2015 Legislative Session Update: Tax Relief, Tax Law Changes & Tax Credits and Exemptions June 25, 2015 Ryan Rauschenberger Tax Commissioner

Tax Relief – Individual Income 2015 SB2349 – Reduced rates in all brackets by 10% – Will save ND taxpayers an estimated $87 million over the next two years

Tax Reduction for “Typical” Family

Tax Relief – Corporate 2015 SB2349 – Reduced rates in all brackets by 5% – Saves ND corporate taxpayers an estimated $21 million over the next two years

Tax Relief – Corporate Since 2009 – Brackets consolidated and rates reduced – The top rate reduced by over 30%, from 6.5% in 2008 to 4.31% for tax years beginning with 2015 – Cumulative savings for ND corporate taxpayers from 2009 through 2016 is over $250 million

Tax Relief – Property (School Funding) 2015 SB2013; SB2031 – $1.9 billion state appropriation for integrated formula payments to schools during – Estimated savings to local property tax payers of over $950 million during fiscal years 2016 and 2017 based on reduction in school mill levies – Actual school district general fund levies have declined from in to in

Tax Relief – Property (12% Credit) 2015 SB2005 – Provides a $250 million appropriation to the State Treasurer for property tax credit payments to counties 2015 HB1059 – Makes permanent the state-paid 12% property tax credit program by removing the statutory sunset – Includes transmission line per mile taxes in the 12% credit – Estimated to provide $2.4 million tax relief for REC’s during

Tax Relief – Property (County Social Services Costs) SB2206 – Provides for state assumption of certain county social services costs, beginning January 1, 2016 – Reduced county mill levies expected to save property tax payers $23.2 million during the biennium

Tax Relief - Total Estimated Cumulative Tax Relief Since 2009: – Individual income tax = $1.2 billion – Corporate income tax = $250 million – Property tax = $2.7 billion – Total = $4.2 billion

Other Tax Changes – 2015 Session New optional corporate income apportionment method Royalty withholding changes New and expanded tax credits and exemptions

Corporate Income Apportionment SB 2292 Creates an optional income apportionment methodology – Binding for 5 years – Uses double weighted sales factor for 2016 and 2017 – Uses 6-times weighted sales factor for 2018 – Uses a single sales factor beginning with 2019 Anticipated to save corporate taxpayers $15 million in 2016 and as much as $60 million per year when fully phased in

Tax Credits HB 1014 – Housing incentive fund income tax credit Extends program for two more years— effective for 2015 and 2016 tax years Increases total credits allowed under program from $20 million to $30 million Credit = Amount contributed

Tax Credits HB 1133 – Research income tax credit Current state law is dependent on definitions contained in the federal research tax credit law This bill adds language to state law that takes effect if the federal research credit is repealed The new language uses the federal research credit definitions for the most recent year the federal credit was in effect

Tax Credits HB 1228 / SB 2037 – Corporation wind energy device income tax credit HB 1228 extends the unused credit carryover period from 20 years to 30 years, but only for devices installed after 9/30/2008 and before 1/1/2012 SB 2037 extends the sunset date to 1/1/2017, but only if the construction of the device began before 1/1/2015

Tax Credits HB 1228 / SB 2037 – Corporation wind energy device income tax credit Important: Except for the change made for certain wind devices in SB 2037, the energy device income tax credit expired on 1/1/2015 – Corporations: Applies to all types of devices – Individuals: Applies to geothermal devices

Tax Credits SB 2329 – Renaissance zone tax incentives Maximum zone size increased from 23 to 34 blocks For city with population > 5,000, the zone size may be increased by 1 block for each additional 5,000 people, up to maximum size of 49 blocks Allows latest federal census estimate may be used for this purpose

Tax Credits SB 2329 – Renaissance zone tax incentives Maximum amount of income tax credits allowed under program for investments in a renaissance fund organization increased from $8.5 million to $10 million

Tax Credits SB 2340 – Automation income tax credit Extends credit two additional years through 2017 tax year, after which it expires – Effective for 2015, 2016, and 2017 tax years Allows credit for acquisition via capital lease Credit = 20% of qualifying acquisitions

Tax Credits SB 2340 – Automation income tax credit Total credits allowed per year limited to: – $2 million for 2015 calendar year – $500,000 for 2016 and 2017 calendar years

Tax Credits SB 2340 – Automation income tax credit Unclaimed credits under annual cap are added to the following year’s annual cap If total credits claimed exceed annual cap, the allowable credits under the cap must be prorated among claimants

Sales Tax Exemptions HB1089 – Sales tax exemption for qualifying data centers – Applies to purchases of enterprise IT equipment and software, including replacement equipment – Limited to first four data centers approved – Data center must be at least 16,000 square feet and meet other requirements

Sales Tax Exemptions HB1089 – Sales tax exemption for qualifying data centers – Retroactively applies to taxable events occurring after December 31, 2014 – Effective only through December 31, 2020

Sales Tax Exemptions SB 2035 – Sales tax exemption for fertilizer or chemical processing facility Includes materials used to construct facility Includes components integral to the plant’s operation – Must be located at the plant site but may be owned by an unrelated party

Sales Tax Exemptions SB 2035 – Sales tax exemption for fertilizer or chemical processing facility Eligible facilities are plants that produce fertilizer, chemical, or chemical derivatives from natural gas, natural gas liquids, or crude oil components Plant owner must receive Dept. of Health air quality permit by June 30, 2019

Sales Tax Exemptions SB 2318 – Sales tax exemption for CO2 enhanced recovery Applies to materials used to construct or expand a system to compress, gather, collect, store, transport, or inject CO2 for use in enhanced recovery of oil or natural gas Effective July 1, 2015

Property Tax Exemptions SB 2318 – Property tax exemption for CO2 capture system Applies to any CO2 capture system located at a coal conversion facility used for enhanced recovery of oil or natural gas Must be classified as personal property and is exempt from all ad valorem taxes

Questions? May 15, 2015 Ryan Rauschenberger Tax Commissioner