Apr 27, 2015
From KPMG TaxWatch
Historically, North Dakota taxpayers have apportioned their income to the state using an evenly-weighted three-factor formula. Recently, legislation (House Bill 2292) was signed into law that allows taxpayers to elect to more heavily weight the sales factor over a number of years. The election, which is binding for a five-year period, works as follows. For the first two tax years beginning after December 31, 2015, taxpayers (other than pass-through entities) can elect to double-weight the sales factor. For the tax year beginning after December 31, 2017, taxpayers can elect to weight the sales factor at 75 percent. Finally, for tax years beginning after December 31, 2018, taxpayers can elect to use single-sales factor apportionment. The election must be made on an originally and timely-filed return and applies to all corporations in a combined or consolidated group. Because the election is binding for a five-year period, the election to use a double-weighted sales factor during the 2016 tax year includes an election to use the 75 percent and 100 percent sales factors in later 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. The legislation also repeals certain sections of the Multistate Tax Compact, including Articles III and IV, which are the provisions that allow taxpayers to elect to use the Compact’s allocation and apportionment provisions and provides the rules for apportioning business income. Ostensibly, repealing these Articles will preclude taxpayers that have elected to use the more-heavily weighted sales factor from arguing that the Compact election allows them to use an evenly-weighted three factor formula before the five-year period is over. Please stay tuned to TWIST for future legislative updates.
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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.