N.D. Admin. Code 81-03-09-19

Current through Supplement No. 394, October, 2024

Section 81-03-09-19 - Property factor - Valuation of owned property

1. Property owned by the taxpayer shall be valued at its original cost. As a general rule "original cost" is deemed to be the basis of the property for federal income tax purposes, prior to any federal adjustments, at the time of acquisition by the taxpayer and adjusted by subsequent capital additions or improvements thereto and partial disposition thereof, by reason of sale, exchange, abandonment, and so forth.

Example a: The taxpayer acquired a factory building in this state at a cost of five hundred thousand dollars and eighteen months later expended one hundred thousand dollars for major remodeling of the building. Taxpayer files the taxpayer's returns for the current taxable year on the calendar year basis. Depreciation deduction in the amount of twenty-two thousand dollars was claimed on the building for its return for the current taxable year. The value of the building includable in the numerator and denominator of the property factor is six hundred thousand dollars as the depreciation deduction is not taken into account in determining the value of the building for purposes of the factor.

Example b: During the current taxable year, A corporation merges into Y corporation in a tax-free reorganization under the Internal Revenue Code. At the time of the merger, X corporation owns a factory which X built five years earlier at a cost of one million dollars. X has been depreciating the factory at the rate of two percent per year, and its basis in X's hands at the time of the merger is nine hundred thousand dollars. Since the property is acquired by Y in a transaction in which, under the Internal Revenue Code, its basis in Y's hands is the same as its basis in X's, Y includes the property in Y's property factor at X's original cost, without adjustment for depreciation, that is, one million dollars.

Example c: Corporation Y acquires the assets of corporation X in a liquidation by which Y is entitled to use its stock cost as the basis of the X assets under section 334(b) (2) of the Internal Revenue Code of 1954, that is, stock possessing eighty percent control is purchased and liquidated within two years. Under these circumstances, Y's cost of the assets is the purchase price of the X stock, prorated over the X assets. If original cost of property is unascertainable, the property is included in the factor at its fair market value as of the date of acquisition by the taxpayer.

2. Inventory of stock of goods shall be included in the factor in accordance with the valuation method used for federal income tax purposes.

3. Property acquired by gift or inheritance shall be included in the factor at its basis for determining depreciation for federal income tax purposes.

General Authority: NDCC 57-38-56

Law Implemented: NDCC 57-38.1-11, 57-59-01 (art.IV(11))

N.D. Admin Code 81-03-09-19