ND lawmakers scrutinizing tax incentives for businesses

BISMARCK - With falling oil prices dimming the state's budget outlook, North Dakota lawmakers are taking their first in-depth look at whether the state should change or eliminate some tax incentives that have saved millions of dollars for busines...

BISMARCK – With falling oil prices dimming the state’s budget outlook, North Dakota lawmakers are taking their first in-depth look at whether the state should change or eliminate some tax incentives that have saved millions of dollars for businesses and investors.

Industry representatives and lobbyists lined up Wednesday at the Capitol to justify to the Legislature’s interim Political Subdivision Taxation Committee why the incentives should continue and how they have benefited the state through increased economic activity, jobs and lower utility rates.

As part of a six-year study, the committee is analyzing 21 of the state’s 34 income and sales tax incentives for business development, including those for wind and solar energy, power plants and Renaissance Zones.

The committee’s chairman expects pushback from those affected who want to preserve the credits.

“We’re just doing our due diligence,” Rep. Jason Dockter, R-Bismarck, said, adding lawmakers want to know, “especially with the budget situation, are we getting the bang for our buck in burdening the taxpayers?”


Some lawmakers were taken aback by information presented about the Angel Fund Investment Tax Credit, specifically how nearly half of the companies that have received investment dollars through angel funds since 2011 are located out of state.

“When you start digging into it, we’re a little shocked,” said Rep. Craig Headland, R-Montpelier, predicting there may be some tightening of the incentive next session.

The incentive allows investors to claim an income tax credit equal to 45 percent of their investment – up to $45,000 a year and $500,000 over a lifetime – for investing in an angel fund certified by the state Department of Commerce. To be certified, an angel fund must be organized to invest in a portfolio of at least three primary-sector upstart companies within the state.

Since 2011, the Commerce Department has certified 21 angel funds that have received a combined $41.4 million in investment, with investors claiming $16.7 million in tax credits, co-Deputy Commissioner Justin Dever said.

However, of the 116 companies in which the angel funds have invested , 54 are listed as being located out of state, though Dever noted that some of those may have a relationship with a North Dakota manufacturer that adds economic impact to the state.

Lawmakers questioned why several angel funds have no invested companies in North Dakota – Dever said they need only to show the intent when the fund is set up – and complained about a lack of detailed information necessary to evaluate the effectiveness of the angel funds and other incentives. Reporting requirements for angel funds weren’t in place from 2007 to 2010.

“I thought the purpose of these tax credits was to benefit North Dakota more directly somehow,” said Rep. Lawrence Klemin, R-Bismarck.

Five incentives would be repealed under a draft bill presented to the committee, including biodiesel fuel credits and a sales tax exemption for electrical generating facilities.


Jay Skabo, vice president of electric supply for Bismarck-based Montana-Dakota Utilities, said the company has used the latter incentive three times in the last six years, resulting in $9 million to $10 million in savings.

“The benefit of the incentive is passed on to customers in the form of reduced rates,” he stated in written testimony, asking the committee to keep the exemption.

Dockter said it’s only an initial draft and any final recommendations from the committee will go to the 2017 Legislature for consideration.

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