Tax Exemptions & Credits
Cost-Effective Operating Environment
It is cost competitive to do business here. The Greater Fargo Moorhead area hovers right around 100 percent, the average cost of living for a U.S. metro. You’ll benefit from from reasonable commercial and industrial real estate and low utility costs. 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 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. In general, most personal property is exempt from property tax in Minnesota.
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.
Available North Dakota Programs
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. More information from ND.gov/tax.
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. More information at ND.gov/tax.
Agricultural Commodity Processing Facility 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. More information at ND.gov/tax.
Angel Investment Fund Credit
An income tax credit is available to individuals who set up a North Dakota angel fund for the purpose of pooling their monies to make qualified investments in qualified businesses.
The credit is equal to the angel investor’s contribution to the total amount invested by the angel fund multiplied by the applicable credit rate. The applicable credit rate is 35% for an in-state qualified business and 25% for an out-of-state qualified business. The maximum credit allowed to an angel investor for all qualified investments made in a tax year is $45,000. An unused credit may be carried forward up to 5 tax years.
An in-state qualified business is one that is created under North Dakota law, has its principal office in North Dakota, and carries on the majority of its business activity (except sales activity) in North Dakota. It also includes an out-of-state qualified business that has a significant satellite operation in North Dakota that employs, or is projected to employ, over 10 employees. At least 50% of qualified investments must be made in in-state qualified businesses.
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 the investment. No more than $112,500 of the credit may be used in any year. An unused credit may be carried forward up to four tax years. In the case of a passthrough entity, such as a partnership or S corporation, or in the case of an angel fund, the credit is passed through to the entity’s owners, or the fund’s investors, in proportion to their respective interests.
Only the first $500,000 of eligible investments in the business are 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 Expense 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.
An unused credit may be carried back three tax years and carried forward up to fifteen tax years. Certain taxpayers (other than partnerships or S corporations) may be eligible to transfer part or all of their unused credit to another taxpayer.
The primary focus of the Operation Intern program is private sector businesses in one of the targeted industries: Energy, Advanced Manufacturing, Value-Added Agriculture, Tourism and Technology-Based Businesses, to include Cybersecurity. Funding may also be granted for other in demand occupations, such as healthcare. Priority will be given to new startups, companies who have never participated in the program, and new internship or apprenticeship positions.
An eligible business that employs interns can access up to $4,000 of matching funds for each student with a maximum of 5 interns per funding window.
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.
21st Century Manufacturing Workforce Incentive (Automation Tax Credit)
20% tax credit on equipment and technology used to automate a manufacturing process. To qualify, the machinery and equipment must upgrade or advance a manufacturing process in this state, which leads to a 5% increase in average wages, workforce safety or output. There is a $1 million cap per calendar year and the credit will sunset in 2022. If more than $1M is claimed in aggregate, the actual amount each taxpayer will receive will be a pro rata share of the 20% based on the total claims.
Available Minnesota Programs
Minnesota Angel Tax Credit
Minnesota’s Angel Tax Credit provides a 25-percent credit to investors or investment funds that make equity investments in startup companies focused on high technology, new proprietary technology, or a new proprietary product, process or service in specified fields. The maximum credit is $125,000 per person, per year ($250,000 if filing jointly). The credit is refundable. Residents of other states and foreign countries are eligible.
There are no Angel Tax Credit funds available in 2020. However, the Minnesota State Legislature has allocated $10 million for 2021. Watch this space for more information on when those applications will be available.
Minnesota Research and Development Tax Credit
The R&D credit is equal to 10 percent of qualifying expenses up to $2 million, and 2.5 percent for expenses above that level. Qualifying expenses are the same as for the federal R&D credit – defined in Section 41 of the Internal Revenue Code – but must be for research done in Minnesota.
Examples include R&D-related wages, supplies and research contracted outside your business. Contributions to qualified nonprofit organizations that make grants to early-stage technology businesses in Minnesota also may qualify.
Border Cities Enterprise Zones
Provides incentives for business investments in targeted cities on Minnesota’s western border and includes Moorhead and Dilworth, MN
Moorhead Employee Credit (part of Border Cities Enterprise Zone program)
- This program offers to reimburse 20% of annual workers compensation expenses. Participating businesses submit an application each year to receive a credit for a percentage of the actual cost of workers’ compensation insurance.
- A 20% credit of the actual workers’ compensation expense is available for qualifying companies in Moorhead with a $25,000 program cap per company per year.
Moorhead Employee Credit (part of Border Cities Enterprise Zone program)
- Moorhead may offer up to a $1,500 credit per employee with a cap of $150,000.
- This is a fully refundable credit available for the first two years of operation.
Seed Capital Investment Credit
- Investors may receive a 45 percent tax credit on their investment, up to $112,500 per year. The credit is non-refundable and may be carried forward up to four years.
The Greater Minnesota Job Expansion Program
This program provides tax benefits to businesses located in Greater Minnesota that increase employment. Qualifying businesses that meet job-growth goals may receive sales tax refunds for purchases made during a seven-year period.
Data Center Sales Tax Incentives
Companies that build data or network operation centers of at least 25,000 square feet and invest at least $30 million within 48 months may qualify for valuable tax breaks.
Qualifying projects receive sales tax exemptions for up to 20 years.