to its owners in proportion to their ownership interests.
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. This does not apply to tax credits received or purchased from other taxpayers.
An unused credit may be carried back three tax years and carried forward up to fifteen tax years. A taxpayer may elect to sell, assign, or transfer up to $100,000 of its unused credit to another taxpayer if certain conditions and reporting requirements prescribed in the law are satisfied. The election to sell, assign, or transfer an unused credit is available only to a taxpayer that is certified as a qualified research and development company by the Department of Commerce Division of Economic Development and Finance. A passthrough entity, such as a partnership or S corporation, is not eligible for certification as a qualified research and development company and therefore cannot elect to transfer an unused credit. See Transfer of unused tax credit below for more information on the eligibility and reporting requirements.
See the following links for more information:
- Certification as a qualified research and development company – To obtain certification as a qualified research and development company for purposes of becoming eligible to transfer an unused research expense credit, an Application for Research and Development Company Certification must be completed and submitted to the North Dakota Commerce Department's Division of Economic Development and Finance.
Questions relating to certification should be directed to the North Dakota Commerce Department's Division of Economic Development and Finance as follows:
North Dakota Commerce Department
Division of Economic Development and Finance
PO Box 2057
Bismarck ND 58503
Web site: http://www.business.nd.gov/
- North Dakota research expense tax credit statute (law) - For the text of the law, see [Reference: N.D.C.C. § 57-38-30.5]
- Transfer of unused tax credit – If an eligible taxpayer (transferor) elects to transfer an unused research expense tax credit to another taxpayer (transferee), the transferor and transferee must jointly complete and file Form CTS, Credit Transfer Statement, with the North Dakota Office of State Tax Commissioner within thirty days after the date the transfer (or purchase) agreement is executed. See the instructions to Form CTS for all of the eligibility and reporting requirements.