North Dakota R&D Tax Credit Summary

 

A taxpayer is allowed a credit against the tax for conducting qualified research in North Dakota. The North Dakota R&D Tax Credit is very similar to the federal version including the definition of qualifying research.

A taxpayer 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 (QRE) over a base amount. “Qualified research expenses” and “base amount” have the same meaning as defined under federal income tax law, to the extent attributable to North Dakota activity.

North Dakota R&D Credit Summary:

The R&D tax credit equals:

  • 25% of first $100,000 of excess expenses

  • 8% of expenses over $100,000 (For tax years after 2016 regardless of when research firsts begins)

    • For excess expenses over $100,000 in a year, the applicable percentage for tax years 2007 through tax years after 2016 is:

      • 7.5% for 2007, 11% for 2008, 14.5% for 2009 and 18% for 2010 through 2016, if qualified research in North Dakota began before 2007.

  • 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, the credit is passed through to its owners based on their respective interests in the entity.

  • "Qualified research expenses" and "base amount" have the same meaning as defined under federal income tax law (I.R.C. § 41)

  • 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 three 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 three years had zero QRE, other rates apply.)

  • See N.D.C.C. § 57-38-30.5

Eligible Entities: C-Corporation, S-Corporations, LLCs, Partnerships

Deadline for Tax Filing: Due with North Dakota Tax Return

  • For passthrough entities, such as a partnership or S corporation, the credit is passed through to its owners in proportion to their ownership interests.

Data Required to Compute Credit:

  • Claim Period North Dakota Qualified R&D Expenses (QREs)

Credit Carryforward: If the credit exceeds the limitation, the excess can be used for up to a three year carry-back or a 15 year carry-forward.

  • 15 years Carryforward

  • 3 years Carryback

Refundable/Transferable Tax Credit: Yes

  • 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 qualified research in North Dakota for the first time after December 31, 2016.

  • Unused credits may be sold, assigned, or transferred to another taxpayer, as long as the taxpayer applies for certification to the North Dakota Commerce Department’s Division of Economic Development and Finance

Important Links and Forms:

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