A leading plan to cut taxes in North Dakota would be a boon for out-of-state earners
A tax proposal endorsed by Gov. Doug Burgum would disproportionately benefit wealthy nonresidents, a Forum News Service analysis found.
BISMARCK — A proposal backed by Gov. Doug Burgum would give income tax breaks to people living outside of North Dakota at an estimated cost to the state of nearly $40 million a year.
The Republican governor’s plan would disproportionately benefit the most affluent nonresidents who collect checks from North Dakota, a Forum News Service analysis found.
Burgum has said nonresidents who contribute to the local economy should share in the reward of tax relief, but leading lawmakers contend that outside earners shouldn’t be fattening their wallets at the state’s expense.
House Bill 1158 would eliminate individual income tax for single filers making $44,725 or less and for married filers making $74,750 or less. Higher earners would pay a flat tax of 1.5%.
In its current form, the Burgum-endorsed legislation sponsored by Rep. Craig Headland, R-Montpelier, would apply to everyone required to pay income tax in North Dakota, regardless of where they live.
Over the last decade, the state has collected an average of more than $70 million a year in income taxes from nonresident earners. That revenue flows to the General Fund, which primarily goes toward public education and social services.
Residents of all 50 states and 58 foreign countries paid North Dakota income taxes in 2021, with Minnesotans, Coloradans and Texans leading the way, said Tax Commissioner Brian Kroshus.
If Headland’s bill were to pass, out-of-state filers would see about $77.6 million in tax relief during the 2023-2025 budget cycle compared to $488.8 million for North Dakotans, according to Legislative Council estimates obtained by Forum News Service.
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Burgum told the House Finance and Taxation Committee last month that many tax filers living in other places care deeply about North Dakota and helped build its economy.
“I think we need to really get beyond labels about out-of-state residents and really understand who those people are,” Burgum said.
The governor offered the committee a hypothetical example of a lifelong resident who retired to Arizona but continues to receive income from the family farm.
Grand Forks Rep. Zac Ista suspects snowbird farmers are “more the exception than the rule.” The Democratic lawmaker noted that out-of-state filers in the top tax bracket would stand to gain the most from the passage of House Bill 1158.
Nonresidents with annual incomes north of $491,000 would realize an estimated $44.3 million in tax relief over the next two-year budget cycle. That means high earners living outside of the state would reap about 8% of the $566 million in total tax relief provided by the bill.
Ista said he doesn’t understand why North Dakota would surrender more than $77 million in tax revenue to aid mostly well-off people that “don’t even live in our state.”
“We have plenty of families that are residents of North Dakota that need child care, help with housing, help with affording school meals,” Ista said. “Let’s prioritize policies that give direct benefits to our own citizens rather than shipping large amounts of money to often very wealthy out-of-state tax filers.”
Headland, the Legislature’s foremost champion of the bill, said he would probably support a move to narrow the proposed income tax cuts to North Dakota residents.
Legislative leaders have already discussed the possibility of providing residents with income tax credits instead of passing across-the-board cuts, Headland said. That strategy would “lessen the revenue loss,” he noted.
“We have a few weeks before the bill has to be voted on,” Headland said last week. “Those discussions are ongoing, and in the end, we’ll decide what is the best policy for North Dakota.”
Rep. Mike Nathe has thrown his weight behind a competing proposal that would reduce property taxes by about 25% statewide. The Bismarck Republican is a cosponsor of Senate Bill 2066, which he said would more effectively deliver tax relief to residents since recipients must own property in North Dakota.
Nonresidents who own property locally still contribute to the local economy, but income earned in North Dakota by nonresidents leaves the state, Nathe noted.
House Majority Leader Mike Lefor, R-Dickinson, declined to comment on Headland’s bill until after it has been reviewed at the committee level.