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Accounting and state tax in North Dakota

North Dakota taxes corporate income at 1.41% to 4.31% on three brackets, with no minimum tax. The default is worldwide combined reporting; water’s edge costs a 3.5% surtax.

Jurisdiction
North Dakota
Reading time
3 min
Checked
October 13, 2026
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Key figures

North Dakota accounting

2026, with sources

First $25,000
1.41%
$25,000 to $50,000
3.55%
Over $50,000
4.31%Rates unchanged since 2015.
Water’s-edge surtax
3.5%On North Dakota taxable income, for corporations that elect water’s edge; the election binds for five years.
Return due
Apr 15 (calendar year)Form 40; 15th day of the 4th month for fiscal years.
Minimum tax
NoneThe schedule starts at the first dollar; no franchise tax either.
Estimated payments
Over $5,000Form 40-ES, when both this year’s and last year’s liability exceed $5,000.
Apportionment
3-factor or elected sales factorEqually weighted three-factor by default; single sales factor by election, binding five years.

Three brackets and no minimum

North Dakota taxes corporations on a graduated schedule: 1.41% of the first $25,000 of North Dakota taxable income, 3.55% of the next $25,000, and 4.31% above $50,000. The rates have not changed since 2015. There is no minimum tax and no franchise tax, so a loss year costs nothing beyond the return.

The return, Form 40, starts from federal taxable income and must attach at least the first six pages of the federal Form 1120. Estimated payments on Form 40-ES are required only when both the current and the prior year’s North Dakota liability exceed $5,000, which few early-stage companies reach. The Tax Commissioner publishes separate guidance on how North Dakota treats specific federal international provisions — §965, GILTI, FDII and BEAT — so those are the places to check when federal law changes.

Combined reporting and the water’s-edge surtax

North Dakota requires unitary businesses to compute income on a combined, worldwide basis unless they elect water’s edge. The election excludes most foreign-source income but adds a 3.5% surtax on North Dakota taxable income, and it is made on an original return and binds for five years. For a US-only startup, worldwide and water’s edge are the same group, and the surtax makes the election a cost.

Apportionment

North Dakota’s apportionment statute still starts from the classic three factors — property, payroll and sales, equally weighted. Since 2019 a corporation can elect a single sales factor instead; the election is made on the original, timely return, applies to every company in the unitary group and binds for five consecutive years. Sales other than tangible goods are sourced by costs of performance, not by where the customer is.

For a startup with a North Dakota employee and customers elsewhere, the two methods can give very different answers: the payroll factor pulls income in under the three-factor formula, while a single sales factor measured on costs of performance follows where the work is done. The election, made or not on the first timely return, decides which formula applies for five years.

What it does to the provision

With a graduated rate schedule, the North Dakota rate used for deferred taxes depends on the income level expected when the differences reverse. For a small company the blended rate is low and the North Dakota line in the provision is often immaterial; it becomes worth computing carefully once apportioned North Dakota income passes $50,000 and the top rate applies.

The federal baseline

This page covers what North Dakota adds. The federal rules underneath it apply here too.

FederalFederal accounting for startupsFederal law sets the tax rules, not the bookkeeping ones: US GAAP comes from the FASB and from what investors expect, while Form 1120, the cash-method test and Section 174 come from the IRS. Every state builds its corporate tax on this return.

Common questions

Should we elect water’s edge?

It costs more. North Dakota’s default is a worldwide unitary combined return; a corporation can elect water’s edge to leave out most foreign-source income, but then pays a 3.5% surtax on its North Dakota taxable income, and the election binds for five years. A US-only startup gains nothing from it.

How much corporate tax will a small company pay?

Very little while it is small. The rates start at 1.41% on the first $25,000 and reach 4.31% only above $50,000 of North Dakota taxable income, after apportionment. A startup with a loss pays nothing, and there is no minimum tax.

Does North Dakota use a single sales factor?

Not by default. The statute apportions business income by an equally weighted property, payroll and sales formula. A corporation that is not a passthrough entity can elect to use the sales factor alone; the election is made on a timely original return, covers the whole unitary group and binds for five years. Sales of services are sourced to North Dakota on costs of performance — where the income-producing activity is performed — so a remote seller of services with no North Dakota people may have a small sales factor.

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More of the North Dakota guide

Sources

Checked against each agency’s own page on . Rates and thresholds change, usually on January 1.

General information for US companies, not tax, legal or accounting advice for yours. Rules and thresholds change; confirm the specifics with a CPA or the agency before you act on them.

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