Are R&D Tax Credits Available in North Dakota?
Yes. The North Dakota state Research and Development (R&D) Tax Credit is very similar to the federal version including the definition of qualifying research. Below are some of the differences between the federal and North Dakota Tax Credits.
- There are two methods for calculating the North Dakota R&D credit:
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- Regular Method: the amount of the credit is equal to 25% of the first $100,000 of QRE for the taxable year in excess of the base amount and equal to 8% of all QREs for the taxable year more than $100,000 in excess of the base amount.
- Alternative Simplified Method: The credit is 17.5% of the first $100,000 of excess QRE plus 5.6% of the excess QRE over $100,000.
- Qualified Research Expenses (QREs) have the same meaning as in IRC § 41, except that such expenses must be for research conducted within North Dakota . For taxpayers who earned a credit 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.
- An unused credit may be carried back three tax years and carried forward up to fifteen tax years.
- 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, 2006.
North Dakota R&D Tax Credit Case Study
A Fargo Company manufactures farming equipment. It had never before claimed the R&D Tax Credit for the development activities of its software programmers. This project involved a three-year study with a two year look back.
The Company qualified for the federal R&D Tax Credit of $390,726 and an additional $516,329 in North Dakota state R&D Tax Credit.
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FEDERAL
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NORTH DAKOTA
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Year
|
Total QREs
|
Credit
|
Total QREs
|
Credit
|
||
|
Year 3
|
$1,842,800
|
$137,252
|
$1,842,800
|
$172,852
|
||
|
Year 2
|
2,087,706
|
96,160
|
2,087,706
|
194,894
|
||
|
Year 1
|
1,842,800
|
157,314
|
1,842,800
|
148,583
|
||
| Total | $5,503,651 | $390,726 | $5,503,651 | $516,329 | ||
You can read more about this North Dakota tax credit case study here.