CNMI Income Taxes
The income tax law in the CNMI is based on the Internal Revenue Code. Income, deductions, gains and losses are determined in the same manner as they are in the United States. The CNMI does recognize partnerships, S corporations and LLCs.
As mentioned above, the BGRT is not deducted in determining corporate income tax. Taxable income is calculated just as it is in the U.S. The graduated rate table is used, and the allocation of the graduated tax benefit rules do apply.
There is a rebate of income taxes on CNMI sourced income. The calculation of income tax is just a starting point. Once you calculate income tax just as you do in the U.S. (without deducting BGRT), you then subtract BGRT paid to arrive at a figure called a ?rebate base?. There is a rebate of income tax as follows:
Income Earned From zero to $20,000 = 90% tax rebate
Income Earned From $20,000.01 to $100,000 = 70% tax rebate
Income Earned Above $100,000 = 50% tax rebate
The law states that you must pay in the full amount of tax without consideration of the rebate, in order to avoid underpayment penalties. You are then obliged to wait for the CNMI to write a check to you for the rebate.
As a practical matter, since all individuals and entities in the CNMI are entitled to a rebate, the taxpayer can choose to make estimated payments equal to the tax after rebate. If the taxpayer chooses to follow this method, a penalty will be assessed. The penalty fluctuates, but is usually around 4% of the underpayment.
The quarterly estimated tax payments are made using Form 500-ES. The quarterly payments are due at the end of the month following the end of the quarter.
The corporate tax return is filed using Form 1120-CM. If it is an S corporation, there is a covering sheet called Form 1120S-CM.
It is important to note that income and expenses must be segregated between those that are CNMI sourced and those that are not. The rebate only applies to CNMI source income.
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