There are two little known tax regulations that may be of substantial
benefit to some individuals and corporations.
     One is a United States Internal Revenue tax credit for U. S.
“possessions” corporations and the other concerns the application of CNMI
tax rates on the sale of appreciated property outside the Commonwealth.
     With respect to the first, Section 936 of the Internal Revenue Code
permits "qualified" U.S. corporations to operate virtually free of federal
tax on their income derived from business activity in the Commonwealth.
This particular section of the tax code was designed to encourage
employment generating corporations to establish businesses in United States
possessions and associated areas.  While technically the Commonwealth is
not a possession of the United States, U.S. corporations can qualify for
this tax concession with the result that the maximum income tax  rate would
be 11.5 percent for a period up to ten years or more if extensions are
granted by the Internal Revenue Service. To qualify, corporations must  be
incorporated under the laws of the United States; have 80 percent of their
gross income for the tax year and two preceding years derived from sources
within the Commonwealth and have a fixed percentage of their gross income
for the tax year and two proceeding years (55 percent, 60 percent and 65
percent respectively) derived from the active conduct of trade or business
within the Commonwealth.
    Obviously, the taxpayer must weigh which of the tax formulae is best
suited to their particular situation.The above method, or the current
existing rebate system which is summarized below.
NMTIT Rebate
In the case of a taxpayer who is not a corporation:
If the rebate base is: The rebate amount is:
- Not over $1,000 90% of rebate base.
- Over $1,000 but not $900 plus 70% of rebate
                 over $2,500  base over $1,000.
- Over $2,500 $1,950 plus 50% of the
  rebate base over $2,500.
In the case of a taxpayer who is a corporation:
If the rebate base is: The rebate amount is:
-- Not over $20,000 90% of rebate base.
  - Over $20,000 but not $18,000 plus 70% of rebate
                 over $100,000  base over $20,000.
- Over $100,000 $74,000 plus 50% of the excess
 of the rebate base over $100,000.
Source P.L. 9-22
       The second and perhaps more interesting regulation concerns special
United States Internal Revenue Service tax rules for the sale of
appreciated personal property such as stock. In order to be taxed at CNMI
rates a person must have been a resident of the CNMI for ten years if the
appreciated value of the stock cannot be sourced in the Commonwealth.
United States sourced income is that which is effectively connected with
U.S. trade or business and gains from the sale of certain assets with a U.
S. connection for the ten year period beginning when that person became a
resident. This provision applies to income earned after January 1, 1986 so,
by the first of next year the provision ‘kicks -in” for those that can take
advantage of the rule. While I am far from being an authority on United
States tax law, which is the most extensive and complicated in the world,
it may be that a shell CNMI corporation that is in good standing, that is,
one that has obtained an annual business license and filed each year for
the past ten years with the Register of Corporation, may have a valuable
asset by virtue of its age. Just how much such a corporation might be worth
depends upon how valuable, and to what use, it could be put by an
individual or firm outside the CNMI with appreciated assets of substantial
value.  In any case consult a tax attorney, a Certified Public Accountant
or a tax consultant. Don’t ask this economist who has only limited
knowledge of the issues.

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