Cost-Effective Operating Environment
It costs less to do business here. When compared to the average cost of 100 percent in a U.S. metro, the cost of doing business in Greater Fargo Moorhead is 84 percent. That’s a significant savings right off the top that comes from reasonable commercial and industrial real estate, low utility costs and relatively low wages. And that’s before you start adding in savings from local, county and state incentives.
The Greater Fargo Moorhead region offers many tax advantages for businesses, such as personal property tax exemptions, the lowest worker’s compensation premiums in the United States and the nation’s most generous R&D tax credit.
No Personal Property Tax
North Dakota exempts all personal property from property taxation.
Property Tax Exemption
A qualifying project may receive a complete or partial exemption from ad valorem taxation for up to 10 years on new or existing buildings or structures used in the qualifying project. Land is not exempted. Buildings in a Tax Increment Financing district are not eligible for the property tax exemption.
Businesses that locate in downtown Fargo may be eligible for tax credits through the Renaissance Zone, a program enacted by the State Legislature in 1999 which encourages investment and development in downtown corridors through the use of tax credits and incentives. The following credits may apply:
- Five year tax exemption on income derived from a business or investment location within a zone.
- Five year property tax exemption on buildings, structures, fixtures and improvements purchased or rehabilitated as a zone project for any business or investment purpose. Land is not exempt.
- Historic preservation and renovation tax credit from state income tax, for up to 25 percent of the amount invested in the Renaissance Zone project, up to $250,000. Any unused credit can be carried forward up to five taxable years.
Download a copy of the Fargo Renaissance Zone Plan and a map of eligible locations (PDF, 2.39 MB).
The Renaissance Zone Program contributes to the vision established by the city of Fargo:
Downtown Fargo is an economically vital, culturally rich mixed-use district where there are well-designed public and private spaces for residents, visitors, employees, and employers, and where an appreciation for the district’s historic character and natural amenities is paramount. (source: www.cityoffargo.com)
Newly established primary sector businesses, or expansions of existing primary sector businesses, are eligible for a five-year exemption from North Dakota state corporate income taxes. For business expansion, the exemption applies to the increase in corporate income attributable to the expansion project and related to North Dakota revenues.
North Dakota provides sales tax exemptions for equipment and materials used in manufacturing and other targeted industries. A new or expanding plant may be exempt from sales and use tax on purchases of machinery or equipment used for manufacturing, ag commodity processing or recycling.
An expanding primary sector business may also be eligible for an exemption for purchases of computer and telecommunications equipment that is an integral part of the business. The exemption does not extend to the purchase of replacement equipment.
Other exemptions more narrow in scope are also available including the construction of ag processing or energy generating facilities as well as coal mine and biodiesel fuel equipment.
An individual, estate, trust, partnership, corporation or limited liability company is allowed an income tax credit for investing in an agricultural commodity processing facility in North Dakota.
An agricultural commodity processing facility includes a livestock feeding, handling, milking, or holding operation that uses as part of its operation a by-product produced at a biofuels production facility. A biofuels production facility is a North Dakota business that produces diesel fuel containing at least 5% biodiesel, produces corn-based or cellulose-based ethanol, or crushes soybeans or canola.
The credit is equal to 30% of the investment with no more than $50,000 of the credit being used in any one year. An unused credit may be carried forward up to ten years. A taxpayer is allowed no more than $250,000 in credit for all tax years.
An individual, estate, trust, or corporation is allowed an income tax credit for investing in a North Dakota-based angel fund.
The credit is equal to 45% of the investment, up to a maximum credit of $45,000 per year. An investment must be at risk in the angel fund for at least 3 years to be eligible for the credit. An unused credit in the year of investment may be carried forward up to four years.
A taxpayer claiming this credit may not claim an income tax credit passed through to the taxpayer by the angel fund resulting from the angel fund’s investment in a qualified business for purposes of the seed capital or agricultural commodity processing facility investment tax credit programs.
An individual, estate, trust, partnership, corporation, or limited liability company is allowed an income tax credit for investing in a business certified by the Department of Commerce Division of Economic Development and Finance. A real estate investment trust is not eligible for the credit.
The credit is equal to 45% of an investment with no more than $112,500 allowed in any taxable year. The unused credit may be carried forward up to four years.
For businesses first certified on or after January 1, 2005, or recertified on or after January 1, 2007, only the first $500,000 of eligible investments in a certified business is eligible for the tax credit. The total amount of tax credits allowed for investments made in all certified businesses in any calendar year is limited to $3.5 million.
North Dakota has the most aggressive R&D tax credit in the nation: 25 percent of the first $100,000 of qualified research expenses in North Dakota over the base period research expenses in North Dakota, and eight percent of any amount above $100,000.
A individual, estate, trust, partnership, corporation, or limited liability company may claim the credit. “Qualified research expenses” and “base period research expenses” are the same as defined in Internal Revenue Code Section 41.
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.
A primary sector business that employs interns is eligible for matching funds of up to $30,000 per legislative biennium. A match of up to $6,000 per intern is available.
Employers must select student interns that meet one of the following criteria:
- Enrolled in a North Dakota college or university taking at least six credits during the internship or in the semester prior to the internship.
- A high school junior or senior.
- A student enrolled in a registered apprenticeship program.
A company may request to hire a student attending an institution that closely borders North Dakota if the company demonstrates the need for additional candidates.
A business that employs extraordinary recruitment methods to recruit and hire employees for hard-to-fill positions in North Dakota is eligible for a credit equal to five percent of the compensation paid during the first 12 consecutive months. The credit is allowed in the first year following the year in which the employee completes the 12 consecutive month employment period.
To be eligible for the credit, an employer must pay an annual salary that is at least 125 percent of North Dakota’s average wage and must have employed all of the following recruitment methods for at least six months to fill a position for which the credit is claimed:
- Contracted with a professional recruiter for a fee.
- Advertised in a professional trade journal, magazine or other publication directed at a particular trade or profession; provided employment information on a website for a fee.
- Paid a signing bonus, moving expense or atypical fringe benefits.
In addition, if an employer claims the credit, an employee hired in a hard-to-fill position is allowed a deduction for a signing bonus, moving expenses, or atypical fringe benefits paid by the employer.
Minnesota Tax Exemptions and Credits
The following tax exemptions and credits are available to new and existing primary sector businesses located in Clay County.
Qualifying businesses that locate or expand in Moorhead or Dilworth, Minn. are eligible for tax reductions under Minnesota’s Border Cities Enterprise Zone program.
Potential tax reductions include the following, which are determined at the city level:
- Sales tax exemption for construction materials and/or equipment used in the zone
- Corporate income tax credit of up to $3,000 per new, non-construction employee
- Corporate income tax credit for a percentage of the cost to finance new facilities
- Property tax credit for a portion of the property taxes paid on new or expanding industrial or commercial facility
- Seed capital tax credit of 45% of the amount invested in a qualified business, up to $112,500 per year
Money for this program is allocated on a biennial basis and may change each biennium.
In addition, border cities may designate specific areas of the city as Development Zones. Both Moorhead and Dilworth may designate between one and six areas of the city as zones containing not more than 100 acres in the aggregate. These Development Zones have their own possible tax reductions, which include:
- Property tax exemption for all newly constructed, qualified property, including land. Qualified property includes property classified as class 1-residental homes, 3-commercial/industrial/utility, 4-residential rental and 5-mines.
- Sales tax exemption for construction materials that are used to construct housing within the zone.
For information on your specific project, please contact us.
The Job Opportunity Building Zone (JOBZ) program provides a qualified business with a variety of tax incentives through the year 2015. A qualified business is one that is located in a Job Zone and has entered into a Business Subsidy Agreement (BSA) with a local government.
Potential benefits include:
- Invidual or corporate income tax exemption. The income tax exemption is based on the Zone Percentage, which is a calculation of the percentage of the company’s business that is performed in a Zone.
- Sales and use tax exemption on goods and taxable services and construction materials and supplies. Goods and taxable services must be purchased by the qualified business and primarily used or consumed in the Zone. Examples of goods and taxable services that would qualify include office equipment and software, office supplies and utilities. Construction material and supplies must be used to construct or improve real property in the Zone, and must be used or consumed by the qualified business upon completion of the project. Therefore, drywall, cement, etc. that is used to construct a facility would be exempt, while a bulldozer owned by a contractor but used in a Zone would not be exempt.
- Property tax exemption of 100 percent for construction or improvement of real and/or personal property located within the zone and classified as Class 3 property. Land and any property not classified as Class 3 property is subject to property tax.
- A jobs credit that is available to qualified businesses paying an average wage of at least $30,000 per year.
There are JOB Zones located in Barnesville, Glyndon, Hawley and Moorhead, Minn.
Minnesota’s aggressive incentives make it a choice location for relocating or expanding data and network operation centers.
Qualifying projects receive sales tax exemptions for 20 years on:
- computers and servers
- cooling and energy equipment
- energy use
In order to qualify, a project must be 30,000 square feet or larger and invest at least $50 million in the first two years.
Qualified investors, funds and businesses that invest in start-up high-technology businesses may be eligible for a credit against their invididual or corporate income tax. The investing entity need not be located in the state of Minnesota to quality for the refundable credit.
The credit is equal to 25% of the investment in a qualified business, with a maximum credit of $125,000 per person per year. Minimum investments are $10,000 for an individual and $30,000 for a fund. Investors can claim no more than $1 million in credits per business.
A qualified business is one that engages in at least one of the following activities:
- using proprietary technology to add value to a product, process or service in a qualified high-technology field;
- researching or developing a proprietary product, process or service in a qualified high-technology field; and/or
- researching, developing or producing a new proprietary technology for use in agriculture, tourism, forestry, mining, manufacturing or transportation.
In addition, a qualified business must be headquartered in Minnesota and employ fewer than 25 employees, with at least 51 percent of the workers and total payroll based in the state. The business must have been in operation for no more than 10 years and can not have received previous equity investments exceeding $2 million.
Minnesota offers a tax credit to companies that conduct research and development activities in the state. C corporations, S corporations and partnerships are all eligible for the credits, which are equal to a percentage of the excess of qualified research expenses in Minnesota over the base period research expenses in the state. “Qualified research expenses” and “base period research expenses” are the same as defined in Internal Revenue Code Section 41.
- 10 percent of the first $2 million in eligible expenses above a base amount
- 2.5 percent of eligible expenses in excess of $2 million above the base amount
- Refunds for businesses whose credit exceeds it’s tax liability.
Primary sector businesses locating in Clay County may be eligible for an economic development property tax abatement. Each individual political subdivision — city/town, county and school district — makes its own determination of whether or not to abate the tax it imposes, and sets the length of the abatement. If all three political subdivisions approve the abatement, the maximum abatement term is 15 years; if two of the three approve the abatement, the maximum abatement term is 20 years. The taxes imposed by special taxing districts, such as a watershed or regional agency, are not eligible for abatement.
Refund on sales tax paid for capital equipment purchases. Purchasers of capital equipment — such as machinery and equipment used for manufacturing, fabricating, mining or refining tangible personal property to be ultimately sold at retail, or machinery and equipment used primarily to electronically transmit results retrieved by a customer of an online computerized data retrieval system — may be eligible for a refund of the sales tax paid on the equipment. Purchaser must first pay the tax in full, then apply for a refund with the state Department of Revenue. For a complete list of eligible purchases, please see Minnesota statute 297A.68, subsection 5.
Utilities used in the production process. Electricity, gas, steam or water used or consumed in agricultural or industrial production is exempt from sales and use tax. The exemption does not apply to space heating, lighting or water used or consumed in non-production areas, such as office or administrative areas.