North Dakota Research and Development Credit

At a glance

• Jurisdiction: North Dakota (ND)
• Credit name: Research Expense Credit (N.D.C.C. §57-38-30.5)
• Administering agency: Office of State Tax Commissioner (ND Tax). The Department of Commerce, Division of Economic Development and Finance, certifies companies that may transfer credits.
• Rate(s) and base:
  • Regular method: 25% of the first $100,000 of excess North Dakota QREs above the base amount, and 8% of excess QREs above $100,000. The higher above-$100,000 rates that applied in the first ten tax years after 2006 have ended.
  • Elective alternative simplified method (tax years after 2018): 17.5% of the first $100,000 of North Dakota QREs above 50% of the average for the three preceding tax years, and 5.6% of the excess above $100,000. Different rates apply if any of the three prior years had no QREs.
  • You can choose either method each year. The choice is binding for that year.
• Refundable? No.
• Transferable? Only by a certified qualified research and development company. Under §57-38-30.5(5)(g) and (9), that is a primary sector business with annual gross revenues under $750,000 that has not conducted new research and development in North Dakota. Commerce's application (SFN 58638) adds that the taxpayer must be an individual, C corporation, estate or trust, must be going to conduct new research in North Dakota, and must not have previously earned or claimed the North Dakota research credit. A certified company may sell, transfer or assign up to $100,000 of unused credit in total, across all years. The buyer cannot carry purchased credit back or resell it.
• Carryforward: Carry back 3 tax years and carry forward up to 15 tax years.
• Annual cap / proration: No statewide cap. A taxpayer that earned or claimed the credit in tax years beginning before January 1, 2007 is limited to $2 million of credit per year, and credit above that cannot be carried back or forward.
• Pre-approval / application and deadline: No pre-approval to claim the credit. To transfer credits, you must first get Department of Commerce certification: an Application for Certification as a Research and Development Company (SFN 58638) and Primary Sector Certification. The transferor and transferee must then jointly file Form CTS (Credit Transfer Statement) within 30 days after the transfer agreement is signed.
• Forms:
  • Claim the credit on the North Dakota return and attach a schedule or worksheet showing the computation: the corporate Form 40 credit schedule, Schedule ND-1TC for individuals, or Schedule 38-TC for fiduciaries.
  • Pass-through entities report owners' shares on ND Schedule K-1.
  • Purchased credits go on a separate line from earned credits.
• Sunset / recent changes: No sunset. The 2025 Legislative Assembly did not amend §57-38-30.5, and there was no 2026 regular session.

What it is

North Dakota gives an incremental income tax credit for qualified research done in the state. The rates are higher on the first $100,000 of excess QREs. Small, early-stage primary sector companies that Commerce certifies can sell up to $100,000 of unused credit.

Who can claim it

• Individuals, corporations, estates and trusts with QREs (as defined in IRC §41) for research done in North Dakota.
• Pass-through entities pass the credit to their owners in proportion to ownership.
• Transfer is limited to Commerce-certified qualified research and development companies (individuals, C corporations, estates or trusts) that meet the primary sector, gross revenue and new-research tests and have not previously earned or claimed the credit.

How it is calculated

• Regular method: compute a North Dakota base amount using the federal §41 approach with North Dakota figures. The credit is 25% of the first $100,000 of QREs above the base and 8% of QREs above that.
• Alternative simplified method: excess QREs equal current-year North Dakota QREs minus 50% of the average for the three preceding tax years. The credit is 17.5% of the first $100,000 of excess QREs and 5.6% of the rest.
• Unused credit can be carried back 3 years and forward 15 years.

How to claim it

1. Claim the credit on the North Dakota income tax return for the year. Attach the computation, and attach Schedule K-1 if the credit came from a pass-through entity.
2. To transfer:
   • get Commerce certification (SFN 58638 and Primary Sector Certification)
   • sign the sale agreement
   • jointly file Form CTS with ND Tax within 30 days
   • the transferor reports the sale proceeds as income
3. A buyer claims purchased credit on its own line and attaches documentation.

Recent changes

• 2019 (HB 1111): added the elective alternative simplified method for tax years after 2018.
• 2024–2026: the 2025 session did not amend §57-38-30.5. The Legislative Assembly holds regular sessions only in odd-numbered years, so there was no 2026 regular session.

Likely examiner questions

These questions illustrate what an examiner may ask about this credit. They are drafts for illustration and should be reviewed by a specialist before use. Most state claims also face standard questions: where the research was physically performed, how wages, supplies and contract research were apportioned between North Dakota and other locations, how North Dakota amounts reconcile to federal Form 6765, the North Dakota credit and carryforward schedule for each year claimed, and whether the claiming entity is the one subject to North Dakota tax.

• How were North Dakota QREs separated from QREs in other states, especially wages of employees who work in several states?
• Which method (regular or ASC) did you elect for the year, and what supports the base or prior-year averages?
• Does the carryback or carryforward schedule show the origin year of each credit?
• For transfers: can you provide the Commerce certification and Form CTS, and was Form CTS filed within 30 days?
• For purchased credits: was the credit reported separately and within the $100,000 transfer limit?

Common weak spots

• Not keeping prior-year North Dakota QRE records needed for the base or ASC average.
• Treating the regular-method base as the ASC base, or the other way around.
• Transferring credit without Commerce certification, or filing Form CTS late.
• Claiming more than the transferor's $100,000 lifetime transfer limit.
• A buyer carrying purchased credit back, or reselling it.

Next steps

• Run a mock audit for North Dakota
• Official source: North Dakota Office of State Tax Commissioner, research expense credit (opens in a new tab)
• Run the eligibility checker
• Book a scoping call with Swanson Reed (opens Swanson Reed's booking calendar in a new tab)
• Contact us: +1 (469) 206-4335 or hello@creditarmor.ai

Important

This page is general information, not tax advice. Rules change; confirm current requirements with the state revenue agency or a qualified tax professional. creditARMOR is a free service. Passing this mock audit does not guarantee that your claim will pass an IRS or state examination. If needed, Swanson Reed can assist you with representation before the IRS. creditARMOR and TaxTrex are products of Swanson Reed.