Current through Supplement No. 394, October, 2024
1. A
taxpayer who elects to use the water's edge method shall include the income and
the apportionment factors of the water's edge group in its combined report. The
aforementioned group must include the following corporations:
a. A United States parent corporation.
b. An affiliated corporation
incorporated in the United States, excluding, however, an 80/20 corporation.
c. An affiliated corporation
incorporated in a possession of the United States as described in Internal
Revenue Code sections 931 through 936.
d. A domestic international sales corporation
as described in Internal Revenue Code sections 991 through 994.
e. A foreign sales corporation as described
in Internal Revenue Code sections 921 through 927.
f. An export trade corporation as described
in Internal Revenue Code sections 970 through 972.
g. A foreign corporation which derived gain
or loss from disposing of a United States real property interest but only to
the extent the gain or loss was recognized under Internal Revenue Code section
897.
h. A foreign corporation if
over fifty percent of its voting stock is owned, directly or indirectly, by a
member of the water's edge group, and if more than twenty percent of the
average of its property and payroll is assignable to a location within the
United States or its possessions.
2. Income for the water's edge group must be
computed on the same basis as federal taxable income, except as provided for in
the following subdivisions and in subsection 2 of North Dakota Century Code
section 57-38.4-02, and plus or minus the
adjustments provided for in North Dakota Century Code section
57-38-01.3 with the exception of
subdivision c of subsection 1 of North Dakota Century Code section
57-38-01.3:
a. Transactions between members of the
water's edge group must be eliminated.
b. Transactions between a member of the
water's edge group and an affiliated corporation that has been excluded from
the group must be included.
c. If
a corporation is included in the water's edge group but it is not required to
file a federal income tax return, the equivalent of its federal taxable income
must not include a deduction for foreign taxes based on income.
d. For the purpose of computing federal
taxable income, a foreign sales corporation must include the foreign trade
income which is exempt from federal income tax under the Internal Revenue Code.
3. The factors used to
apportion the income of the water's edge group must be determined pursuant to
North Dakota Century Code chapters 57-38.1 and 57-59, chapter 81-03-09, and the
following subdivisions:
a. Tr a n s a ctions
between members of the water's edge group must be eliminated.
b. Transactions between any member of the
water's edge group and an affiliated corporation that has been excluded from
the group must be included.
c. The
property, payroll, and sales of an 80/20 corporation, a dividend payor
corporation, or any other affiliated corporation that has been excluded from
the water's edge group must not be included in the apportionment factors of the
group.
General Authority: NDCC
57-38-56
Law Implemented: NDCC
57-38-01.3, 57-38.1, 57-38.4,
57-59
