A taxpayer is allowed an income tax credit for the purchase or capital lease of machinery and equipment to automate a manufacturing process in North Dakota. To qualify, the business must be certified as a primary sector business and the machinery and equipment must be approved by the Department of Commerce Division of Economic Development and Finance. The credit is equal to up to 20 percent of the cost of the machinery and equipment. For a capital lease, the credit equals 20 percent of the fair market value of the machinery and equipment at the inception of the lease. Please note that if the approved requests for tax credits is greater than the $1,000,000 per year set aside for the program, all requests will be prorated. An unused credit may be carried forward up to five tax years. If the taxpayer is a passthrough entity, such as a partnership or S corporation, the credit is passed through to its owners in proportion to their respective interests in the entity. The credit allowed to a corporation included in a consolidated North Dakota income tax return may be used to reduce the aggregate tax liability of all corporations in the return.
Incomplete applications may be deemed ineligible and not processed. Completed applications including Supplement A and supporting documentation must be submitted by January 31st, of the year following the purchase of the equipment. (For example, an application for equipment purchased in 2020 must be submitted by January 31, 2021.) However, if January 31st falls on a weekend or holiday, you will need to register online by the 31st and will be given the next business day to complete and submit your application.
If you have any questions or wish to withdraw an application, Call: 701-328-5300 or Email: NDEDF@nd.gov.
For more information on the Automation Tax Credit, please visit: http://www.legis.nd.gov/cencode/t57c38.pdf.
*Taxpayers choosing to pursue other income tax deductions or credits for the approved equipment must withdraw their automation income tax application before January 31. (For example, an application for equipment purchased in 2019 must be withdrawn before January 31, 2020.) If an application is not withdrawn, the equipment purchases resulting in a credit will be ineligible for any other income tax incentives. (Please note that accessing the automation credit does not prohibit taxpayers from also applying for sales tax exemptions.)
To assist you with filling out your application, we have provided this worksheet to gather the information required for the application. DO NOT INCLUDE THIS WORKSHEET when you submit your online application. Click here to access application instructions.
To be eligible for the credit, the following requirements must be met:
- The business must be certified as a “primary sector” business:
- A primary sector business means a business certified by the Department of Commerce which, through the employment of knowledge or labor, adds value to a product, process or service that results in the creation of new wealth.
- The business must be certified as a “primary sector” business through the North Dakota Department of Commerce when taking title to the equipment as well as at the time of application.
- The business must purchase manufacturing machinery and equipment for the purpose of automating manufacturing processes in North Dakota, which is approved by the Department of Commerce. “Manufacturing machinery and equipment for the purpose of automating manufacturing processes” means new or used automation and robotic equipment.
- The automation of the manufacturing processes must improve job quality or increase output, which is reported to the Office of State Tax Commissioner. See the definitions for Supplement A on page 2 for more information.
- Expenditures approved for the automation income tax credit may not be used in the calculation of any other income tax deduction or credit.*
Qualifying Invoice Line Item – Document each invoice line item that qualifies for the tax credit (see list of non-qualifying costs below).
Delivery Date – A delivery is considered to be made on the date on which title to the property transfers to the taxpayer. If no title transfer is applicable, utilize the delivery date (provide proof of title transfer or equipment delivery). The following documents are acceptable means of proving delivery date:
- Shipping documents that show actual delivery date.
- Proof of payment for delivery/installation.
- Title transfer.
- Other documents showing delivery during applicable calendar year.
North Dakota has allotted $1 million in credits for deliveries made in each calendar year (calendar years 2019-2022). If total credits based on purchases made by all taxpayers delivered in a calendar year exceed the credit limit, the credits will be prorated among all claimants. If the maximum amount of allowed credits is not claimed in any calendar year, any remaining unclaimed credits may be carried forward and made available in the next succeeding calendar year.
A taxpayer must claim an allowable credit in the taxpayer’s tax year (which could be a calendar or fiscal year) in which the delivery date falls.
Invoice Amount – Must include all invoices for qualifying equipment.
Amount Paid – Must include proof of purchase or receipt for qualifying equipment.
Non-qualifying Cost – Delivery, training, assembly, installation costs, interest on financing, training, sales tax and other costs incidental to the machinery or equipment purchase are considered the non-qualifying portion of your invoice costs and are not eligible for the credit. Optional warranties are also not eligible for the credit.
Qualifying Purchase Cost –The qualifying purchase cost means the full* purchase price of the machinery or equipment item itself and any items, such as computer software, that are necessary to the operation of the machinery or equipment item. If the transaction includes a trade-in of other property, the purchase costs means the otherwise eligible cost of the acquired machinery or equipment item less the trade-in value of the other property. To calculate the qualifying purchase costs, subtract non-qualifying costs (described above) from the invoice amounts.
- Enter the full qualifying purchase price even if paid in installments that are made in more than one calendar year. For example, if you purchase equipment costing $100,000 that is delivered in 2020 (that is, you acquire title to the equipment in 2020), enter $100,000 as the purchase cost on the application filed for the 2020 calendar year, even though the payment schedule calls for payments of $25,000 in 2019, $50,000 in 2020, and $25,000 in 2021. The timing of the payments has no effect on either the purchase date or the purchase cost.
Qualifying purchases also include equipment acquired under a capital lease and only for the taxable year in which the lease is executed. A capital lease is a lease which meets generally accepted accounting principles. The qualifying cost of the equipment acquired under a capital lease is the fair market value of the equipment at the inception of the lease rather than the individual lease payments as they are made over the years. For equipment acquired under a capital lease, also include a copy of the lease agreement.
Improved Job Quality means a 5% increase in average wages or a 5% improvement in workplace safety as documented through participation in Workforce Safety and Insurance safety incentive programs.
Improved output means no less than a 5% increase in output or 5% increase in the number of units produced per automated line per time period.