CHAPTER 57-38.4WATER'S EDGE METHOD ELECTION57-38.4-01. Definitions. As used in this chapter, unless the context or subject matterotherwise requires:1."Affiliated corporation" means a parent corporation and any corporation of which<br>more than fifty percent of the voting stock is owned directly or indirectly by the parent<br>corporation or another member of the water's edge group.2."Domestic disclosure spreadsheet" means a spreadsheet that fully discloses the<br>income reported to each state, the state tax liability, the method used for<br>apportioning or allocating income to the various states, and other information<br>provided for by rules as may be necessary to determine the proper amount of tax<br>due to each state and to identify the water's edge group.3."Existing corporation" means a corporation that filed a North Dakota income tax<br>return for any year after taxable year 1979 or was a successor to or unitary with a<br>corporation that filed a North Dakota income tax return for any year after taxable<br>year 1979.4."Foreign dividends" means any dividend received by a member of the water's edge<br>group from any affiliated corporation incorporated outside the fifty states and District<br>of Columbia, including amounts included in income computed under sections 951<br>through 954 of the Internal Revenue Code.5."Income from 80/20 corporations" means net book income after taxes of a<br>corporation which is incorporated in the United States and eligible to be included in<br>the federal consolidated return and which has twenty percent or less of its property<br>and payroll as determined by factoring under chapter 57-38.1 assigned to locations<br>inside the fifty states and the District of Columbia. For purposes of determining<br>eligibility for inclusion in a federal consolidated return under this subsection, the<br>eighty percent stock ownership requirements of section 1504 of the Internal<br>Revenue Code shall be reduced to ownership of over fifty percent of the voting stock<br>directly or indirectly owned or controlled by an includable corporation.6."New corporation" means a corporation that has not filed an income tax return in<br>North Dakota for any year after the tax year 1979. A new corporation does not<br>include a corporation which is a successor to or which is affiliated with a corporation<br>that filed an income tax return in North Dakota for any year after the tax year 1979.<br>A new corporation does not include a business reorganization or acquisition, except<br>a corporation with no previous activity in North Dakota which acquires an existing<br>corporation and increases and maintains the threshold activity of the existing<br>corporation by twenty-five percent or more shall be treated as a new corporation.7."Threshold activity" means the yearly average combined property and payroll in<br>North Dakota of a corporation and its affiliates for the previous three years.8."Water's edge group" includes the following entities:a.Any affiliated corporation incorporated in the United States or a possession of<br>the United States, as described in sections 931 through 936 of the Internal<br>Revenue Code.Corporations incorporated in the United States must beeligible to be included in a federal consolidated return and must have more than<br>twenty percent of its property and payroll, as determined by factoring under<br>chapter 57-38.1, assigned to locations inside the fifty states, the District of<br>Columbia, and possessions of the United States. For purposes of determining<br>eligibility for inclusion in a federal consolidated return under this subsection, thePage No. 1eighty percent stock ownership requirements of section 1504 of the Internal<br>Revenue Code shall be reduced to ownership of over fifty percent of the voting<br>stock directly or indirectly owned or controlled by an includable corporation.b.Domestic international sales corporations, as described in sections 991 through<br>994 of the Internal Revenue Code, and foreign sales corporations, as described<br>in sections 921 through 927 of the Internal Revenue Code.c.Export trade corporations, as described in sections 970 through 972 of the<br>Internal Revenue Code.d.Foreign corporations deriving gain or loss from a disposition of a United States<br>real property interest to the extent recognized under section 897 of the Internal<br>Revenue Code.e.Any corporation incorporated outside the United States if over fifty percent of its<br>voting stock is owned directly or indirectly by an affiliated corporation and if<br>more than twenty percent of the average of its payroll and property is<br>assignable to a location within the United States.9."Worldwide combined report" means a combined report with respect to a unitary<br>affiliated group irrespective of the country or countries in which any member of the<br>affiliated group is incorporated or conducts business activity.57-38.4-02. Water's edge election. A corporation required to file a worldwide unitarycombined report must do so unless it elects to apportion its income using the water's edge<br>method.1.A corporation electing to file using the water's edge method must comply with the<br>following:a.The election must be made on the return as originally and timely filed.b.The corporation may not reduce taxable income for federal taxes deducted<br>under subdivision c of subsection 1 of section 57-38-01.3.c.The water's edge election is binding for five consecutive taxable years after<br>making the election.d.The corporation must file with the tax commissioner a domestic disclosure<br>spreadsheet, after which the corporation must file a domestic disclosure<br>spreadsheet only every third year while the election remains in effect.2.All corporations electing the water's edge method must include the income and<br>apportionment factors of the water's edge group. Foreign dividends and income<br>from 80/20 corporations must be included as follows:a.An existing corporation must include fifty percent of foreign dividends and sixty<br>percent of income from 80/20 corporations. However, an existing corporation<br>that increases and maintains a threshold activity by twenty-five percent or<br>more, but not by business reorganization or acquisition, is only required to<br>include thirty percent of foreign dividends and thirty percent of income from<br>80/20 corporations.b.A new corporation must include thirty percent of foreign dividends and thirty<br>percent of income from 80/20 corporations.Page No. 2c.For taxable years beginning after December 31, 1994, all corporations making<br>the water's edge election may reduce the inclusion to include thirty percent of<br>foreign dividends and thirty percent of income from 80/20 corporations.3.In addition to the tax imposed under subsection 1 of section 57-38-30, there is<br>imposed an additional tax of three and one-half percent of taxable income which<br>must be levied, collected, and paid annually in the same manner as provided in<br>chapter 57-38.57-38.4-03. Conditions imposed by tax commissioner. The tax commissioner mayimpose necessary conditions other than the imposition of worldwide combination to prevent tax<br>avoidance or to clearly reflect income in accordance with chapter 57-38.1.57-38.4-04.Presumptions and burden of proof.A taxpayer and its affiliates arepresumed to be a part of a unitary business and all income of that business is presumed to be<br>apportionable business income except as otherwise provided in this chapter. A taxpayer has the<br>burden of proof regarding the issue of whether or not a corporation is a member of a water's<br>edge combined group.Page No. 3Document Outlinechapter 57-38.4 water's edge method election
CHAPTER 57-38.4WATER'S EDGE METHOD ELECTION57-38.4-01. Definitions. As used in this chapter, unless the context or subject matterotherwise requires:1."Affiliated corporation" means a parent corporation and any corporation of which<br>more than fifty percent of the voting stock is owned directly or indirectly by the parent<br>corporation or another member of the water's edge group.2."Domestic disclosure spreadsheet" means a spreadsheet that fully discloses the<br>income reported to each state, the state tax liability, the method used for<br>apportioning or allocating income to the various states, and other information<br>provided for by rules as may be necessary to determine the proper amount of tax<br>due to each state and to identify the water's edge group.3."Existing corporation" means a corporation that filed a North Dakota income tax<br>return for any year after taxable year 1979 or was a successor to or unitary with a<br>corporation that filed a North Dakota income tax return for any year after taxable<br>year 1979.4."Foreign dividends" means any dividend received by a member of the water's edge<br>group from any affiliated corporation incorporated outside the fifty states and District<br>of Columbia, including amounts included in income computed under sections 951<br>through 954 of the Internal Revenue Code.5."Income from 80/20 corporations" means net book income after taxes of a<br>corporation which is incorporated in the United States and eligible to be included in<br>the federal consolidated return and which has twenty percent or less of its property<br>and payroll as determined by factoring under chapter 57-38.1 assigned to locations<br>inside the fifty states and the District of Columbia. For purposes of determining<br>eligibility for inclusion in a federal consolidated return under this subsection, the<br>eighty percent stock ownership requirements of section 1504 of the Internal<br>Revenue Code shall be reduced to ownership of over fifty percent of the voting stock<br>directly or indirectly owned or controlled by an includable corporation.6."New corporation" means a corporation that has not filed an income tax return in<br>North Dakota for any year after the tax year 1979. A new corporation does not<br>include a corporation which is a successor to or which is affiliated with a corporation<br>that filed an income tax return in North Dakota for any year after the tax year 1979.<br>A new corporation does not include a business reorganization or acquisition, except<br>a corporation with no previous activity in North Dakota which acquires an existing<br>corporation and increases and maintains the threshold activity of the existing<br>corporation by twenty-five percent or more shall be treated as a new corporation.7."Threshold activity" means the yearly average combined property and payroll in<br>North Dakota of a corporation and its affiliates for the previous three years.8."Water's edge group" includes the following entities:a.Any affiliated corporation incorporated in the United States or a possession of<br>the United States, as described in sections 931 through 936 of the Internal<br>Revenue Code.Corporations incorporated in the United States must beeligible to be included in a federal consolidated return and must have more than<br>twenty percent of its property and payroll, as determined by factoring under<br>chapter 57-38.1, assigned to locations inside the fifty states, the District of<br>Columbia, and possessions of the United States. For purposes of determining<br>eligibility for inclusion in a federal consolidated return under this subsection, thePage No. 1eighty percent stock ownership requirements of section 1504 of the Internal<br>Revenue Code shall be reduced to ownership of over fifty percent of the voting<br>stock directly or indirectly owned or controlled by an includable corporation.b.Domestic international sales corporations, as described in sections 991 through<br>994 of the Internal Revenue Code, and foreign sales corporations, as described<br>in sections 921 through 927 of the Internal Revenue Code.c.Export trade corporations, as described in sections 970 through 972 of the<br>Internal Revenue Code.d.Foreign corporations deriving gain or loss from a disposition of a United States<br>real property interest to the extent recognized under section 897 of the Internal<br>Revenue Code.e.Any corporation incorporated outside the United States if over fifty percent of its<br>voting stock is owned directly or indirectly by an affiliated corporation and if<br>more than twenty percent of the average of its payroll and property is<br>assignable to a location within the United States.9."Worldwide combined report" means a combined report with respect to a unitary<br>affiliated group irrespective of the country or countries in which any member of the<br>affiliated group is incorporated or conducts business activity.57-38.4-02. Water's edge election. A corporation required to file a worldwide unitarycombined report must do so unless it elects to apportion its income using the water's edge<br>method.1.A corporation electing to file using the water's edge method must comply with the<br>following:a.The election must be made on the return as originally and timely filed.b.The corporation may not reduce taxable income for federal taxes deducted<br>under subdivision c of subsection 1 of section 57-38-01.3.c.The water's edge election is binding for five consecutive taxable years after<br>making the election.d.The corporation must file with the tax commissioner a domestic disclosure<br>spreadsheet, after which the corporation must file a domestic disclosure<br>spreadsheet only every third year while the election remains in effect.2.All corporations electing the water's edge method must include the income and<br>apportionment factors of the water's edge group. Foreign dividends and income<br>from 80/20 corporations must be included as follows:a.An existing corporation must include fifty percent of foreign dividends and sixty<br>percent of income from 80/20 corporations. However, an existing corporation<br>that increases and maintains a threshold activity by twenty-five percent or<br>more, but not by business reorganization or acquisition, is only required to<br>include thirty percent of foreign dividends and thirty percent of income from<br>80/20 corporations.b.A new corporation must include thirty percent of foreign dividends and thirty<br>percent of income from 80/20 corporations.Page No. 2c.For taxable years beginning after December 31, 1994, all corporations making<br>the water's edge election may reduce the inclusion to include thirty percent of<br>foreign dividends and thirty percent of income from 80/20 corporations.3.In addition to the tax imposed under subsection 1 of section 57-38-30, there is<br>imposed an additional tax of three and one-half percent of taxable income which<br>must be levied, collected, and paid annually in the same manner as provided in<br>chapter 57-38.57-38.4-03. Conditions imposed by tax commissioner. The tax commissioner mayimpose necessary conditions other than the imposition of worldwide combination to prevent tax<br>avoidance or to clearly reflect income in accordance with chapter 57-38.1.57-38.4-04.Presumptions and burden of proof.A taxpayer and its affiliates arepresumed to be a part of a unitary business and all income of that business is presumed to be<br>apportionable business income except as otherwise provided in this chapter. A taxpayer has the<br>burden of proof regarding the issue of whether or not a corporation is a member of a water's<br>edge combined group.Page No. 3Document Outlinechapter 57-38.4 water's edge method election
CHAPTER 57-38.4WATER'S EDGE METHOD ELECTION57-38.4-01. Definitions. As used in this chapter, unless the context or subject matterotherwise requires:1."Affiliated corporation" means a parent corporation and any corporation of which<br>more than fifty percent of the voting stock is owned directly or indirectly by the parent<br>corporation or another member of the water's edge group.2."Domestic disclosure spreadsheet" means a spreadsheet that fully discloses the<br>income reported to each state, the state tax liability, the method used for<br>apportioning or allocating income to the various states, and other information<br>provided for by rules as may be necessary to determine the proper amount of tax<br>due to each state and to identify the water's edge group.3."Existing corporation" means a corporation that filed a North Dakota income tax<br>return for any year after taxable year 1979 or was a successor to or unitary with a<br>corporation that filed a North Dakota income tax return for any year after taxable<br>year 1979.4."Foreign dividends" means any dividend received by a member of the water's edge<br>group from any affiliated corporation incorporated outside the fifty states and District<br>of Columbia, including amounts included in income computed under sections 951<br>through 954 of the Internal Revenue Code.5."Income from 80/20 corporations" means net book income after taxes of a<br>corporation which is incorporated in the United States and eligible to be included in<br>the federal consolidated return and which has twenty percent or less of its property<br>and payroll as determined by factoring under chapter 57-38.1 assigned to locations<br>inside the fifty states and the District of Columbia. For purposes of determining<br>eligibility for inclusion in a federal consolidated return under this subsection, the<br>eighty percent stock ownership requirements of section 1504 of the Internal<br>Revenue Code shall be reduced to ownership of over fifty percent of the voting stock<br>directly or indirectly owned or controlled by an includable corporation.6."New corporation" means a corporation that has not filed an income tax return in<br>North Dakota for any year after the tax year 1979. A new corporation does not<br>include a corporation which is a successor to or which is affiliated with a corporation<br>that filed an income tax return in North Dakota for any year after the tax year 1979.<br>A new corporation does not include a business reorganization or acquisition, except<br>a corporation with no previous activity in North Dakota which acquires an existing<br>corporation and increases and maintains the threshold activity of the existing<br>corporation by twenty-five percent or more shall be treated as a new corporation.7."Threshold activity" means the yearly average combined property and payroll in<br>North Dakota of a corporation and its affiliates for the previous three years.8."Water's edge group" includes the following entities:a.Any affiliated corporation incorporated in the United States or a possession of<br>the United States, as described in sections 931 through 936 of the Internal<br>Revenue Code.Corporations incorporated in the United States must beeligible to be included in a federal consolidated return and must have more than<br>twenty percent of its property and payroll, as determined by factoring under<br>chapter 57-38.1, assigned to locations inside the fifty states, the District of<br>Columbia, and possessions of the United States. For purposes of determining<br>eligibility for inclusion in a federal consolidated return under this subsection, thePage No. 1eighty percent stock ownership requirements of section 1504 of the Internal<br>Revenue Code shall be reduced to ownership of over fifty percent of the voting<br>stock directly or indirectly owned or controlled by an includable corporation.b.Domestic international sales corporations, as described in sections 991 through<br>994 of the Internal Revenue Code, and foreign sales corporations, as described<br>in sections 921 through 927 of the Internal Revenue Code.c.Export trade corporations, as described in sections 970 through 972 of the<br>Internal Revenue Code.d.Foreign corporations deriving gain or loss from a disposition of a United States<br>real property interest to the extent recognized under section 897 of the Internal<br>Revenue Code.e.Any corporation incorporated outside the United States if over fifty percent of its<br>voting stock is owned directly or indirectly by an affiliated corporation and if<br>more than twenty percent of the average of its payroll and property is<br>assignable to a location within the United States.9."Worldwide combined report" means a combined report with respect to a unitary<br>affiliated group irrespective of the country or countries in which any member of the<br>affiliated group is incorporated or conducts business activity.57-38.4-02. Water's edge election. A corporation required to file a worldwide unitarycombined report must do so unless it elects to apportion its income using the water's edge<br>method.1.A corporation electing to file using the water's edge method must comply with the<br>following:a.The election must be made on the return as originally and timely filed.b.The corporation may not reduce taxable income for federal taxes deducted<br>under subdivision c of subsection 1 of section 57-38-01.3.c.The water's edge election is binding for five consecutive taxable years after<br>making the election.d.The corporation must file with the tax commissioner a domestic disclosure<br>spreadsheet, after which the corporation must file a domestic disclosure<br>spreadsheet only every third year while the election remains in effect.2.All corporations electing the water's edge method must include the income and<br>apportionment factors of the water's edge group. Foreign dividends and income<br>from 80/20 corporations must be included as follows:a.An existing corporation must include fifty percent of foreign dividends and sixty<br>percent of income from 80/20 corporations. However, an existing corporation<br>that increases and maintains a threshold activity by twenty-five percent or<br>more, but not by business reorganization or acquisition, is only required to<br>include thirty percent of foreign dividends and thirty percent of income from<br>80/20 corporations.b.A new corporation must include thirty percent of foreign dividends and thirty<br>percent of income from 80/20 corporations.Page No. 2c.For taxable years beginning after December 31, 1994, all corporations making<br>the water's edge election may reduce the inclusion to include thirty percent of<br>foreign dividends and thirty percent of income from 80/20 corporations.3.In addition to the tax imposed under subsection 1 of section 57-38-30, there is<br>imposed an additional tax of three and one-half percent of taxable income which<br>must be levied, collected, and paid annually in the same manner as provided in<br>chapter 57-38.57-38.4-03. Conditions imposed by tax commissioner. The tax commissioner mayimpose necessary conditions other than the imposition of worldwide combination to prevent tax<br>avoidance or to clearly reflect income in accordance with chapter 57-38.1.57-38.4-04.Presumptions and burden of proof.A taxpayer and its affiliates arepresumed to be a part of a unitary business and all income of that business is presumed to be<br>apportionable business income except as otherwise provided in this chapter. A taxpayer has the<br>burden of proof regarding the issue of whether or not a corporation is a member of a water's<br>edge combined group.Page No. 3Document Outlinechapter 57-38.4 water's edge method election
