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Mike Nowatzki, Forum News Service, Published December 30 2013

New ND laws affect prepaid phones, oil royalty withholding

BISMARCK – North Dakotans who buy prepaid wireless phones will now pay the same fee for emergency 911 service that landline and regular cellphone users currently pay, the result of one of several new state laws slated to take effect Wednesday.

Another new law with broad impact will require withholding of income taxes on oil and gas royalties paid to out-of-state residents.

Most of the roughly 500 bills approved by the Legislature last spring became law July 1 or Aug. 1. But a number of bills have earlier or later effective dates, including several that take effect Jan. 1, 2014.

Among them is Senate Bill 2261, which requires sellers of prepaid wireless service to collect a “prepaid wireless emergency 911 fee” of 2 percent on their gross receipts.

Sen. Dwight Cook, R-Mandan, who introduced the bill, said it was recommended by a National Conference of State Legislatures task force on which he serves “just to level the playing field so that you don’t have some phones out there paying 911 fees and some that are not.”

At least 32 other states had enacted similar legislation as of October, according to the NCSL.

Proceeds from the fee go to the state, which must spend the money on communications systems used for dispatching police, fire, medical and other emergency services.

The fee is expected to boost revenue for the state’s emergency 911 fee fund by an estimated $1 million in the 2013-15 biennium.

The bill also requires prepaid wireless service providers or sellers to provide the location of a call if a law enforcement agency asks for it and it’s available.

Tax withholding on royalty payments

Out-of-state mineral rights holders will be affected by another change.

Most of House Bill 1198 took effect July 1, but a key provision that becomes effective Wednesday will require companies producing at least 350,000 barrels per year of oil or 500 million cubic feet of natural gas to withhold taxes on royalty payments to nonresident individuals or businesses.

More than half of oil royalty payments go to out-of-state residents, said Ryan Rauschenberger, the state’s incoming tax commissioner. The production threshold of 350,000 barrels per year will cover more than 90 percent of the state’s oil production, he said.

Instead of receiving a Form 1099 at the end of the year, out-of-staters receiving royalty payments will have income taxes withheld at the highest marginal rate, which is 3.22 percent for individuals, Rauschenberger said. The state will hold the money until the person files their state income tax return, at which point they may have to pay in or receive a refund.

The change is designed to speed up the collection process and make it easier for nonresidents, some of whom earn so much in royalty payments that their accountants advise them to make estimated quarterly tax payments to avoid getting stuck with a big bill at the end of the year, Rauschenberger said.

“It’s kind of paying as you go instead of waiting to write us one big check,” he said.

It also captures tax revenue from those who may slip through the cracks if they don’t file their 1099s, though Rauschenberger said he believes the state is collecting most of the nonresident royalty income owed to it.

“So, there’s a compliance issue too that this fixes,” he said.

Other new laws

Here’s a rundown of some of the other North Dakota laws slated to take effect Wednesday:

  • House Bill 1046: The governing body of a city may revoke or reduce a property tax exemption if it finds that the project operator provided inaccurate or untrue information when negotiating the exemption.

    The city also may revoke or reduce the exemption if use of the property fails to meet expectations, if the property is improved to “a substantially greater extent” than anticipated or if there’s a change in ownership after the exemption is approved.

  • House Bill 1097: Retailers required to file monthly returns for sales and use taxes must file them by an electronic method approved by the state tax commissioner or face financial penalties. The commissioner may waive the filing requirements “for good cause shown.”

  • House Bill 1178: A public utility company that fails to submit annual reports required under state law for three consecutive years will be penalized $5,000 for each failure.

  • Senate Bill 2104: This bill changes the definition of a “pass through entity” for the purposes of income tax withholdings and adds a provision to the instances in which such an entity isn’t required to withhold tax for a nonresident member.

  • Senate Bill 2105: This bill clarifies that the state treasurer shall distribute during the first month of each calendar year the funds that are appropriated to cities, the county general fund and school districts within coal-producing counties to offset 50 percent of the county’s lost share of coal severance tax revenue allocated to a non-coal-producing county in the previous year.

  • Senate Bill 2308: This bill further defines the permitting and regulations for servicing septic systems and increases the maximum civil penalty from $5,000 to $12,500 per day, per violation.

  • Senate Bill 2337: This bill removes references to “basic” and “standard” health benefit plans from state law also repeals several sections of the Century Code relating to them.