North Dakota Income Tax Legislative Highlights

The 64th Legislative Assembly included $397 million in tax relief. Following are changes that may favorably impact our financial institution clients:

Reduced Corporate and Individual Income Tax Rates

N.D. Governor Jack Dalrymple signed Senate Bill 2349, which modestly reduced corporate and individual tax rates, effective retroactive to January 1, 2015. Corporate tax rates were reduced by approximately 5% and individual tax rates by approximately 10%. The new N.D. corporate tax rates range from 1.41% to 4.31% (previously, they ranged from 1.48% to 4.53%). C corporation banks should consider adjusting income tax accruals for this rate decrease.

The new N.D. personal income tax rates range from 1.10% to 2.9 % (previously, they ranged from 1.22% to 3.22%). Bank S corporation shareholders will benefit from this reduced rate on company income that flows through to their individual tax returns.

 
State Apportionment Formula Change

Dalrymple signed Senate Bill No. 2292, amending the law by phasing in a single-sale factor election for apportioning business income. Previously, corporate taxpayers were required to apportion business income using an equally weighted, three-factor formula based on sales, payroll and property. For the first two tax years beginning after December 31, 2015, SB 2292 allows a taxpayer that is not a pass-through entity (i.e., S corporation) to make an alternative apportionment election to apportion business income using a 50% weighted sales factor. For taxable years beginning after December 31, 2017, the weight of the elective sales factor will increase to 75% and then to 100% for taxable years beginning after December 31, 2018. The election is binding for five consecutive years. If the election is not renewed in the tax year immediately preceding the final year the election is in effect, a taxpayer will be required to use an evenly weighted three-factor formula for three tax years before it can make the single sales factor election again. C corporation banks could benefit from the single sales factor if they have out of state income in a single sales factor state, such as Minnesota. This could help mitigate the unfavorable result of more than 100% of business income being apportioned to various states.

N.D. Housing Credit Reauthorized for 2015 

The N.D. Housing Incentive fund was reauthorized for the 2015 year for up to $35.4 million in state income tax credits, which allows both C corporations and S corporation banks (flows through to shareholders) a N.D. income tax credit up to the full amount of the donation. Any unused tax credit can be carried forward up to 10 years. Contributions can be directed to a specific project or community. The N.D. Housing Invective Fund will start accepting donations in July 2015.

Please contact your local Eide Bailly professional if you have any questions on these or other legislative changes.