Tax Exemptions & Credits
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.
Renaissance Zone Tax Credits
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.
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)
Corporate Income Tax Exemption
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.
Sales and Use Tax Exemption
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.
Agriculture Business Investment Tax Credit
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.
Angel Investment Fund Credit
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.
Seed Capital Investment Credit
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.
Research & Development Tax Credit
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.
Internship Employment Credit
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.
Workforce Recruitment Credit
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.