Key figures
North Dakota advisory
2026, with sources
A generous research credit
North Dakota’s research expense credit is one of the richer ones for small companies: 25% of the first $100,000 of North Dakota qualified research expenses above the base amount and 8% beyond that, or 17.5% and 5.6% under an alternative simplified method measured against half the prior three years’ average. A company with no qualified expenses in any of the prior three years computes the simplified credit at 7.5% and 2.4% of the current year’s expenses instead. Only research done in North Dakota counts, and the credit cannot exceed the year’s tax; the excess carries back three years and forward fifteen.
The part that matters most to an early-stage company is transferability: a primary sector business with gross revenue under $750,000, certified by the Department of Commerce as a qualified research and development company, can sell unused credit, up to $100,000 in total. The sale proceeds are assigned to North Dakota as income of the seller, and the certification comes before the sale.
Remote hires and nexus
A North Dakota employee brings withholding, Job Service unemployment insurance and a mandatory WSI policy. It also gives the company physical presence for sales tax, and may create corporate income tax nexus. The Tax Commissioner publishes a nexus questionnaire covering activity in the past ten years for companies that aren’t sure.
Under the three-factor apportionment default, that employee’s wages also enter the payroll factor, so one hire can pull a visible share of income into North Dakota; a single sales factor election changes the arithmetic.
Where founders go wrong
Most of North Dakota’s rules are light. The ones that differ from other states are workers’ compensation, the research credit and the water’s-edge surtax.
- Buying workers’ compensation from a private carrier: in North Dakota only WSI can write it.
- Filing the annual report on the domestic deadline: foreign corporations file by May 15.
- Assuming software subscriptions are untaxed: prewritten software is taxable however it is delivered.
- Electing water’s edge out of habit and paying the 3.5% surtax.
- Counting research done outside North Dakota toward the state credit: only in-state research qualifies.
The federal baseline
This page covers what North Dakota adds. The federal rules underneath it apply here too.
Common questions
Can a startup get cash for the North Dakota research credit?
Not refundable, but for some startups it is sellable. A primary sector business with annual gross revenue under $750,000, certified by the Department of Commerce as a qualified research and development company, can sell, transfer or assign unused credit — up to $100,000 of credit in total, across all years. The buyer and seller file the purchase agreement with the Tax Commissioner within 30 days, and the sale proceeds are North Dakota income to the seller. For a pre-revenue company it is the only way to turn the credit into cash before it has income.
Does North Dakota follow QSBS?
North Dakota starts from federal taxable income, so federally excluded QSBS gain generally stays out of North Dakota income too. With a top individual rate of 2.5%, the state stakes are small either way.
Advisory next door
- MTMontana advisoryMontana is the one state where employees can’t be fired at will after probation; it has no R&D credit but credits half of employer FICA on new jobs through 2028.
- SDSouth Dakota advisoryNo income tax means no R&D credit, NOL or QSBS question. The planning in South Dakota is about sales tax on services and SaaS.
- MNMinnesota advisoryMinnesota’s R&D credit is 10% on the first $2 million of research and, since 2025, partly refundable — 25% for 2026 — even for companies with no receipts.
Founder guides on this
- R&D taxThe R&D tax credit and Section 174A for startupsEngineering salaries can earn a federal R&D credit against payroll tax, and Section 174A lets you deduct US research again. What qualifies, what to track.
- ComplianceFirst-year compliance calendar for a Delaware C-corpDelaware franchise tax, 1099s, the federal return, payroll filings, state annual reports and sales tax: the deadlines a young C-corp misses most, by month.
- PeopleContractor or employee? Classification for startupsContractor or employee depends on control, not the contract. The IRS test, state rules, 1099s, payroll registration and the cost of getting it wrong.
More of the North Dakota guide
- AccountingAccounting and state tax in North DakotaCorporate tax, conformity to federal rules, apportionment and what it does to your books
- ReceivablesReceivables and sales tax in North DakotaSales tax registration, economic nexus, whether SaaS is taxable, and collecting from customers
- PayablesPayables and contractors in North DakotaPaying vendors and contractors: 1099 filing, use tax, contractor tests and withholding
- PayrollPayroll taxes and employer rules in North DakotaWithholding, unemployment insurance, paid leave, minimum wage and the rules on paydays
- ComplianceCompliance and filings in North DakotaRegistering to do business, annual reports, franchise tax and the filing calendar
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.