Current through Supplement No. 394, October, 2024
1. General.
The property factor is a fraction, the numerator of which is the average value
of real property and tangible personal property rented to the taxpayer that is
located or used within this state during the taxable year, the average value of
the taxpayer's real and tangible personal property owned that is located or
used within this state during the taxable year, and the average value of the
taxpayer's loans and credit card receivables that are located within this state
during the taxable year, and the denominator of which is the average value of
all property located or used within and without this state during the taxable
year.
2. Property included. The
property factor includes only property the income or expenses of which are
included, or would have been included if not fully depreciated or expensed or
depreciated or expensed to a nominal amount, in the computation of the
apportionable income base for the taxable year.
3. Value of property owned by the taxpayer.
a. The value of real property and tangible
personal property owned by the taxpayer is the original cost or other basis of
the property for federal income tax purposes without regard to depletion,
depreciation, or amortization.
b.
Loans are valued at their outstanding principal balance, without regard to any
reserve for bad debts. If a loan is charged off in whole or in part for federal
income tax purposes, the portion of the loan charged off is not outstanding. A
specifically allocated reserve established pursuant to regulatory or financial
accounting guidelines which is treated as charged off for federal income tax
purposes must be treated as charged off for purposes of this section.
c. Credit card receivables are valued at
their outstanding principal balance, without regard to any reserve for bad
debts. If a credit card receivable is charged off in whole or in part for
federal income tax purposes, the portion of the receivable charged off is not
outstanding.
4. Average
value of property owned by the taxpayer. The average value of property owned by
the taxpayer is computed on an annual basis by adding the value of the property
on the first day of the taxable year and the value on the last day of the
taxable year and dividing the sum by two. If averaging on this basis does not
properly reflect average value, the commissioner may require averaging on a
more frequent basis. The taxpayer may elect to average on a more frequent
basis. When averaging on a more frequent basis is required by the commissioner
or is elected by the taxpayer, the same method of valuation must be used
consistently by the taxpayer with respect to property within and without this
state and on all subsequent returns unless the taxpayer receives prior
permission from the commissioner or the commissioner requires a different
method of determining average value.
5. Average value of real property and
tangible personal property rented to the taxpayer.
a. The average value of real property and
tangible personal property that the taxpayer has rented from another, and which
is not treated as property owned by the taxpayer for federal income tax
purposes, must be determined annually by multiplying the gross rents payable
during the taxable year by eight.
b. If the use of the general method described
in this subsection results in inaccurate valuations of rented property, any
other method that properly reflects the value may be adopted by the
commissioner or by the taxpayer when approved in writing by the commissioner.
Once approved, the other method of valuation must be used on all subsequent
returns unless the taxpayer receives prior approval from the commissioner or
the commissioner requires a different method of valuation.
6. Location of real property and tangible
personal property owned by or rented to the taxpayer.
a. Except as described in subdivision b, real
property and tangible personal property owned by or rented to the taxpayer is
considered to be located within this state if it is physically located,
situated, or used within this state.
b. Transportation property is included in the
numerator of the property factor to the extent that the property is used in
this state. The extent an aircraft will be deemed to be used in this state and
the amount of value that is to be included in the numerator of this state's
property factor is determined by multiplying the average value of the aircraft
by a fraction, the numerator of which is the number of landings of the aircraft
in this state and the denominator of which is the total number of landings of
the aircraft everywhere. If the extent of the use of any transportation
property within this state cannot be determined, then the property will be
deemed to be used wholly in the state in which the property has its principal
base of operations. A motor vehicle will be deemed to be used wholly in the
state in which it is registered.
7. Location of loans.
a.
(1) A
loan is considered to be located within this state if it is properly assigned
to a regular place of business of the taxpayer within this state.
(2) A loan is properly assigned to the
regular place of business with which it has a preponderance of substantive
contacts. A loan assigned by the taxpayer to a regular place of business
without the state must be presumed to have been properly assigned if:
(a) The taxpayer has assigned, in the regular
course of the taxpayer's business, the loan on its records to a regular place
of business consistent with federal or state regulatory requirements.
(b) The assignment on the taxpayer's records
is based upon substantive contacts of the loan to that regular place of
business; and
(c) The taxpayer uses
those records reflecting assignment of loans for the filing of all state and
local tax returns for which an assignment of loans to a regular place of
business is required.
(3) The presumption of proper assignment of a
loan provided in paragraph 2 may be rebutted upon a showing by the
commissioner, supported by a preponderance of the evidence, that the
preponderance of substantive contacts regarding the loan did not occur at the
regular place of business to which it was assigned on the taxpayer's records.
When the presumption has been rebutted, the loan must then be located within
this state if the taxpayer had a regular place of business within this state at
the time the loan was made and the taxpayer fails to show, by a preponderance
of the evidence, that the preponderance of substantive contacts regarding the
loan did not occur within this state.
b. In the case of a loan that is assigned by
the taxpayer to a place without this state which is not a regular place of
business, it must be presumed, subject to rebuttal by the taxpayer on a showing
supported by the preponderance of evidence, that the preponderance of
substantive contacts regarding the loan occurred within this state if, at the
time the loan was made, the taxpayer's commercial domicile, as defined in
subsection 3 of section 81-03-09.2-02, was within this state.
c. To determine the state in which the
preponderance of substantive contacts relating to a loan have occurred, the
facts and circumstances regarding the loan at issues must be reviewed on a
case-by-case basis and consideration must be given to such activities as the
solicitation, investigation, negotiation, approval, and administration of the
loan. For purposes of this subdivision:
(1)
"Administration" means the process of managing the account. This process
includes bookkeeping, collecting the payments, corresponding with the customer,
reporting to management regarding the status of the agreement, and proceeding
against the borrower or the security interest if the borrower is in default.
This activity is located at the regular place of business which oversees this
activity.
(2) "Approval" means the
procedure by which employees or the board of directors of the taxpayer make the
final determination whether to enter into the agreement. This activity is
located at the regular place of business which the taxpayer's employees are
regularly connected with or working out of, regardless of where the services of
the employees were actually performed. If the board of directors makes the
final determination, the activity is located at the commercial domicile of the
taxpayer.
(3) "Investigation" means
the procedure by which employees of the taxpayer determine the creditworthiness
of the customer as well as the degree of risk involved in making a particular
agreement. This activity is located at the regular place of business which the
taxpayer's employees are regularly connected with or working out of, regardless
of where the services of the employees were actually performed.
(4) "Negotiation" means the procedure by
which employees of the taxpayer and the taxpayer's customer determine the terms
of the agreement, including the amount, duration, interest rate, frequency of
repayment, currency denomination, and security required. This activity is
located at the regular place of business which the taxpayer's employees are
regularly connected with or working out of, regardless of where the services of
the employees were actually performed.
(5) "Solicitation" means either active or
passive solicitation. Active solicitation occurs when an employee of the
taxpayer initiates the contact with the customer. This activity is located at
the regular place of business which the taxpayer's employee is regularly
connected with or working out of, regardless of where the services of the
employee where actually performed. Passive solicitation occurs when the
customer initiates the contact with the taxpayer. If the customers initial
contact was not a regular place of business of the taxpayer, the regular place
of business, if any, where the passive solicitation occurred is determined by
the facts in each case.
8. Location of credit card receivables. For
purposes of determining the location of credit card receivables, credit card
receivables must be treated as loans and are subject to the provisions of
subsection 7.
9. Period for which
properly assigned loan remains assigned. A loan that has been properly assigned
to a state, absent any change of material fact, must remain assigned to that
state for the length of the original term of the loan. Thereafter, that loan
may be properly assigned to another state if that loan has a preponderance of
substantive contact to a regular place of business there.
General Authority: NDCC
57-38-56
Law Implemented: NDCC 57-38, 57-38.1,
57-38.1-18
