Section 81-03-05.2-04 - Elements of the water's edge combined report1. 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. N.D. Admin Code 81-03-05.2-04
Effective July 1, 1989; amended effective August 1, 1994; July 1,1998.General Authority: NDCC 57-38-56
Law Implemented: NDCC 57-38-01.3, 57-38.1, 57-38.4, 57-59