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 period research expenses in North Dakota.
Qualified research expenses” and “base period research expenses” have the same meaning as defined under federal income tax law (I.R.C. § 41). The applicable percentage is equal to 25% on the first $100,000 of excess expenses in a year. For excess expenses over $100,000 in a year, the applicable percentage for tax years 2007 through 2016 is equal to:
- 20%, if qualified research in North Dakota first begins in 2007 through 2010, or
- 7˝% for 2007, 11% for 2008, 14˝% 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 of excess expenses over $100,000 in a year is equal to 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.
For tax years beginning after December 31, 2006, the credit allowed to any corporation included in a consolidated North Dakota corporation 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.
Subject to certain conditions, a taxpayer may sell, transfer, or assign up to $100,000 of its unused tax credit to another taxpayer if the taxpayer selling the credit is certified by the Department of Commerce Division of Economic Development and Finance to be a primary sector business with annual gross revenues of less than $750,000 that conducts research after December 31, 2006 and has not previously earned or claimed the credit in North Dakota.
