North Dakota – Farm Machinery Gross Receipts Tax Provisions Enacted

SALT Report 2377 – North Dakota enacted legislation that amends the farm machinery gross receipts tax provisions to include lease agreements. The Bill states that lessors of new farm machinery, or irrigation equipment, that is subject to the farm machinery gross receipts tax will be required to either pay the tax direct or collect and remit the tax as follows:

1) Pay the farm machinery gross receipts tax on the purchase price of the equipment that was purchased for the purpose of leasing;

2) For leases of three or more years, collect and remit the full amount of the farm machinery gross receipts tax due based on the cumulative value of three years of lease payments to the State Tax Commissioner. Or, collect the tax due on each lease payment under the agreement for three years and remit those amounts to the Commissioner as they are collected. If a lease agreement of three years or more is terminated before tax on three years of lease payments has been remitted, the lessor must collect and remit to the Commissioner any remaining uncollected taxes for the three-year period; or

3) On a lease of less than three years, collect and remit to the Commissioner the full amount of tax calculated on the equivalent value of three years of lease payments. The equivalent value of three years of lease payments is the sum of the lease payments, divided by the term of the lease in months, multiplied by 36. The tax should be collected and remitted to the Commissioner in equal installments with each lease payment over the term of the lease. If a lease agreement with a term of less than three years is terminated before the end of the lease, the lessor must collect and remit any remaining uncollected taxes on the equivalent value of three years of lease payments.

Exemptions

For lease agreements entered into after June 30, 2013, rentals of used farm machinery, farm machinery repair parts, used irrigation equipment, or irrigation equipment repair parts used exclusively for agricultural purposes are exempt from the farm machinery gross receipts tax.

Additionally, the term “used” has been amended to include situations in which the farm machinery gross receipts tax has been paid under a previous lease and the farm machinery or irrigation equipment has been under a rental for three years or more.

Trade-In Deduction

Effective June 30, 2013, tangible personal property taken in trade or in a series of trades as a credit or partial payment of a lease agreement is subject to the farm machinery gross receipts tax, if the tangible personal property traded in will be subject to taxes. If the tangible personal property traded in is used farm machinery or used irrigation equipment, the credit or trade-in value allowed by the retailer is not considered gross receipts.

Furthermore, tangible personal property owned or leased and in possession of a farmer may be used as a trade-in to reduce the taxable purchase price of farm machinery or irrigation equipment used exclusively for agricultural purposes.

For Further Information

North Dakota State Legislature – House Bill 1236, Laws 2013