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DEPARTMENT OF REVENUE

 

DIVISION 314

INCOME TAXATION GENERALLY
GENERAL PROVISIONS

150-314.HB 2071(B) [Renumbered to 150-314.364(B)]

150-314.085(2)

Period of Computation of Taxable Income

(1) General Rule: If the taxable year of an individual, partnership, Corporation, S corporation, trust, REMIC, or other taxpayer for federal income tax purposes is different than the taxable year for Oregon tax purposes, the Oregon tax year shall be changed to correspond to the federal tax year. In making this change or in changing from one tax year to another under ORS 314.085, Treas. Reg. Section 1.443-1 shall be followed.

(2)(a) Annualization of Modifications and Deductions: Where annualization is required for items of income and deductions under federal law, the modifications required by the provisions of ORS Chapters 314, 316 and 317 shall be annualized in the manner provided under Treas. Reg. Section 1.443-1. Where annualization is required, an individual must itemize deductions. The Oregon standard deduction is not available for such individuals.

(b) Computation of Personal Exemption Credit: Where a change in the taxable year results in the need to file a short-year return, personal exemption credits for individuals shall be prorated based on the number of months in the short year. The credit shall equal the dollar amount allowed pursuant to ORS 316.085 multiplied by the number of months in the short year divided by twelve.

(c) Computation of Oregon Tax Credits. Where a change in the taxable year results in the need to file a short-year return, and the taxpayer is entitled to an Oregon tax credit, the credit shall be allowed on each short-year return. The taxpayer shall not be required to annualize tax credits unless the credits are based on income. The taxpayer shall not be required to prorate tax credits unless required by the provisions of ORS 316.117 for nonresidents and part-year residents. A partner in a partnership or a shareholder in an S corporation is entitled to their pro rata share of any Oregon tax credit claimed on a short-year return filed by the partnership or the S corporation.

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.085
Hist.: RD 11-1988, f. 12-19-88, cert. ef. 12-31-88

150-314.105

Mitigation of Effect of Limitations and Other Provisions

The following rules shall apply:

(1) For determinations made on or before December 31, 1970, regulations promulgated prior to December 31, 1970, for ORS 314.110, 314.120 and 314.130 shall apply.

(2) For determinations made after December 31, 1970, paragraph (3) of this rule shall apply.

(3) Since the purpose of ORS 314.105 to 314.135 is to follow as closely as possible the provisions of subtitle A, chapter 1, subchapter Q, Part II of the Internal Revenue Code, dealing with the mitigation or affect of limitations and other Provisions, federal regulations under sections 1311 to 1314 of the Internal Revenue Code are persuasive authority in the interpretation of the Oregon law.

(4) Mitigation is not available solely due to a refund or deficiency arising as a result of a change in accounting method.

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.105
Hist.: 11-71; RD 7-1983, f. 12-20-83, cert. ef. 12-31-83

150-314.105(1)(d)

Determination by Agreement

(1) In General: A determination may take the form of an agreement made pursuant to this section. Such an agreement is intended to provide an expeditious method for obtaining an adjustment under ORS 314.105 to 314.135 and for offsetting deficiencies and refunds whenever possible. It shall not, in itself, establish the tax liability for the open year to which it relates, but it shall state the amount of tax for that year, as then determined. The tax may be the amount shown on the return as filed, or it may take into account any changes which have been made, or which are being made by documents executed concurrently with execution of the agreement.

(2) Contents of Agreement: An agreement under this section shall contain:

(a) A heading indicating that it is made pursuant to ORS 314.105(1)(d);

(b) A statement of tax liability for the open year, including reference to any document concurrently executed by which the tax liability is established or altered;

(c) A concise statement of the material facts with respect to the item that was erroneously treated in the closed year;

(d) A statement of how the item involved was treated in computing the tax liability set forth in the agreement; and

(e) A statement of the amount of the adjustment with respect to the erroneous prior treatment and any related adjustments.

(3) Execution of Agreement: The agreement under this section shall be signed by the taxpayer with respect to whom the determination is made. If an adjustment is made in a case of a related taxpayer, the agreement shall also be signed by the related taxpayer. Both the taxpayer and the related taxpayer may have the agreement signed on their behalf by an agent or attorney acting pursuant to a power of attorney on file with the Department. On the Department's behalf, the agreement shall be approved by counsel and signed by the director.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.105
Hist.: 9-74; RD 7-1983, f. 12-20-83, cert. ef. 12-31-83

150-314.220

Refund; Method of Claiming

See ORS 314.415(1) and the rules thereunder.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.220
Hist.: 1958; RD 11-1988, f. 12-19-88, cert. ef. 12-31-88

150-314.255(1)

Pollution Control Facilities: Revocation of Certificate

Upon receipt of notice of revocation of a certificate, the Department shall issue a statement to the taxpayer of the amount of unpaid taxes due, together with interest from the time the taxes would have been due if the tax relief had not been granted. If, within 30 days of the date of such statement, the amount is not paid or protest received as to the accuracy of the billing, warrants will be issued pursuant to ORS 314.430, and such other collection procedures will be instituted as provided by law and deemed necessary by the Department.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.255
Hist.: 6-68

150-314.255(2)

Pollution Control Facilities: Facilities Not Eligible for Tax Credit

Pollution control facilities, other than resource recovery facilities, constructed by or for the use of a governmental agency or public corporation, do not qualify for the tax credit, even if such a facility is subsequently acquired by a taxpayer and used for pollution control in a manner otherwise eligible for tax credit or tax exemption.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.255
Hist.: 6-68; RD 9-1992, f. 12-29-92, cert. ef. 12-31-92

150-314.256

Formula for Apportionment of Lobbying Expenses Subject to Proxy Tax

The amount of lobbying expenses subject to the proxy tax under section 6033(e) of the Internal Revenue Code shall be apportioned to Oregon by multiplying the expenses by a fraction, the numerator of which is the amount of dues or other similar amounts received by the organization from Oregon residents during the tax year, and the denominator of which is the amount of all such amounts received during the tax year.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.256
Hist.: RD 3-1995, f. 12-29-95, cert. ef. 12-31-95

150-314.258

Withholding on Real Property Conveyances

(1) For purposes of ORS 314.258 and this rule:

(a) “Authorized agent” does not include an employee of a transferee who merely makes payments to a transferor in connection with a conveyance, nor a person who performs services such as inspections, appraisals, drafting services, and recording services performed for the benefit of a transferor or transferee in a conveyance.

(b) “Consideration” includes any encumbrance that the transferee agrees to pay or assume as well as the fair market value of any property conveyed or transferred to a transferor, or the fair market value of any service provided to a transferor.

(2) Withholding requirements. Except as provided in subsection (2)(a) of this rule, an authorized agent must withhold tax for the year in which income is recognized for Oregon tax purposes and remit the tax withheld to the department.

(a) An authorized agent is not required to withhold if:

(A) The withholding amount calculated is less than $100 per transferor;

(B) The total consideration for the property is less than or equal to $100,000;

(C) The person making a conveyance is a resident of Oregon as defined in ORS 316.027 on the closing date of the conveyance;

(D) The person making a conveyance is a C-Corporation that is qualified to do business in Oregon on the closing date of the conveyance;

(E) The transferor delivers to the authorized agent a written assurance as required in IRC section 6045(e) that the entire gain qualifies for exclusion under IRC section 121;

(F) The transferor is an estate, certain trusts, S corporation, general partnership, or limited partnership, or a limited liability company that for purposes of Treasury Regulation section 301.7701-3 has not elected to be classified as an association taxable as a corporation and is not a disregarded entity the sole member of which is a transferor within the meaning of ORS 314.258(1)(f);

(G) The transferor is an entity not described in ORS 314.258(1)(f), such as a government agency or instrumentality, or a municipal or public corporation;

(H) The authorized agent is an attorney involved in a transaction where a licensed escrow agent is providing services for the conveyance; or

(I) The transferor or the transferor’s tax advisor executes a written affirmation under penalty of perjury that the conveyance is not likely to be taxable to the transferor under Oregon law during the tax year of the transferor in which the conveyance occurs. Examples of such transactions include, but are not limited to, a conveyance that constitutes or is accomplished as part of:

(i) A transfer that is the sale of a principal residence and the gain qualifies for exclusion under IRC section 121;

(ii) A transfer to a corporation controlled by the transferor for purposes of IRC section 351;

(iii) A transfer pursuant to a tax-free reorganization under IRC section 361;

(iv) A transfer by a tax-exempt entity that does not give rise to unrelated business taxable income to the transferor under IRC section 512;

(v) A transfer to a partnership in exchange for an interest in the partnership such that no gain or loss is recognized under IRC section 721;

(vi) A transfer that qualifies for nonrecognition under IRC section 1031 or 1033 and the transferor enters into such a transaction;

(vii) A transfer between spouses or incident to divorce for purposes of IRC section 1041; or

(viii) Any other transaction in which gain is not recognized for purposes of ORS Chapters 316, 317, and 318, as explained to the department in writing at the time the transaction is completed.

(b) The authorized agent must send the tax withheld to the department within 20 days of the date the proceeds from the conveyance are disbursed to the transferor.

(c) If there is more than one transferor for one parcel, the authorized agent must withhold tax on each non-exempt transferor as if all transferors had equal ownership in the real property unless the transferor establishes to the authorized agent the actual ownership percentage in the real property, such as through recorded documents, tenancy-in-common agreements, or other documents. If the transferor establishes other than equal ownership, the authorized agent must withhold in proportion to each non-exempt transferor’s actual ownership percentage in the real property.

(d) A transferor may claim the amount withheld by an authorized agent as a credit on the transferor’s corresponding personal income tax return or corporate income or excise tax return.

(e) If the transferor is a limited liability company, the sole member of which is a transferor within the meaning of ORS 314.258(1)(f) (2008), and the limited liability company is a disregarded entity for federal income tax purposes, the transferor is the single member for purposes of this rule.

(3) Calculation of amount to be withheld.

(a) An authorized agent is required to withhold from the consideration payable to the transferor and remit to the department the least of:

(A) Four percent of the consideration for the real property;

(B) Eight percent of the amount of gain on the conveyance that is includable in the transferor’s Oregon taxable income; or

(C) The net proceeds from the conveyance.

(b) A transferor subject to withholding must deliver to an authorized agent at or before conveyance of the real property a written affirmation, signed under penalty of perjury, identifying the amount of withholding required by subsection (a) of this section. If the transferor fails to deliver the form timely, the authorized agent must withhold four percent of the amount of consideration, or if less, all the net proceeds.

Example 1: Anne sold her rental property for $300,000. Her federal and Oregon adjusted basis in the property is $250,000. She has an outstanding mortgage against the property of $157,000 and closing costs are $3,350. At closing, she determines she is not exempt from withholding so her escrow officer must withhold tax based on the least of four percent of the consideration, eight percent of the gain includable in Oregon taxable income, or all of the net proceeds.

Step 1) Determine four percent of the consideration. In this case, it is $12,000 ($300,000 x 0.04 = $12,000).

Step 2) Determine eight percent of the gain includable in Oregon taxable income as follows:

$300,000 Consideration less

$250,000 Federal and Oregon adjusted basis equals

$50,000 Gain

$4,000 ($50,000 x 0.08 = $4,000) is eight percent of the gain.

Step 3) Determine the “net proceeds” as follows:

$139,650 Net amount disbursed to seller ($300,000 consideration - $157,000 mortgage – $3,350 closing costs = $139,650) $139,650 is the “net proceeds” from this conveyance.

Step 4) Because eight percent of the gain ($4,000) is the lowest of the amounts calculated in steps one, two, or three, Anne’s escrow officer would withhold and remit $4,000.

(c) Installment sales. If a transferor elects to recognize income from the conveyance using the installment method under IRC section 453, the transferor may reduce the gain by the amount of the installment that will be recognized in future years. The withholding calculation is based on the entire consideration and net proceeds, or the modified gain to determine the lowest of the three methods provided in subsection (a) of this section.

Example 2: Assume the same facts as Example 1 except that Anne is selling the property on an installment basis and recognizing the income from the sale using the installment method under IRC section 453 over five years in equal installments. Because Anne is selling the property over time, the amount of gain includable in Oregon taxable income is $10,000 for the year of the conveyance ($50,000 ÷ 5 years = $10,000) and $10,000 in each year thereafter. Eight percent of the amount included in Oregon taxable income is $800. Anne’s escrow officer would withhold and remit $800 for the year of the conveyance because it is the least amount using the three methods provided in subsection (a) of this section.

(d) Deferred exchanges. If a transferor enters into a like-kind exchange under IRC section 1031, withholding is not necessary at the time the transferor relinquishes the property to a Qualified Intermediary (QI) unless part of the proceeds from the sale are disbursed to the transferor.

Example 3: Robert entered into an exchange under IRC section 1031 to defer tax on the gain from the sale of his rental property. The consideration for the property was $500,000. Robert’s federal and Oregon adjusted basis in the property is $150,000. He holds a first mortgage of $190,000 and he incurred $10,000 in costs related to the conveyance. Robert requested $50,000 from the consideration directly. Robert’s escrow officer transferred title of the property and $250,000 of the consideration to a QI and the escrow officer disbursed $50,000 directly to Robert as requested. The escrow officer is required to withhold on the amount disbursed to Robert as follows:

Step 1) Determine four percent of the consideration. In this case, it is $20,000 ($500,000 x 0.04 = $20,000).

Step 2) Determine eight percent of the gain includable in Oregon taxable income as follows:

$500,000 Consideration

$150,000 Federal and Oregon adjusted basis

$350,000 Gain

$300,000 Gain eligible for deferral under IRC section 1031

$50,000 gain includable in Oregon taxable income.

Eight percent of the gain is $4,000.

Step 3) Determine the “net proceeds” as follows:

$50,000 Net amount disbursed to seller shown on the settlement statement before reducing for withholding.

Step 4) The lowest of the amounts calculated in steps one, two, or three is $4,000 (8 percent of the gain). Robert’s escrow officer would withhold and remit $4,000.

(4) Written affirmation.

(a)(A) To claim exemption under subparagraph (2)(a)(I) of this rule, the transferor or the transferor’s tax advisor must complete and sign a written affirmation under penalty of perjury, that the transferor is exempt from withholding because the transferor is unlikely to owe Oregon tax as a result of the conveyance, before the funds related to the transaction are disbursed.

(B) To determine whether the transferor is unlikely to owe Oregon income tax as a result of the conveyance, the gain may not be offset against any other items of gain, loss, deduction, or credit the transferor expects to claim on the related tax return unless the item is directly related to the conveyance. For example, if an Oregon nonresident must pay tax on the gain from the sale of the Oregon property to both Oregon and the state of residency, and the Oregon nonresident must claim the credit for taxes paid to the state of residency on the Oregon nonresident return, the transferor established that he or she is unlikely to owe Oregon tax as a result of the conveyance.

(C) The transferor must provide the completed written affirmation to the authorized agent providing closing and settlement services.

(b) Basing withholding on the amount of includible gain. If the transferor is subject to withholding, the transferor may calculate tax based on the amount of gain includible in Oregon taxable income. The transferor must complete and sign the written affirmation under penalty of perjury that the calculation is true and accurate to the best of the transferor’s knowledge.

(c) Sale of a principal residence. The gain from the sale of a principal residence may qualify for exemption from withholding under either ORS 314.258(3)(e) or 314.258(3)(f). If the transferor is eligible to exclude the entire gain under IRC section 121, they must complete a written assurance similar to that found in IRC section 6045(e) pursuant to 314.258(3)(e) and this rule. If the transferor completes the written assurance, it is in lieu of the written affirmation required under 314.258(3)(f) and subsection (4)(a) of this rule and the transferor need not complete the written affirmation. However, the authorized agent must provide the information contained in the written assurance in the same manner as information contained in the written affirmation. If the gain is not fully excludible under IRC section 121, the transferor must complete the written affirmation calculating the gain under penalty of perjury.

(d) In addition to retaining the completed written affirmation or assurance in the authorized agent’s records, the authorized agent must send a copy of the affirmation or assurance to the department within 30 days of the date of the conveyance.

(5) Failure to withhold.

(a) An authorized agent who relies on the written representation made by the transferor that the transferor is either exempt from or not subject to withholding, is not liable for amounts required to be withheld under ORS 314.258. An authorized agent who relies on the calculation shown on the written affirmation provided by the transferor is not liable for the amount that was required to be withheld in excess of that shown on the written affirmation. The transferor is liable for the tax and may be subject to interest charged on the underpayment of estimated tax.

(b) Penalty assessment. The department may assess a failure-to-withhold penalty if an authorized agent fails to demonstrate to the department’s satisfaction that the authorized agent met the requirements of ORS 314.258.

(A) For conveyances that occurred before May 23, 2008, the department will not assess the failure-to-withhold penalty if an authorized agent met the requirements of either ORS 314.258 (2007) or 314.258 (2008).

(B) For conveyances that occurred on or after May 23, 2008, the department will not assess the failure-to-withhold penalty if an authorized agent met the requirements of ORS 314.258 (2008) and related rules.

(6) Failure to remit. If an authorized agent withholds tax from the transferor’s disbursal and fails to remit the same amount to the department timely, the authorized agent is liable to the State of Oregon for those amounts. The department may collect such amounts from the authorized agent together with interest under ORS 305.220.

[Publications: Publications referenced are available from the agency.]
[ED. NOTE: Tables referenced are available from the agency.]

Stat. Auth.: ORS 305.100 & 314.258
Stats. Implemented: ORS 314.258
Hist.: REV 11-2007, f. 12-28-07, cert. ef. 1-1-08; REV 4-2008(Temp), f. & cert. ef. 5-23-08 thru 11-17-08; REV 10-2008, f. & cert. ef. 9-23-08

150-314.260

REMIC Filing Requirements

A real estate mortgage investment conduit (REMIC) receiving income from prohibited transactions, must file an Oregon Form 20-I and a copy of the complete federal return, including a Schedule Q (Notice to Residual Interest Holder of REMIC Income or Loss) for each residual interest holder. A REMIC must file an Oregon return only for tax years with income from prohibited transactions.

[ED. NOTE: Forms referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.260
Hist.: RD 11-1988, f. 12-19-88, cert. ef. 12-31-88; RD 12-1990, f. 12-20-90, cert. ef. 12-31-90; REV 8-2002, f. & cert. ef. 12-31-02

150-314.260(4)

REMIC Income Taxable to Nonresidents

(1) Regular Interests.

(a) In general, dividends, interest, royalties and other income from the use or ownership of intangible personal property used in a trade or business is includable in the taxable income of a nonresident if such property has a business situs in Oregon pursuant to ORS 316.127 and the rules thereunder.

(b) The income of a nonresident holder of a regular interest in a real estate mortgage investment conduit (REMIC) shall be considered income from intangible personal property and subject to the provisions of ORS 316.127 and the corresponding rules. Thus, income attributable to regular interests in a REMIC shall be taxable to nonresidents only if the taxpayer's regular interest has acquired a business situs in Oregon.

(2) Residual Interests.

(a) The taxable income or loss of a nonresident holder of a residual interest in a real estate mortgage investment conduit (REMIC) shall be the nonresident's daily portion of the REMIC's taxable income or loss, as determined in section 860C of the Internal Revenue Code, modified in accordance with the general rules of ORS 316.124. In determining the items of REMIC income, gain, loss, and deduction included in the taxable income of a nonresident, the following shall apply:

(A) The nonresident shall include only his or her daily portion of REMIC income or loss derived from or connected with sources within Oregon. The daily portion of REMIC income or loss includable for the taxable year shall bear the same ratio to the nonresident's total daily portion of REMIC income or loss as the REMIC net income or loss from Oregon sources bears to the REMIC net income or loss from all sources.

(B) When a REMIC has income from sources both within and without this state, the amount of business income from sources within this state shall be determined pursuant to ORS 314.280 and the rules thereunder.

(b) Disposition of Real Property: The gain, profit, or loss from the sale, exchange or disposition of any real property, incident to the foreclosure or default of the mortgage, shall be used in the determination of the taxable income of a nonresident if the real property is located in Oregon. The gain or loss from the disposition of the real property shall be included only to the extent of the nonresident's daily portion of the REMIC income, gain, or loss in accordance with this rule and the general rules of ORS 316.124.

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.260
Hist.: RD 11-1988, f. 12-19-88, cert. ef. 12-31-88

150-314.276

Change in Methods of Accounting or Reporting

A taxpayer's method of accounting for state income tax purposes must be the same as for federal tax purposes and it must clearly reflect the taxpayer's income. If the taxpayer's method of accounting does not clearly reflect the taxpayer's income, the department shall compute the taxpayer's taxable income in a manner consistent with the Treasury Regulations set forth under Internal Revenue Code Sections 446 through 483.

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 305.276
Hist.: RD 15-1987, f. 12-10-87, cert. ef. 12-31-87

Corporations Excluded From Uniform Division of Income for Tax Purposes Act

NOTE: The provisions of the Uniform Division of Income for Tax Purposes Act (ORS 314.605 to 314.675), exclude from the Act financial organizations and public utilities (as therein defined). Therefore, it became necessary to prepare rules relating to apportionment and allocation both for those corporations covered by the Uniform Act and those so excluded. OAR 150-314.280-(A) to 150-314.280-(N) deal with corporations not under the Act, while OAR 150-314.605 to 314.670 deal with corporations covered by the Act. However, in using these regulatory provisions, the following should be noted:

(1) The general definitions and definitions of the property, payroll and sales factors contained in the Uniform Act are adopted by OAR 150-314.280-(B) and 150-314.280-(F) for general use in connection with financial organizations and public utilities.

(2) The statutory rules as to allocation of income contained in the Uniform Act are adopted as rules under OAR 150-314.280-(D).

(3) Many rules (or portions thereof) are made applicable to both groups of corporations.

(4) Both groups contain apportionment factors for certain corporations deviating from the usual property, payroll and sales factor usage.

(5) Certain financial institutions not within the definition of "financial organization" in the Act, are covered by OAR 150-314.280-(A) to 150-314.280-(F).

150-314.280(3)

Election to Use Alternative Apportionment Weightings by Taxpayers Engaged in Utilities or Telecommunications; Revocation of Election

(1) A taxpayer engaged in utilities or telecommunications as defined in ORS 314.280(3)(e)(A) and (B) may elect to use the double-weighted sales apportionment factor weightings in ORS 314.650 (1999 Edition).

(2) This election is made by completing schedule AP using the double-weighted sales apportionment factor weightings on the original or amended tax return for each tax year for which the election is made to use the alternative factor weightings. For processing purposes check the appropriate box in the information section.

(3) A taxpayer may revoke the election to use the double-weighted sales apportionment factor weightings. This revocation is made by completing schedule AP using the single-sales apportionment factor on the original tax return.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.280
Hist.: REV 8-2002, f. & cert. ef. 12-31-02; REV 3-2005, f. 12-30-05, cert. ef 1-1-06; REV 11-2013, f. 12-26-13, cert. ef. 1-1-14

150-314.280-(A)

Apportionment and Allocation of Income of Financial Organizations and Public Utilities from Business Activities Within and Without Oregon

(1) The several parts of OAR 150-314.280, as amended in 1965 and thereafter, shall apply for all tax years beginning on and after January 1, 1965. Apportionment of income for tax years beginning prior to January 1, 1965, shall be governed by the law and rules in effect with respect to such years.

(2) The provisions of ORS 314.650, as amended in 1989 and thereafter incorporated in the several parts of OAR 150-314.280, apply to all tax returns of financial organizations and public utilities for all tax years beginning on or after January 1, 1991.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.280
Hist.: 1-65; 12-19-75; RD 3-1992, f. 5-28-92, cert. ef. 6-1-92; RD 7-1993, f. 12-30-93, cert. ef. 12-31-93

150-314.280-(B)

Definitions

The definitions of "business income," "commercial domicile," "compensation," "financial organization," "nonbusiness income," "public utility," "sales," and "state," contained in ORS 314.610 and the related rules are by this reference incorporated herein and made a part of this OAR 150-314.280-(B).

"Taxpayer" means a financial organization or a public utility.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.280
Hist.: 1-65; 12-19-75

150-314.280-(C)

Apportionment and Allocation of Income Generally

The provisions of OAR 150-314.615-(A) to 150-314.615-(E), 150-314.620-(A) to 150-314.620-(C), 150-314.640 and ORS 314.650 are by this reference incorporated herein and made a part of this OAR 150-314.280-(C).

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.280
Hist.: 1-65; 12-19-75; RD 7-1983, f. 12-20-83, cert. ef. 12-31-83; RD 11-1988, f. 12-19-88, cert. ef. 12-31-88; RD 3-1992, f. 5-28-92, cert. ef. 6-1-92

150-314.280-(D)

Allocation of Income

The provisions of ORS 314.625 to 314.645, inclusive, are by this reference incorporated herein and made a part of this OAR 150-314.280-(D).

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.280
Hist.: 1-65

150-314.280-(E)

Apportionment Factors Generally

(1) Business income is apportioned to this state by use of the formula provided in ORS 314.650 as it applies to the tax year involved or the formula provided in 314.280(3)(b) for qualifying utilities. For tax years beginning on or after July 1, 2005, 314.650 provides for apportionment using only the sales factor.

(2) For purposes of the sales factor as used in OAR 150-314.280-(G) through (L), "sales" means all gross receipts and revenues included in the taxpayer's apportionable income.

(3) For financial organizations, the three factors are modified as provided in OAR 150-314.280-(N).

(4) Title insurance companies and health care service contractors are not classed as "domestic insurers" under ORS 317.010(11) and so may not apportion their income under 317.660. These companies must apportion their income under the provisions of 314.610 to 314.665, except that "sales" includes "gross premium receipts."

(5) For public utilities (other than carriers of freight or passengers), companies engaged in sea transportation services, and companies engaged in interstate river transportation, the three factors are property, payroll and sales.

(6) For companies engaged in sea transportation services and companies engaged in interstate river transportation, the three factors are modified property, payroll and sales factors.

(7) For carriers of freight or passengers, the three factors are modified property, payroll and sales. Modified factors for such carriers, sea transportation companies, and interstate river transportation companies are contained in OAR 150-314.280-(G) through 150-314.280-(L).

Stat. Auth.: ORS 305.100, 314.280
Stats. Implemented: ORS 314.280
Hist.: 1-65; 11-69; 11-71; 1-1-77; RD 12-1985, f. 12-16-85, cert. ef. 12-31-85; RD 11-1988, f. 12-19-88, cert. ef. 12-31-88; RD 3-1992, f. 5-28-92, cert. ef. 6-1-92; RD 7-1993, f. 12-30-93, cert. ef. 12-31-93; REV 10-2007, f. 12-28-07, cert. ef. 1-1-08

150-314.280-(F)

Apportionment Factors

Property factor. Unless otherwise provided by rule, the provisions of ORS 314.655 and the rules pertaining thereto, are by this reference incorporated herein and made a part of this OAR 150-314.280-(F). Payroll factor. Unless otherwise provided by rule, the provisions of ORS 314.660 and the rules pertaining thereto, are by this reference incorporated herein and made a part of this 150-314.280-(F). Sales factor. Unless otherwise provided by rule, the provisions of ORS 314.665 and the rules pertaining thereto, are by this reference incorporated herein and made a part of this OAR 150-314.280

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.280
Hist.: 1-65; 1-70; 12-19-75; REV 4-2011, f. 12-30-11, cert. ef. 1-1-12

150-314.280-(G)

Modified Factors for Carriers of Freight or Passengers: General Rule

(1) Business income is apportioned to this state by use of the formula provided in ORS 314.650 as it applies to the tax year involved. For tax years beginning on or after July 1, 2005, 314.650 provides for apportionment using only the sales factor.

(2) A substantial portion of the net income of taxpayers engaged in the transportation of freight or passengers within and without Oregon results from the movement of revenue-producing equipment, drivers and other personnel. It is therefore necessary in calculating the apportionment factor of such carriers to reflect the results of the movement of such equipment and personnel by using revenue miles traveled both within and without the state. Thus, the apportionment formula of such transportation companies is to be computed as follows in tax years beginning before July 1, 2005:

(a) Tangible Property. Fixed properties, such as buildings and land used in the business, shop equipment, cars and trucks used in gathering or delivering local freight, are assigned to the state in which such properties are located. The value of trucks or other equipment used in over-the-road hauling or other transportation is assigned to this state on a revenue miles basis. For example, if ten percent of a taxpayer's revenue miles are in Oregon, then ten percent of the value of the revenue-producing equipment is included as part of the Oregon property factor.

(b) Payroll. The wages and salaries of employees assigned to fixed locations within this state are included in the Oregon payroll factor. The wages of personnel of over-the-road or other transportation equipment are assigned to this state upon the basis of revenue miles. The wages of such personnel are apportioned to Oregon in the proportion that revenue miles traveled within this state bear to total revenue miles traveled everywhere.

(c) Sales. Sales are assigned to this state in the proportion that the revenue miles traveled within the state bear to the total revenue miles traveled everywhere.

Stat. Auth.: ORS 305.100, 314.280
Stats. Implemented: ORS 314.280
Hist.: 1-65; 12-70; 12-19-75; 12-31-82; RD 7-1983, f. 12-20-83, cert. ef. 12-31-83; RD 11-1992, f. 12-30-92, cert. ef. 12-31-92; REV 10-2007, f. 12-28-07, cert. ef. 1-1-08

150-314.280-(H)

Modified Factors for Carriers of Freight or Passengers: Special Rules -- Railroads

(1) In General. Where a railroad has income from sources both within and without this state, the amount of business income from sources within this state must be determined pursuant to ORS 314.610 to 314.665 except as modified by this rule. In such cases, the first step is to determine what portion of the railroad's income constitutes "business" income and which portion constitutes "nonbusiness" income under ORS 314.610 and OAR 150-314.610(1)-(A) and (B). Nonbusiness income is directly allocable to specific states under ORS 314.625 to 314.645. Business income is apportioned among the states in which the business is conducted pursuant to the property, payroll and sales apportionment factors set forth in this rule. The sum of (1) the items of nonbusiness income directly allocated to this state, plus (2) the amount of business income attributable to this state constitutes the amount of the taxpayer's entire net income which is subject to tax by this state.

(2) Business and Nonbusiness Income. For definitions, rules and examples for determining business and nonbusiness income, see OAR 150-314.610(1)-(A) and (B).

(3) Apportionment of Business Income. Business income is apportioned to this state by use of the formula provided in ORS 314.650 as it applies to the tax year involved. For tax years beginning on or after July 1, 2005, 314.650 provides for apportionment using only the sales factor.

(a) In General. The property factor must be determined in accordance with ORS 314.655, the payroll factor in accordance with 314.660, and the sales factor in accordance with 314.665, except as modified in this rule.

(b) The Property Factor.

(A) Property Valuation. Owned property is valued at its original cost and property rented from others is be valued at eight (8) times the net annual rental rate in accordance with ORS 314.655 and OAR 150-314.655(2)-(B). Railroad cars owned and operated by other railroads and temporarily used by the taxpayer in its business and for which a per diem or mileage charge is made are not included in the property factor as rented property. Railroad cars owned and operated by the taxpayer and temporarily used by other railroads in their business and for which a per diem charge is made by the taxpayer are included in the property factor of the taxpayer.

(B) General Definitions. The following definitions are applicable to the numerator and denominator of the property factor:

(i) "Original cost" is deemed to be the basis of the property for federal income tax purposes (prior to any federal income tax adjustments except for subsequent capital additions, improvements thereto or partial dispositions); or, if the property has no such basis, the valuation of such property for Interstate Commerce Commission purposes. If the original cost of property is unascertainable under the foregoing valuation standards, the property is included in the property factor at its fair market value as of the date of acquisition by the taxpayer. (OAR 150-314.655(2)-(A))

(ii) "Rent" does not include the per diem and mileage charges paid by the taxpayer for the temporary use of railroad cars owned or operated by another railroad.

(iii) The "value" of owned real and tangible personal property means its original cost. (ORS 314.655 and OAR 150-314.655(2)-(A))

(iv) "Average value" of property means the amount determined by averaging the values at the beginning and ending of the tax period, but the Department may require the averaging of monthly values during the tax period or such averaging as necessary to reflect properly the average value of the railroad's property. (ORS 314.655 and OAR 150-314.655(3))

(v) The "value" of rented real and tangible personal property means the product of eight (8) times the net annual rental rate. (ORS 314.655 and OAR 150-314.655(2)-(B))

(vi) "Net annual rental rate" means the annual rental rate paid by the taxpayer less any annual rental rate received by the taxpayer from subrentals.

(vii) "Property used during the tax period" includes property which is available for use in the taxpayer's trade or business during the tax period.

(viii) A "locomotive-mile" is the movement of a locomotive (a self-propelled unit of equipment designed solely for moving other equipment) a distance of one mile under its own power.

(ix) A "car-mile" is a movement of a loaded or unloaded unit of car equipment a distance of one mile.

(C) The Denominator and Numerator of the Property Factor. The denominator of the property factor is the average value of all of the taxpayer's real and tangible personal property owned or rented and used during the tax period. The numerator of the property factor is the average value of the taxpayer's real and tangible personal property owned or rented and used in this state during the tax period. In determining the numerator of the property factor, all property except mobile or movable property such as passenger cars, freight cars, locomotives and freight containers which are located within and without this state during the tax period is included in the numerator of the property factor in accordance with ORS 314.655 and OAR 150-314.655(1)-(D). Mobile or movable property such as passenger cars, freight cars, locomotives and freight containers which are located within and without this state during the tax period is included in the numerator of the property factor in the ratio which "locomotive-miles" and "car-miles" in the state bear to the total everywhere.

(c) The Payroll Factor. The denominator of the payroll factor is the total compensation paid everywhere by the taxpayer during the tax period for the production of business income. (ORS 314.660 and OAR 150-314.660(1)) The numerator of the payroll factor is the total amount paid in this state during the tax period by the taxpayer for compensation. With respect to all personnel except the engine crew and train crew performing services on interstate trains, compensation paid to such employees is included in the numerator as provided in ORS 314.660 and OAR 150-314.660(2). With respect to the engine crew and train crew performing services on interstate trains, compensation paid to such employees is included in the numerator of the payroll factor in the ratio which their services performed in this state bear to their services performed everywhere. Compensation for services performed in this state is deemed to be the compensation reported or required to be reported by such employees for determination of their income tax liability to this state.

(d) The Sales Factor.

(A) In General. All sales derived from transactions and activities in the regular course of the trade or business of the taxpayer which produces business income are included in the denominator of the sales factor. (ORS 314.665 and OAR 150-314.665(1)-(A)) Per diem and mileage charges that are collected by the taxpayer are excluded from both the numerator and denominator of the sales factor. The numerator of the sales factor is the total sales of the taxpayer in this state during the tax period. The total sales of the taxpayer in this state during the tax period, other than sales from hauling freight, passengers, mail and express, are attributable to this state in accordance with ORS 314.665 and OAR 150-314.665(2)-(A).

(B) Numerator of Sales Factor From Freight, Mail and Express. The total sales of the taxpayer in this state during the tax period for the numerator of the sales factor from hauling freight, mail and express are attributable to this state as follows:

(i) All sales from shipments which both originate and terminate within this state; and

(ii) That portion of the sales from each movement or shipment passing through, into, or out of this state is determined by the ratio which the miles traveled by such movement or shipment in this state bears to the total miles traveled by such movement or shipment from point of origin to destination.

(C) Numerator of Sales Factor From Passengers. The numerator of the sales factor includes:

(i) All sales from the transportation of passengers (including mail and express handled in passenger services) which both originate and terminate within this state; and

(ii) That portion of the sales from the transportation of interstate passengers (including mail and express handled in passenger service) determined by the ratio which revenue passenger miles in this state bear to the total everywhere.

Stat. Auth.: ORS 305.100, 305.280
Stats. Implemented: ORS 305.280
Hist.: 1-65; 12-70; 12-19-75; 12-31-82; 12-31-83; RD 12-1985, f. 12-16-85, cert. ef. 12-31-85; RD 3-1992, f. 5-28-92, cert. ef. 6-1-92; RD 5-1994, f. 12-15-94, cert. ef. 12-31-94; REV 10-2007, f. 12-28-07, cert. ef. 1-1-08

150-314.280-(I)

Modified Factors for Carriers of Freight or Passengers: Special Rules -- Airlines

(1) In General. Where an airline has income from sources both within and without this state, the amount of business income from sources within this state is determined pursuant to ORS 314.610 to 314.665 except as modified by this rule.

(2) Apportionment of Business Income. Business income is apportioned to this state by use of the formula provided in ORS 314.650 as it applies to the tax year involved. For tax years beginning on or after July 1, 2005, ORS 314.650 provides for apportionment using only the sales factor.(a) General Definitions. The following definitions are applicable to the terms used in the apportionment factor descriptions.

(A) "Value" of owned real and tangible personal property means its original cost. (ORS 314.655 and OAR 150-314.655(2)-(A))

(B) "Cost of aircraft by type" means the average original cost or value of aircraft by type which are ready for flight.

(C) "Original cost" means the initial federal tax basis of the property plus the value of capital improvements to such property, except that, for this purpose, it is assumed that Safe Harbor Leases are not true leases and do not affect the original initial federal tax basis of the property.

(D) "Average value" of property means the amount determined by averaging the values at the beginning and ending of the income year, but the department may require the averaging of monthly values during the income year if such averaging is necessary to reflect properly the average value of the airline's property. (ORS 314.655 and OAR 150-314.655(3))

(E) The "value" of rented real and tangible personal property means the product of eight (8) times the net annual rental rate. (ORS 314.655 and OAR 150-314.655(2)-(B))

(F) "Net annual rental rate" means the annual rental rate paid by the taxpayer.

(G) "Property used during the income year" includes property which is available for use in the taxpayer's trade or business during the income year.

(H) "Aircraft ready for flight" means aircraft owned or acquired through rental or lease (but not interchange) which are in the possession of the taxpayer and are available for service on the taxpayer routes.

(I) "Revenue service" means the use of aircraft ready for flight for the production of revenue.

(J) "Transportation sales" means sales from transporting passengers, freight and mail as well as liquor sales, pet crate rentals, etc.

(K) "Departures" means for purposes of these regulations all takeoffs, whether they be regularly scheduled or charter flights, that occur during revenue service.

(b) Property Factor

(A) Property valuation. Owned aircraft shall be valued at its original cost and rented aircraft shall be valued at eight (8) times the net annual rental rate in accordance with ORS 314.655 and OAR 150-314.655(2)-(B). The use of the taxpayer's owned or rented aircraft in an interchange program with another air carrier does not constitute a rental of such aircraft by the airline to the other participating airline. Such aircraft are accounted for in the property factor of the owner. Parts and other expendables, including parts for use in contract overhaul work, are valued at cost.

(B) The denominator and numerator of the property factor. The denominator of the property factor is the average value of all of the taxpayer's real and tangible personal property owned or rented and used during the income year. The numerator of the property factor is the average value of the tangible personal property owned or rented and used in this state during the income year. In determining the numerator of the property factor, all property except aircraft ready for flight are included in the numerator of the property factor in accordance with ORS 314.655 and OAR 150-314.655(1)-(D). Aircraft ready for flight are included in the numerator of the property factor in the ratio calculated as follows: Departures of aircraft from locations in this state weighted as to the cost and value of aircraft by type compared to total departures similarly weighted.

(c) Payroll Factor. The denominator of the payroll factor is the total compensation paid everywhere by the taxpayer during the income year. (ORS 314.660 and OAR 150-314.660(1)) The numerator of the payroll factor is the total amount paid in this state during the income year by the taxpayer for compensation. With respect to non-flight personnel, compensation paid to such employees is included in the numerator as provided in ORS 314.660 and OAR 150-314.660(2). With respect to flight personnel (the air crew aboard an aircraft assisting in the operations of the aircraft or the welfare of passengers while in the air), compensation paid to such employees is included in the ratio that departures of aircraft from locations in this state, weighted as to the cost and value of aircraft by type, compared to total departures similarly weighted, multiplied by the total flight personnel compensation.

(d) Sales (Transportation Sales) Factor. The transportation sales derived from transactions and activities in the regular course of the trade or business of the taxpayer and miscellaneous sales of merchandise, etc., are included in the denominator of the sales factor. (ORS 314.665 and OAR 150-314.665(1)-(A)) Passive income items such as interest, rental income, dividends, etc., are not included in either the numerator or the denominator nor are the proceeds or net gains or losses from the sale of aircraft included. The numerator of the sales factor is the total sales of the taxpayer in this state during the income year. The total sales of the taxpayer in this state during the income year is the result of the following calculation: The ratio of departures of aircraft in this state weighted as to the cost and value of aircraft by type, as compared to total departure similarly weighted, multiplied by the total transportation revenue. The product of this calculation is to be added to any nonflight sales directly attributable to this state.

(3) Records. The taxpayer must maintain the records necessary to arrive at departures by type of aircraft as used in these rules. Such records are to be subject to review by the state of Oregon or their agents.

Example 1: [Example not included. See ED. NOTE.]

[ED. NOTE: Examples referenced are available from the agency.]

Stat. Auth.: ORS 305.100, 305.280
Stats. Implemented: ORS 314.280
Hist.: RD 4-1997, f. 9-12-97, cert. ef. 12-31-97; Eff. 1/65, Amended 12/70, 12/19/75, 12/31/82, 12/31/83, Amended to renumber and to transfer material from OAR 150-314.280-(G) to OAR 150-314.280-(I), 12/31/87; Amended 12/31/97; REV 10-2007, f. 12-28-07, cert. ef. 1-1-08

150-314.280-(J)

Modified Factors for Carriers of Freight or Passengers: Special Rules -- Trucking Companies

(1) In General. As used in this rule, the term "trucking company" means a motor common carrier, a motor contract carrier, or an express carrier which primarily transports tangible personal property of others by motor vehicle for compensation. Where a trucking company has income from sources both within and without this state, the amount of business income from sources within this state must be determined pursuant to ORS 314.610 to 314.665 except as modified by this rule. In such cases, the first step is to determine what portion of the trucking company's income constitutes "business" income and what portion constitutes "nonbusiness" income under 314.610 and the corresponding rules. Nonbusiness income is directly allocable to specific states pursuant to the provisions of 314.625 through 314.645. Business income is apportioned among the states in which the business is conducted pursuant to the property, payroll, and sales factors set forth in this rule. The sum of (a) the items of nonbusiness income directly allocated to this state plus (b) the amount of business income attributable to this state constitutes the amount of the taxpayer's entire net income which is subject to tax in this state.

(2) Business and Nonbusiness Income. For definitions, rules, and examples for determining business and nonbusiness income, see OAR 150-314.610(1)-(A) through 150-314.610(1)-(C).

(3) Apportionment of Business Income. Business income is apportioned to this state by use of the formula provided in ORS 314.650 as it applies to the tax year involved. For tax years beginning on or after July 1, 2005, ORS 314.650 provides for apportionment using only the sales factor.

(a) In General. The property factor is determined in accordance with ORS 314.655, the payroll factor in accordance with 314.660, and the sales factor in accordance with 314.665, except as modified in this rule.

(b) The Property Factor.

(A) Property Valuation. Owned property is valued at its original cost in accordance with ORS 314.655(2) and OAR 150-314.655(2)-(A). Property rented from others is valued at eight times the net annual rental rate in accordance with ORS 314.655(2) and OAR 150-314.655(2)-(B).

(B) General Definitions. The following definitions are applicable to the numerator and denominator of the property factor, as well as other apportionment factor descriptions:

(i) "Average value" of property means the amount determined by averaging the values at the beginning and end of the tax period, but the department may require the averaging of monthly values during the tax period or such averaging as is necessary to reflect properly the average value of the trucking company's property. (See OAR 150-314.655(3).)

(ii) "Mobile property" means all motor vehicles, including trailers, engaged directly in the movement of tangible personal property, other than support vehicles used predominantly in a local capacity.

(iii) A "mobile property mile" is the movement of a unit of mobile property a distance of one mile whether loaded or unloaded.

(iv) "Original cost" is deemed to be the basis of the property for federal income tax purposes (prior to any federal income tax adjustments, except for subsequent capital additions, improvements thereto, or partial dispositions); or, if the property has no such basis, the valuation of such property for Interstate Commerce Commission purposes. If the original cost of property cannot be ascertained under the foregoing valuation standards, the property is included in the property factor at its fair market value as of the date of acquisition by the taxpayer. (OAR 150-314.655(2)-(A).)

(v) "Property used during the tax period" includes property which is available for use in the taxpayer's trade or business during the tax period.

(C) The Denominator and Numerator of the Property Factor. The denominator of the property factor sis the average value of all the taxpayer's real and tangible personal property owned or rented and used during the tax period. The numerator of the property factor is the average value of the taxpayer's real and tangible personal property owned or rented and used in this state during the tax period. In the determination of the numerator of the property factor, all property, except mobile property as defined in this rule, is included in the numerator of the property factor in accordance with ORS 314.655 and the corresponding rules. Mobile property as defined in this rule, which is located within and without this state during the tax period is included in the numerator of the property factor in the ratio which mobile property miles in the state bear to the total mobile property miles.

(c) The Payroll Factor. The denominator of the payroll factor is the compensation paid everywhere by the taxpayer during the tax period for the production of business income. (See ORS 314.660 and the corresponding rules.) The numerator of the payroll factor is the total compensation paid in this state during the tax period by the taxpayer. With respect to all personnel, except those performing services within and without this state, compensation paid to such employees is included in the numerator as provided in 314.660 and the corresponding rules. With respect to personnel performing services within and without this state, compensation paid to such employees is included in the numerator of the payroll factor in the ratio which their services performed in this state bear to their services performed everywhere based on mobile property miles.

(d) The Sales Factor.

(A) In General. All sales derived from transactions and activities in the regular course of the taxpayer's trade or business which produce business income are included in the denominator of the sales factor. (See ORS 314.665(1) and OAR 150-314.665(1)-(A).) The numerator of the sales factor is the total sales of the taxpayer in this state during the tax period. The total state sales of the taxpayer, other than sales from hauling freight, mail, and express, are attributable to this state in accordance with ORS 314.665 and the corresponding rules.

(B) Numerator of the Sales Factor from Freight, Mail, and Express. The total sales of the taxpayer attributable to this state during the tax period from hauling freight, mail, and express is:

(i) Intrastate: All sales from any shipment which both originates and terminates within this state; and,

(ii) Interstate: That portion of the sales from movements or shipments passing through, into, or out of this state as determined by the ratio which the mobile property miles traveled by such movements or shipments in this state bear to the total mobile property miles traveled by movements or shipments from points of origin to destination.

(4) Records. The taxpayer must maintain the records necessary to identify mobile property and to enumerate by state the mobile property miles traveled by such mobile property as those terms are used in this rule. Such records are subject to review by the department or its agents.

(5) De Minimis Nexus Standards. Notwithstanding any provision contained herein, this rule does not apply to require the apportionment of income to this state if the trucking company during the course of the tax period neither:

(a) Owns nor rents any real or personal property in this state, except mobile property; nor

(b) Makes any pick-ups or deliveries within this state; nor

(c) Travels more than twenty-five thousand mobile property miles within this state; provided that the total mobile property miles traveled within this state during the tax period does not exceed 3 percent of the total mobile property miles traveled in all states by the trucking company during that tax period; nor

(d) Makes more than twelve trips into this state.

Stat. Auth.: ORS 305.100, 314.280
Stats. Implemented: ORS 314.280
Hist.: RD 12-1984, f. 12-5-84, cert. ef. 12-31-84; RD 15-1987, f. 12-10-87, cert. ef. 12-31-87; RD 12-1990, f. 12-20-90, cert. ef. 12-31-90; RD 3-1992, f. 5-28-92, cert. ef. 6-1-92; RD 6-1996, f. 12-23-96, cert. ef. 12-31-96; REV 10-2007, f. 12-28-07, cert. ef. 1-1-08

150-314.280-(K)

Modified Factors for Companies Engaged in Sea Transportation Service

(1) Sea transportation services within this rule include the activities of steamship companies substantially engaged in interstate or international commerce which derive income within and partly from sources without the state. They do not include the activities of water transportation carriers operating mainly on the Columbia and Willamette Rivers or water transportation carriers operating primarily within Oregon waters.

(2) The Oregon income of a taxpayer carrying on the business of sea transportation services must be determined pursuant to ORS 314.610 to 314.665 except as modified by this rule. Business income is apportioned to this state by use of the formula provided in 314.650 as it applies to the tax year involved. For tax years beginning on or after July 1, 2005, 314.650 provides for apportionment using only the sales factor.

(a) Property factor. The property factor is a fraction, the denominator of which includes the value of all real and tangible personal property, including ships, owned, rented or leased by the taxpayer and used in the business. The numerator of this factor includes all real and personal property owned, rented or leased by the taxpayer and used in the business, except ships, to the extent such assets are located in the state, and so much of the value of ships used in the business as is determined by applying the ratio that the voyage time which the ship was within this state during the tax period bears to the total voyage time of the ship during the tax period.

(A) The value of ships used in the business but not owned by the user, such as bareboat chartered vessels, is the same as their value for insurance purposes. There are generally three types of charters.

(i) "Bareboat" charters. The owner-charterer places the tanker at the complete use and control of the user. All operating costs are borne by the user, and the charter fee is purely for the use of the vessel. Bareboat charters are included in the property factor.

(ii) "Time and Demise" (long-term) charters. The owner-charterer provides, in addition to the vessel, all operational costs at the instruction of the user. Time and demise charter fees include a component for operating costs borne by the owner-charterer, such as insurance, port and docking fees, crew and master wages, fuel and repairs. Time and demise charters are considered the purchase of transportation and are not included in the property factor.

(iii) "Single Voyage" charters. These are actually purchased transportation services that take the form of a charter. The owner-charterer has complete use and control of the vessel and merely contracts to deliver product between one or more ports of loading and discharge. Single voyages may be arranged on a consecutive voyage basis. Single voyage charters are not included in the property factor.

(B) Other rented or leased property is valued in the manner set out in ORS 314.655 and OAR 150-314.655(2)-(B).

(C) The term "voyage time" means the time that a ship is in operation for the purpose of transporting cargo, freight, mail, passengers, etc. The time that a ship is in operation includes all sailing time, even though a ship is returning empty or is en route to a port of call to load passengers or cargo, all time in port while loading and unloading, all time awaiting cargo, and all time that the ship is laid up for ordinary repairs, refueling, or provisioning. A ship is not in operation when out of service or during the time that it is laid up for extensive repairs, overhaul, modification or is in dry dock.

(D) The voyage time spent traveling on the Columbia River below mile post 309 is divided equally between Oregon and Washington. For purposes of this rule a vessel is not considered traveling on the Columbia River while remaining at a port even though the vessel moves from one terminal or dock to another within that port.

Example: [Example not included. See ED. NOTE.]

(b) Payroll factor. The denominator of the payroll factor is the total compensation paid everywhere by the taxpayer during the tax period for the production of business income. (ORS 314.660 and OAR 150-314.660(1)) The numerator of the payroll factor is the total amount paid in this state during the tax period by the taxpayer for compensation. With respect to all personnel except ocean going personnel, compensation paid to such employees is included in the numerator as provided in ORS 314.660 and OAR 150-314.660(2). The numerator contains so much of the compensation of oceangoing personnel as is determined by applying a fraction, the numerator being the voyage time the ship spent within this state during the tax period and the denominator being the total voyage time of the ship during the tax period.

(c) Sales factor. The sales factor is a fraction, the denominator of which includes all sales derived from carrying cargo, i.e., passengers, freight, mail, etc., and the sales incidental thereto. In calculating the numerator of the factor, such sales are assigned to this state in the proportion that the voyage time the ship spent within this state during the tax period bears to the total voyage time of the ship during the tax period. Sales from activities incidental to the transportation service, such as income from restaurants, locker rentals, etc., are assigned to the state or country in which the activity is carried on.

[ED. NOTE: Examples referenced are available from the agency.]

Stat. Auth.: ORS 305.100, 314.280
Stats. Implemented: ORS 314.280
Hist.: 1-65; 12-70; 12-31-84, Renumbered from 150-314.280(H); 12-31-87; RD 3-1992, f. 5-28-92, cert. ef. 6-1-92; RD 9-1992, f. 12-29-92, cert. ef. 12-31-92; REV 10-2007, f. 12-28-07, cert. ef. 1-1-08

150-314.280-(L)

Modified Factors for Companies Involved in Interstate River Transportation Service

A taxpayer involved in interstate river transportation shall calculate its Oregon income under the provisions of ORS 314.610 to 314.665 except as modified by this rule. Business income is apportioned to this state by the formula provided in 314.650 as it applies to the tax year involved. For tax years beginning on or after July 1, 2005, 314.650 provides for apportionment using only the sales factor.

(2) Sales factor. The denominator of this factor include all sales. The numerator of this factor includes all sales not derived from interstate river transportation, assigned to this state in accordance with ORS 314.665. The numerator also includes all sales derived from vessels engaged in river transportation between Oregon and other states as is determined by applying the Oregon Interstate Mobile Allocation Formula (IMAF).

(3) Payroll factor. The payroll factor is a fraction. The denominator is the amount of all compensation paid to officers and employees, including personnel engaged in river transportation. The numerator of this factor includes all compensation paid to officers and employees not engaged in interstate river transportation, assigned to this state in accordance with ORS 314.660. The numerator also includes so much of the compensation to personnel engaged in river transportation between Oregon and other states as is determined by applying the Oregon IMAF.

(4) Property factor. The property factor is a fraction. The denominator includes the value of all real and tangible personal property, including vessels, owned, rented or leased by the taxpayer and used in the business. The numerator of this factor includes all real and personal property owned, rented or leased by the taxpayer and used in the business to the extent such assets are located in the state. The numerator also includes so much of the value of vessels engaged in river transportation between Oregon and other states and used in the business as is determined by applying the Oregon IMAF. The value of vessels used in the business but not owned by the user is the same as their value for insurance purposes. Property rented by the taxpayer is valued at eight times its net annual rental rate as set out in ORS 314.655 and OAR 150-314.655(2)-(B).

(5) For purposes of this rule, the Oregon IMAF is the average of two factors. The two factors are the originating and terminating tons factor and the ton-miles factor. For purposes of computing both factors, only mileage and tonnage from those vessels that operate on some portion of a river that constitutes the border between Oregon and other states is included in the computation. For example: The ton-miles generated by vessels operating on the Mississippi River or exclusively on the Willamette River would not be included in the computation.

(a) The originating and terminating tons factor is a fraction. The denominator is the total number of tons handled by the vessels engaged in river transportation between Oregon and other states. The numerator is the number of tons assigned to Oregon. The tons attributed to a voyage from one Oregon port to another Oregon port are credited wholly to Oregon. The tons attributed to a voyage between ports in different states are credited equally to the two states. For this purpose each trip between two ports of call is treated as a separate voyage even though the cargo may be scheduled for later movement to one or more ports.

(b) The ton-miles factor is a fraction. The denominator is the total number of ton-miles generated by the vessels engaged in river transportation between Oregon and other states. The numerator of the fraction consists of those ton-miles assignable to Oregon. Ton-miles generated on the Willamette are credited wholly to Oregon. Ton-miles generated on that part of the Columbia above mile 309 are credited wholly to Washington. One-half of those ton-miles generated on the portion of a river that forms the boundary between Oregon and another state are credited to Oregon. Ton-miles are figured by multiplying tons carried for each movement by miles traveled.

Example: [Example not included. See ED. NOTE.]

[ED. NOTE: Examples referenced are available from the agency.]

Stat. Auth.: ORS 305.100, 314.280
Stats. Implemented: ORS 314.280
Hist.: 10-5-84, 12-31-84, Renumbered from 150-314.280-(J); 12-31-87; RD 3-1992, f. 5-28-92, cert. ef. 6-1-92; REV 10-2007, f. 12-28-07, cert. ef. 1-1-08

150-314.280-(M)

Other Methods: Limited Application

(1) For taxpayers that are taxable both within and without Oregon, the provisions of ORS 314.280 will ordinarily require apportionment to arrive at a fair and accurate measure of net income from business activity in Oregon. If the taxpayer can show that no unitary relationship exists between its business activities within Oregon and those activities outside Oregon, then the taxpayer may use separate accounting.

(2) If the allocation and apportionment provisions of OAR 150-314.280-(A) to 150-314.280-(N) do not fairly and accurately reflect the net income of the business done within Oregon, based on the taxpayer's business activity within Oregon, the department may require or the taxpayer may request an alternative method of apportionment and the department may approve that method of apportioning all or any part of the net income from the taxpayer's business activity within Oregon:

(3) The request to use an alternative method of apportionment shall be filed in writing with the department. The request must be signed by the taxpayer or the taxpayer's authorized representative and shall be filed separately from the taxpayer's return. The request shall include a complete explanation of the alternative method as well as an explanation why the apportionment factors in OAR 150-314.280-(A) through 150-314.280-(N) should not be used. Upon receipt of the request, the department will review it and issue a letter either authorizing or denying the request. If denied, the taxpayer can appeal that action as provided in ORS 305.275. An alternative apportionment method may be used only after receiving written authorization from the department. The authorization may be revoked if, upon audit, it is determined that the alternative method does not arrive at a fair and accurate measure of net income from business activity in Oregon. Once an alternative method has been authorized, it shall be used until a request to change is made and approved by the department or until the authorization is revoked in an audit.

(4) Examples of alternative methods of apportionment include:

(a) The exclusion of any one or more of the factors;

(b) The inclusion of one or more additional factors which will fairly and accurately reflect the taxpayer's net income from business activity in Oregon; or

(c) The employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer's income.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.280
Hist.: 1-65, Renumbered from 150-314.280-(I); RD 15-1987, f. 12-10-87, cert. ef. 12-31-87; RD 5-1994, f. 12-15-94, cert. ef. 12-31-94; RD 3-1995, f. 12-29-95, cert. ef. 12-31-95

150-314.280-(N)

Modified Factors for Financial Organizations

(1) This rule is based on a model regulation adopted by the Multistate Tax Commission to promote uniform treatment of this item by the states. A financial institution having income from business activity that is taxable both within and without this state must allocate and apportion its net income as provided in this rule for tax years beginning on or after January 1, 1993. All items of nonbusiness income (income that is not includable in the apportionable tax base) must be allocated pursuant to the provisions of ORS 314.610 through 314.645 and the rules thereunder. A financial institution organized under the laws of a foreign country, the Commonwealth of Puerto Rico, or a territory or possession of the United States whose effectively connected income (as defined under the Federal Revenue Code) is taxable both within this state and within another state, other than the state in which it is organized, must allocate and apportion its net income as provided in this rule.

(2)(a) For tax years beginning on or after January 1, 1991 and before May 1, 2003, all business income must be apportioned to this state by multiplying the income by a fraction. The numerator of the fraction is two times the sales factor, as described in section (4) of this rule, plus the property factor, as described in section (5) of this rule, plus the payroll factor, as described in section (6) of this rule. The denominator of the fraction is four. If one of the factors is missing, the remaining factors are added and the sum is divided by three (divide by two if the missing factor is the sales factor). A factor is missing if both its numerator and denominator are zero, but it is not missing merely because its numerator is zero.

(b) For tax years beginning on or after May 1, 2003 and before July 1, 2005, all business income must be apportioned to this state by multiplying the income by a multiplier equal to 80 percent of the sales factor described in section (4) of this rule plus 10 percent of the property factor described in section (5) of this rule plus 10 percent of the payroll factor described in section (6) of this rule.

(c) For tax years beginning on or after July 1, 2005, all business income must be apportioned to this state by multiplying the income by a multiplier equal to 100 percent of the sales factor described in section (4) of this rule.

(d) Each factor must be computed according to the method of accounting (cash or accrual) used by the taxpayer for the taxable year.

(e) See OAR 150-314.280-(M) for other methods of apportionment and allocation or modification of the method in this rule that may be allowable.

(3) Definitions as used in this rule, unless the context otherwise requires:

(a) "Billing address" means the location indicated in the books and records of the taxpayer on the first day of the taxable year (or on such later date in the taxable year when the customer relationship began) as the address where any notice, statement, or bill relating to a customer's account is mailed.

(b) "Borrower or credit card holder located in this state" means:

(A) A borrower, other than a credit card holder, that is engaged in a trade or business that maintains its commercial domicile in this state; or

(B) A borrower that is not engaged in a trade or business or a credit card holder whose billing address is in this state.

(c) "Commercial domicile" means:

(A) The headquarters of the trade or business, that is, the place from which the trade or business is principally managed and directed; or

(B) If a taxpayer is organized under the laws of a foreign country, or of the Commonwealth of Puerto Rico, or any territory or possession of the United States, such taxpayer's commercial domicile is deemed for the purposes of this rule to be the state of the United States or the District of Columbia from which such taxpayer's trade or business in the United States is principally managed or directed. It is presumed, subject to rebuttal, that the location from which the taxpayer's trade or business is principally managed and directed is the state of the United States or the District of Columbia to which the greatest number of employees are regularly connected or out of which they are working, no matter where the services of such employees are performed, as of the last day of the taxable year.

(d) "Credit card" means credit, travel or entertainment card.

(e) "Credit card issuer's reimbursement fee" means the fee a taxpayer receives from a merchant's bank because one of the persons to whom the taxpayer has issued a credit card has charged merchandise or services provided by the merchant to the credit card. (f) "Financial corporation" has the same meaning as "financial institution" in subsection (3)(g) of this rule.

(g) "Financial institution" is defined in ORS 314.610(4).

(h) "Loan" means any extension of credit resulting from direct negotiations between the taxpayer and its customer, or the purchase, in whole or in part, of such extension of credit from another. Loans include participations, syndications, and leases treated as loans for federal income tax purposes. Loans do not include: loans representing property acquired in lieu of or pursuant to a foreclosure under section 595 of the federal Internal Revenue Code; futures or forward contracts; options; notional principal contracts such as swaps; credit card receivables, including purchased credit card relationships; noninterest bearing balances due from other depository institutions; cash items in the process of collection; federal funds sold; securities purchased under agreements to resell; assets held in a trading account; securities; interests in a REMIC, or other mortgage-backed or asset-backed security; and other similar items.

(i) "Loan secured by real property" means that 50 percent or more of the aggregate value of the collateral used to secure a loan or other obligation, when valued at fair market value as of the time the original loan or obligation was incurred, was real property.

(j) "Merchant discount" means the fee (or negotiated discount) charged to a merchant by the taxpayer for the privilege of participating in a program whereby a credit card is accepted in payment for merchandise or services sold to the card holder.

(k) "Participation" means an extension of credit in which an undivided ownership interest is held on a pro rata basis in a single loan or pool of loans and related collateral. In a loan participation, the credit originator initially makes the loan and then subsequently resells all or a portion of it to other lenders. The participation may or may not be known to the borrower.

(l) "Person" means an individual, estate, trust, partnership, corporation, and any other business entity.

(m) "Principal base of operations" with respect to transportation property means the place of more or less permanent nature from which said property is regularly directed or controlled. With respect to an employee, the "principal base of operations" means the place of more or less permanent nature from which the employee regularly:

(A) Starts his or her work and to which the employee customarily returns in order to receive instructions from the employer, or

(B) Communicates with customers or other persons, or

(C) Performs any other functions necessary to the exercise of the employee's trade or profession at some other point or points.

(n) "Real property owned" and "tangible personal property owned" means real and tangible personal property, respectively,

(A) On which the taxpayer may claim depreciation for federal income tax purposes; or

(B) Property to which the taxpayer holds legal title and on which no other person may claim depreciation for federal income tax purposes (or could claim depreciation if subject to federal income tax). Real and tangible personal property do not include coin, currency, or property acquired in lieu of or pursuant to a foreclosure.

(o) "Regular place of business" means an office at which the taxpayer conducts business in a regular and systematic manner and that is continuously maintained, occupied, and used by employees of the taxpayer.

(p) "State" is defined in ORS 314.610(8).

(q) "Syndication" means an extension of credit in which two or more persons fund and each person is at risk only up to a specified percentage of the total extension of credit or up to a specified dollar amount.

(r) "Taxable" is defined as "taxable in another state" in ORS 314.620.

(s) "Transportation property" means vehicles and vessels capable of moving under their own power, such as aircraft, trains, water vessels, and motor vehicles, as well as any equipment or containers attached to such property, such as rolling stock, barges, trailers, or the like.

(4) Sales Factor.

(a) In general. The sales factor is a fraction as provided in ORS 314.665(1). The sales factor includes only those receipts described herein that constitute business income and are included in the computation of the apportionable income base for the taxable year.

(b) Receipts from the lease of real property. See OAR 150-314.665(4).

(c) Receipts from the lease of tangible personal property.

(A) Except as described in paragraph (B) of this subsection, the numerator of the sales factor includes receipts from the lease or rental of tangible personal property owned by the taxpayer if the property is located within this state when it is first placed in service by the lessee.

(B) Receipts from the lease or rental of transportation property owned by the taxpayer are included in the numerator of the sales factor to the extent that the property is used in this state. The extent an aircraft is deemed to be used in this state is determined by multiplying the receipts from the lease or rental of the aircraft by a fraction, the numerator of which is the number of landings of the aircraft in this state and the denominator of which is the total number of landings of the aircraft. If the extent of the use of any transportation property within this state cannot be determined, then the property is deemed to be used wholly in the state in which the property has its principal base of operations. A motor vehicle is deemed to be used wholly in the state in which it is registered.

(d) Interest from loans secured by real property.

(A) The numerator of the sales factor includes interest and fees or penalties in the nature of interest from loans secured by real property if the property is located within this state. If the property is located both within this state and one or more other states, the receipts described in this subsection are included in the numerator of the sales factor if more than 50 percent of the fair market value of the real property is located within this state. If more than 50 percent of the fair market value of the real property is not located within any one state, then the receipts described in this subsection must be included in the numerator of the sales factor if the borrower is located in this state.

(B) The determination of whether the real property securing a loan is located within this state is made as of the time the original agreement was made, and any and all subsequent substitutions of collateral are disregarded.

(e) Interest from loans not secured by real property. The numerator of the sales factor includes interest and fees or penalties in the nature of interest from loans not secured by real property if the borrower is located in this state.

(f) Net gains from the sale of loans. The numerator of the sales factor includes net gains from the sale of loans. Net gains from the sale of loans includes income recorded under the coupon stripping rules of section 1286 of the Internal Revenue Code.

(A) The amount of net gains (but not less than zero) from the sale of loans secured by real property included in the numerator is determined by multiplying such net gains by a fraction, the numerator of which is the amount included in the numerator of the sales factor pursuant to subsection (d) of this section and the denominator of which is the total amount of interest and fees or penalties in the nature of interest from loans secured by real property.

(B) The amount of net gains (but not less than zero) from the sale of loans not secured by real property included in the numerator is determined by multiplying such net gains by a fraction, the numerator of which is the amount included in the numerator of the sales factor pursuant to subsection (e) of this section and the denominator of which is the total amount of interest and fees or penalties in the nature of interest from loans not secured by real property.

(g) Receipts from credit card receivables. The numerator of the sales factor includes interest and fees or penalties in the nature of interest from credit card receivables and receipts from fees charged to card holders, such as annual fees, if the billing address of the card holder is in this state.

(h) Net gains from the sale of credit card receivables. The numerator of the sales factor includes all net gains (but not less than zero) from the sale of credit card receivables multiplied by a fraction, the numerator of which is the amount included in the numerator of the sales factor pursuant to subsection (g) of this section and the denominator of which is the taxpayer's total amount of interest and fees or penalties in the nature of interest from credit card receivables and fees charged to card holders.

(i) Credit card issuer's reimbursement fees. The numerator of the sales factor includes all credit card issuer's reimbursement fees multiplied by a fraction, the numerator of which is the amount included in the numerator of the sales factor pursuant to subsection (g) of this section and the denominator of which is the taxpayer's total amount of interest and fees or penalties in the nature of interest from credit card receivables and fees charged to card holders.

(j) Receipts from merchant discount. The numerator of the sales factor includes receipts from merchant discount if the commercial domicile of the merchant is in this state. Such receipts are computed net of any card holder charge backs, but are not reduced by any interchange transaction fees or by any issuer's reimbursement fees paid to another for charges made by its card holders.

(k) Loan servicing fees.

(A) The numerator of the sales factor includes loan servicing fees derived from loans secured by real property multiplied by a fraction, the numerator of which is the amount included in the numerator of the sales factor pursuant to subsection (d) of this section and the denominator of which is the total amount of interest and fees or penalties in the nature of interest from loans secured by real property.

(B) The numerator of the sales factor includes loan servicing fees derived from loans not secured by real property multiplied by a fraction, the numerator of which is the amount included in the numerator of the sales factor pursuant to subsection (e) of this section and the denominator of which is the total amount of interest and fees or penalties in the nature of interest from loans not secured by real property.

(C) In circumstances in which the taxpayer receives loan servicing fees for servicing either the secured or the unsecured loans of another, the numerator of the sales factor must include such fees if the borrower is located in this state.

(l) Receipts from services. See OAR 150-314.665(4).

(m) Receipts from investment assets and activities and trading assets and activities.

(A) Interest, dividends (less Oregon dividend deduction), net gains (but not less than zero), and other income from investment assets and activities and from trading assets and activities are included in the sales factor. Investment assets and activities and trading assets and activities include but are not limited to: investment securities, trading account assets, federal funds; securities purchased and sold under agreements to resell or repurchase, options, future contracts, forward contracts, notional principal contracts such as swaps, equities, and foreign currency transactions. With respect to the investment and trading assets and activities described in subparagraphs (i) and (ii) of this paragraph, the sales factor includes the amounts described in such subparagraphs.

(i) The sales factor includes the amount by which interest from federal funds sold and securities purchased under resale agreements exceeds interest expense on federal funds purchased and securities sold under repurchase agreements.

(ii) The sales factor includes the amount by which interest, dividends (less Oregon dividend deduction), gains, and other income from trading assets and activities, including but not limited to assets and activities in the matched book, in the arbitrage book, and foreign currency transactions, exceed amounts paid in lieu of interest, amounts paid in lieu of dividends, and losses from such assets and activities.

(B) The numerator of the sales factor includes interest, dividends (less Oregon dividend deduction), net gains (but not less than zero), and other income from investment assets and activities and from trading assets and activities described in paragraph (A) that are attributable to this state.

(i) The amount of interest, dividends (less Oregon dividend deduction), net gains (but not less than zero) and other income from investment assets and activities in the investment account to be attributed to this state and included in the numerator of the sales factor is determined by multiplying all such income from such assets and activities by a fraction, the numerator of which is the average value of such assets that are properly assigned to a regular place of business of the taxpayer within this state and the denominator of which is the average value of all such assets.

(ii) The amount of interest from federal funds sold and purchased and from securities purchased under resale agreements and securities sold under repurchase agreements attributable to this state and included in the numerator of the sales factor is determined by multiplying the amount described in subparagraph (i) of paragraph (A) from such funds and such securities by a fraction, the numerator of which is the average value of federal funds sold and securities purchased under agreements to resell that are properly assigned to a regular place of business of the taxpayer within this state and the denominator of which is the average value of all such funds and such securities.

(iii) The amount of interest, dividends (less Oregon dividend deduction), gains, and other income from trading assets and activities, including but not limited to assets and activities in the matched book, in the arbitrage book, and foreign currency transactions, (but excluding amounts described in subparagraphs (i) and (ii) of this paragraph), attributable to this state and included in the numerator of the sales factor is determined by multiplying the amount described in subparagraph (ii) of paragraph (A) by a fraction, the numerator of which is the average value of such trading assets that are properly assigned to a regular place of business of the taxpayer within this state and the denominator of which is the average value of all such assets.

(iv) For purposes of this paragraph, average value is determined using the rules for determining the average value of tangible personal property set forth in subsections (c) and (d) of section (5).

(C) In lieu of using the method set forth in paragraph (B) of this subsection, the taxpayer may elect, or the department may require in order to fairly represent the business activity of the taxpayer in this state, the use of the method set forth in this paragraph.

(i) The amount of interest, dividends (less Oregon dividend deduction), net gains (but not less than zero), and other income from investment assets and activities in the investment account to be attributed to this state and included in the numerator of the sales factor is determined by multiplying all such income from such assets and activities by a fraction, the numerator of which is the gross income from such assets and activities that are properly assigned to a regular place of business of the taxpayer within this state and the denominator of which is the gross income from all such assets and activities.

(ii) The amount of interest from federal funds sold and purchased and from securities purchased under resale agreements and securities sold under repurchase agreements attributable to this state and included in the numerator of the sales factor is determined by multiplying the amount described in subparagraph (i) of paragraph (A) from such funds and such securities by a fraction, the numerator of which is the gross income from such funds and such securities that are properly assigned to a regular place of business of the taxpayer within this state and the denominator of which is the gross income from all such funds and such securities.

(iii) The amount of interest, dividends (less Oregon dividend deduction), gains, and other income from trading assets and activities, including but not limited to assets and activities in the matched book, in the arbitrage book, and foreign currency transactions (but excluding amounts described in subparagraphs (i) and (ii) of this paragraph) attributable to this state and included in the numerator is determined by multiplying the amount described in subparagraph (ii) of paragraph (A) by a fraction, the numerator of which is the gross income from such trading assets and activities that are properly assigned to a regular place of business of the taxpayer within this state and the denominator of which is the gross income from all such assets and activities.

(D) If the taxpayer elects or is required by the department to use the method set forth in paragraph (C) of this subsection, it must use this method on all subsequent returns unless the taxpayer receives prior written permission from the department, or the department requires the use of a different method.

(E) The taxpayer has the burden of proving that an investment asset or activity or trading asset or activity was properly assigned to a regular place of business outside of this state by demonstrating that the day-to-day decisions regarding the asset or activity occurred at a regular place of business outside this state. Where the day-to-day decisions regarding an investment asset or activity or trading asset or activity occur at more than one regular place of business, and one such regular place of business is in this state and one such regular place of business is outside this state, such asset or activity is considered to be located at the regular place of business of the taxpayer where the investment or trading policies or guidelines with respect to the asset or activity are established. Unless the taxpayer demonstrates to the contrary, such policies and guidelines are presumed to be established at the commercial domicile of the taxpayer.

(n) All other receipts. The numerator of the sales factor includes all other receipts pursuant to the rules set forth under ORS 314.665.

(o) Attribution of certain receipts to commercial domicile. All receipts that would be assigned under this section to a state in which the taxpayer is not taxable are included in the numerator of the sales factor if the taxpayer's commercial domicile is in this state.

(5) Property Factor.

(a) In general. The property factor is a fraction, the numerator of which is the average value of the taxpayer's real property, tangible personal property, loans, and credit card receivables located and used within this state during the taxable year and the denominator of which is the average value of all such property located and used both within and without this state during the taxable year.

(b) Property included. The property factor includes only property the income or expenses of which are included (or would have been included if not fully depreciated or expensed, or depreciated or expensed to a nominal amount) in the computation of the apportionable income base for the taxable year.

(c) Value of property owned by the taxpayer.

(A) The value of real property and tangible personal property owned by the taxpayer is the original cost or other basis of such property for federal income tax purposes without regard to depletion, depreciation, or amortization.

(B) Loans are valued at their outstanding principal balance, without regard to any reserve for bad debts. If a loan is charged off in whole or in part for federal income tax purposes, the portion of the loan charged off is not outstanding. A specifically allocated reserve established pursuant to regulatory or financial accounting guidelines that is treated as charged off for federal income tax purposes is treated as charged off for purposes of this section.

(C) Credit card receivables are valued at their outstanding principal balance, without regard to any reserve for bad debts. If a credit card receivable is charged off in whole or in part for federal income tax purposes, the portion of the receivable charged off is not outstanding.

(d) Average value of property owned by the taxpayer. See OAR 150-314.655(2)-(A) and 150-314.655(3).

(e) Average value of real property and tangible personal property rented to the taxpayer. See OAR 150-314.655(2)-(B).

(f) Location of real property and tangible personal property owned by or rented to the taxpayer.

(A) Except as described in paragraph (B) of this subsection, real property and tangible personal property owned by or rented to the taxpayer is considered to be located within this state if it is physically located, situated, or used within this state.

(B) Transportation property is included in the numerator of the property factor to the extent that the property is used in this state. The extent an aircraft is deemed to be used in this state and the amount of value that is included in the numerator of this state's property factor is determined by multiplying the average value of the aircraft by a fraction, the numerator of which is the number of landings of the aircraft in this state and the denominator of which is the total number of landings of the aircraft everywhere. If the extent of the use of any transportation property within this state cannot be determined, then the property is deemed to be used wholly in the state in which the property has its principal base of operations. A motor vehicle is deemed to be used wholly in the state in which it is registered.

(g) Location of loans.

(A)(i) A loan is considered to be located within this state if it is properly assigned to a regular place of business of the taxpayer within this state.

(ii) A loan is properly assigned to the regular place of business with which it has a preponderance of substantive contacts. A loan assigned by the taxpayer to a regular place of business without the state is presumed to have been properly assigned if:

(I) The taxpayer has assigned, in the regular course of its business, such loan on its records to a regular place of business consistent with federal or state regulatory requirements;

(II) Such assignment on its records is based upon substantive contacts of the loan to such regular place of business; and

(III) The taxpayer uses said records reflecting assignment of loans for the filing of all state and local tax returns for which an assignment of loans to a regular place of business is required.

(iii) The presumption of proper assignment of a loan provided in subparagraph (A)(ii) of this section may be rebutted upon a showing by the department, supported by a preponderance of the evidence, that the preponderance of substantive contacts regarding such loan did not occur at the regular place of business to which it was assigned on the taxpayer's records. When such presumption has been rebutted, the loan is located within this state if:

(I) The taxpayer had a regular place of business within this state at the time the loan was made; and

(II) The taxpayer fails to show, by a preponderance of the evidence, that the preponderance of substantive contacts regarding such loan did not occur within this state.

(B) In the case of a loan that is assigned by the taxpayer to a place without this state that is not a regular place of business, it is presumed, subject to rebuttal by the taxpayer on a showing supported by the preponderance of evidence, that the preponderance of substantive contacts regarding the loan occurred within this state if, at the time the loan was made the taxpayer's commercial domicile, as defined by subsection (3)(c), was within this state.

(C) To determine the state in which the preponderance of substantive contacts relating to a loan have occurred, the facts and circumstances regarding the loan at issue will be reviewed on a case-by-case basis and consideration will be given to such activities as the solicitation, investigation, negotiation, approval, and administration of the loan. The terms "solicitation," "investigation," "negotiation," "approval," and "administration" are defined as follows:

(i) Solicitation. Solicitation is either active or passive. Active solicitation occurs when an employee of the taxpayer initiates the contact with the customer. Such activity is located at the regular place of business that the taxpayer's employee is regularly connected with or working out of, regardless of where the services of such employee were actually performed. Passive solicitation occurs when the customer initiates the contact with the taxpayer. If the customer's initial contact was not at a regular place of business of the taxpayer, the regular place of business, if any, where the passive solicitation occurred is determined by the facts in each case.

(ii) Investigation. Investigation is the procedure whereby employees of the taxpayer determine the credit-worthiness of the customer as well as the degree of risk involved in making a particular agreement. Such activity is located at the regular place of business that the taxpayer's employees are regularly connected with or working out of, regardless of where the services of such employees were actually performed.

(iii) Negotiation. Negotiation is the procedure whereby employees of the taxpayer and its customer determine the terms of the agreement (e.g., the amount, duration, interest rate, frequency of repayment, currency denomination, and security required). Such activity is located at the regular place of business that the taxpayer's employees are regularly connected with or working out of, regardless of where the services of such employees were actually performed.

(iv) Approval. Approval is the procedure whereby employees or the board of directors of the taxpayer make the final determination whether to enter into the agreement. Such activity is located at the regular place of business that the taxpayer's employees are regularly connected with or working out of, regardless of where the services of such employees were actually performed. If the board of directors makes the final determination, such activity is located at the commercial domicile of the taxpayer.

(v) Administration. Administration is the process of managing the account. This process includes bookkeeping, collecting the payments, corresponding with the customer, reporting to management regarding the status of the agreement, and proceeding against the borrower or the security interest if the borrower is in default. Such activity is located at the regular place of business that oversees this activity.

(h) Location of credit card receivables. For purposes of determining the location of credit card receivables, credit card receivables are treated as loans and are subject to the provisions of subsection (g) of this section.

(i) Period for which properly assigned loan remains assigned. A loan that has been properly assigned to a state, absent any change of material fact, remains assigned to that state for the length of the original term of the loan. Thereafter, the loan may be properly assigned to another state if the loan has a preponderance of substantive contact to a regular place of business there.

(6) Payroll factor. In general. The payroll factor is determined as provided in ORS 314.660 and the rules thereunder.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.280
Hist.: RD 7-1993, f. 12-30-93, cert. ef. 12-31-93; RD 3-1995, f. 12-29-95, cert. ef. 12-31-95; REV 8-2002, f. & cert. ef. 12-31-02; REV 2-2003, f. & cert. ef. 7-31-03; REV 6-2004, f. 7-30-04, cert. ef. 7-31-04; REV 3-2005, f. 12-30-05, cert. ef 1-1-06; REV 5-2006, f. & cert. ef. 7-31-06; REV 10-2009, f. 12-21-09, cert. ef. 1-1-10

150-314.295

Disallowance of Certain Intercompany Transactions Involving Intangible Assets

(1) The provisions of section (3) of this rule apply in situations where:

(a) An intangible asset is owned by one corporation, organization, trade or business (the owner) and used by another (the user) for a royalty or other fee,

(b) Both the owner and the user are "owned by the same interests," as defined in Treas. Reg.§1.469-4T, paragraph (j),

(c) The owner and the user are not included in the same Oregon tax return, and

(d) The separation of ownership of the intangible asset from the user of the intangible asset results in either:

(A) Evasion of tax, or

(B) A computation of Oregon taxable income that is not clearly reflective of Oregon business income.

(2) For purposes of this rule, separation of the ownership and use of an intangible asset is for "evasion of taxes" when such separation has no effect on the operations of the user beyond payment of the royalty or other fee.

(3) The user of the intangible asset must add the royalty or other expense for such use to federal taxable income as an "other addition" on the Oregon tax return. The owner of the intangible asset must subtract the royalty or other income from such use from federal taxable income as an "other subtraction" on the Oregon tax return. The following example is for illustrative purposes only.

Example: Alpha Corporation (Alpha) uses a number of trademarks in its retail sales business. After developing the value of the trademarks over a period of 30 years, Alpha incorporated a subsidiary, Beta, Inc. (Beta) in Bermuda and transferred the trademarks to Beta for shares of newly issued Beta stock. Alpha paid royalties to Beta for use of the trademarks. Beta is not included in Alpha's consolidated federal and Oregon tax returns. After the transfer of the trademarks to Beta, Alpha uses the trademarks as it had before the transfer and the only change in its business operation is the payment of the royalty. The transfer of the trademarks does not change Alpha's business operations as they are readily apparent to or as they affect relations with customers, vendors or other external parties. Alpha requires that Beta manage the trademarks as Alpha had before the transfer. Alpha must add the royalty deduction back to federal taxable income on its Oregon Corporation Excise Tax return. If Beta is subject to Oregon taxation, the royalty income must be subtracted from its federal taxable income.

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.295
Hist.: REV 4-2003, f. & cert. ef. 12-31-03; REV 3-2009, f. & cert. ef. 7-31-09

150-314.297(6)

Farm Income Averaging

(1)(a) Overview. An individual engaged in a farming business may elect to compute his or her current year (election year) income tax liability under ORS Chapter 316 by averaging, over the prior three-year period (base years), all or a portion of the individual's current year electible farm income (as defined in section (4) of this rule). To average farm income, the individual:

(A) Designates all or a portion of his or her elected farm income for the election year as elected farm income; and

(B) Allocates one-third of the elected farm income to each of the three base years; and

(C) Determines the election year tax under ORS Chapter 316 by determining the sum of:

(i) The election year ORS Chapter 316 tax without regard to the elected farm income; plus

(ii) For each base year, the increase in ORS Chapter 316 tax attributable to the elected farm income allocated to each year.

(b) Individual engaged in a farming business. An individual engaged in a farming business includes a sole proprietor of a farming business, a partner in a partnership engaged in a farming business, and a shareholder of an S corporation engaged in a farming business. Estates and trusts may not use farm income averaging. An individual is not required to have been engaged in a farming business in any of the base years in order to make a farm income averaging election.

(c) Making, changing, or revoking an election. A farm income averaging election is made by filing a Farm Income Averaging form with an individual's timely filed (including extensions) Oregon income tax return for the election year.

(A) An individual who has an adjustment for an election year or any base year may make a late farm income averaging election, change the amount of elected farm income in a previous election, or revoke a previous election, if the period of limitation prescribed in ORS 314.415 has not expired for the election year. For purposes of this paragraph, an adjustment is any change in taxable income or tax liability that is permitted to be made by filing an amended Oregon income tax return or a change in taxable income or tax liability made as the result of an examination or a federal audit report received from the Internal Revenue Service.

(B) If the individual does not have an adjustment as described in paragraph (A), the individual may not make a late farm income averaging election, change the amount of elected farm income in a previous election, or revoke a previous election, without the consent of the department.

(2) Calculation of tax for the election year. Determine the tax for the election year by allocating elected farm income to the base years only after all other adjustments and determinations have been made. For example, any net operating loss (NOL) carryover or net capital loss carryover is applied to an election year before allocating elected farm income to the base year. Similarly, the determination of whether there is a net section 1231 gain or loss in the election year and the determination of the character of the section 1231 items are made before allocating elected farm income to the base years. The allocation of the elected farm income to the base years does not affect any determination with respect to the election year or the base years. For example, in calculating a deduction or tax credit for Oregon that is computed by using adjusted gross income or is limited by adjusted gross income, adjusted gross income for the election year includes any elected farm income allocated to the base years. Similarly, adjusted gross income for the base year is not recalculated to take into account the allocation of elected farm income. The calculation of tax on elected farm income allocated to a base year is made without any additional adjustments or determinations with respect to the base year. For example, if a base year had a partially used capital loss, the remaining capital loss may not be applied to reduce the elected farm income allocated of the base year. Similarly, if a base year had a partially used credit, the remaining credit may not be applied to reduce tax attributable to the elected farm income allocated to the base year.

(3) Base year was previously an election year or another base year. If a base year for a current farm income averaging election was previously an election year for another farm income averaging election, determine the base year's Oregon tax after reducing the base year's taxable income by the elected farm income for the prior election year. If a base year for a current farm income averaging election was previously a base year for another farm income averaging election, determine the base year's Oregon tax after increasing the base year's taxable income by the elected farm income allocated to that year by the prior election.

Example: In each of years 1999, 2000, and 2001, farmer Joe had taxable income of $15,000. In 2002, farmer Joe had taxable income of $30,000 (prior to any farm income averaging election) and electible farm income of $9,000. Farmer Joe makes a farm income averaging election to average all $9,000 of his electible farm income for 2002. Thus, $3,000 of elected farm income is allocated to each of years 1999, 2000, and 2001. Joe's 2002 tax liability is the sum of:

(a) The Oregon tax on $21,000 (2002 taxable income minus elected farm income); plus

(b) For each of years 1999, 2000, and 2001, the Oregon tax on $18,000 minus the Oregon tax on $15,000 (the increase in tax attributable to the elected farm income allocated to each year).

In 2003, Joe has taxable income of $50,000 and electible farm income of $12,000. Joe makes a farm income averaging election to allocate all $12,000 of his electible farm income for 2003. Thus, $4,000 of elected farm income is allocated to each of years 2000, 2001, and 2002. Joe's 2003 tax liability is the sum of:

(a) The Oregon tax on $38,000 (2003 taxable income minus elected farm income); plus

(b) For each of years 2000 and 2001, the Oregon tax on $22,000 ($15,000 + $3,000 + $4,000) minus the tax on $18,000 (the increase in Oregon tax attributable to the elected farm income allocated to these years after increasing each years' taxable income by elected farm income allocated to each years by the 2002 farm income averaging election); plus

(c) For year 2003, the Oregon tax on $25,000 (the 2002 taxable income minus elected farm income plus the $4,000 allocated to this base year) minus the Oregon tax on $21,000 (the increase in tax attributable to the elected farm income allocated to this year after reducing this year's taxable income by the 2002 elected farm income.

(4) Electible farm income.

(a) Farm income includes items of income, deduction, gain, and loss attributable to the individual's farming business. Farm losses include a NOL carryover, or a net capital loss carryover to an election year that is attributable to a farming business. Income, gain, or loss from the sale of development rights, grazing rights, and other similar rights is not treated as attributable to a farming business. Farm income does not include wages.

(b) Gain or loss on sale or other disposition of property. Gain or loss from the sale of other disposition of property (other than land, but including a structure affixed to the land) that was regularly used in the individual's farming business for a substantial period of time is treated as attributable to a farming business. Whether property was regularly used for a substantial period of time depends on all of the facts and circumstances.

(c) Cessation of a farming business. If gain or loss is realized on assets used in a farming business after the farming business stops, the gain or loss is treated as attributable to a farming business if the property is sold within a reasonable time after the business ceases operations. A sale or other disposition within one year of the end of business operations is considered to be within a reasonable time. Whether a sale or other disposition that occurs more than one year after the end of business operations is within a reasonable time depends on all of the facts and circumstances.

(d) Determination of amount that may be elected farm income. The maximum amount of income that an individual may elect to average (electible farm income) is the sum of any farm income and gain minus any farm deductions or losses (including loss carryovers and carrybacks) that are allowed as a deduction in computing the individual's taxable income. Electible farm income may not exceed taxable income. Electible farm income from net capital gain attributable to a farming business cannot exceed total net capital gain. An individual who has both ordinary and net capital gain farm income may elect (up to electible farm income) any combination of such ordinary and net capital gain farm income.

Example 1. A has farm gross receipts of $200,000 and farm ordinary deductions of $50,000. A's taxable income is $150,000 ($200,000 - $50,000). A's electible farm income is $150,000, all of which is ordinary income.

Example 2. B has a farm capital gain of $50,000 and a nonfarm capital loss of $40,000. B also has ordinary farm income of $60,000. B has taxable income of $70,000 ($50,000 - $40,000 + $60,000). B's electible farm income is $70,000. B can elect up to $10,000 of farm capital gain and up to $60,000 of farm ordinary income.

Example 3. C has a nonfarm capital gain of $40,000 and a farm capital loss of $30,000. C also has ordinary farm income of $100,000. C has taxable income of $110,000 ($40,000 - $30,000 + $100,000). C's electible farm income is $100,000 ordinary farm income minus $30,000 farm capital loss, or $70,000, all of which is ordinary income.

(5) Miscellaneous rules.

(a) Short taxable year. If a base year or an election year is a short taxable year, the rules of IRC 443 and the regulations thereunder apply for purposes of calculating Oregon tax.

(A) Base year is a short taxable year. If a base year is a short taxable year, the increase in Oregon tax attributable to the elected farm income allocated to the base year is determined after the taxable income for the base year has been annualized.

(B) Election year is a short taxable year. If an election year is a short taxable year, any elected farm income is first annualized before being allocated to the base years. The increase in Oregon tax attributable to the elected farm income allocated to the base years is the same part of the tax computed an annual basis as the number of months in the short election year is of 12 months.

(b) Changes in filing status. An individual is not prohibited from making a farm income averaging election solely because the individual's filing status is not the same in an election year and the base years. For example, an individual who files single in the election year, but filed married filing jointly in all of the base years, may still elect to average farm income.

(c) Changes in residency status. An individual is not prohibited from making a farm income averaging election solely because the individual's residency status is not the same in the election year and the base years. If an individual's filing status is as a part-year or nonresident in the election year, the taxpayer still may elect to average farm income. Only Oregon source farm income and Oregon source capital gains and losses are considered elected farm income. If an individual's filing status is a full-year resident in the election year but some or all of the base years are filed as a part-year or nonresident, elected farm income is allocated over the three prior years and added to amounts in both the federal and state column. The Oregon percentage for allocating deductions and modifications and for apportioning tax is recomputed using the new amounts of income in the federal and Oregon columns. Exemption credits are not computed using the revised percentage.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.297
Hist.: REV 8-2001, f. & cert. ef. 12-31-01

150-314.300

Allocation of Oregon Modifications to Passive Activity Losses

(1) Oregon Passive Activity Loss. The Oregon passive activity loss shall be equal to the federal passive activity loss (defined in IRC Section 469(d)) as modified by the additions, subtractions, modifications or adjustments provided in ORS Chapters 314, 316, 317, and 318 as they relate to passive activities (defined in IRC Section 469(c)).

(2)(a) Modifications to Federal Passive Activity Losses. Modifications that may apply to passive activities of individuals include but are not limited to the following:

(A) The addition provided in ORS 316.680(2)(a) for interest or dividends on obligations of another state, provided the interest or dividends are derived in the ordinary course of the passive activity.

(B) The addition or subtraction provided in ORS 316.707 for differences in depreciation of assets used in the passive activity.

(C) The addition or subtraction provided in ORS 316.716 due to a difference in basis, upon the taxable sale, exchange or disposition by the taxpayer of an asset used in the passive activity.

(D) The addition provided in ORS 316.723 for public utility stock dividends and the subtraction for gain or loss on the sale of public utility stock where dividends were reinvested, provided the dividends and gain or loss are derived in the ordinary course of the passive activity.

(E) The addition provided by ORS 316.680(2)(d) for depletion in excess of the adjusted basis of property if the property is used in the passive activity.

(F) The subtraction provided in ORS 316.680(1)(a) for interest or dividends on obligations of the U.S. government if the interest or dividends are derived in the ordinary course of the passive activity.

(G) The subtraction for wage expense paid or accrued with respect to the passive activity but not deducted in arriving at federal taxable income because the federal targeted jobs credit under IRC Section 51 was claimed.

(H) The subtraction provided by ORS 314.210 for the elimination of excess profits on government contracts if such profits were derived in the ordinary course of the passive activity.

(I) The addition or subtraction provided in ORS 316.872 for deferral of gain on the sale of small business securities if the securities were held or sold in the ordinary course of the passive activity.

(J) The addition or subtraction provided in ORS 316.873 for deferral of gain on the sale of capital assets, if the assets were held or sold in the ordinary course of the passive activity.

(K) The subtraction provided in ORS 316.744 for energy conservation payments if the energy conservation measure was undertaken with respect to the passive activity.

(L) The addition provided in ORS 316.680(2)(e) for deferred gain on involuntary conversions or exchanges of Oregon property, the proceeds of which are reinvested in property outside Oregon. This modification applies if the property disposed of was used in the passive activity.

(M) The subtraction provided in ORS 316.056 for interest or dividends on obligations of Oregon political subdivisions, provided the interest or dividends are derived in the ordinary course of the passive activity.

Example: Mary has a post-1987 nonrental passive activity loss for federal purposes of $13,500. She shows an addition for depreciation for Oregon of $1,000 and a subtraction for a jobs credit of $600. The computation of Mary's passive loss for Oregon is shown below:

Federal loss -- ($13,500)

Oregon addition for depreciation -- 1,000

Oregon subtraction for jobs credit -- (600)

Passive loss for Oregon -- $13,100

(b) Modifications that may apply to passive activities of a closely held corporation or personal service corporation include but are not limited to the following:

(A) The addition or subtraction provided in ORS 317.368 for differences in depreciation of assets used in the passive activity.

(B) The addition or subtraction provided in ORS 317.374 for differences in depletion if the property is used in the passive activity.

(C) The addition or subtraction provided in ORS 317.356 due to a difference in basis, upon the taxable sale, exchange or disposition by the taxpayer of an asset used in the passive activity.

(D) The addition or subtraction provided in ORS 317.319 for payments to or withdrawals from a capital construction fund if it is established in the ordinary course of the passive activity.

(E) The addition provided in ORS 317.326 for deferred gain from the exchange or involuntary conversion of Oregon property, the proceeds of which are reinvested in property outside Oregon. This modification applies if the property disposed of was used in the passive activity.

(F) The addition provided in ORS 317.309 for interest and dividends received from states and political subdivisions of states derived in the ordinary course of the passive activity.

(G) The dividend-received deduction provided in ORS 317.267 if the securities were held in the ordinary course of the passive activity.

(3)(a) Modifications of Passive Losses by a Nonresident: In the case of a nonresident, losses resulting from passive activities derived from or connected with Oregon sources as defined in ORS 316.127 are deductible for Oregon purposes, subject to the provisions of IRC Section 469. The loss is modified by the modifications, additions and subtractions provided for in ORS Chapters 314 and 316 allocable to the passive activity. Sections (2) and (4) of this rule shall be followed regarding which additions, subtractions and modifications are allocable and how the transition rules and passive activity credits are applied. Section (7) of this rule shall be followed regarding the computation of the Oregon passive activity loss.

Example: John is a nonresident of Oregon and has rental property in both Oregon and California. His loss from all rentals is $50,000 and from his Oregon rental $10,000. Federal law allows a deduction of up to $25,000 for rentals. John would show $25,000 loss in the federal column of Form 40N and $10,000 loss in the Oregon column of Form 40N. John claims the $10,000 loss for Oregon because the loss for a nonresident from Oregon sources is treated in the same manner as a passive loss for a full-year resident.

In the case of a nonresident, losses resulting from passive activities derived from or connected with sources outside Oregon are not deductible for Oregon purposes, regardless of a later change in the taxpayer's residency.

Example: Tony is currently a full-year resident of Oregon. He moved to Oregon from California on December 15th of the prior year. In his last year in California, Tony incurred a passive loss from a California based investment. He was unable to claim the loss in the year incurred due to the passive loss limitations. Tony may not carry his loss forward to his Oregon return, because he was not a resident of Oregon in the year the loss was incurred and nonresidents can only carry forward passive losses from Oregon sources.

(b) Modification of Passive Losses by a Part-year Resident: In the case of a part-year resident, losses resulting from passive activities carried on during the period the taxpayer is a resident plus those derived from or connected with Oregon sources as defined in ORS 316.127 during the period the taxpayer is a nonresident are deductible for Oregon subject to the provisions of IRC Section 469. The loss is modified by additions, subtractions and modifications provided for in ORS Chapters 314 and 316 allocable to the passive activity. Sections (2) and (4) of this rule shall be followed regarding which additions, subtractions and modifications are allocable and how passive activity credits are applied. Section (7) of this rule shall be followed regarding the computation of the Oregon passive activity loss.

Example: Steve moved to Oregon on July 1 and is a part-year resident of Oregon. He has rentals in both Oregon and California. His loss from the California rental is $24,000 incurred ratably throughout the year ($2,000 per month). His loss from the Oregon rental is $10,000.

Steve would show the maximum $25,000 loss for rentals in the federal column of Form 40P. He would show $22,000 loss in the Oregon column of Form 40P. The Oregon loss consists of $10,000 loss for the Oregon rental and $12,000 loss ($2,000 x 6) for the California rental incurred from July 1 to December 31, the period in which Steve was a resident.

(4) Passive Activity Credits: Taxpayers may offset in full the tax credits provided in ORS Chapters 315, 316, 317, and 318 related to a passive activity against Oregon tax liability for the taxable year.

(5) Active Participants in Rental Real Estate Activities: The $25,000 offset for rental real estate activities provided in IRC Section 469(i) is not reduced by deduction equivalents (defined in IRC Section 469(j)(5)).

(6) Special Rules for Taxpayers in Real Property Business: Taxpayers who qualify under IRC 469(d)(7)(B) to treat any rental real estate activity as a non-passive activity for federal tax purposes shall use the same treatment for Oregon tax purposes.

(7) Computation of the Oregon Passive Activity Loss: Modify the federal passive activity loss by the additions, subtractions and modifications applicable to the passive activity. Apply the passive activity loss limitations specified in IRC Section 469 to the recomputed Oregon passive activity loss. Modify the Oregon return for the difference between the federal passive activity loss deducted and the allowable Oregon passive activity loss. Any amount of the Oregon passive activity loss not allowed in the tax year as a result of the application of the federal loss limitations may be carried forward to the following tax year.

Example 1: Tom has an adjusted gross income of under $100,000. He has a $26,000 passive activity loss from rental property acquired in 1987. The passive loss limitations in IRC Section 469 will allow Tom to use $25,000 of this loss to offset current year income from other sources. The remaining $1,000 will be carried forward for federal purposes.

Tom has $2,000 less depreciation for Oregon than for federal on the rental property. His Oregon passive activity loss is reduced to $24,000 (26,000 - 2,000). An addition of $1,000 is required on the Oregon return. This represents the difference between the allowable federal deduction of $25,000 and the allowable Oregon deduction of $24,000. The $1,000 addition is shown as an "Other addition & Oregon passive loss" on the Oregon return. Tom does not show an addition for depreciation. He will not carry forward any of the loss for Oregon purposes.

Example 2: Larry has an adjusted gross income of under $100,000. He has a $40,000 passive activity loss from rental property acquired in 1987. For federal purposes, Larry may use $25,000 of the loss to offset income from other sources. He carries forward the $15,000 balance.

Larry has $3,000 less depreciation for Oregon than for federal on the rental property. His Oregon passive activity loss is reduced to $37,000 (40,000 - 3,000). Larry then applies the federal passive loss limitations of section 469 of the Internal Revenue Code, and shows the maximum $25,000 loss on his Oregon return. Because this is the same passive loss shown on the federal return, no modification is needed. Larry may carry forward the $12,000 balance of the loss (37,000 - 25,000). Larry does not show an addition for depreciation on the return.

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.300
Hist.: RD 15-1987, f. 12-10-87, cert. ef. 12-31-87; RD 11-1988, f. 12-19-88, cert. ef. 12-31-88; RD 9-1992, f. 12-29-92, cert. ef. 12-31-92; RD 6-1996, f. 12-23-96, cert. ef. 12-31-96

150-314.302

Interest on Deferred Oregon Tax Liability with Respect to Installment Obligations

(1) Corporations with income from business activity taxable both within and without this state shall compute interest on deferred Oregon tax liability with respect to installment obligations using the relevant apportionment and allocation provisions of ORS Chapter 314.

(2) Interest on deferred Oregon tax liability with respect to business income from installment obligations shall be computed using the Oregon apportionment factor for the year of the installment sale.

(3) Interest on deferred Oregon tax liability with respect to nonbusiness income from installment obligations shall be computed using the allocation provisions that apply to the income from the installment sale.

Example: C Corp is a toy manufacturer doing business in Oregon and Washington. In 1990, C Corp sells a factory in Washington. The sales price is $11,000,000, the basis for Oregon tax purposes is $5,500,000 and the gross profit percentage is 50 percent. Under the terms of the sale, C Corp receives $1,000,000 in 1990 and a note for $10,000,000 (including $5,000,000 of unrecognized gain) to be paid in five equal annual installments. C Corp's Oregon apportionment percentage for its 1990 calendar year return is 25 percent. The interest rules under IRC 453A and ORS 314.302 apply because the face amount of installment obligations remaining unpaid at the end of 1990 is greater than $5,000,000. The interest to report as tax on the 1990 Oregon return is computed as follows: [Examples not included. See ED. NOTE.]

[ED. NOTE: Examples referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.302
Hist.: RD 9-1992, f. 12-29-92, cert. ef. 12-31-92

150-314.306

Reduction of Tax Attributes after Discharge of Debt

(1) A taxpayer who has excluded income from the discharge of indebtedness for federal tax purposes under IRC 108 shall also exclude the income for Oregon purposes. Separate rules apply depending on whether the discharge is related to insolvency or qualified farm indebtedness, or to bankruptcy. The taxpayer shall reduce Oregon tax attributes independently of the reduction made at the federal level.

Example 1: [Example not included. See ED. NOTE.]

(2)(a) If an insolvent taxpayer or a taxpayer with discharged qualified farm indebtedness elects under IRC 108(b)(5) to reduce the basis of depreciable property first, the election is also effective for Oregon tax purposes.

Example 2: [Example not included. See ED. NOTE.]

(b) A bankrupt taxpayer cannot elect to reduce the basis of depreciable property first for Oregon tax purposes. Bankrupt taxpayers are required to reduce Oregon tax attributes in the following order:

(A) Net operating loss for the current taxable year and any net operating loss carryover to such taxable year.

(B) Capital loss for the current year and any capital loss carryforwards.

(C) Basis of property.

(3) Taxpayers required to apportion income. The amount of debt discharged and excluded from the federal taxable income of a multi-state taxpayer subject to the apportionment provisions of ORS Chapter 314 is also excluded from Oregon taxable income. Oregon tax attributes of a multi-state taxpayer shall be reduced until all of the excluded income is absorbed. Oregon tax attributes are reduced in the following manner:

(a) Oregon net losses and net loss carryforward amounts are reduced first. Excluded income is absorbed proportionally, using the Oregon apportionment percentage for the year of debt forgiveness.

(b) Oregon capital losses and capital loss carryforward amounts are reduced next. Again, excluded income is absorbed proportionally, using the Oregon apportionment percentage for the year of debt forgiveness.

(c) Any excluded income that remains unabsorbed is used to reduce the taxpayer's basis of property. Unlike net losses and capital losses, reductions in basis absorb excluded income dollar-for-dollar, since basis of property is not subject to apportionment.

Example 3: [Example not included. See ED. NOTE.]

[ED. NOTE: Examples referenced are available from the agency.]

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.306
Hist.: RD 3-1995, f. 12-29-95, cert. ef. 12-31-95

150-314.308

Listed Transaction Reporting Requirement

(1) For tax years beginning on or after January 1, 2007, taxpayers who engage in or receive a tax benefit from participation in reportable transactions as defined under section 2, chapter 568, Oregon Laws 2007 are required to report their participation on the Oregon tax return for the tax year in which the participation took place.

(2) In addition to any other applicable penalties, a taxpayer is subject to penalties as provided in section 9, chapter 568, Oregon Laws 2007 if the taxpayer fails to report the transaction as required on the Oregon return.

Stat. Auth.: ORS 305.100, 314.308
Stats. Implemented: ORS 314.308
Hist.: REV 10-2007, f. 12-28-07, cert. ef. 1-1-08

150-314.330(2)

Definition: Final Determination

An order of the director of the department or a court decision becomes final after all periods of appeal have expired.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.330
Hist.: RD 11-1988, f. 12-19-88, cert. ef. 12-31-88; RD 1-1997(Temp), f. 6-13-97, cert. ef. 7-4-97 thru 12-31-97; RD 5-1997, f. 12-12-97, cert. ef. 12-31-97

150-314.355

Returns When Accounting Period Changed

(1) A return may not be made for a period of more than one year. A separate return for a fractional part of a year is therefore required whenever there is a change. If a change in accounting period requested by the taxpayer has been approved by the IRS for federal purposes, the change shall also be permitted for Oregon tax purposes. A copy of the approved application shall be sent to the Department. The Department will require proration of exemptions, dependency credits, etc., where the part-year return is based on a change of accounting periods. If the change is approved by the Internal Revenue Service, the return for the period necessary to effect the change shall be delinquent unless filed on or before the fifteenth day of the fourth month after the close of such period and the taxpayer shall thereafter make returns and compute income upon the basis of the new accounting period.

(2) A taxpayer's taxable year for Oregon income tax purposes shall be the same as the taxpayer's taxable year for federal income tax purposes.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.355
Hist.: 1958; 12-31-84

150-314.360

Information Returns

(1) In general, taxpayers are not required to file information returns as described in ORS 314.360 except as provided in this rule.

(2) Information returns are required to be filed electronically with the department as set forth in section (4) of this rule and using federal due dates. For purposes of this rule, information returns required to be filed electronically include:

(a) 1099-MISC Miscellaneous Income;

(b) 1099-G Certain Government Payments;

(c) 1099-R Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, etc.

(d) W2-G Certain Gambling Winnings.

(3) For information regarding the reporting requirements of salaries and wages, see ORS 316.202 and related rules.

(4) Information returns listed in section (2) of this rule, where the recipient, winner, or the payer has an Oregon address must be filed electronically as follows:

(a) For payers that issue 250 or more of any one type of information return, electronic filing begins with 2011 forms due in 2012.

(b) For payers that issue 100 or more but less than 250 of any one type of information return, electronic filing begins with 2012 forms due in 2013.

(c) For payers that issue more than 10 but less than 100 of any one type of information return, electronic filing begins with 2013 forms due in 2014.

(5) The department may grant an exception to this filing requirement in section (4) upon a showing of undue hardship. Undue hardship is based on the facts and circumstances specific to each payer and determined on a case-by-case basis.

(6) In addition to any other filing requirement in this rule, the department may require the filing of any type of information return as it deems necessary. If requested under this section, an information return must be provided within 30 days of the date of our written request to be considered timely under ORS 305.217.

Stat. Auth.: ORS 305.100 & 314.360
Stats. Implemented: ORS 314.360
Hist.: 1958-59; 12-70; 12-19-75; RD 10-1986, f. & cert. ef. 12-31-86; RD 15-1987, f. 12-10-87, cert. ef. 12-31-87; RD 11-1988, f. 12-19-88, cert. ef. 12-31-88, Renumbered to 150-314.360; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89; RD 12-1990, f. 12-20-90, cert. ef. 12-31-90; RD 7-1993, f. 12-30-93, cert. ef. 12-31-93; RD 5-1994, f. 12-15-94, cert. ef. 12-31-94; REV 8-2010, f. 7-23-10, cert. ef. 7-31-10; REV 4-2011, f. 12-30-11, cert. ef. 1-1-12

150-314.360(2)

Brokers' Information Returns

When required by the Department (but not otherwise), any person or organization that acted at any time as a broker or agent in stock, bond or commodity transactions (including a bank that cleared orders for depositors' or custodians' accounts) shall make a separate return of information for each customer, showing the total sales and the total purchases. In lieu of information with respect to each of the brokers' customers, the Department may require returns of information with respect only to a specified customer or customers.

[ED. NOTE: With the adoption of Oregon Laws 1984, Ch. 1, (Enrolled HB 3029), ORS 314.363 was repealed. The administrative rules under this section will no longer be in effect for taxable years beginning on or after January 1, 1986. For all prior years, the rules under this section shall remain in full force and effect.]

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.360
Hist.: 1958-1959, 12-70

150-314.364(A)

Requirement to File Returns Electronically (Corporation E-file Mandate)

(1) All corporations required to electronically file their federal corporation tax return are required to electronically file their Oregon corporation tax return.

(2) Waivers.

(a) A waiver of the electronic filing requirement granted by the Internal Revenue Service (IRS) will be accepted by the department as a waiver to the mandate under section (1). The corporation must notify the department in writing when such a waiver is granted in accordance with the department’s instructions.

(b) In addition to a waiver allowed under subsection (a), the department may grant a waiver of the mandate in section (1) if the following conditions are met:

(A) The corporation requests a waiver in accordance with the department’s instructions; and

(B) The corporation’s facts and circumstances are such that complying with the mandate would cause the corporation an undue financial hardship. The corporation’s refusal to purchase or use the requisite software or computer equipment does not, in and of itself, satisfy the conditions for a waiver under this subsection.

(c) When circumstances warrant, the department may issue an administrative waiver of the mandate in section (1) when the department determines it is necessary to promote the effective and efficient administration of the tax system.

(3) If an electronic tax return cannot be accepted for processing electronically, the corporation must contact the department for assistance in correcting the rejected return errors. If the rejected return errors cannot be corrected, the corporation must receive authorization from the department prior to filing a paper return.

(4) This rule is applicable to corporation tax returns filed for tax years beginning on or after January 1, 2011.

Stat. Auth.: ORS 305.100 & 314.364
Stats. Implemented: 314.364
Hist.: REV 4-2011, f. 12-30-11, cert. ef. 1-1-12; Renumbered from 150-314.HB2071(A) by REV 6-2012, f. 7-20-12, cert. ef. 8-1-12

150-314.364(B)

Requirement to File Returns Electronically

(1) All paid tax preparers filing Oregon personal income tax returns in this state are required to file them by electronic means if the paid tax preparer is required to do so by federal law. See 26 USC § 6011 and Treasury Regulation §301.6011-7 for the federal mandate and relevant definitions.

(2) Waivers.

(a) A waiver granted by the Internal Revenue Service (IRS) pursuant to Treasury Regulation §301.6011-7(c)(1) or (2) will be accepted by the department as a waiver to the mandate under section (1). The paid preparer must notify the department in writing when such a waiver is granted in accordance with the department’s instructions.

(b) In addition to a waiver allowed under subsection (a), the department may grant a waiver of the mandate in section (1) if the following conditions are met:

(A) The paid preparer requests a waiver in advance of the preparation of personal income tax returns subject to the mandate in accordance with the department’s instructions; and

(B) The paid preparer’s facts and circumstances are such that complying with the mandate would cause the paid preparer an undue financial hardship. The paid preparer’s refusal to purchase or use the requisite software or computer equipment does not, in and of itself, satisfy the conditions for a waiver under this subsection.

(c) When circumstances warrant, the department may issue an administrative waiver of the mandate in section (1) to a paid preparer or group of paid preparers when the department determines it is necessary to promote the effective and efficient administration of the tax system.

(3) This rule is effective January 1, 2012 and applies to tax returns filed on or after that date.

NOTE: The publication(s) referred to or incorporated by reference in this rule is available from the Department of Revenue pursuant to ORS 183.360(2) and 183.355(1)(b).

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.364
Hist.: REV 4-2011, f. 12-30-11, cert. ef. 1-1-12; Renumbered from 150-314.HB2071(B) by REV 4-2012, f. 7-20-12, cert. ef. 8-1-12; Renumbered from 150-314.HB2071(B), REV 6-2013, f. & cert. ef. 12-26-13

150-314.380(2)-(B)

Report of Changes in Federal Taxable Income

(1) Report Requirements. The report of change or correction required by ORS 314.380(2) must be:

(a) Filed in writing with the department;

(b) Signed by the taxpayer or the taxpayer's authorized representative; and,

(c) Filed separately from any statement or attachment forming a part of the taxpayer's original tax return.

(2) The report may be in the form of an amended return or a schedule showing the adjustments and the recomputation of the tax. Regardless of what form is used, the report must include either a copy of the report of the Internal Revenue Service (IRS) adjustment, federal revenue agent's report or the audit report of the other state's taxing authority, whichever is applicable, or other information sufficient to inform the department of each item on the tax return that has been changed or corrected.

(3) If the taxpayer does not concede the accuracy of any change or correction made by the IRS or other state’s taxing authority, the report filed with the department must include a full explanation of the reason why the taxpayer believes such change or correction to be erroneous. If the report is not filed in the manner stated in this rule, the department will not be considered to have been notified by the taxpayer.

(4) A report of a change or correction is treated as a timely claim for refund, pursuant to ORS 314.415, if filed with the department within two years after the date of the IRS adjustment or the audit report of the other state’s taxing authority.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.380
Hist.: 6-68; 12-70, Renumbered from 150-314.380(2); RD 12-1985, f. 12-16-85, cert. ef. 12-31-85; RD 10-1986, f. & cert. ef. 12-31-86; REV 9-1999, f. 12-30-99, cert. ef. 12-31-99; REV 10-2013, f. 12-26-13, cert. ef. 1-1-14

150-314.385(1)-(A)

Filing Returns of Income: Due date

Returns of income must be filed with the department on or before the fifteenth day of the fourth month following the close of the tax year. For corporations, the due date is the 15th day of the month following the due date of the federal return. Thus, when the tax year is a calendar year, the return is due on or before the fifteenth day of April in the following year. Returns received after the due date are subject to late filing penalty as provided in ORS Chapter 314, except that returns received by mail are accepted without the imposition of such charges if postmarked before midnight of the due date (see ORS 293.660 and 305.820). When the due date falls on a Saturday, Sunday or a state legal holiday, the return is due on the next business day following such Saturday, Sunday or state legal holiday.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.385
Hist.: 1958-59; 9-71; 11-73; 1-1-77; 12-31; 78; 12-31-80; 12-31; 81; 12-31-82; 12-31-83; Renumbered from 150-314.385(1), RD 10-1986, f. 12-22-86 & cert. ef. 12-31-86; RD 15-1987, f. 12-10-87, cert. ef. 12-31-87

150-314.385(1)-(B)

Filing Returns of Income: Extensions, Divisions 316, 317 and 318

(1) If a taxpayer cannot file a return within the prescribed time, the department may grant the taxpayer an extension of time for filing but this does not extend the time for payment of the tax.

(2) Procedure when a federal extension is granted.

(a) The department will grant extension of time to file an Oregon return if the taxpayer has obtained an extension to file the federal return from the Internal Revenue Service. The taxpayer does not need to request an Oregon extension. The taxpayer must attach a copy of an approved federal extension or a filed automatic federal extension request under Internal Revenue Code (IRC) section 6081(b) to the Oregon return in accordance with current tax return instructions to serve as evidence of an Oregon extension.

(b) An automatic extension of time for filing a return does not relieve the taxpayer of the responsibility to pay estimated tax or eliminate interest charges for failure to pay estimated tax. An extension also does not relieve the taxpayer of a late payment penalty provided under ORS 314.400, except when the requirements of section (3) of OAR 150-314.400(1) are met.

(c) The Oregon extension is for the same length of time as the federal extension. If the Internal Revenue Service denies the taxpayer's extension request, but grants the taxpayer a period of time from the date of the denial in which to file the return, the department will grant the taxpayer an equal period of time if a copy of the denied extension request is attached to the Oregon return at the time of filing.

(3) Procedure for requesting an extension for Oregon only.

(a) An individual may request an extension of time for Oregon only by completing and filing the appropriate Oregon form. The taxpayer must file the extension request and payment with the department on or before the original due date of the associated return.

(b) A corporation may request an extension of time for Oregon only by writing "For Oregon Only" on the top of a federal extension form, filling out the form with Oregon tax information, and attaching it to the Oregon return when it is filed. An extension payment must be sent to the department on or before the original due date of the return accompanied by the appropriate Oregon form.

(c) Insurance companies filing federal income tax returns on a fiscal year basis must request a separate extension for Oregon under subsection (b) of this section. The Oregon extension is for the same length of time that would be allowed if the insurance company filed a calendar year federal return and applied for a federal extension.

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.385
Hist.: 1958-59; 9-71; 11-73; 1-1-77; 12-31; 78; 12-31-80; 12-31-81; 12-31-82; 12-31-83; RD 10-1986, f. & cert. ef. 12-31-86; RD 15-1987, f. 12-10-87, cert. ef. 12-31-87; RD 11-1988, f. 12-19-88, cert. ef. 12-31-88; REV 7-1999, f. 12-1-99, cert. ef. 12-31-99; REV 8-2002, f. & cert. ef. 12-31-02; REV 11-2006, f. 12-27-06, cert. ef. 1-1-07

150-314.385(1)-(D) [Renumbered to 150-314.385(3)]

150-314.385(3)

Standards for Substitute Tax Forms; Treatment of Forms Not Meeting the Standards; Treatment of Payments Received With Forms Not Meeting the Standards

(1) Definitions. For purposes of this rule:

(a) Official form. An official form is any payroll, income, or excise tax form prepared, printed, and distributed by or on behalf of the department pursuant to Oregon Revised Statutes (ORS) Chapters 310, 314, 315, 316, 317, 318, Lane Transit District (LTD) Ordinance 38, and Tri-County Metropolitan Transportation District (TRIMET) Ordinance 92.

(b) Substitute form. A substitute form is any payroll, income, or excise tax form authorized under ORS Chapters 310, 314, 315, 316, 317, 318, LTD Ordinance 38, or TRIMET Ordinance 92 that is intended to replace the official form.

(c) Tax Return. A tax return is a payroll, income, or excise tax form filed with the department by or on behalf of a taxpayer under the provisions of ORS Chapter 310, 314, 315, 316, 317, 318, LTD Ordinance 38, or TRIMET Ordinance 92.

(2) A tax return must be made on the department-prescribed forms, which may be obtained upon request from the department. Such forms are widely distributed, but a failure to receive any forms does not relieve the taxpayer from the responsibility to file any return required by statute.

(3) The department may accept a substitute form filed in lieu of an official form if the substitute form meets the standards set forth in this rule. It is the intent of the department to follow the National Association of Computerized Tax Processors (NACTP) standards as closely as is practical.

(4) Substitute form standards. A substitute form with or without optical character readable (OCR) scan lines must be a duplicate of the official form unless the variation is within the exceptions listed in section (5) of this rule. The overall format of substitute forms must match the format of official forms. Overall format includes graphics, location of lines, boxes, data entry symbols, spacing, 2-D barcode placement, and OCR scan line.

(a) A substitute form must be on paper of the same overall dimension (size) and weight and of a quality equal to or better than that used for the official form.

(b) Substitute forms and the filled-in data must be legible and must not have extra text or marks that do not appear on the official forms.

(c) The social security number on substitute forms must be separated by hyphens after the third and fifth digits.

(d) If the substitute form has OCR scan lines, black nonreflective ink in OCR-A font must be used for printing the scan line.

(e) Substitute forms must contain a 2-D barcode for tax years beginning on or after January 1, 2006 if the substitute form is:

(A) Software generated; and

(B) Used for personal income tax purposes under ORS Chapters 314, 315, or 316.

(5) Exceptions. The substitute form may differ from the official form with respect to the exceptions listed in this section. However, the difference may delay processing of the tax return.

(a) Official forms that are printed on colored paper may be reproduced in black ink on white paper.

(b) Official forms that use both sides of the paper may be reproduced on one side only of two successive pages.

(c) Reproductions of the data entry symbols may vary in size from that of the data entry symbols on the official form if the symbols conform to the following specifications:

(A) The data entry dot must be a filled circle (•) at least 1/16 inch in diameter and no larger than 1/8 inch in diameter centered vertically on the text line;

(B) The data entry symbols must not obstruct or overlap line numbers or captions; and

(C) The data entry symbols must be printed on the substitute form in the same position relative to the information to be data-entered as on the official form.

(d) All text on the official form that is larger in size than 14 point print may be reproduced on the substitute form in 14 point print.

(e) The boxes (data entry areas) printed on the official form for entry of the filled-in data may be reproduced on the substitute form without a vertical line provided to divide the dollar amount from the cents amount. If rounding an amount to the whole dollar, the amount may be printed without a decimal point and cents.

(f) Substitute forms that the department does not support in 2-D barcode format may be printed without 2-D barcode.

(6) Photocopies of official forms may be filed if the official form does not contain OCR printing.

(7)(a) Substitute forms must be approved by the department prior to use. Substitute forms that do not meet the requirements of this rule may not be filed in lieu of the official forms. The department may reject and return to the taxpayer tax returns using substitute forms that do not meet the requirements of this rule.

(b) A tax return that has been rejected under this rule does not meet the filing requirement of the applicable program. The taxpayer must file a tax return using an official form or a substitute form that meets the requirements of this rule in order to meet the filing requirement under the provisions of the personal income tax, corporate income tax and corporate excise tax programs; the filing requirement under the TRIMET self-employment tax and LTD programs; the filing requirement under ORS 314.724 for partnership returns; or the filing requirement under the Elderly Rental Assistance program. If the return is rejected, the taxpayer may be assessed penalty for failure to file a tax return as provided under ORS 314.400, 314.724 or as otherwise provided under Oregon law.

(8) If the department receives payment with a substitute form that does not meet the requirements of this rule, the department will treat the payment as an estimated tax payment under the provisions of ORS Chapters 314 or 316.

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.385
Hist.: RD 9-1987(Temp), f. & cert. ef. 7-8-87; RD 11-1987, f. & cert. ef. 11-1-87; RD 4-1991, f. 12-30-91, cert. ef. 12-31-91; RD 3-1995, f. 12-29-95, cert. ef. 12-31-95; REV 1-2005, f. 6-27-05, cert. ef. 6-30-05; Renumbered from 150-314.385(1)-(D), Rev 4-2005, f. 12-30-05, cert. ef. 1-1-06; REV 7-2006(Temp), f. & cert. ef. 9-29-06 thru 12-31-06; REV 10-2006, f. 12-27-06, cert. ef. 1-1-07

150-314.385(4)

Alternative Filing Methods

(1) As used in this rule:

(a) “Alternatively filed return” means an Oregon return submitted using a department-approved alternative filing method under section (2) of this rule.

(b) “IRS date of receipt” means the electronic time stamp indicating the date and time of receipt of the Oregon return by the Internal Revenue Service (IRS).

(2) The department may provide for filing of returns using electronic or other methods as an alternative to paper returns.

(3) Alternatively filed returns are deemed filed and received on:

(a) The date the return is received by the department as indicated by the department’s date stamp; or

(b) In the case of an electronically filed return, the earlier of:

(A) The IRS date of receipt, or

(B) The date of successful transmission.

(4) Alternatively filed returns must be verified pursuant to the rules of the department adopted under ORS 305.810.(5) If an alternatively filed return cannot be processed, a paper return must be filed with the department. If the paper return is filed within 30 days of the date of the successful transmission of the alternatively filed return, the date of the successful transmission of the alternatively filed return is considered the filing date of the paper return.

Stat. Auth.: ORS 305.100, 314.385
Stats. Implemented: ORS 314.385
Hist.: REV 12-2000, f. 12-29-00, cert. ef. 12-31-00; REV 4-2012, f. 7-20-12, cert. ef. 8-1-12; REV 6-2013, f. & cert. ef. 12-26-13

150-314.385(c)-(A)

Time Limitations Affected by Military Service

The Provision of ORS 316.020 (1967 Replacement Part), providing a moratorium for filing returns and payment of tax for certain members of the Armed Forces, was not made a part of ORS Chapter 316 (1969 Replacement Part). Utilizing the powers of the Director given by ORS 305.145, the Department will waive penalty and interest on account of late filing and late payment of personal income tax in those cases where penalty and interest are waived by the Internal Revenue Service on account of personal income, pursuant to IRC section 7508(a). Section 7508(a) reads in part as follows:

"(a) In the case of an individual serving in the Armed Forces of the United States, or serving in support of such Armed Forces, in an area designated by the President of the United States by Executive order as a 'combat zone' for purposes of section 112, at any time during the period designated by the President by Executive order as the period of combatant activities in such zone for purposes of such section, or hospitalized as a result of injury received while serving in such an area during such time, the period of service in such area, plus the period of continuous qualified hospitalization attributable to such injury, and the next 180 days thereafter, shall be disregarded in determining, under the internal revenue laws, in respect of any tax liability (including any interest, penalty, additional amount, or addition to the tax) of such individual:

"(1) Whether any of the following acts was performed within the time prescribed therefor:

"(A) Filing any return of income, estate, or gift tax (except income tax withheld at source and income tax imposed by subtitle C or any law superseded thereby);

"(B) Payment of any income, estate, or gift tax (except income tax withheld at source and income tax imposed by subtitle C or any law superseded thereby) or any installment thereof or of any other liability to the United States in respect thereof;&"

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.385
Hist.: 1-69; 1-1-77; RD 15-1987, f. 12-10-87, cert. ef. 12-31-87; 7-1989, f. 12-18-89, cert. ef. 12-31-89, Renumbered from 150-316.407-(B); RD 5-1994, f. 12-15-94, cert. ef. 12-31-94

150-314.385(c)-(B)

Time Limitations for Persons Outside United States

The Department will waive penalty (but not interest) for delinquent filing and delinquent payment of tax by taxpayers who qualify for the automatic two month extension for filing under Treasury Regulation 1.6081-5. This regulation grants an automatic extension of time, for federal purposes, to file a return and pay the tax due by the fifteenth day of the sixth month following the close of the tax year. To qualify, a taxpayer must reside outside the United States and Puerto Rico on the original due date of the return. A taxpayer must have filed a return and paid the tax due within the federal extension period in order to receive this waiver. This is not an extension of time for filing but only a waiver of the delinquency penalty. Accordingly, a return filed under these circumstances will be considered delinquent.

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 305.305
Hist.: 12-70; TC 8-1980, f. 11-28-80, cert. ef. 12-31-80; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89, Renumbered from 150-314.407-(C); REV 4-2003, f. & cert. ef. 12-31-03

150-314.395

Payment of Tax; Interest on Delayed Return

See OAR 150-305.220(1) for the rate of interest on a delayed payment of tax.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.395
Hist.: 1-69; 11-71; 12-19-75; 12-31-82; RD 12-1990, f. 12-20-90, cert. ef. 12-31-90

150-314.395(1)

Responsibility for Tax Payments

When an employer fails to withhold income tax from an employee under ORS 316.167, the employee is not relieved from paying income tax under Chapter 305, 314 and 316.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.395
Hist.: RD 7-1991, f. 12-30-91, cert. ef. 12-31-91

150-314.400(1)

Delinquency Penalty

(1) Although ORS 314.400(1) refers to a delinquency penalty for (A) failure to file a report or return by the due date or (B) failure to pay a tax due by the due date, only one five-percent penalty is added, even though there is a failure as to both requirements.

Example 1: Joe did not obtain an extension to file his tax return, which was due on April 15. On July 1, he filed the return and paid $2,000 of tax plus interest of $40. Joe will be charged a penalty of $100 ($2,000 x 5 percent).

(2)(a) The delinquency penalty is based on the tax required to be shown on the return, reduced by credits claimed on the return and by any amount of the tax that is paid on or before the due date for payment. If the department determines that the tax shown on the return is greater than the tax required to be shown, the lesser amount is used to determine the penalty.

Example 2: Jeanette filed her tax return on time. The tax shown on the return was $800. Jeanette claimed credits of $150, withholding of $150, and showed a balance due of $500. She did not pay the $500 with the filing of the return. The department determined in processing the return that the tax required to be shown on the return was $600. The delinquency penalty of $15 is based on five percent of $300 ($600 tax required to be shown on the return, less credits of $150 and withholding of $150).

(b) The 20-percent penalty is in addition to the five-percent penalty. A 20-percent penalty is charged when:

(A) A tax return that is required to be filed annually or for a one-year period is not filed within three months of the due date (determined with regard to any extension of time to file granted to the taxpayer); or

(B) A tax return that is required to be filed more frequently than annually is not filed within one month of the due date (determined with regard to extensions).

Example 3: Pierre did not request an extension to file his return, which was due on April 15. He filed the return on November 1, showing tax of $900, credits of $300, and withholding of $200. Pierre sent a check for the balance due of $400 with the tax return. A total penalty of $100 will be charged; $20 for failure to pay the tax when due ($400 x 5 percent), and $80 for failing to file the return within three months of the due date ($400 x 20 percent).

Example 4: Same facts as Example 3, except Pierre received an extension to file until October 15. Pierre will be charged a five-percent penalty for failure to pay the tax when due. The 20-percent penalty for failure to file the return will not be charged because Pierre filed the return within three months of the extended due date.

Example 5: French Bakery did not file its Oregon Quarterly Tax Report for 1st quarter 2008 withholding, which was due on April 30, 2008. It filed the return on July 1, 2008, showing tax of $800 and prepayments of $500. French Bakery sent a check for the balance due of $300 with the tax return. A total penalty of $75 will be charged; $15 for failure to pay the tax when due ($300 x five percent), and $60 for failing to file the return within one month of the due date ($300 x 20 percent).

(c) If a taxpayer is required to file a federal income tax return for a period of less than 12 months under section 443 of the Internal Revenue Code, the Oregon personal income or corporate excise or income tax return required to be filed for that period is considered an annual filing thus subject to the additional 20-percent penalty.

(d) If a return or report is required to be filed on a one-time basis such as with inheritance returns, the return or report is considered an annual filing thus subject to the 20-percent penalty.

(e) If a taxpayer fails to file a return and the department must determine and assess the amount of tax, the penalties are based on the tax required to be shown on the return. The tax required to be shown on the return is reduced by any credits that may be lawfully claimed on the return and by any amount of the tax that is paid on or before the due date for payment.

Example 6: Isabelle filed her 2005 tax return on July 1, 2007. The tax shown on the return was $800 and Isabelle claimed credits of $300 and withholding of $400. She paid the balance due of $100 when she filed the return. Isabelle will be charged a five-percent failure-to-pay penalty, plus a 20 percent penalty for filing the return more than three months after the due date. The total penalty of $25 is based on $100 ($800 tax shown on the return less credits of $300 and withholding of $400).

Example 7: Same facts as Example 6, except that Isabelle did not file her 2005 tax return after being requested to do so by the department. The department determined that the tax required to be shown on the return was $900, allowable credits were $150 and withholding was $400. The penalty will be based on $350.

(3) Exceptions to the penalty for failure to pay tax when due.

(a) Payment of 90 percent of the tax shown on the return. Income and excise tax returns filed within the period of an extension granted are not considered delinquent with regard to the time of filing. However, an extension of time to file a return does not extend the time for paying the tax. Thus, if the tax is not paid by the original due date of the return, a delinquency penalty of five percent is added to the total unpaid tax unless the taxpayer has met all of the following conditions:

(A) Filed for a federal automatic extension of time to file or filed for a separate Oregon extension, in accordance with current Oregon tax return instructions;

(B) At least 90 percent of the tax after credits as shown on the return was paid on or before the original due date of the return;

(C) The taxpayer's return is filed timely within the extension period;

(D) The balance of the tax as shown on the return is paid when the return is filed and any interest due is either paid when the return is filed or within 30 days of billing by the department.

Example 8: Henry filed an extension request with Oregon on April 15, along with a payment of $600. He filed his tax return on October 15. The tax shown on the return was $1,200 and Henry claimed total tax credits on the return of $200. Henry paid the balance due of $400 with the return. A five-percent penalty would be charged on the $400 paid on October 15 because Henry did not pay at least $900 (90 percent of the tax shown on the return, less withholdings and credits), on or before the original due date of the return. Interest on the unpaid balance would be due from April 16 to October 15.

Example 9: Jan was granted an extension to file her federal tax return until October 15. She filed her Oregon return on June 14. The tax shown on the return was $2,500 and she had made estimated tax payments totaling $2,300. Jan paid the $200 tax due with the return. The five-percent penalty will not be charged on the $200 paid on June 14 if interest from April 16 to June 14 accompanies the $200 payment or if Jan pays the interest due on the unpaid balance of $200 within 30 days of billing by the department.

(b) Amended tax returns. If a taxpayer (individual or corporate) files an amended income or excise tax return accompanied by less than full payment of tax and interest, the department must send a billing notice indicating the amount of tax plus accrued interest to be paid. If the taxpayer pays the full amount of tax plus interest within 30 days of the date on the billing notice, the five-percent penalty for failure to pay the tax with the amended return will not apply.

Example 10: ABC Corporation filed an amended income tax return showing a balance of tax due of $1,000. A payment of $1,000 was submitted with the return. The $1,000 payment is first applied to interest that has accrued from the original due date of the return. The department determines that $200 of interest has accrued on the $1,000 of additional tax. Because the corporation has underpaid the tax by $200, ($1,000 payment less $200 applied to interest equals $800 of tax paid with the return), a five-percent penalty applies to the $200 of tax due. However, if ABC Corporation pays the $200 of tax plus any additional interest within 30 days of the date on the billing notice, the five-percent penalty will not apply.

(c) Deficiencies. If the department issues a Notice of Deficiency and the taxpayer pays the full amount of tax plus interest within 30 days of the date on the Notice of Deficiency, the five-percent penalty for failure to pay the tax required to be shown on the return will not apply.

Example 11: Hanna filed her original return timely but the department issued a Notice of Deficiency for $500 plus $75 interest. Hanna paid $300 within 30 days of the Notice of Deficiency. However, the five-percent penalty will apply to the entire deficiency ($500) because she did not pay the deficiency plus interest in full within 30 days of the Notice of Deficiency.

(d) Differences in the amount of prepaid tax. If a taxpayer (individual or corporate) files an income tax return or an excise tax return and the taxpayer overstates the amount of tax that was paid on or before the due date, the department must send a billing notice indicating the amount of additional tax and interest due. If the taxpayer pays the full amount of tax plus interest within 30 days of the date on the billing notice, the five-percent penalty for failure to pay the tax by the due date does not apply.

Example 12: Maria filed her individual income tax return on April 15. The tax shown on the return was $1,300. She claimed credits of $300 and state income tax withholding of $600. The $400 balance of tax due as shown on the return was paid with the return. During processing of the return, the correct amount of state income tax withholding is determined to be $350. Because Maria did not pay $250 of tax by the due date, a five-percent penalty applies. If Maria pays the additional tax due of $250 plus any additional interest within 30 days of the date on the department's notice, the five-percent penalty will not be charged.

Example 13: Same facts as Example 12, except Maria did not pay the $400 balance due when she filed the return. A penalty of $20 ($400 x 5 percent) is charged for failure to pay the $400 of tax when due. The $250 of additional tax resulting from the error in the amount of withholding will not have a five-percent penalty added if Maria pays the $250 of tax plus additional interest within 30 days of the department's notice.

(4) The penalties provided under ORS 305.265(13) and 314.400(6) are not combined. Only one 100 percent penalty may be assessed on a particular report or return.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.400
Hist.: 11-71; 12-19-75; TC 9-1981, f. 12-7-81, cert. ef. 12-31-81; RD 16-1982, f. 12-6-82, cert. ef. 12-31-82; RD 12-1985, f. 12-16-85, cert. ef. 12-31-85; RD 12-1985, f. 12-16-85, cert. ef. 12-31-85; RD 9-1987(Temp), f. & cert. ef. 7-8-87; RD 11-1987, f. & cert. ef. 11-1-87; RD 12-1990, f. 12-20-90, cert. ef. 12-31-90; RD 7-1993, f. 12-30-93, cert. ef. 12-31-93; RD 3-1995, f. 12-29-95, cert. ef. 12-31-95; REV 3-2006, f. & cert .ef. 7-31-06; REV 5-2008, f. 8-29-08

150-314.400(2)

Failure to File Penalty

A penalty of 20 percent of the tax required to be shown as tax on the return will be added if a return is not filed within three months after the due date. The three month period will be measured from the last day of any extension granted to file the return.

Stat. Auth.: ORS 305.100
Stats. Implemented:
Hist.: 12-19-75

150-314.400(4)

Interest on Deficiencies and Delinquencies

In general, interest is accrued on the unpaid tax from the due date of the return until paid. When additional tax is due as a result of a refund issued in error, a Notice of Deficiency will be issued for the tax and interest paid to the taxpayer. Interest then accrues on the total amount owed from the day after the check was issued until paid.

Example 1: John and Mary were issued a tax refund of $585 along with $11 interest on July 17, 2006. The department later determines that the refund was issued in error, and issues a Notice of Deficiency for $596 ($585 tax and $11 interest) on August 18, 2006. Interest then accrues on the $596 total amount owed beginning July 18, 2006, until the deficiency is paid.

Example 2: Ron and Nancy were issued a tax refund of $1,185 along with $42 interest on October 17, 2006. The department later determines that $395 of the refund was issued in error, and issues a Notice of Deficiency for $409 ($395 tax and $14 interest received on the improper refund) on December 18, 2006. Interest then accrues on the $409 total ($395 tax and $14 interest) beginning October 18, 2006, until the deficiency is paid.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.400
Hist.: 12-19-75, Renumbered see 150-314.400(4); 12-19-75; 12-31-82; 12-31-83; 12-31-86, Renumbered from 150-314.400(3); RD 11-1988, f. 12-19-88, cert. ef. 12-31-88; REV 3-2006, f. & cert .ef. 7-31-06

150-314.402

Definition: Taxable Income for Imposing Substantial Understatement Penalty

(1) For personal income tax purposes, in determining if a substantial understatement of taxable income exists, taxable income as defined in ORS 316.048 and OAR 150-316.048 shall be applicable.

(2) For a corporation other than an S corporation, in determining if a substantial understatement of taxable income exists, taxable income as defined in ORS 317.013, 317.018, 317.715 and the rules thereunder shall be applicable.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 315.402
Hist.: RD 4-1988, f. 5-25-88, cert. ef. 6-1-88

150-314.402(1)

Computation of Penalty for Substantial Understatement of Taxable Income (SUI)

(1) The department will assess a penalty if a substantial understatement of taxable income exists for any taxable year. The penalty is equal to 20 percent of the amount of any underpayment of tax attributable to the understatement of taxable income. A substantial understatement exists only if incurred on the return of the individual, corporation, or reporting entity required to file a return and pay tax.

(2) Substantial Understatement. An understatement is substantial if the understatement exceeds $25,000 for corporations (other than S corporations or personal holding companies) or exceeds $15,000 for all other taxable entities.

Example 1: A partnership return is adjusted for a $50,000 increase in unreported income. The partnership is owned by Renton, Mark, and Paul. The partnership adjustment results in an increase in unreported income of $30,000 on Renton’s individual return, $15,000 on Mark’s individual return, and $10,000 on Paul’s individual return. The SUI penalty is only assessed on Renton’s tax due because only his return was adjusted for more than $15,000. The adjustment to Mark and Paul’s individual returns will not include the SUI penalty, although all three may be subject to other penalties as provided by law.

(3) Understatement Computation.

(a) For full-year residents, the understatement is the taxable income required to be shown on the return minus the taxable income shown on the return. For nonresidents and part-year residents the understatement is calculated the same as for full-year residents except that taxable income must be calculated as provided in ORS 316.117

(b) Taxable income required to be shown is the amount of taxable income determined for the taxable year without regard to:

(A) Any net operating loss carryback, capital loss carryback, or commodity futures carryback.

(B) Any net operating loss carryback applied to a prior year and the balance carried forward to the taxable year in which the penalty is applied.

(c) Taxable income shown is the amount determined from items properly reported on the return and:

(A) Items with substantial authority (as described in OAR 150-314.402(4)(b)) had such items received the proper tax treatment; and

(B) Items with adequate disclosure and reasonable basis (as described in OAR 150-314.402(4)(b)) had such items received the proper tax treatment.

(d) Items not included in the computation for taxable income shown are:

(A) Any net operating loss carryback, capital loss carryback, or commodity futures carryback.

(B) Any net operating loss carryback applied to a prior year and the balance carried forward to the taxable year in which the penalty is applied.

(C) Items without substantial authority or adequate disclosure and reasonable basis as described in OAR 150-314.402(4)(b).

(D) Items attributable to an abusive tax shelter as defined in ORS 314.402(4)(a).

(4) Penalty Computation.

(a) The penalty is equal to 20 percent of the amount of any underpayment of tax attributable to the understatement of taxable income. The underpayment of tax attributable to the understatement is computed by applying an allocation percentage to the total underpayment of tax. The percentage to apply is computed by dividing the understatement of taxable income by total adjustments made. The total underpayment of tax is the tax required to be shown on the return minus the tax shown on the return for the taxable year.

(b) Tax required to be shown is the net tax computed on the taxable income required to be shown, as determined in subsection (3)(b) of this rule, without regard to:

(A) Withholdings (unless the withholding payments were unreported by the taxpayer or were collected without assessment for the taxable year);

(B) Estimated tax paid by the taxpayer; or

(C) The state surplus refund pursuant to ORS 291.349.

(c) Tax shown on the return is the amount of net tax determined for the taxable year before the taxpayer was first notified by the department concerning their tax liability. If the return shows no net income tax, the amount of tax shown on the return is considered to be zero. In all cases, tax shown is computed without regard to:

(A) Withholdings;

(B) Estimated tax paid by the taxpayer; or

(C) The state surplus refund pursuant to ORS 291.349.

(5) A net operating loss carryover, tax credit carryover, or capital loss carryover shall be treated for the purposes of ORS 314.402 as a credit or deduction in the year in which the carryover is taken into account.

(6) The department will not impose a penalty under ORS 314.402 unless a return has been filed. [Example not included. See ED. NOTE.]

[ED. NOTE: Examples referenced are not included in rule text. Click here for PDF copy of example(s).]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.402
Hist.: RD 11-1988, f. 12-19-88, cert. ef. 12-31-88; REV 19-2008, f. 12-26-08, cert. ef. 1-1-09; REV 16-2010, f. 12-17-10, cert. ef. 1-1-11

150-314.402(4)(b)

Substantial Authority, Adequate Disclosure and Reasonable Basis

(1) Definitions. For purposes of ORS 314.402, OAR 150-314.402(1), and this rule:

(a) “Substantial authority” has the same meaning as used in Treasury Regulation 1.6662-4(d).

(b) “Adequate disclosure” has the same meaning as used in Treasury Regulation 1.6662-4(e)-(f).

(c) “Reasonable basis” has the same meaning as used in Treasury Regulation 1.6662-3(b)(3).

(2) When determining if an understatement is substantial, the understatement does not include items for which:

(a) Substantial authority exists (or existed at the time the taxpayer claimed it on the return) for the tax treatment of the item in question; or

(b) The taxpayer adequately disclosed relevant facts for the tax treatment of the item in question on the Oregon return (or on a statement attached to the Oregon return), and the taxpayer had a reasonable basis for the tax treatment of the item.

(3) Items not adequately disclosed to the department before the taxpayer was first notified by the department concerning the tax liability will not be considered adequately disclosed on any subsequent filing by the taxpayer.

(4) Items attributable to an abusive tax shelter as defined in ORS 314.402(4)(a) do not qualify under this rule to be excluded from the understatement.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.402
Hist.: RD 4-1988, f. 5-25-88, cert. ef. 6-1-88; RD 7-1991, f. 12-30-91, cert. ef. 12-31-91; REV 19-2008, f. 12-26-08, cert. ef. 1-1-09

150-314.402(6)

Waiver of 20 Percent Substantial Understatement of Income Penalty Imposed under ORS 314.402

(1) The department will waive the penalty if the taxpayer shows that there was reasonable cause for the understatement and that the taxpayer acted in good faith.

(2) The department will not waive the penalty if the taxpayer was involved in an abusive transaction as defined in ORS 314.402(4) for the tax year at issue.

(3) Reasonable cause and good faith. A taxpayer's reasonable cause and good faith for a substantial understatement of income is demonstrated by the extent of the taxpayer's efforts to determine the taxpayer's correct tax liability under the law.

(a) The following circumstances demonstrate reasonable cause and good faith:

(A) The taxpayer relied on a position contained in a proposed federal regulation or state rule.

(B) The taxpayer honestly misunderstood the facts or law affecting the understatement, and the misunderstanding was reasonable in light of the taxpayer's experience, knowledge and education.

(C) The taxpayer or taxpayer's return preparer made a computational or transcriptional error in preparing the return.

(b) Generally, reliance on an information return, incorrect facts or advice of a professional does not demonstrate reasonable cause and good faith, unless under all the circumstances the taxpayer's reliance was reasonable. The following examples demonstrate reasonable cause and good faith:

Example 1: The taxpayer relied on erroneous information that was inadvertently included in the financial records of the taxpayer's business by others, if procedures existed that were designed to identify factual errors.

Example 2: The taxpayer relied on erroneous information reported on a Form 1099 provided by another person, if the taxpayer did not know or have reason to know that the information was incorrect.

(c) A taxpayer is considered to know or have reason to know that information is incorrect only if such information is inconsistent with other information reported to the taxpayer or is inconsistent with the taxpayer's knowledge of the underlying facts.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.402
Hist.: REV 6-2007, f. 7-30-07, cert. ef. 7-31-07

150-314.403

Listed Transaction Understatement; Penalty

(1) “Return of the taxpayer” for purposes of this penalty is defined as the original return filed with the department that contains a listed transaction understatement, or the most recent amended return filed with the department that contains a listed transaction understatement.

(2) “Net increase in taxable income” for purposes of this penalty is defined as an increase to taxable income or a decrease to a taxable loss.

Example 1: Taxpayer files an original 2006 return that contains a listed transaction understatement. Taxpayer amends the 2006 return and makes no changes to the treatment of the listed transaction. The Department, during an audit, discovers a listed transaction understatement on the taxpayer’s return. The listed transaction understatement penalty is based on the net increase in taxable income between the treatment of the listed transaction reported on the amended return and the correct treatment of the listed transaction.

Example 2: Taxpayer files an original 2007 return. Taxpayer amends the 2007 return to report the correct treatment of a listed transaction. The listed transaction understatement penalty is based on the net increase in taxable income between the amount of the listed transaction on the original return and the correct treatment of the listed transaction reported on the amended return.

Stat. Auth.: ORS 314.403, 305.100
Stats. Implemented: ORS 314.403
Hist.: REV 11-2008, f. & cert. ef. 9-23-08

150-314.410(1)

Additional Assessments

(1) The filing of a 'tentative return' which does not reveal the details of income or deductions is not considered a filing within the meaning of ORS 314.410, and the statute of limitations upon an additional assessment does not begin to run until a detailed return, showing items of income and deductions, is filed. Beginning with the tax year 1994, a copy of the federal Form 1040, Form 1040A, Form 1040EZ, or 1040 PC, whichever is applicable, must be filed with Form 40, pursuant to ORS 316.457 and OAR 150-316.457, or the return will be deemed incomplete.

(2) For tax years beginning on or after January 1, 1969 and before December 31, 1993, a complete copy of the federal income tax return, including all schedules, must be filed with the department.

[ED. NOTE: Forms referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.410
Hist.: 1958-59; 6-68; 11-71; RD 5-1994, f. 12-15-94, cert. ef. 12-31-94

150-314.410(2)

Five-Year Statute of Limitations

For tax years beginning before January 1, 1969, the term "gross income" as used in ORS 314.410(2) means gross income as defined in ORS Chapter 316 or 317. For tax years beginning on or after January 1, 1969, "gross income" as used in ORS 314.410(2) means gross income as defined in section 61 of the Internal Revenue Code or in ORS Chapter 317. An item shall not be considered as omitted from gross income if information sufficient to apprise the Department of the nature and amount of such item is disclosed in the return or in any schedule or statement attached to the return.

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented:
Hist.: 11-71

150-314.410(4)

Time Limit to Make Adjustment

(1) The provisions of this rule that apply to a federal change or correction apply to reports that are received by the department on or after October 4, 1997. The provisions of this rule that apply to another state's change or correction apply to changes or corrections made on or after October 23, 1999.

(2) The department may mail a Notice of Deficiency at any time within two years after the department receives notification of a change or correction contained in:

(a) A report received from the Internal Revenue Service;

(b) A report received from another state's taxing authority; or

(c) The written report filed by the taxpayer as required by ORS 314.380(2)(a)(A).

Example 1: Ron filed his 1996 federal and state returns on time. The Internal Revenue Service (IRS) audited and adjusted his federal return in March 2000. The department may mail a Notice of Deficiency within two years of receiving the report of the Internal Revenue Service adjustment.

(3) The department may mail a Notice of Deficiency if, at the time the change or correction by the Internal Revenue Service or another state’s taxing authority was made, an assessment or issuance of a refund of federal or other state's tax based on the change or correction was within the time permitted by federal tax law or the tax law of the other state, as applicable. This provision applies regardless of whether an adjustment to the return is allowable under any other provision of Oregon law.

Example 2: ABC Corporation was audited by the IRS for tax year 1991. ABC Corporation signed an agreement with the IRS to extend the period of time for assessing federal tax. No separate extension agreement was signed with Oregon. Following completion of the federal audit, the department may mail a Notice of Deficiency at any time within two years of receiving the report of the Internal Revenue Service adjustment.

Example 3: Sally filed a timely 1993 tax return. In 1999, the IRS determined that Sally had omitted an item of income that was more than 25 percent of the gross income shown on the return. The IRS assessed additional tax based on Internal Revenue Code section 6501(e), which allows an assessment to be issued within six years of the filing of the return when there is such an omission. The department may mail a Notice of Deficiency based on the federal RAR within two years of receiving that report.

(4) The department may not mail a Notice of Deficiency based on a federal adjustment or the audit report of another state if, at the time of the change or correction, the tax year was closed to adjustment for Oregon purposes and also closed for adjustment under federal tax law, or the law of the other state, whichever applies.

Example 4: Lester filed timely 1995, 1996 and 1997 federal and state tax returns. In 1999, the Internal Revenue Service issued an adjustment that indicated Lester had incorrectly figured a capital loss for 1995. However, the IRS did not assess additional federal tax for 1995 because the year was not open to adjustment under any provision of federal law. Because both the federal and state returns were closed to adjustment, the department may not use the provisions of ORS 314.410(3)(b) to issue a Notice of Deficiency based on the Internal Revenue Service adjustment.

(5) When the department is notified of a change or correction, the department is not limited to the adjustments reflected in the IRS report, the report of the other state's taxing authority, or the taxpayer's written report submitted in the format required by OAR 150-314.380(2)-(B). The department may make any adjustments deemed necessary to properly reflect Oregon taxable income or Oregon tax liability for the year in question.

Example 5: Paul, a California resident, worked temporarily in Oregon in 1995 before returning to California. In April 1996, Paul filed a nonresident Oregon return for 1995 and claimed a credit for taxes paid to California. In March 2000, California audited his 1995 California return and in July 2000 Paul paid additional tax to California based on additional wages earned in Oregon. Paul filed a claim for refund with Oregon in November 2000, as allowed by ORS 314.380(2)(b). In reviewing the claim, the department allowed the increase in the credit for taxes paid to another state based on the increased wages. However, the department determined Paul had incorrectly calculated the political contribution credit and issued an adjusted refund.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.410
Hist.: RD 10-1986, f. & cert. ef. 12-31-86; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89; RD 9-1992, f. 12-29-92, cert. ef. 12-31-92; REV 9-1999, f. 12-30-99, cert. ef. 12-31-99; REV 12-2000, f. 12-29-00, cert. ef. 12-31-00; Renumbered from 150-314.410(3), REV 8-2008, f. 8-29-08, cert. ef. 8-31-08; REV 11-2013, f. 12-26-13, cert. ef. 1-1-14

150-314.410(6)

Notification of Gain Realized Upon the Sale or Exchange of a Principal Residence

(1) The period for the assessment of any deficiency attributable to any part of the gain realized upon the sale or exchange of the taxpayer's principal residence shall not expire prior to three years from the date the department is notified by the taxpayer of:

(a) The cost of purchasing the new residence which the taxpayer claims results in nonrecognition of any part of such gain; or

(b) The taxpayer's intention not to purchase a new residence; or

(c) A failure to purchase a new residence within the prescribed period. The department is deemed to have been notified when the taxpayer provides this information to the department.

(2) Individuals who have deferred gain on the sale of a principle residence under Internal Revenue Code (IRC) Section 1034, or who have excluded gain on the sale of a residence under IRC 121, are not required to file notice directly with the department if:

(a) They have met any applicable reinvestment requirements; and

(b) Notification of the reinvestment has been filed with the Internal Revenue Service. In this case, the department is deemed to have been notified on the date the Internal Revenue Service is notified.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 305.295
Hist.: RD 5-1997, f. 12-12-97, cert. ef. 12-31-97; Renumbered from 150-314.410(5), REV 8-2008, f. 8-29-08, cert. ef. 8-31-08

150-314.410(7)

Extension of Period for Assessment

Once the provisions of ORS 314.410(6) have been exercised, the Department and the taxpayer may, by written agreement, extend beyond the original agreed period the period for mailing a notice of deficiency or assessing a deficiency, provided the subsequent agreement is made before the original agreement expires.

Stat. Auth.: ORS 305.100
Stats. Implemented: 314.410
Hist.: 11-71; 12-31-77; Renumbered from 150-314.410(6), REV 8-2008, f. 8-29-08, cert. ef. 8-31-08

150-314.410(9)

Effect of Federal Extension of Period for Assessment

If a taxpayer and the Commissioner of Internal Revenue, or the taxing authority of another state, enter into an agreement, or renewal thereof, extending the period of time for giving notices of deficiencies and assessing deficiencies of income tax, the Department may give notice of a deficiency within the limits set forth in subsections (1) to (7) of ORS 314.410 or within six months from the expiration date of the agreement, whichever period expires the later.

Stat. Auth.: ORS 305.100
Stats. Implemented: 314.410
Hist.: 11-71; 12-31-77; REV 9-1999, f. 12-30-99, cert. ef. 12-31-99; Renumbered from 150-314.410(8), REV 8-2008, f. 8-29-08, cert. ef. 8-31-08

150-314.415

Refunds Generally

(1) Refund Limitations - Time and Amount.

(a) If the amount of the tax imposed by the statute is less than the amount paid by the taxpayer and the taxpayer does not then owe any other tax or liability to the State of Oregon, such overpayment must be refunded. A refund may be made under ORS 314.415 in compliance with a claim for refund filed by the taxpayer under ORS 305.270 or by correction of the return by the department. To issue a refund based on an audit examination, an auditor's report showing the amount of refund must be completed and approved prior to the expiration of the applicable period set forth in the following paragraph.

(b) Except as provided in subsections (3), (4), (5) and (6) of ORS 314.415, a refund or credit may not be granted unless a correction by the department is approved or a claim is filed within three years after the return is filed, or within two years after part or all of the tax is paid, whichever period expires later. Under ORS 316.417(1) and 317.504, a return filed before the due date is considered as having been filed on the due date.

(c) If there is an amount due from the taxpayer, the refund otherwise allowable will be applied to the balance due. An appeal from an additional assessment paid by the taxpayer to stop the running of interest cannot be classed as a "refund" claim. Except as provided in ORS 314.415(5), the amount refunded cannot exceed the amount of tax paid during the applicable period of limitation before a correction by the department is approved or the filing of the claim.

Example: A taxpayer files a 2002 return on April 15, 2003, showing a tax due in the amount of $100 and pays that amount at the time the return is filed. On April 1, 2006, an additional tax of $50 is assessed by the department on the2002 return and is paid by the taxpayer on May 1, 2006. Within two years the taxpayer files a claim for refund based on items not previously adjusted on the 2002 return. The refund claim shows an overpayment of $75 of the total $150 paid. The refund claim is limited to $50, the sum paid within the open period preceding the filing of the claim.

(2) Interest Starting Date.

(a) The interest starting date for a refund of individual income tax, corporate excise tax, or corporate income tax is 45 days after the date the tax was paid, 45 days after the return was due, or 45 days after the original return was filed, whichever is later.

(b) The interest starting date for a refund not described in subsection (2)(a) of this rule is 45 days after the return was due or 45 days after the tax was paid, whichever is later.

(c) See OAR 150-305.220(2) Interest on Refunds for information about interest periods and interest rates.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.415
Hist.: 1958-59; 12-19;75; 12-31-77; 12-31-82; RD 10-1986, f. & cert. ef. 12-31-86; RD 12-1990, f. 12-20-90, cert. ef. 12-31-90; Renumbered from 150-314.415(1), REV 10-2006, f. 12-27-06, cert. ef. 1-1-07

150-314.415(1)(a)

Interest Starting Date

(1) The interest starting date for refunds issued by the department shall be 45 days after the date the tax was paid, or 45 days after the return was due or 45 days after the return was filed, whichever is the later.

(2) Also see OAR 150-305.220(2) Interest on Refunds for interest starting date, interest periods and interest rates.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.415
Hist.: RD 12-1985, f. 12-16-85, cert. ef. 12-31-85; RD 10-1986, f. & cert. ef. 12-31-86; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89; RD 9-1992, f. 12-29-92, cert. ef. 12-31-92

150-314.415(1)(b)-(A) [Renumbered to 150-314.415(2)(b)-(A)]

150-314.415(1)(b)-(B) [Renumbered to 150-314.415(2)(b)-(B)]

150-314.415(1)(e)-(A) [Renumbered to 150-314.415(2)(f)-(A)]

150-314.415(1)(e)-(B) [Renumbered to 150-314.415(2)(f)-(B)]

150-314.415(2)(b)-(A)

Refunds

(1) The return of the taxpayer, filed timely and in the prescribed manner, constitutes a claim for refund under the provisions of this section. For the purpose of determining when the three-year period for claiming a refund expires, the due date of a return is the statutory due date, not the due date after extension.

(2) The department will refund the excess tax paid whenever the review required by statute is completed, even if the date of refund is more than three years after the due date of the return.

Example 1: Simon filed his 1999 Oregon personal income tax return on April 1, 2003, requesting a refund. The department reviewed and processed the return in mid-May of that year. Although the refund payment would be outside the three year statute for refunds, the department can make the payment because Simon filed his return within the statute of limitations period.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.415
Hist.: 1-69; 11-71; 12-31-83, Renumbered from 150-316.192 to 150-314.415(1)(b); 12-31-85, Renumbered from 150-314.415(1)(b); RD 11-1988, f. 12-19-88, cert. ef. 12-31-88; RD 3-1995, f. 12-29-95, cert. ef. 12-31-95; Renumbered from 150-314.415(1)(c) by REV 4-2003, f. & cert. ef. 12-31-03; Renumbered from 150-314.415(1)(b)-(A), Rev 4-2005, f. 12-30-05, cert. ef. 1-1-06

150-314.415(2)(b)-(B)

Minimum Check Amount

(1) The department is prohibited by statute from issuing refunds of less than the minimum allowed by ORS 314.415 after reduction for amounts owed. The department will not apply a refund less than the minimum to a subsequent year's estimated tax account or to a charitable checkoff.

(2) Refunds from all tax programs may be offset against delinquent accounts as specified in OAR 150-314.415(2)(f)-(B). Refunds of money received for miscellaneous purposes, such as photocopies of returns, purchase of publications, etc., may be offset against delinquent accounts if the refund is more than $10.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.415
Hist.: 10-5-83, 12-31-85, Renumbered from 150-314.415(1)(d)-(C); RD 12-1985, f. 12-16-85, cert. ef. 12-31-85; RD 11-1988, f. 12-19-88, cert. ef. 12-31-88; RD 7-1993, f. 12-30-93, cert. ef. 12-31-93; RD 5-1994, f. 12-15-94, cert. ef. 12-31-94; REV 9-1999, f. 12-30-99, cert. ef. 12-31-99; Renumbered from 150-314.415(1)(b) by REV 4-2003, f. & cert. ef. 12-31-03; Renumbered from 150-314.415(1)(b)-(B), REV 4-2005, f. 12-30-05, cert. ef. 1-1-06

150-314.415(2)(f)-(A)

Interest Computation -- Offset

(1) An overpayment of any tax imposed and interest on the overpayment, if any, shall be offset against any tax, penalty, or interest then due from the taxpayer. "Tax, penalty or interest then due from the taxpayer" means any amount of tax that has been assessed before the date the refund is applied or proposed to be applied and any penalty or interest incurred in connection with the tax.

(2) If a Notice of Assessment is issued, the department shall make the offset on the date the refund is issued.

(3) If a Notice of Deficiency is issued, the department may offset upon receiving written authorization from the taxpayer. If the taxpayer submits a written authorization to offset, the authorization shall include the taxpayer's name, social security number or other identifying number, current address, accounts (if known), and the signature of the taxpayer. The date on which the offset shall be made is the date that either a net billing or a refund is issued, or the date a payment is received, whichever is earlier.

Example 1: On February 15, 1985 it was determined that a taxpayer had overpaid the 1982 tax by $500 and underpaid the 1983 tax by $800. Assume the underpaid account had not yet been assessed and on March 15, 1985 the department received a written authorization allowing the department to offset the refund to the nonassessed account. The net amount due from the taxpayer on April 15, 1985, the date the net billing is issued, is calculated as follows: [Figures not included. See ED. NOTE.]

(4) For deficiencies on refunds issued under ORS 310.630 to 310.690, the department shall refund any penalty and interest, due to an offset of a refund, when it has been determined that the deficiency was not legally due. Interest shall be computed on the amount that was offset. This includes penalty and interest not legally due. The interest starting date is the date the offset was made.

Example 4: An individual files a Homeowner and Renter Refund claim and a check is issued. Six months later, the department audits the refund claim and issues a Notice of Deficiency. The individual files an income tax return for which a refund is issued. The individual requests the department to offset the income tax refund to pay the deficiency plus interest. The deficiency is later determined to be erroneous. The amount of total offset shall be refunded. Interest is computed on the entire amount beginning on the date the deficiency was offset.

Example 5: Assume the same facts in Example 1 except that the Notice of Deficiency is assessed and a 5 percent penalty is imposed. The amount of the refund, penalty and interest offset shall be refunded and interest is computed on the entire amount beginning on the date the assessed account was offset.

(5) Special Cases. Offsets applied to deficiencies issued for tax years beginning after December 31, 1984, and prior to January 1, 1986 for which the taxpayer has made the election as prescribed under OAR 150-316.021(1)(b) shall be applied in the following order:

(a) First, to penalty and interest due on such return;

(b) Second, the amount of tax due as prescribed under OAR 150-316.021(1)(b).

(c) Third, to the balance of tax due for the tax year. When the combined report method is required, penalty and interest under ORS 314.395 to 314.415 will be computed on the separate tax liability, or overpayment of each taxpayer included in the unitary group. There shall be no offsets of overpayments and deficiencies between taxpayers in the group prior to computing penalty and interest. After computation of penalty and interest, an offset may be made by the department upon receiving written authorization from the taxpayers, given the statute of limitations has not expired.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.415
Hist.: 10-5-83, 12-31-83; 12-31-85; 12-31-87, Renumbered from 150-314.415(1)(d)-(A); RD 11-1988, f. 12-19-88, cert. ef. 12-31-88; Renumbered from 150-314.415(1)(e)-(A), REV 4-2005, f. 12-30-05, cert. ef. 1-1-06

150-314.415(2)(f)-(B)

Refund Offset Priority

(1) Definitions for purposes of this rule.

(a) Unrestricted accounts. An account assigned by a state agency which is collected by use of all Department of Revenue resources available.

(b) Appropriation accounts. An account that is established by an appropriation of the state legislature.

(c) Nonassessed accounts. The deficiency tax account amount by which the tax as correctly computed exceeds the tax, if any, reported by the taxpayer.

(d) Assessed accounts. The tax account that has not been appealed or paid and a written notice of assessment stating the amount so assessed has been sent to the taxpayer.

(e) Oldest account. The oldest account is an account with the earliest set-up date. If more than one account has the same set-up date, the earliest tax year is the oldest account. "Set-up date" means the date the account was established or created.

(2) The department will offset a refund to assessed accounts. The department may also offset a refund to nonassessed accounts when the taxpayer sends the department a written authorization to offset the refund. Offsets will be made using the following guidelines:

(a) First, offset to the oldest account within the program that has the refund.

(b) Second, offset to other programs, oldest account first, following the priorities shown in section (4) below.

(3) A taxpayer's refund will be offset only to accounts owed by that taxpayer. An individual refund will not be offset to a corporate account nor a corporate refund offset to accounts of a subsidiary.

(4) The priority criteria is:

(a) Funds due the general fund excluding funds due other state of Oregon agencies. This includes all revenue from the cigarette and amusement device tax which is allocated part to the general fund and part to local governments.

(b) Funds due an appropriation account which will revert to the general fund.

(c) Funds due a state of Oregon tax program for distribution to local governments.

(d) Funds due other state of Oregon agencies.

(e) Funds due local jurisdictions for which the department collects under ORS 293.250.

(f) Funds due entities which serve a garnishment or levy on the Department of Revenue.

(g) Funds due charitable check-off programs designated by the taxpayer in lieu of receiving a refund check.

(5) If the refund balance as adjusted by the department in processing and after offset is insufficient to pay the designated charitable check-off contributions in full, payment will be prorated. The proration will be the ratio of the designated contribution to a specific fund divided by the total contribution to all funds.

(6) State tax refunds will not be offset to accounts for TriMet Transportation District or the Lane Transit District without the written permission of the taxpayer. Refunds from these programs will be offset to accounts within the same program but not to an account for a different local tax program.

(7) Delinquent senior citizen deferral accounts are part of the offset program. This includes the property tax and special assessment deferrals.

Example: A taxpayer has a personal income tax refund due for the year. The amount of the refund owed is $200. The taxpayer also has two liability accounts. The taxpayer owes $100 to the Department of Revenue on an assessed personal income tax account for the previous year. The Taxpayer also owes $300 to the Department of Education.

This is how the offset to the refund would look: [Table not included. See ED. NOTE.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.415
Hist.: 10-5-83, 12-31-83; 12-31-85, Renumbered from 150-314.415(1)(d)-(B); RD 7-1989, f. 12-18-89, cert. ef. 12-31-89; RD 7-1991, f. 12-30-91, cert. ef. 12-31-91; RD 7-1992, f. & cert. ef. 12-29-92; REV 2-2003, f. & cert. ef. 7-31-03; Renumbered from 150-314.415(1)(e)-(B), REV 4-2005, f. 12-30-05, cert. ef. 1-1-06

150-314.415(5)(a)

Refunds; Net Operating Loss and Net Capital Loss Carryback Claims

(1) Application. For purposes of this rule, provisions applying to individuals also apply to estates and trusts.

(2) Extended period for refund claim.

(a) A special period of limitations is provided under ORS 314.415(5)(a) to claim a refund or credit attributable to an individual net operating loss or corporation net capital loss carryback. A refund claim for an individual net operating loss or corporation net capital loss carryback year must be filed within three years from the due date (including extensions) of the taxable year of the net operating loss or net capital loss which results in the carryback.

Example 1: Edward filed his 1996, 1997, 1998, 1999, and 2000 returns by their respective due dates. On March 15, 2003, Edward filed his 2001 return on which he claimed a net operating loss. The refund claims for the carryback years (1996 through 2000) must be filed by April 15, 2004, three years after the due date of the 2001 net operating loss year return.

(b) The provision allowing refunds of tax within two years of the date of payment is not extended.

Example 2: Assume the same facts as in Example 1 except that the original 2001 return was not filed until March 15, 2005, was filed as a paid return and did not claim a net operating loss. On June 15, 2005, Edward filed an amended return (refund claim) for 2001 to claim an additional business expense. The amended return creates a net operating loss for 2001. Edward is allowed a refund for the 2001 taxes paid within the two years preceding his refund claim. Refund claims for the net operating loss carryback years (1996 through 2000) must have been filed by April 15, 2004, three years after the due date of the 2001 net operating loss year return. The date of filing of the net operating loss claim (June 15, 2005) does not extend the date of filing of the refund claims for the carryback years beyond the three-year period.

(3) Carryback periods for individuals. In the case of an individual taxpayer's net operating loss:

(a) For tax years beginning before August 6, 1997, the net operating loss carryback period is generally three years and the carryforward period is fifteen years.

(b) For tax years beginning on or after August 6, 1997, the carryback period is generally two years and the carryover period is twenty years.

(c) For tax years beginning on or after January 1, 1998, a five year carryback period is allowed to claim a refund or credit attributable to a net operating loss for a farming business.

(d) For tax years beginning on or after January 1, 2001, the carryback period is generally five years and the carryover period is twenty years.

(e) For tax years beginning on or after January 1, 2003, the carryback period is generally two years and the carryover period is twenty years.

(4) Limitations on credit or refund.

(a) If a claim for a credit or refund is based on an overpayment attributable to an individual net operating loss or corporation net capital loss carryback, the credit or refund may exceed the amount of tax paid within three years of when the return was filed or within two years immediately preceding the filing of the claim but only to the extent the overpayment is attributable to the net operating loss or net capital loss carryback.

Example 3: Jake amended his timely filed 2002 return November 1, 2006 to claim a refund for a carryback arising from a 2004 net operating loss. In addition to reducing income for the net operating loss carryback, Jake claimed a subtraction for U.S. government interest and an additional exemption credit. The refund claim is limited to the portion of the overpayment attributable to the net operating loss carryback. The subtraction for interest and the additional exemption credit are outlawed by the period of limitations under ORS 314.415(2).

(b) If a claim for a credit or refund is based not only on an overpayment attributable to an individual net operating loss or corporation net capital loss carryback, but also on other items, the credit or refund may not exceed the sum of:

(A) The amount of the overpayment attributable to the individual net operating loss or corporation net capital loss carryback, and

(B) The balance of such overpayment not to exceed the amount of taxes paid within the periods provided in ORS 314.415(2)(a).

Example 4: Assume the same facts as in Example 3 except that Jake paid additional tax for the 2002 taxable year on May 1, 2005. He may receive a refund for any overpayment of taxes attributable to the net operating loss carryback plus any remaining balance of overpayment, but not in excess of the amount of any taxes paid for 2002 during the two years immediately preceding November 1, 2006, the date the claim was filed.

(c) Delinquent returns. If a taxpayer filed an original return after the three-year period for requesting a refund provided in ORS 314.415(2)(a), but amends the same return for an individual net operating or corporation net capital loss carryback within the period allowed by ORS 314.415(5)(a), a refund will be allowed. The refund will be limited to the amount of net tax liability shown on the original return. Any additional refund requested on the amended return is barred by ORS 314.415(2)(a).

Example 5: Chuck files his 2002 return on September 30, 2006, more than three years beyond the original due date of the return. His return showed tax liability of $500 and he requested a refund of $300 for overpayment of estimated tax. The refund was denied based on ORS 314.415(2)(a). On October 15, 2006, Chuck filed an amended 2002 return carrying back a 2005 net operating loss. Chuck requests a refund of $800 since he filed within the additional three-year period allowed by ORS 314.415(5)(a). Chuck will receive a refund of $500 which is attributable to the net operating loss carryback. The additional $300 refund is not allowable based on ORS 314.415(2)(a).

(5) Treatment of carryover amounts. Although refunds for NOL years, individual net operating loss, or corporation net capital loss carryback years may be closed or limited under ORS 314.415 and this rule, the balance of any individual NOL or corporation net capital loss carryover amounts not fully absorbed in carryback years may be used in the computation of Oregon taxable income for all applicable carryover years to the same extent includable for federal.

Example 6: Jay filed his original 1998 return showing a net operating loss of $20,000 on July 1, 2006. Refunds for the carryback years 1996 and 1997 and the carryforward years of 1999, 2000, 2001, and 2002 are barred by the statute of limitations. However, any portion of the net operating loss deduction not fully absorbed in those years may be used to determine Oregon taxable income for 2003 and later years in accordance with ORS 316.028 and the related rules. The limitation of the refunds for the closed years will not limit the carryover amounts to be used in subsequent years.

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.415
Hist.: RD 7-1989, f. 12-18-89, cert. ef. 12-31-89; RD 7-1991, f. 12-30-91, cert. ef. 12-31-91; RD 9-1992, f. 12-29-92, cert. ef. 12-31-92; RD 7-1993, f. 12-30-93, cert. ef. 12-31-93; RD 3-1995, f. 12-29-95, cert. ef. 12-31-95; REV 9-1999, f. 12-30-99, cert. ef. 12-31-99; Renumbered from 150-314.415(4)(a), REV 4-2005, f. 12-30-05, cert. ef. 1-1-06; REV 10-2006, f. 12-27-06, cert. ef. 1-1-07

150-314.415(6)

Effect of Federal Extension of Period for Assessment

If a taxpayer and the Commissioner of Internal Revenue enter into an agreement, or renewal thereof, extending the period of time for giving notices of deficiencies and assessing deficiencies of federal income tax for tax years beginning on or after January 1, 1969, the period within which a refund claim may be filed or a refund allowed if no claim is filed shall be within the limits set forth in subsections (1) to (5) of ORS 314.415 or within six months from the expiration date of the federal agreement, whichever period expires the later.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.415
Hist.: 11-71; 12-31-77; Renumbered from 150-314.415(5), REV 4-2005, f. 12-30-05, cert. ef. 1-1-06

150-314.415(7)

Separate Refunds When a Joint Return Has Been Filed

(1) The department may, as a convenience to taxpayers, issue separate refunds when either spouse submits a signed request. To issue separate refunds when a joint refund check has already been issued, the check must be returned uncashed. If either spouse has an amount owing to the state of Oregon, any refund due that person will be applied to the liability and the balance, if any, issued in a separate refund check.

(2) For purposes of this rule, the separate adjusted gross income (AGI) of each spouse is equal to each spouse's share of Oregon adjusted gross income.

Example 1: Ann and her husband Ian, both Idaho residents, filed a joint Oregon return claiming a $600. He owes a $500 debt to an Oregon city for unpaid parking tickets so the department withheld part of the joint $600 refund to pay the $500 debt and issued a $100 refund for the difference. Before they cashed the $100 refund, Ann sent it back requesting her share of the amount paid to the city in Oregon because she did not owe the debt. Ian reported $25,000 of wages of which he earned $10,000 in Oregon. Ann reported $15,000 of wages of which $5,000 she earned in Oregon. They had no other income to report. The department will apportion her refund based on her share of Oregon AGI as follows:

      Federal column    Oregon Column

Ian’s wages    $25,000       $10,000

Ann’s wages    $15,000       $5,000

Federal AGI    $40,000      $15,000 (Oregon AGI)

$5,000 ÷ $15,000 = 1/3

$600 x 1/3 = $200

The department will apportion the $600 refund and issue a $200 refund to Ann. Ian’s portion of the refund was $400 thus he still owes the City of Portland $100.

(3) For purposes of this rule, items of income and deduction, separate adjusted gross income, and any refund claimed are determined without regard to community property law.

Example 2: Ethan and his wife Ava, both Washington residents, filed a joint Oregon return claiming a $1,500 refund. She owes a $1,200 debt to an Oregon university so the department withheld part of the joint refund and sent a $300 check for the difference. Before they cashed the $300 refund, Ethan sent it back requesting his share of the joint refund because he did not owe the debt and he claimed he owned half of the refund because he lives in a community property state. Ethan reported $50,000 of wages all of which he earned in Washington. Ava reported $25,000 of wages all of which she earned in Oregon. They had no other income to report. The department will apportion his refund based on his share of Oregon AGI without regard to community property law as follows:

      Federal column    Oregon Column

Ethan’s wages    $50,000       $0

Ava’s wages    $25,000       $25,000

Federal AGI    $75,000       $25,000 (Oregon AGI)

Because Ethan does not have any share of the Oregon AGI and community property law is disregarded for this purpose, the entire refund belongs to Ava and the department will not apportion any of it to Ethan.

(4) If the refund is being held for application against an amount owed to an agency of the state of Oregon, the request for separate refunds must be mailed to the Department of Revenue within 30 days of the date of the Notice of Proposed Adjustment and/or Distribution. Separate refunds will not be made if the request is not received timely.

(5) Pursuant to ORS 18.665(2), the department cannot issue separate refunds when a garnishment or levy has been served on the department for one or both spouses.

[ED. NOTE: Tables referenced are not included in rule text. Click here for PDF copy of table(s).]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.415
Hist.: 1-69; 11-71; 12-19-75; 1-1-77, Renumbered from 150-316.192(2)-(A); 12-31-85; RD 13-1987, f. 12-18-87, cert. ef. 12-31-87; RD 7-1991, f. 12-30-91, cert. ef. 12-31-91; RD 9-1992, f. 12-29-92, cert. ef. 12-31-92; REV 3-2002, f. 6-26-02, cert. ef. 6-30-02; REV 11-2004, f. 12-29-04, cert. ef. 12-31-04; Renumbered from 150-314.415(6), REV 3-2005, f. 12-30-05, cert. ef. 1-1-06; REV 11-2007, f. 12-28-07, cert. ef. 1-1-08; REV 4-2012, f. 7-20-12, cert. ef. 8-1-12; REV 6-2013, f. & cert. ef. 12-26-13

150-314.415(8)

Refunds of Tax Overpayments to Spouse or Heirs

(1) For deaths which occur on or after September 9, 1995: Upon the death of a taxpayer entitled to a refund not in excess of $10,000, when the estate is not probated, refunds may be made to survivors by classes upon filing acceptable affidavits, in the following order of precedence: Surviving spouse; the trustee of a revocable inter vivos trust; children, and issue of a deceased child by right of representation (the grandchildren dividing share and share alike what their deceased parent would have taken if alive); parents; brothers and sisters; nephews and nieces. If a small estate affidavit is filed, a refund may be made in the amount of the difference between the value of other personal property in the small estate and $50,000. See ORS 114.515, 293.490 to 293.500.

(2) For deaths which occur prior to September 9, 1995: The refund limitation amount is $1,000 or less, and trustees are not allowed to claim the refund.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.415
Hist.: 1-69; 11-73; 12-31-84, Renumbered from 150-316.192(2)-(B); 12-31-85; RD 15-1987, f. 12-10-87, cert. ef. 12-31-87; RD 3-1995, f. 12-29-95, cert. ef. 12-31-95; REV 7-1999, f. 12-1-99, cert. ef. 12-31-99; Renumbered from 150-314.415(7), REV 4-2005, f. 12-30-05, cert. ef. 1-1-06

150-314.425

Model Recordkeeping and Retention Regulation

(1) Definitions, for purposes of this regulation, these terms shall be defined as follows:

(a) "Database Management System" means a software system that controls, relates, retrieves, and provides accessibility to data stored in a database.

(b) "Electronic data interchange" or "EDI technology" means the computer-to-computer exchange of business transactions in a standardized structured electronic format.

(c) "Hard copy" means any documents, records, reports or other data printed on paper.

(d) "Machine-sensible record" means a collection of related information in an electronic format. Machine-sensible records do not include hard-copy records that are created or recorded on paper or stored in or by an imaging system such as microfilm, microfiche, or storage-only imaging systems.

(e) "Storage-only imaging system" means a system of computer hardware and software that provides for the storage, retention and retrieval of documents originally created on paper. It does not include any system, or part of a system, that manipulates or processes any information or data contained on the document in any manner other than to reproduce the document in hard copy or as an optical image.

(f) "Taxpayer" as used in this regulation means any natural person, estate, trust, or beneficiary whose income is in whole or in part subject to the taxes imposed by Chapter 316; and any employer required by Chapter 316 to withhold personal income taxes from the compensation of employees for remittance to the state; and, any corporation subject either to ORS Chapter 317 or 318, or both.

(2) Recordkeeping Requirement -- General:

(a) A taxpayer shall maintain all records that are necessary to a determination of the correct tax liability under Chapters 316, 317 or 318. All required records shall be made available on request by the Department of Revenue or its authorized representatives as provided for in ORS 314.425.

(b) If a taxpayer retains records required to be retained under this regulation in both machine-sensible and hard-copy formats, the taxpayer shall make the records available to the Department of Revenue in machine-sensible format upon request of the department.

(c) Nothing in this regulation shall be construed to prohibit a taxpayer from demonstrating tax compliance with traditional hard-copy documents or reproductions thereof, in whole or in part, whether or not such taxpayer also has retained or has the capability to retain records on electronic or other storage media in accordance with this regulation. However, this subsection shall not relieve the taxpayer of the obligation to comply with subsection (2)(b) of this regulation.

(3) Recordkeeping Requirements -- Machine-Sensible Records:

(a) General Requirements:

(A) Machine-sensible records used to establish tax compliance shall contain sufficient transaction-level detail information so that the details underlying the machine-sensible records can be identified and made available to the department upon request. A taxpayer has discretion to discard duplicated records and redundant information provided its responsibilities under this regulation are met.

(B) At the time of an examination, the retained records shall be capable of being retrieved and converted to a standard record format.

(C) Taxpayers are not required to construct machine-sensible records other than those created in the ordinary course of business. A taxpayer who does not create the electronic equivalent of a traditional paper document in the ordinary course of business is not required to construct such a record for tax purposes.

(b) Electronic Data Interchange Requirements:

(A) Where a taxpayer uses electronic data interchange processes and technology, the level of record detail, in combination with other records related to the transactions, shall be equivalent to that contained in an acceptable paper record. For example, the retained records should contain such information as vendor name, invoice date, product description, quantity purchased, price, amount of tax, indication of tax status, shipping detail, etc. Codes may be used to identify some or all of the data elements, provided that the taxpayer provides a method which allows department to interpret the coded information.

(B) The taxpayer may capture the information necessary to satisfy section (3)(b)(A) at any level within the accounting system and need not retain the original EDI transaction records provided the audit trail, authenticity, and integrity of the retained records can be established. For example, a taxpayer using electronic data interchange technology receives electronic invoices from its suppliers. The taxpayer decides to retain the invoice data from completed and verified EDI transactions in its accounts payable system rather than to retain the EDI transactions themselves. Since neither the EDI transaction nor the accounts payable system captures information from the invoice pertaining to product description and vendor name (i.e., they contain only codes for that information), the taxpayer also retains other records, such as its vendor master file and product code description lists and makes them available to the Department of Revenue. In this example, the taxpayer need not retain its EDI transaction for tax purposes.

(c) Electronic Data Processing Systems Requirements -- The requirements for an electronic data processing accounting system should be similar to that of a manual accounting system, in that an adequately designed accounting system should incorporate methods and records that will satisfy the requirements of this regulation.

(d) Business Process Information:

(A) Upon the request of the Department of Revenue, the taxpayer shall provide a description of the business process that created the retained records. Such description shall include the relationship between the records and the tax documents prepared by the taxpayer and the measures employed to ensure the integrity of the records.

(B) The taxpayer shall be capable of demonstrating:

(i) The functions being performed as they relate to the flow of data through the system;

(ii) The internal controls used to ensure accurate and reliable processing; and

(iii) The internal controls used to prevent unauthorized addition, alteration, or deletion of retained records.

(C) The following specific documentation is required for machine-sensible records retained pursuant to this regulation:

(i) Record formats or layouts;

(ii) Field definitions (including the meaning of all codes used to represent information);

(iii) File descriptions (e.g., data set name); and

(iv) Detailed charts of accounts and account descriptions.

(4) Records Maintenance Requirements:

(a) The Department of Revenue recommends but does not require that taxpayers refer to the National Archives and Record Administration's (NARA) standards for guidance on the maintenance and storage of electronic records, such as the labeling of records, the location and security of the storage environment, the creation of back-up copies, and the use of periodic testing to confirm the continued integrity of the records.

(b) The taxpayer's computer hardware or software shall accommodate the extraction and conversion of retained machine-sensible records.

(5) Access To Machine-Sensible Records:

(a) The manner in which Department of Revenue is provided access to machine-sensible records as required in subsection (2)(b) of this regulation may be satisfied through a variety of means that shall take into account a taxpayer's facts and circumstances through consultation with the taxpayer.

(b) Such access will be provided in one or more of the following manners:

(A) The taxpayer may arrange to provide department with the hardware, software and personnel resources to access the machine-sensible records.

(B) The taxpayer may arrange for a third party to provide the hardware, software and personnel resources necessary to access the machine-sensible records.

(C) The taxpayer may convert the machine-sensible records to a standard record format specified by the department including copies of files, on a magnetic medium that is agreed to by the department.

(D) The taxpayer and the department may agree on other means of providing access to the machine-sensible records.

(6) Taxpayer Responsibility And Discretionary Authority:

(a) In conjunction with meeting the requirements of section 3, a taxpayer may create files solely for the use of the department. For example, if a data base management system is used, it is consistent with this regulation for the taxpayer to create and retain a file that contains the transaction-level detail from the data base management system and that meets the requirements of section 3. The taxpayer should document the process that created the separate file to show the relationship between that file and the original records.

(b) A taxpayer may contract with a third party to provide custodial or management services of the records. Such a contract shall not relieve the taxpayer of its responsibilities under this regulation.

(7) Alternative Storage Media:

(a) For purposes of storage and retention, taxpayers may convert hard-copy documents received or produced in the normal course of business and required to be retained under this regulation to microfilm, microfiche or other storage-only imaging systems and may discard the original hard-copy documents, provided the conditions of this section are met. Documents which may be stored on these media include, but are not limited to general books of account, journals, voucher registers, general and subsidiary ledgers, and supporting records of details, such as sales invoices, purchase invoices, exemption certificates, and credit memoranda.

(b) Microfilm, microfiche and other storage-only imaging systems shall meet the following requirements:

(A) Documentation establishing the procedures for converting the hard-copy documents to microfilm, microfiche or other storage-only imaging system shall be maintained and made available on request. Such documentation shall, at a minimum, contain a sufficient description to allow an original document to be followed through the conversion system as well as internal procedures established for inspection and quality assurance.

(B) Procedures shall be established for the effective identification, processing, storage, and preservation of the stored documents and for making them available for the period they are required to be retained under section (9).

(C) Upon request by the Department of Revenue, a taxpayer shall provide facilities and equipment for reading, locating, and reproducing any documents maintained on microfilm, microfiche or other storage-only imaging system.

(D) When displayed on such equipment or reproduced on paper, the documents shall exhibit a high degree of legibility and readability. For this purpose, legibility is defined as the quality of a letter or numeral that enables the observer to identify it positively and quickly to the exclusion of all other letters or numerals. Readability is defined as the quality of a group of letters or numerals being recognizable as words or complete numbers.

(E) All data stored on microfilm, microfiche or other storage-only imaging systems shall be maintained and arranged in a manner that permits the location of any particular record.

(F) There is no substantial evidence that the microfilm, microfiche or other storage-only imaging system lacks authenticity or integrity.

(8) Effect On Hard-Copy Recordkeeping Requirements:

(a) Except as otherwise provided in this section, the provisions of this regulation do not relieve taxpayers of the responsibility to retain hard-copy records that are created or received in the ordinary course of business as required by existing law and regulations. Hard-copy records may be retained on a recordkeeping medium as provided in section (7) of this regulation.

(b) If hard-copy records are not produced or received in the ordinary course of transacting business (e.g., when the taxpayer uses electronic data interchange technology), such hard-copy records need not be created.

(c) Hard-copy records generated at the time of a transaction using a credit or debit card shall be retained unless all the details necessary to determine correct tax liability relating to the transaction are subsequently received and retained by the taxpayer in accordance with this regulation. Such details include those listed in subsection (3)(b)-(A).

(d) Computer printouts that are created for validation, control, or other temporary purposes need not be retained.

(e) Nothing in this section shall prevent the Department of Revenue from requesting hard-copy printouts in lieu of retained machine-sensible records at the time of examination.

(9) Records Retention -- Time Period -- All records required to be retained under this regulation shall be preserved pursuant to ORS 314.425 unless the Department of Revenue has provided in writing that the records are no longer required.

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.425
Hist.: REV 7-1998, f. 11-13-98, cert. ef. 12-31-98

150-314.425-(B)

Requirement to Provide Copies of Documents

(1) Definitions for purposes of this rule.

(a) "Photocopy" (photocopied) means a copy or reproduction of an original document including books and papers; to make a photographic reproduction of any document, printed, pictorial, or other medium of information or recordkeeping.

(b) "Books and papers" has the same meaning as given in OAR 150-305.190.

(2) Books and papers must be provided either as a photocopy, an electronic reproduction, or be made available for photocopying, scanning or other electronic reproduction at a specified time and place for the purposes of administering and verifying compliance with the tax laws. Photocopying is a benefit to both the department and the taxpayer as the photocopy provides objective evidence supporting a tax position and allows for expediting the audit.

(3) When books and papers are requested they will be relevant and reasonable documentation for the issues under examination. The request for information is relevant if it is germane to or applicable to an audit issue.

(4) All books and papers that are acquired during an audit or examination are confidential in accordance with ORS 314.835.

(5) If this requirement creates a hardship for a taxpayer, the auditor or agent will work with the taxpayer to come to a reasonable solution for both parties.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.425
Hist.: REV 10-2007, f. 12-28-07, cert. ef. 1-1-08

150-314.430(1)-(A)

Definition: Collection Charge

As used in ORS 314.430(1) "collection charge" includes:

(1) The fees and costs listed in ORS 18.999(4), related to recovery of expenses incurred in enforcing judgments, and

(2) All fees or charges of the Secretary of State imposed under ORS 305.184 incurred in filing, releasing, cancelling, or satisfying a warrant filed with the Secretary of State under ORS 305.182.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.430
Hist.: RD 10-1983, f. 12-20-83, cert. ef. 12-31-83; RD 2-1989, f. 12-18-89, cert. ef. 12-31-89; RD 12-1990, f. 12-20-90, cert. ef. 12-31-90; REV 2-2003, f. & cert. ef. 7-31-03

150-314.430(1)-(B)

Payment Secured by Bond, Deposit or Otherwise

The issuance of a warrant to the sheriff to enforce collection of delinquent taxes will be stayed either by paying the amount of assessed taxes, penalties and accrued interest after it becomes due or by securing payment of that amount by bond, irrevocable letter of credit, deposit or otherwise. The bond or irrevocable letter of credit given by the taxpayer must be for an amount not less than the amount of the taxes assessed, plus penalties, plus interest for a reasonable period determined by the Department. The bond must be executed by a surety company which is registered with and under the supervision of the Insurance Commissioner of the State of Oregon; or by two or more individual sureties, each of whom shall be a resident and a householder or freeholder within the state and each of whom shall be worth the sum specified in the undertaking, exclusive of property exempt from execution and over and above all just debts and liabilities. However, the Department may allow more than two sureties to justify severally in amounts less than that expressed in the undertaking, if the whole justification is equivalent to that of two sufficient undertakings. The irrevocable letter of credit must be issued by a commercial bank as defined in ORS 706.005. Any one of the following items, or combination of items acceptable to the Department, equal in amount to the taxes, penalties and accrued interest thereon may be deposited with the Department of Revenue:

(1) A deposit of money;

(2) A certified check or checks on any state or national bank within the State of Oregon payable to the Department of Revenue;

(3) Satisfactory municipal bonds negotiable by delivery, or obligations of the United States Government negotiable by delivery; or

(4) Any other security satisfactory to the Department. The Department of Revenue may require additional security whenever in its opinion the value of the security pledged is no longer sufficient to adequately secure the Payment of the taxes, penalties and accrued interest thereon.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.430
Hist.: 1958-59; 12-19-75, Renumbered from 150-314.430(1); 12-31-83; RD 4-1991, f. 12-30-91, cert. ef. 12-31-91

150-314.430(2)

Statute of Limitation on Tax Collection

No statute of limitation runs on a tax self-assessed or additionally assessed by the Department in the time allowed by ORS 314.410 and collectible by warrant. However, the statute of 10 years limitation on judgment liens begins to run on a tax lien as soon as the tax warrant is filed pursuant to ORS 314.430. Such lien may be renewed by court order without loss of priority.

Stat. Auth.: ORS 305.100
Stats. Implemented:
Hist.: 1959

150-314.466-(B)

Assessment of Withholding Tax Against Liable Officers

The provisions of this rule dealing with hearings apply to hearing requests filed with the Department of Revenue prior to September 1, 1997. See OAR 150-305.525 for information about hearing requests filed on or after September 1, 1997.

(1) Oregon Combined Tax Report Filed With Partial Or No Payment. Potentially responsible officers or employees have been assessed the amount of the unpaid tax when the Oregon combined tax report is filed (Pursuant to ORS 305.265 and 314.407). For the purpose of providing individual notice of the assessment, the department shall issue Notices of Liability to each potentially responsible officer or employee.

(2) No Oregon Combined Tax Report Filed. If a corporation fails to file an Oregon combined tax report when due, the department shall provide written notice, pursuant to ORS 314.400(2)(a)(B), to the corporation and to each potentially responsible officer or employee of the failure to file. If the failure to file is not remedied, then the department shall determine the tax and issue Notice of Determination and Assessment, to each potentially responsible officer and employee, pursuant to ORS 305.265(10) and 314.400(2)(a)(B).

(3) Understatement Of Tax Reported On Oregon Combined Tax Report. If an Oregon combined tax report shows tax amounts which upon audit and examination are determined to be understated, the department shall issue to each potentially responsible officer or employee and the corporation Notice of Deficiency pursuant to ORS 305.265(2) and Notice of Assessment pursuant to ORS 305.265(7).

(4) Appeals. The determinations and assessments issued under the procedures set forth above may be appealed under the provisions of ORS Chapter 305:

(a) Level 1, Conference: Within 30 days from the issuance of Notice of Liability, Notice of Deficiency or Notice of Determination and Assessment, the person given notice must advise the department in writing of objections to the assessment and request a conference. See ORS 305.265(5)

(b) Level 2, Hearing or Small Claims Division: Appeal of Notice of Determination and Assessment or Notice of Assessment must be filed within 90 days of the date of the notice. In the case of an appeal of a Notice of Determination and Assessment where a conference was requested, appeal must be filed within 90 days of the date of the conference officer's decision letter. Ref. ORS 305.280(2). In the case of a Notice of Liability to which the person has not objected, appeal must be made within 120 days of the date of the original notice.

(A) The person given notice must provide the director, or an authorized agent of the department, with a written request for a hearing. The request shall state the facts relied upon for relief from the assessment(s) and shall bear the signature of the person filing the appeal or of their authorized representative. See ORS 305.275(5) and OAR 150-305.115(A) to (C).

(B) If the assessed tax is $5,000, or less, appeal may be taken directly to the Small Claims Division, Oregon Tax Court (ORS 305.280(5) and 305.515 (3)(a)). After an election (either requesting a hearing from the department or appeal to Small Claims Division) is made, the choice is final. A change of appeal method chosen is not permitted. See ORS 305.530.

(C) If one or more of the individuals that may be held liable under ORS 316.162(3)(b) appeal an assessment of unpaid withholding taxes, a joint conference may be required by the department. See OAR 150-316.207(3)(a).

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.446
Hist.: RD 11-1985, f. 12-26-85, cert. ef. 12-31-85; RD 7-1994, f. 12-15-94, cert. ef. 12-30-94; RD 4-1996, f. 12-23-96, cert. ef. 12-31-96; RD 1-1997(Temp), f. 6-13-97, cert. ef. 7-4-97 thru 12-31-97; RD 5-1997, f. 12-12-97, cert. ef. 12-31-97

150-314.505-(A)

Estimated Tax: When Estimates Are Required; Refunds Prior to Filing of Return

(1) Every corporation or group of corporations required to file an Oregon excise or income tax return and expecting to have a tax liability of $500 or more must make estimated tax payments. Estimated tax liability means the tax as computed under ORS Chapter 317 or 318, less allowable credits. For purposes of determining whether estimated tax liability exceeds $500, a credit resulting from overpayment of tax for a prior year is not taken into account.

(2) Generally, estimated tax payments will not be refunded prior to the taxpayer's filing of the tax return for the year for which the estimated tax payments were made. The fact that the estimated tax payments made exceed the required payments based upon an exception to underpayment is not sufficient cause to refund such excess prior to the filing of the Oregon tax return. Where taxpayers establish to the satisfaction of the department that the facts warrant a refund, a refund of estimated taxes can be made prior to the filing of the tax return. Examples of fact situations that may be considered sufficient to warrant a refund are as follows:

Example 1: Estimated tax payments were made by a corporation that qualified as an S corporation for the entire tax year through the date the refund is requested.

Example 2: Estimated tax payments were made by a corporation that will not be required to file a return for the tax year for which the estimated tax payments were made.

Example 3: The estimated tax payments were intended for the Internal Revenue Service but were sent to the Department of Revenue in error.

Example 4: Taxpayer provides proof that the taxpayer intended the payment for another account or liability and the payment was misapplied to their estimated tax by the department.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.505
Hist.: 9-74; 12-1975; TC 9-1981, f. 12-7-81, cert. ef. 12-31-81; RD 10-1986, f. & cert. ef. 12-31-86; RD 15-1987, f. 12-10-87, cert. ef. 12-31-87; RD 9-1992, f. 12-29-92, cert. ef. 12-31-92; REV 7-1999, f. 12-1-99, cert. ef. 12-31-99; REV 4-2003, f. & cert. ef. 12-31-03; REV 3-2005, f. 12-30-05, cert. ef. 1-1-06

150-314.505-(B)

Estimated Tax: When Estimates Are Required For Tax Exempt Corporations

Tax exempt corporations subject to tax on their "Unrelated Business Income" and that are required to file and pay federal income taxes, must also file an Oregon tax return. If their Oregon tax liability is more than $500, estimated tax payments must be made.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 305.305
Hist.: TC 9-1981, f. 12-7-81, cert. ef. 12-31-81; RD 12-1985, f. 12-16-85, cert. ef. 12-31-85; RD 15-1987, f. 12-10-87, cert. ef. 12-31-87; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89, Renumbered from 150-314.505-(C)

150-314.505(2)

Estimated Tax: Affiliated Corporations

(1) If two or more affiliated corporations file a consolidated state return as described in ORS 317.710 through 317.725, each shall be jointly and severally liable for the filing and payment of the estimated tax liability. Estimated tax shall be made on a consolidated basis.

(2) See OAR 150-314.525(1)-(B) for an explanation of how to compute an underpayment of estimated taxes for corporations filing a consolidated Oregon return.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.505
Hist.: RD 12-1985, f. 12-16-85, cert. ef. 12-31-85; RD 12-1990, f. 12-20-90, cert. ef. 12-31-90

150-314.515

Estimated Tax: Due Dates of Payments for Short-Period Returns

If a return is filed for a short period of less than 12 months, the estimated tax payments are due as follows:

(1) If the period covered is less than four months, only one payment is required. It is equal to 100 percent of the estimated tax and is payable on the due date of the return.

(2) If the period covered is four months or longer but less than six months, two payments are required. One-half of the estimated tax is due on the 15th day of the fourth month. The balance is due on or before the due date of the tax return, not including extensions.

(3) If the period covered is six months or longer but less than nine months, three payments are required. One-third of the estimated tax is due on the 15th day of the fourth month, one-third on the 15th day of the sixth month and the balance on or before the due date of the tax return, not including extensions.

(4) If the period covered is nine months or longer, but less than twelve months, four payments are required. One-fourth of the estimated tax is due on the 15th day of the fourth month, one-fourth on the 15th day of the sixth month, one-fourth on the 15th day of the ninth month, and the balance on or before the due date of the tax return, not including extensions.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.515
Hist.: 9-74; 1-1-77; 12-31-77; TC 9-1981, f. 12-7-81, cert. ef. 12-31-81, Renumbered from 150-314.515; Repealed by: RD 7-1983, f. 12-20-83, cert. ef. 12-31-83; RD 12-1990, f. 12-20-90, cert. ef. 12-31-90, Renumbered from 150-314.515-(A); RD 5-1994, f. 12-15-94, cert. ef. 12-31-94; REV 3-2005, f. 12-30-05, cert. ef. 1-1-06

150-314.515(2)

Estimated Tax: Application of Payments

(1) When a corporation files its completed excise or income tax return and the tax shown due thereon is less than the amounts previously paid for that year, the corporation may make an irrevocable election to have the overpayment either refunded or applied on the following year's estimated tax. This election shall be made by entering the amount in the appropriate space provided on the corporation excise tax return or corporation income tax return. The overpayment shall be applied against the next year's estimated tax liability as of the date which is the later of the due date of the return (without regard to extensions) or the date the overpayment was made. In the case of a delinquent return, the overpayment is considered to have been made on the date the return was filed.

(2) When an election is made to have an overpayment resulting from the amendment of a prior year return applied on the following year's estimated tax, the overpayment shall be applied to the extent approved on review and as of the date the transfer is made.

Example: A corporation files an amended return for calendar year 2007 on October 15, 2008, claiming a $500 overpayment and electing to have it applied to its 2008 estimated tax account. The 2007 amended return was received by the department on October 20, 2008. The refund was reduced to $400 and approved on November 20, 2008. The actual transfer of the $400 plus interest was made on December 1, 2008. The application date to the 2008 estimated tax account is December 1, 2008.

(3) All estimated tax payments received by the department shall be credited as of the date received. All estimated tax payments received by the department shall be applied to any prior underpayment and the remainder, if any, shall be applied to the next required installment.

Example: Corporation A is a calendar year taxpayer. A's return is filed timely on April 15, 2009. Its 2008 tax after credits is $12,000. The corporation would have to make the following estimated tax payments on or before the indicated dates to avoid having an underpayment of estimated tax: [Table not included. See ED. NOTE.]

[ED. NOTE: Tables referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.515
Hist.: RD 12-1985, f. 12-16-85, cert. ef. 12-31-85; RD 15-1987, f. 12-10-87, cert. ef. 12-31-87; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89; RD 12-1990, f. 12-20-90, cert. ef. 12-31-90; RD 3-1995, f. 12-29-95, cert. ef. 12-31-95; REV 12-1999, f. 12-30-99, cert. ef. 12-31-99; REV 16-2008, f. 12-26-08, cert. ef. 1-1-09

150-314.518

Requirement to Use Electronic Funds Transfer

(1) For tax years beginning on or after January 1, 2002, corporations are required to make estimated Oregon Corporation Excise or Income Tax payments by electronic funds transfer (EFT) if required to pay federal corporation estimated taxes by EFT.

(2) A taxpayer disadvantaged by the requirement to pay by EFT may request an exemption. The request must be in writing and sent to the address for EFT registration. The request must explain why the requirement to pay by EFT is a disadvantage to the taxpayer. An example of a disadvantage to the taxpayer is when the taxpayer's bank or the bank of the taxpayer's payroll service is unable to provide the service. Requests for an exemption will be evaluated on a case by case basis. If granted, the exemption will be for a period of 12 months, during which the taxpayer is expected to make arrangements to comply with the requirement to use EFT. The department will grant only one exemption period to a taxpayer.

(3) Corporations not meeting the requirement to pay by EFT may do so voluntarily by completing and submitting to the department an application for either ACH Debit or ACH Credit EFT. Applications can be requested from the department.

(4) After beginning to make payments electronically, a volunteer may discontinue electronic payments by sending a written request to stop paying to EFT. The request must be sent at least 30 days prior to the date the volunteer wishes to stop paying by EFT. If the volunteer has not reached the then current mandate threshold, the department shall allow the employer to discontinue electronic payments. The volunteer shall continue to make payments by EFT until 30 days after sending the request to the department or the volunteer receives notice from the department agreeing to the discontinuance, whichever occurs earlier.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.518
Hist.: REV 6-1998, f. 11-13-98 cert. ef. 12-31-98; REV 7-1999, f. 12-1-99, cert. ef. 12-31-99; REV 8-2001, f. & cert. ef. 12-31-01

150-314.525(1)-(A)

Corporation Estimated Tax: Delinquent or Underestimated Payment or Both, Constitutes Underpayment

(1) An underpayment of corporation estimated tax exists when the payments received on or before a payment due date are less than the required payment due as determined under section (3) of this rule.

(2) For returns processed on or after January 1, 2001. If none of the exceptions as provided in section (3) of this rule are met, interest on underpayment of estimated tax is computed on the difference between the lowest amount determined under section (3) of this rule and the total estimated tax payments for the installment period made on or before the due date.

Example: Interest on underpayment of first installment
1999 tax liability on return filed April 15, 2001 — $2,000
1998 tax liability — 1,600
Amount determined under subsection (3)(a) of this rule ($2,000 x 25%) — 500
Amount determined under subsection (3)(b) of this rule ($1,600 x 25%) — 400
Amount determined under subsection (3)(c) of this rule — 375
Amount determined under subsection (3)(d) of this rule — 350
First quarter payment received by the first quarter installment due date — 100
Interest for the first quarter is calcualted on $250, the difference between $350, the lowest amount determined under section (3) of this rule, and $100, the total payments received before the first quarter installment due date.

(3) Exceptions. Underpayment charges will not be imposed if each estimated tax payment is equal to or more than 25 percent (or the appropriate percentage of tax for short periods provided in OAR 150-314.515) of any one of the following:

(a) One hundred percent of the tax for tax years beginning on or after January 1, 1996.

(b) One hundred percent of the tax shown on the return for the preceding tax year (after credits and any state surplus refund) provided that the preceding tax year was a period of twelve months and an Oregon return showing a liability was filed for such tax year.

(A) When applying this subsection to a current taxable year of less than 12 months, the tax for the preceding tax year is reduced by multiplying it by the number of months in the short tax year and dividing the resulting amount by 12.

(B) This subsection applies only to the first required estimated tax payment due for a tax year by a large corporation. When a large corporation's first required payment is reduced under this subsection, the second required payment must be increased by the amount of the reduction. A large corporation is a corporation with federal taxable income, prior to net operating loss or capital loss deductions, of $1 million or more in any of the three prior tax years.

(c) An amount equal to 100 percent of the tax computed on annualized taxable income. Annualized taxable income is computed as provided in ORS 314.525(2)(c)(A) or using the same annualization periods as used for federal tax purposes. Tax credits available on the date of the payment may be deducted from the annualized tax. An estimated or anticipated tax credit may not be used.

(d) An amount equal to 100 percent of the amount obtained by applying Section 6655(e)(3)(C) of the Internal Revenue Code to Oregon taxable income for any corporation with seasonal income.

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.525
Hist.: 9-74; 1-1-77; TC 9-1981, f. 12-7-81, cert. ef. 12-31-81; RD 7-1983, f. 12-20-83, cert. ef. 12-31-83; RD 12-1985, f. 12-16-85, cert. ef. 12-31-85, Renumbered from 150-315.525(1); RD 12-1985, f. 12-16-85, cert. ef. 12-31-85; RD 15-1987, f. 12-10-87, cert. ef. 12-31-87; RD 11-1988, f. 12-19-88, cert. ef. 12-31-88; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89; RD 12-1990, f. 12-20-90, cert. ef. 12-31-90; RD 7-1993, f. 12-30-93, cert. ef. 12-31-93; RD 3-1995, f. 12-29-95, cert. ef. 12-31-95; REV 8-2002, f. & cert ef. 12-31-02

150-314.525(1)-(B)

Estimated Tax: Consolidated Return Underpayments

(1) If a consolidated state return is filed, any underpayment shall be computed on a consolidated basis. In computing the underpayment on a consolidated basis, the tax and facts shown on the returns for the preceding year shall be aggregated regardless of whether consolidated or separate returns were filed.

Example 1: Corporation A and B file a consolidated state return in 1995. They filed separate state returns in 1994 and for 1995 made separate estimated tax payments. [Example not included. See ED. NOTE.]

(2) If separate returns are filed and estimated tax is paid on a consolidated basis, then the payments and prior year's tax may be divided between the various corporation's liabilities in any manner designated by the Oregon taxpayers.

Example 2: In 1995, Corporations A and B are required to file separate state returns. They had filed consolidated in 1994 and made consolidated estimated tax payments for 1995. [Example not included. See ED. NOTE.]

[ED. NOTE: Examples referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.525
Hist.: RD 12-1985, f. 12-16-85, cert. ef. 12-31-85; RD 12-1990, f. 12-20-90, cert. ef. 12-31-90; RD 3-1995, f. 12-29-95, cert. ef. 12-31-95

150-314.525(1)(c)-(A)

Estimated Tax: Apportioned Returns

Corporations that are required to apportion income between Oregon and other states, are required to use either the current period's actual or the prior full year's apportionment factor to meet the annualization exception to underpayment of estimated taxes. The prior year's apportionment factor may only be used if the prior year's return covered a full 12 months and the Oregon apportionment factor was greater than zero.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.525
Hist.: RD 10-1986, f. & cert. ef. 12-31-86; REV 7-1999, f. 12-1-99, cert. ef. 12-31-99

150-314.525(1)(d)

Estimated Tax: Application of Net Loss, Annualized Income Exception

In computing the annualized income, the net loss from a prior year carried forward shall be applied in the same manner as in the Internal Revenue Service Revenue Ruling (RR) 67-93. The RR 67-93 provides that the net loss shall be applied in full against income for the appropriate period prior to annualization of the income for such period. For computation of the net loss to be carried forward refer to OAR 150-317.476(4) or 150-314.675.

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.525
Hist.: RD 10-1986, f. & cert. ef. 12-31-86; RD 12-1990, f. 12-20-90, cert. ef. 12-31-90

150-314.525(2)-(A)

Estimated Tax: Interest on Underpayment

(1) When an estimated tax payment is underpaid, as defined in OAR 150-314.525(1)-(A), interest accrues on the underpaid amount at the rate provided in OAR 150-305.220(1) from the due date of the payment to the earlier of the date the tax is paid or the date the tax return is due.

(2) Interest on underpayment of estimated tax (under ORS 314.525) will not be imposed if the tax on the prior year's return was not over $10. A large corporation, as defined in ORS 314.525(5), may only use the exception for the first installment required.

(3) Underpayment interest will not be imposed for a quarter in which the annualized taxable income results in a net annualized tax of $10 or less.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.525
Hist.: 9-74; 12-19-75; 1-1-77; TC 9-1981, f. 12-7-81, cert. ef. 12-31-81; RD 7-1983, f. 12-20-83, cert. ef. 12-31-83; RD 12-1985, f. 12-16-85, cert. ef. 12-31-85, Renumbered from 150-314.525(2)?: RD 15-1987, f. 12-10-87, cert. ef. 12-31-87; RD 12-1990, f. 12-20-90, cert. ef. 12-31-90; RD 11-1992, f. 12-30-92, cert. ef. 12-31-92; RD 3-1995, f. 12-29-95, cert. ef. 12-31-95

150-314.525(2)-(B)

Estimated Tax: Computation of Underpayment

(1) Underpayment charges shall be assessed on the last filed return received before the due date for such return. That return shall be considered the "original return," and the tax due shall be used as the basis for computing the underpayment charges.

(2) Once underpayment charges are assessed on the original return, an amended return, reducing the tax liability, shall not reduce the underpayment charges.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.525
Hist.: RD 10-1986, f. & cert. ef. 12-31-86; RD 11-1992, f. 12-30-92, cert. ef. 12-31-92

150-314.525(5)

Underpayment of Estimated Tax; First and Second Installment for Large Corporations

(1) The first required installment is the lowest payment computed under ORS 314.525(2)(a) through (2)(d).

(2) If a large corporation qualifies for the exception to paying interest on underpayment of estimated tax for the first installment under ORS 314.525(2)(b), the second required installment is calculated by adding:

(a) The reduction to the first installment from using the amount determined under ORS 314.525(2)(b), and

(b) The required second installment determined without regard to ORS 314.525(2)(b).

(3) The reduction to the first installment from using the amount determined under ORS 314.525(2)(b) is:

(a) The lowest first installment determined under ORS 314.525(2) without regard to ORS 314.525(2)(b), less

(b) The first installment determined under ORS 314.525(2)(b).

Example: Big, Inc. (Big) qualifies as a "large corporation" under ORS 314.525(5) and had tax, payments, and required payments under ORS 314.525(2) as follows: [Table not included. See ED. NOTE.]

[ED. NOTE: Table referenced is available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.525
Hist.: REV 2-2003, f. & cert. ef. 7-31-03

150-314.610(1)-(A)

Business and Nonbusiness Income Defined

This rule adopts the model regulation recommended by the Multistate Tax Commission to promote uniform treatment of this item by the states. This rule is adopted to further the purposes of ORS 305.655, Article I, section 2 and 314.605 to 314.670.

(1) Apportionment and Allocation. ORS 314.610(1) and (5) require that every item of income be classified either as business income or nonbusiness income. Income for purposes of classification as business or nonbusiness includes gains and losses. Business income is apportioned among jurisdictions by use of a formula. Nonbusiness income is specifically assigned or allocated to one or more specific jurisdictions pursuant to express rules. An item of income is classified as business income if it falls within the definition of business income. An item of income is nonbusiness income only if it does not meet the definitional requirements for being classified as business income.

(2) Business Income. Business income means income of any type or class, and from any activity, that meets the relationship described either in (4), the "transactional test," or (5), the "functional test." The classification of income by the labels occasionally used, such as manufacturing income, compensation for services, sales income, interest, dividends, rents, royalties, gains, operating income, nonoperating income, etc., is of no aid in determining whether income is business or non-business income.

(3) Terms Used in Definition of Business Income and in Application of Definition. As used in the definition of business income and/or in the application of the definition,

(a) "Taxpayer" means any corporation subject either to ORS Chapter 317 or 318, or both, or a nonresident individual subject to ORS Chapter 316.

(b) "Apportionment" refers to the division of business income between states by the use of a formula containing apportionment factors.

(c) "Allocation" refers to the assignment of nonbusiness income to a particular state.

(d) "Business activity" refers to the transactions and activities occurring in the regular course of a particular trade or business of a taxpayer or to the acquisition, management, and disposition of property that constitute integral parts of the taxpayer's regular trade or business operations.

(e) "Trade or business" means the unitary business of the taxpayer, part of which is conducted within Oregon.

(f) "To contribute materially" includes, without limitation, "to be used operationally in the taxpayer's trade or business." Whether property materially contributes is not determined by reference to the property's value or percentage of use. If an item of property materially contributes to the taxpayer's trade or business, the attributes, rights or components of that property are also operationally used in that business. However, property that is held for mere financial betterment is not operationally used in the taxpayer's trade or business.

(4) Transactional Test. Business income includes income arising from transactions and activity in the regular course of the taxpayer's trade or business.

(a) If the transaction or activity is in the regular course of the taxpayer's trade or business, part of which trade or business is conducted within Oregon, the resulting income of the transaction or activity is business income for Oregon. Income may be business income even though the actual transaction or activity that gives rise to the income does not occur in Oregon.

(b) For a transaction or activity to be in the regular course of the taxpayer's trade or business, the transaction or activity need not be one that frequently occurs in the trade or business. Most, but not all, frequently occurring transactions or activities will be in the regular course of that trade or business and will, therefore, satisfy the transactional test. It is sufficient to classify a transaction or activity as being in the regular course of a trade or business, if it is reasonable to conclude transactions of that type are customary in the kind of trade or business being conducted or are within the scope of what that kind of trade or business does. However, even if a taxpayer frequently or customarily engages in investment activities, if those activities are for the taxpayer's mere financial betterment rather than for the operations of the trade or business, such activities do not satisfy the transactional test. The transactional test includes, but is not limited to, income from sales of inventory, property held for sale to customers, and services which are commonly sold by the trade or business. The transactional test also includes, but is not limited to, income from the sale of property used in the production of business income of a kind that is sold and replaced with some regularity, even if replaced less frequently than once a year.

(5) Functional test. Business income also includes income from tangible and intangible property, if the acquisition, management, and disposition of the property constitute integral parts of the taxpayer's regular trade or business operations. "Property" includes any interest in, control over, or use in property (whether the interest is held directly, beneficially, by contract, or otherwise) that materially contributes to the production of business income. "Acquisition" refers to the act of obtaining an interest in property. "Management" refers to the oversight, direction, or control (directly or by delegation) of the property for the use or benefit of the trade or business. "Disposition" refers to the act, or the power, to relinquish or transfer an interest in or control over property to another, in whole or in part. "Integral part" refers to property that constituted a part of the composite whole of the trade or business, each part of which gave value to every other part, in a manner which materially contributed to the production of business income.

(a) Under the functional test, business income need not be derived from transactions or activities that are in the regular course of the taxpayer's own particular trade or business. It is sufficient, if the property from which the income is derived is or was an integral, functional, or operative component used in the taxpayer's trade or business operations, or otherwise materially contributed to the production of business income of the trade or business, part of which trade or business is or was conducted within this State. Property that has been converted to nonbusiness use through the passage of a sufficiently lengthy period of time (generally, five years is sufficient) or that has been removed as an operational asset and is instead held by the taxpayer's trade or business exclusively for investment purposes has lost its character as a business asset and is not subject to the rule of the preceding sentence. Property that was an integral part of the trade or business is not considered converted to investment purposes merely because it is placed for sale.

(b) Income that is derived from isolated sales, leases, assignments, licenses, and other infrequently occurring dispositions, transfers, or transactions involving property, including transactions made in liquidation or the winding-up of business, is business income, if the property is or was used in the taxpayer's trade or business operations. (Property that has been converted to nonbusiness use (see subsection (4)(a)) has lost its character as a business asset and is not subject to the rule of the preceding sentence.) Income from the licensing of an intangible asset, such as a patent, copyright, trademark, service mark, know-how, trade secrets, or the like, that was developed or acquired for use by the taxpayer in its trade or business operations, constitutes business income whether or not the licensing itself constituted the operation of a trade or business, and whether or not the taxpayer remains in the same trade or business from or for which the intangible asset was developed or acquired.

(c) Under the functional test, income from intangible property is business income when the intangible property serves an operational function as opposed to solely an investment function. The relevant inquiry focuses on whether the property is or was held in furtherance of the taxpayer's trade or business, that is, on the objective characteristics of the intangible property's use or acquisition and its relation to the taxpayer and the taxpayer's activities. The functional test is not satisfied where the holding of the property is limited to solely an investment function as is the case where the holding of the property is limited to mere financial betterment of the taxpayer in general.

(d) If the property is or was held in furtherance of the taxpayer's trade or business beyond mere financial betterment, then income from that property may be business income even though the actual transaction or activity involving the property that gives rise to the income does not occur in Oregon.

(e) If with respect to an item of property a taxpayer (i) takes a deduction from business income that is apportioned to Oregon or (ii) includes the original cost in the property factor, it is presumed that the item or property is or was integral to the taxpayer's trade or business operations. No presumption arises from the absence of any of these actions.

(f) Application of the functional test is generally unaffected by the form of the property (e.g., tangible or intangible property, real or personal property). Income arising from an intangible interest, as, for example, corporate stock or other intangible interest in a business or a group of assets, is business income when the intangible itself or the property underlying or associated with the intangible is or was an integral, functional, or operative component to the taxpayer's trade or business operations. (Property that has been converted to nonbusiness use (see subsection (4)(a)) has lost its character as a business asset and is not subject to the rule of the preceding sentence.) Thus, while apportionment of income derived from transactions involving intangible property as business income may be supported by a finding that the issuer of the intangible property and the taxpayer are engaged in the same trade or business, i.e., the same unitary business, establishment of such a relationship is not the exclusive basis for concluding that the income is subject to apportionment. It is sufficient to support the finding of apportionable income if the holding of the intangible interest served an operational rather than an investment function of mere financial betterment.

(6) Relationship of transactional and functional tests to U.S. Constitution. The Due Process Clause and the Commerce Clause of the U.S. Constitution restrict States from apportioning income as business income that has no rational relationship with the taxing State. The protection against extra-territorial state taxation afforded by these Clauses is often described as the "unitary business principle." The unitary business principle requires apportionable income to be derived from the same unitary business that is being conducted at least in part in Oregon. The unitary business that is conducted in Oregon includes both a unitary business that the taxpayer alone may be conducting and a unitary business the taxpayer may conduct with any other person or persons. Satisfaction of either the transactional test or the functional test complies with the unitary business principle, because each test requires that the transaction or activity (in the case of the transactional test) or the property (in the case of the functional test) be tied to the same trade or business that is being conducted within Oregon. Determination of the scope of the unitary business being conducted in Oregon is without regard to extent to which Oregon requires or permits the filing of a consolidated Oregon return.

(7) Nonbusiness income. Nonbusiness income means all income other than business income.

(8) The revisions to the rule effective on December 31, 2003 apply to all tax years open to adjustment on or after that date.

Stat. Auth.: ORS 305.100, 305.655 & 314.605 - 314.670
Stats. Implemented: ORS 314.610
Hist.: 12-70; 8-73; RD 12-1990, f. 12-20-90, cert. ef. 12-31-90; REV 4-2003, f. & cert. ef. 12-31-03

150-314.610(1)-(B)

Business and Nonbusiness Income; Application of Definitions

This rule adopts the model regulation recommended by the Multistate Tax Commission to promote uniform treatment of this item by the states. This rule is adopted to further the purposes of ORS 305.655, Article I, section 2 and 314.605 to 314.670. The rule applies the principles provided in OAR 150-314.610(1)-(A) for determining whether particular income is business or nonbusiness income. (The examples used throughout this rule are illustrative only and are limited to the facts they contain.)

(1) Rents and royalties from real and tangible personal property. Rental income from real and tangible property is business income if the property with respect to which the rental income was received is or was used in the taxpayer's trade or business and therefore is includable in the property factor under OAR 150-314.655(1)-(A). Property that has been converted to nonbusiness use (see OAR 150-314.610(1)-(A)(4)(a)) has lost its character as a business asset and is not subject to the rule of the preceding sentence.

Example 1: The taxpayer operates a multistate car rental business. The income from car rentals is business income.

Example 2: The taxpayer is engaged in the heavy construction business in which it uses equipment such as cranes, tractors, and earth-moving vehicles. The taxpayer makes short-term leases of the equipment when particular pieces of equipment are not needed on any particular project. The rental income is business income.

Example 3: The taxpayer operates a multistate chain of men's clothing stores. The taxpayer purchases a five-story office building for use in connection with its trade or business. It uses the street floor as one of its retail stores and the second and third floors for its general corporate headquarters. The remaining two floors are held for future use in the trade or business, and are leased to tenants on a short-term basis in the meantime. The rental income is business income.

Example 4: The taxpayer operates a multistate chain of grocery stores. It purchases as an investment an office building in another state with surplus funds and leases the entire building to others. The net rental income is not business income of the grocery store trade or business. Therefore, the net rental income is nonbusiness income.

Example 5: The taxpayer operates a multistate chain of men's clothing stores. The taxpayer invests in a 20-story office building and uses the street floor as one of its retail stores and the second floor for its general corporate headquarters. The remaining 18 floors are leased to others. The rental of the 18 floors is not done in furtherance of but rather is separate from the operation of the taxpayer's trade or business. The net rental income is not business income of the clothing store trade or business. Therefore, the net rental income is nonbusiness income.

Example 6: The taxpayer constructed a plant for use in its multistate manufacturing business and 20 years later the plant was closed and put up for sale. The plant was rented for a temporary period from the time it was closed by the taxpayer until it was sold 18 months later. The rental income is business income and the gain on the sale of the plant is business income.

Example 7: The taxpayer operates a multistate chain of grocery stores. It owned an office building that it occupied as its corporate headquarters. Because of inadequate space, taxpayer acquired a new and larger building elsewhere for its corporate headquarters. The old building was rented to an investment company under a five-year lease. Upon expiration of the lease, taxpayer sold the building at a gain (or loss). The net rental income received over the lease period is nonbusiness income and the gain (or loss) on the sale of the building is nonbusiness income.

(2) Gains or losses from sales of assets. Gain or loss from the sale, exchange or other disposition of real property or of tangible or intangible personal property constitutes business income if the property while owned by the taxpayer was used in, or was otherwise included in the property factor of, the taxpayer's trade or business. However, if such property was utilized for the production of nonbusiness income or otherwise was removed from the property factor before its sale, exchange or other disposition, the gain or loss will constitute nonbusiness income. (See OAR 150-314.655(1)-(A) to 314.655(1)-(D)).

Example 8: In conducting its multistate manufacturing business, the taxpayer systematically replaces automobiles, machines, and other equipment used in the business. The gains or losses resulting from those sales constitute business income.

Example 9: The taxpayer constructed a plant for use in its multistate manufacturing business and 20 years later sold the property at a gain while it was in operation by the taxpayer. The gain is business income.

Example 10: Same as Example 9 except that the plant was closed and put up for sale but was not in fact sold until a buyer was found 18 months later. The gain is business income.

Example 11: Same as Example 9 except that the plant was rented while being held for sale. The rental income is business income and the gain on the sale of the plant is business income.

Example 12: The taxpayer operates a multistate chain of grocery stores. It owned an office building that it occupied as its corporate headquarters. Because of inadequate space, taxpayer acquired a new and larger building elsewhere for its corporate headquarters. Because the taxpayer did not intend to reoccupy the old building, the taxpayer rented the old building to an unrelated investment company under a five-year lease. Upon expiration of the lease, taxpayer sold the building at a gain (or loss). The gain (or loss) on the sale is nonbusiness income and the rental income received over the lease period is nonbusiness income.

(3) Interest. Interest income is business income where the intangible with respect to which the interest was received arose out of or was created in the regular course of the taxpayer's trade or business operations or where the acquiring and holding of the intangible is an integral, functional, or operative component of the taxpayer's trade or business operations, or otherwise materially contributes to the production of business income of the trade or business operations.

Example 13: The taxpayer operates a multistate chain of department stores, selling for cash and on credit. Service charges, interest, or time-price differentials and the like are received with respect to installment sales and revolving charge accounts. These amounts are business income.

Example 14: The taxpayer conducts a multistate manufacturing business. During the year the taxpayer receives a federal income tax refund pertaining to the taxpayer's trade or business and collects a judgment against a debtor of the business. Both the tax refund and the judgment bore interest. The interest income is business income.

Example 15: The taxpayer is engaged in a multistate manufacturing and wholesaling business. In connection with that business, the taxpayer maintains special accounts to cover such items as workmen's compensation claims, rain and storm damage, machinery replacement, etc. The moneys in those accounts are invested at interest. Similarly, the taxpayer temporarily invests funds intended for payment of federal, state and local tax obligations pertaining to the taxpayer's trade or business. The interest income is business income.

Example 16: The taxpayer is engaged in a multistate money order and traveler's checks business. In addition to the fees received in connection with the sale of the money orders and traveler's checks, the taxpayer earns interest income by the investment of the funds pending their redemption. The interest income is business income.

Example 17: The taxpayer is engaged in a multistate manufacturing and selling business. The taxpayer usually has working capital and extra cash totaling $200,000 that it regularly invests in short-term interest bearing securities. The interest income is business income.

Example 18: In January the taxpayer sold all the stock of a subsidiary for $20,000,000. The funds are placed in an interest-bearing account pending a decision by management as to how the funds are to be utilized. The interest income is nonbusiness income.

(4) Dividends. Dividends are business income where the stock with respect to which the dividends was received arose out of or was acquired in the regular course of the taxpayer's trade or business operations or where the acquiring and holding of the stock is an integral, functional, or operative component of the taxpayer's trade or business operations, or otherwise materially contributes to the production of business income of the trade or business operations.

Example 19: The taxpayer operates a multistate chain of stock brokerage houses. During the year the taxpayer receives dividends on stock it owns. The dividends are business income.

Example 20: The taxpayer is engaged in a multistate manufacturing and wholesaling business. In connection with that business the taxpayer maintains special accounts to cover such items as workmen's compensation claims, etc. A portion of the moneys in those accounts is invested in interest-bearing bonds. The remainder is invested in various common stocks listed on the national stock exchanges. Both the interest and any dividends are business income.

Example 21: The taxpayer and several unrelated corporations own all of the stock of a corporation whose business operations consist solely of acquiring and processing materials for delivery to the corporate owners. The taxpayer acquired the stock in order to obtain a source of supply of materials used in its manufacturing business. The dividends are business income.

Example 22: The taxpayer is engaged in a multistate heavy construction business. Much of its construction work is performed for agencies of the federal government and various state governments. Under state and federal laws applicable to contracts for these agencies, a contractor must have adequate bonding capacity, as measured by the ratio of its current assets (cash and marketable securities) to current liabilities. In order to maintain an adequate bonding capacity the taxpayer holds various stocks and interest-bearing securities. Both the interest income and any dividends received are business income.

Example 23: The taxpayer receives dividends from the stock of its subsidiary or affiliate that acts as the marketing agency for products manufactured by the taxpayer. The dividends are business income.

Example 24: The taxpayer is engaged in a multistate glass manufacturing business. It also holds a portfolio of stock and interest-bearing securities, the acquisition and holding of which are unrelated to the manufacturing business. The dividends and interest income received are nonbusiness income.

(5) Patent and copyright royalties. Patent and copyright royalties are business income where the patent or copyright with respect to which the royalties were received arose out of or was created in the regular course of the taxpayer's trade or business operations or where the acquiring and holding of the patent or copyright is an integral, functional, or operative component of the taxpayer's trade or business operations, or otherwise materially contributes to the production of business income of the trade or business operations.

Example 25: The taxpayer is engaged in the multistate business of manufacturing and selling industrial chemicals. In connection with that business the taxpayer obtained patents on certain of its products. The taxpayer licensed the production of the chemicals in foreign countries, in return for which the taxpayer receives royalties. The royalties received by the taxpayer are business income.

Example 26: The taxpayer is engaged in the music publishing business and holds copyrights on numerous songs. The taxpayer acquires the assets of a smaller publishing company, including music copyrights. These acquired copyrights are thereafter used by the taxpayer in its business. Any royalties received on these copyrights are business income.

Example 27: Same as example (26), except that the acquired company also held the patent on a method of producing digital audio recordings. The taxpayer does not manufacture or sell digital audio recordings. Any royalties received on the patent would be nonbusiness income.

(6) The revisions to the rule effective on December 31, 2003 apply to all tax years open to adjustment on or after that date.

Stat. Auth.: ORS 305.100, 305.655 & 314.605 - 314.670
Stats. Implemented: ORS 314.610
Hist.: 12-70; 8-73; REV 4-2003, f. & cert. ef. 12-31-03

150-314.610(1)-(C)

Proration of Deductions

This rule adopts the model regulation recommended by the Multistate Tax Commission to promote uniform treatment of this item by the states. This rule is adopted to further the purposes of ORS 305.655, Article I, section 2 and 314.605 to 314.670.

(1) Proration of deductions. In most cases an allowable deduction of a taxpayer will be applicable only to the business income arising from a particular trade or business or to a particular item of nonbusiness income. In some cases an allowable deduction may be applicable to the business incomes of more than one trade or business or to several items of nonbusiness income. In such cases the deduction must be prorated among such trades or businesses and such items of nonbusiness income in a manner that fairly distributes the deduction among the classes of income to which it is applicable.

(2) Year to year consistency. In filing returns with this state, if the taxpayer departs from or modifies the manner of prorating any such deduction used in returns for prior years, the taxpayer must disclose in the return for the current year the nature and extent of the modification.

(3) State to state consistency. If the returns or reports filed by a taxpayer with all states to which the taxpayer reports under the Multistate Tax Compact or the Uniform Division of Income for Tax Purposes Act are not uniform in the application or proration of any deduction, the taxpayer must disclose in its return to this state the nature and extent of the variance.

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100, 305.655 & 314.605 - 314.670
Stats. Implemented: ORS 314.610
Hist.: 12-70; 8-73; REV 4-2003, f. & cert. ef. 12-31-03

150-314.615-(A)

Apportionment and Allocation of Income Generally

(1) If the business activity in respect to any trade or business of a taxpayer occurs both within and without this state, and if by reason of such business activity the taxpayer is taxable in another state, the portion of the net income (or net loss) arising from such trade or business which is derived from sources within this state shall be determined by apportionment in accordance with ORS 314.615 to 314.675. In such cases, the first step is to determine which portion of the taxpayer's entire net income constitutes "business income" and which portion constitutes "nonbusiness income." The various items of nonbusiness income are then directly allocated to specific jurisdictions pursuant to the provisions of ORS 314.625 to 314.645. The business income (or loss) of the taxpayer is divided between the jurisdictions in which the business is conducted pursuant to the property, payroll and sales apportionment factors set forth in ORS 314.650 to 314.665 and 314.675. The sum of (1) the items of nonbusiness income (or loss) directly allocated to this state, plus (2) the amount of business income (or loss) attributable to this state by the apportionment formula constitutes the amount of the taxpayer's entire net income which is subject to tax under the income tax laws of this state.

(2) In filing returns with this state, if the taxpayer departs from or modifies the manner in which income has been classified as business income or nonbusiness income in returns for prior years, the taxpayer shall disclose in the return for the current year the nature and extent of the modification. If the returns or reports filed by a taxpayer for all states to which the taxpayer reports under Article IV of the Multistate Tax Compact or the Uniform Division of Income for Tax purposes Act are not uniform in the classification of income as business or nonbusiness income, the taxpayer shall disclose in its return to this state the nature and extent of the variance. ORS 314.605 to 314.670 exclude financial organizations and public utilities (as defined in ORS 314.610). For financial institutions not excluded, such as production credit associations and small loan companies, the three factors ordinarily will be property, payroll and gross revenue. The definitions of "property" and "gross revenue" that appear in OAR 150-314.280-(E) are incorporated herein by reference.

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented:
Hist.: 1-65; 12-70; 8-73; 12-19-75

150-314.615-(C)

Application of ORS 314.610 to 314.670: Allocation

Any taxpayer subject to the taxing jurisdiction of this state shall allocate all of its nonbusiness income or loss within or without this state in accordance with ORS 314.625 to 314.645.

Stat. Auth.: ORS 305.100
Stats. Implemented:
Hist.: 1-65; 12-70; 8-73

150-314.615-(D)

Apportionment and Allocation for a Taxpayer Carrying on a Unitary Business

Where the taxpayer's Oregon business activities are a part of a unitary business carried on both within and without the state, use of the apportionment method is mandatory to determine the portion of the unitary business income attributable to Oregon. If the business activities within Oregon are integrated with, dependent upon or contribute to the business activities outside the state, the entire operation is unitary in character, and the income from Oregon business activities is determined by the apportionment method. Whether the Oregon activities engaged in for financial profit actually result in a financial profit or loss is not determinative. A unitary business may be carried on by a single corporation or by a group of affiliated corporations.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.615
Hist.: 1-65; 12-70; 8-73; 12-31-77; REV 10-2007, f. 12-28-07, cert. ef. 1-1-08

150-314.615-(E)

Two or More Businesses of a Single Taxpayer

A taxpayer may have more than one "trade or business". In such cases, it is necessary to determine the business income attributable to each separate trade or business. The income of each business is then apportioned by an apportionment formula that takes into consideration the factors, both in and out of state that relate to the trade or business, the income of which is being apportioned.

Example: The taxpayer is a conglomerate with three operating divisions. One division is engaged in manufacturing aerospace items for the federal government. Another division is engaged in growing tobacco products. The third division produces and distributes motion pictures for theaters and television. There is no strong central management as each division operates independently of one another. Each division operates in this state as well as in other jurisdictions. In this case, it could be concluded that the taxpayer is engaged in three separate "trades or businesses." Accordingly, the amount of business income attributable to the taxpayer's trade or business activities in this state is determined by applying an apportionment formula to the business income of each business.

The determination of whether the activities of the taxpayer constitute a unitary business will turn on the facts of each case. In general, the activities of the taxpayer will be considered unitary if there is evidence to indicate that the divisions under consideration are integrated with, dependent upon, or contribute to each other and to the operations of the taxpayer as a whole. (See OAR 150-314.615-(D).) The following factors are considered to be good indicia of a unitary business; and the presence of any of these factors creates a strong presumption that the activities of the taxpayer constitute a unitary business:

(1) Same type of business. A taxpayer is generally engaged in a unitary business when all of its activities are in the same general line. For example, a taxpayer operating a chain of retail grocery stores will most always be engaged in a unitary business.

(2) Steps in a vertical process. A taxpayer is almost always engaged in a unitary business when its various divisions are engaged in different steps in a large vertically structured enterprise. For example, a taxpayer that explores for and mines copper ores; concentrates, smelts and refines the copper ores; and fabricates the refined copper into consumer products, is engaged in a unitary business regardless of the fact that the various steps in the process are operated substantially independently of each other with only general supervision from the taxpayer's executive offices.

(3) Strong centralized management. A taxpayer which might otherwise be considered as engaged in more than one trade or business is properly considered a unitary business when there is a strong central management coupled with the existence of centralized departments for such functions as financing, advertising, research, or purchasing. Thus, some conglomerates may properly be considered a unitary business when the central executive officers are involved in the operations of the various divisions and there are centralized offices which perform for the divisions the normal matters which a truly independent business would perform for itself, such as accounting, personnel, insurance, legal, purchasing, advertising, or financing.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.615
Hist: 12-70; 8-73; 12-19-75; Material formerly contained in rule transferred to OAR 150-314.363-(A), (B), and (C). Former rule OAR 150-314.615-(F) renumbered (E).); REV 10-2007, f. 12-28-07, cert. ef. 1-1-08

150-314.615-(F)

Apportionment for Long-Term Construction Contracts

This rule adopts the model regulation recommended by the Multistate Tax Commission to promote uniform treatment of this item by the states. This rule is adopted to further the purposes of ORS 305.655, Article I, section 2 and 314.605 to 314.670. If a taxpayer elects to use the percentage of completion method of accounting, or the completed contract method of accounting for long-term contracts, and has income from sources both within and without this state, the amount of business income derived from sources within this state, including income from such long-term contracts, is determined pursuant to this rule. In such cases, the first step is to determine what portion of the taxpayer's income constitutes "business income" and "nonbusiness income" under ORS 314.610 and the rules thereunder. Nonbusiness income is directly allocated to specific states pursuant to the provisions of ORS 314.625 to 314.645. The business income of the taxpayer is divided between or among the states in which the business is conducted pursuant to the property, payroll, and sales apportionment factors set forth in this rule. The sum of (1) the items of nonbusiness income directly allocated to this state, plus (2) the amount of business income attributable to this state, constitutes the taxpayer's entire net income that is subject to tax. For definitions, rules and examples for determining business and nonbusiness income, see ORS 314.610 and the rules thereunder.

(1) Apportionment of Business Income.

(a) In General. Business income is apportioned to this state by use of the formula provided in ORS 314.650 as it applies to the tax year involved.

(b) Percentage of Completion Method. Under this method of accounting for long-term contracts, the amount to be included each year as business income from each contract is the amount by which the gross contract price that has been completed during the taxable year exceeds all expenditures made during the taxable year in connection with the contract. In so doing, account must be taken of the material and supplies on hand at the beginning and end of the taxable year for use in each such contract.

Example 1: A taxpayer using the percentage of completion method of accounting for long-term contracts, entered into a long-term contract to build a structure for $9,000,000. The contract allowed three years for completion and, as of the end of the second taxable year, the taxpayer's books of account, kept on the accrual method, disclosed the following: [Table not included. See ED. NOTE.]

(c) Completed Contract Method. Under this method of accounting, business income derived from long-term contracts is reported for the taxable year in which the contract is finally completed and accepted. Therefore, a special computation is required to compute the amount of business income attributable to this state from each completed contract (see section (2) below). Thus, all receipts and expenditures applicable to such contracts, whether completed or not as of the end of the taxable year, are excluded from business income derived from other sources. For example, income from short-term contracts, interest, rents, royalties, etc., is apportioned by the regular three-factor formula of property, payroll, and sales.

(d) Property Factor. In general, the numerator and denominator of the property factor is determined as set forth in ORS 314.655 and the rules thereunder. However, the following special rules are also applicable:

(A) The average value of the taxpayer's costs (including materials and labor) of construction in progress, to the extent such costs exceed progress billings (accrued or received depending on whether the taxpayer is on the accrual or cash basis for keeping its accounts) is included in the denominator of the property factor. The value of any such construction costs attributable to construction projects in this state are included in the numerator of the property factor.

Example 2: The taxpayer commenced a long-term construction project in this state as of the beginning of a given year. By the end of its second taxable year, its equity in the costs of production to be reflected in the numerator and denominator of its property factor for such year is computed as follows: [Table not included. See ED. NOTE.]

(B) Rent paid for the use of equipment directly attributable to a particular construction project is included in the property factor at eight times the net annual rental rate, even though such rental expense may be included in the cost of construction.

(C) The property factor is computed in the same manner regardless of which method of accounting for long-term contracts the taxpayer has elected and is computed for each taxable year, even though under the completed contract method of accounting, business income is computed separately (see section (2) below).

(e) Payroll Factor. In general the numerator and denominator of the payroll factor is determined as set forth in ORS 314.660 and the rules thereunder. However, the following special rules are also applicable:

(A) Compensation paid employees that is attributable to a particular construction project is included in the payroll factor, even though it is included in the cost of construction.

(B) Compensation paid to employees engaged in performing services at a construction site are attributed to the state in which the services are performed. Compensation paid all other employees is governed by ORS 314.660(2).

Example 4: A taxpayer engaged in a long-term contract in state X assigns several key employees to that state to supervise the project. The taxpayer, for unemployment tax purposes, reports these employees to state Y where the main office is maintained and where the employees reside. For payroll factor purposes, such compensation is assigned to the numerator of state X.

(C) The payroll factor is computed in the same manner regardless of which method of accounting for long-term contracts the taxpayer has elected and is computed for each taxable year, even though under the completed contract method of accounting, business income is computed separately (see section (2) below).

(f) Sales Factor. In general, the numerator and denominator of the sales factor is determined as set forth in ORS 314.665 and the rules thereunder. However, the following special rules are also applicable:

(A) Gross receipts derived from the performance of a contract are attributable to this state if the construction project is located in this state. If the construction project is located partly within and partly without this state, the gross receipts attributable to this state are based upon the ratio that construction costs for the project in this state bear to the total of such construction costs for the entire project during the taxable year. Any other method, such as engineering cost estimates, may be used if it provides a reasonable apportionment.

Example 5: A construction project was undertaken in this state by a calendar-year taxpayer that had elected one of the methods of accounting for long-term contracts. The following gross receipts (progress billings) were derived from the contract during the three taxable years the contract was in progress.

-- 1st Year -- 2nd Year -- 3rd Year

Gross Receipts -- $1,000,000 -- $4,000,000 -- $3,000,000

The gross receipts to be reflected in both the numerator and the denominator of the sales factor for each of the three years are the amounts shown.

Example 6: A taxpayer contracts to build a dam on a river at a point that lies half within this state and half within state X. During the taxpayer's first taxable year, construction costs in this state were $2,000,000. Total construction costs for the project during the taxable year were $3,000,000. Gross receipts (progress billings) for the year were $2,400,000. Accordingly, gross receipts of $1,600,000 ($2,000,000 ÷ $3,000,000 = 662/3% x $2,400,000) are included in the numerator of the sales factor.

(B) If the percentage of completion method is used, the sales factor includes only that portion of the gross contract price that corresponds to the percentage of the entire contract completed during the taxable year.

Example 7: A taxpayer that elected the percentage of completion method of accounting entered into a long-term construction contract. At the end of its current taxable year (the first since starting the project) it estimated that the project was 30 percent completed. The bid price for the project was $9,000,000 and it had received $2,500,000 from progress billings as of the end of its current taxable year. The amount of gross receipts to be included in the sales factor for the current taxable year is $2,700,000 (30 percent of $9,000,000), regardless of whether the taxpayer uses the accrual method or the cash method for accounting for receipts and disbursements.

(C) If the completed contract method of accounting is used, the sales factor includes the portion of the gross receipts (progress billings) received or accrued, whichever is applicable, during the taxable year attributable to each contract.

Example 8: A taxpayer that entered into a long-term construction contract elected the completed contract method of accounting. By the end of its current taxable year (the second since starting the project) it had billed and accrued on its books a total of $5,000,000. Of that amount, $2,000,000 accrued in the first year the contract was undertaken, and $3,000,000 accrued in the current year. The amount of gross receipts to be included in the sales factor for the current taxable year is $3,000,000.

Example 9: Same facts as in Example 8 except that the taxpayer keeps its books on the cash basis and, as of the end of its current taxable year, had received only $2,500,000 of the $3,000,000 billed during the current year. The amount of gross receipts to be included in the sales factor for the current taxable year is $2,500,000.

(D) The sales factor, except as noted above in paragraphs (B) and (C), is computed in the same manner regardless of which method of accounting for long-term contracts the taxpayer has elected and is computed for each taxable year, even though under the completed contract method of accounting, business income is computed separately.

(g) Apportionment Percentage. The apportionment percentage provided in ORS 314.650 is applied to business income to establish the amount apportioned to Oregon.

(2) Completed Contract Method -- Special Computation. The completed contract method of accounting requires that the reporting of income (or loss) be deferred until the year the construction project is completed and accepted. Accordingly, a separate computation is made for each such contract completed during the taxable year regardless of whether the project is located within or without this state in order to determine the amount of income attributable to sources within this state. The amount of income apportioned to this state from each contract completed during the taxable year, plus other business income (such as interest income, rents, royalties, income from short-term contracts, etc.) apportioned to this state by the regular three factor formula, plus all nonbusiness income allocated to this state, is the measure of tax for the taxable year. The amount of income (or loss) from each contract derived from sources within this state using the completed contract method of accounting is computed as follows:

(a) In the taxable year the contract is completed, the income (or loss) therefrom is determined.

(b) The income (or loss) determined in (a) is apportioned to this state by the following method:

(A) A fraction is determined for each year the contract was in progress. The numerator is the amount of construction costs paid or accrued each year the contract was in progress, and the denominator is the total of all such construction costs for the project.

(B) Each percentage determined in (A) is multiplied by the apportionment formula percentage for that particular year as determined in section (1)(g) of this rule.

(C) The products determined at (B) for each year the contract was in progress are totaled. The amount of total income (or loss) from the contract determined in (a) is multiplied by the total percentage. The resulting income (or loss) is the amount of business income from such contract derived from sources within this state.

Example 10: A taxpayer using the completed contract method of accounting for long-term contracts is engaged in three long-term contracts: Contract L in this state, Contract M in state X, and Contract N in state Y. In addition, it has other business income (less expenses) during the taxable year 1986 from interest, rents, and short-term contracts amounting to $500,000, and nonbusiness income allocable to this state of $8,000. During 1986, it completed Contract M in state X at a profit of $900,000. Contracts L in this state and N in state Y were not completed during the taxable year. The apportionment percentages of the taxpayer as determined in subsection (g) of this rule and the percentages of contract costs as determined in subsection (b) above for each year Contract M in state X was in progress are as follows: [Table not included. See ED. NOTE.]

(3) Computation for Year of Withdrawal, Dissolution or Cessation of Business -- Completed Contract Method. Use of the completed contract method of accounting for long-term contracts requires that income derived from sources within this state from incomplete contracts in progress outside this state on the date of withdrawal, dissolution, or cessation of business in this state be included in the measure of tax for the taxable year during which the corporation withdraws, dissolves or ceases doing business in this state. The amount of income (or loss) from each such contract to be apportioned to this state by the apportionment method set forth in section (2)(b) of this rule must be determined as if the percentage of completion method of accounting were used for all such contracts on the date of withdrawal, dissolution, or cessation of business. The amount of business income (or loss) for each such contract is the amount by which that portion of the gross contract price of each such contract that corresponds to the percentage of the entire contract that has been completed as the date of withdrawal, dissolution, or cessation of business exceeds all expenditures made in connection with each such contract. In so doing, account must be taken of the material and supplies on hand at the beginning and end of the income year for use in each such contract.

Example 13: A construction contractor qualified to do business in this state elected the completed contract method of accounting for long-term contracts. It was engaged in two long-term contracts. Contract L was started in Oregon in 1981 and completed at a profit of $900,000 on December 16, 1983. The taxpayer withdrew on December 31, 1983. Contract M was started in state X in 1982 and was incomplete on December 31, 1983. The apportionment percentages of the taxpayer as determined in section (1) of this rule, and percentages of construction costs as determined in section (2)(b) of this rule for each year during which Contract M in state X was in progress are as follows: [Table not included. See ED. NOTE.]

[ED. NOTE: Tables referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.615
Hist.: f. 12-6-82, ef. 12-31-82, Renumbered from OAR 150-314.670-(D) to OAR 150-314.618-(F), 12-31-85; RD 11-1988, f. 12-19-88, cert. ef. 12-31-88; RD 5-1994, f. 12-15-94, cert. ef. 12-31-94; REV 1-2001, f. 7-31-01, cert. ef. 8-1-01; REV 4-2003, f. & cert. ef. 12-31-03

150-314.615-(G)

Special Rules: Installment Sales

(1) Income from installment sales is reported at least in part in a year other than the year in which the sale took place. Apportionment of installment sale income on the basis of the factors in the years other than the year of sale would result in such income being apportioned by activities which had no connection with the earning of the income.

(2) This rule applies to taxpayers who use the installment method of reporting income from the sale of property and whose Oregon apportionment percentage for the year of the sale is different than that for any year in which proceeds from that sale are received by the taxpayer. A taxpayer shall apportion the income from the installment sale using the Oregon apportionment percentage of the year of sale.

Example: X is doing business in States A, B and C. During Year 1, the taxpayer sold a plant in State A and realized a $500,000 gain on the sale. The taxpayer elected to report the sale under the installment basis since two equal payments ($250,000 each) are to be received in years 2 and 3. The taxpayer's apportionment factors were as follows: [Example not included. See ED. NOTE.]

State A would realize a taxable gain of $55,000 ($500,000 x 11%) if the sale was not reported under the installment method. Since the apportionment factors have changed to 1 percent and 32 percent in years 2 and 3 respectively, a taxable gain of $2,500 is reported to State A in year 2 and $80,000 in year 3.

Use of the year of sale factor results in $27,500 gain being reported to State A in years 2 and 3 (total: $55,000).

[ED. NOTE: Examples referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented:
Hist.: 10-5-84, 12-31-84, Renumbered to 150-314.670-(G); 12-31-85

150-314.615-(H)

Modified Factors for Motion Picture and Television Film Producers

(1) This regulation applies to motion picture and television film producers and producers of television commercials.

(2) Definitions.

(a) "Film" means the physical embodiment of a play, story or other literary, commercial, educational or artistic work, as a motion picture, video tape, disc or other similar medium, except that it does not include news or sports films produced for telecast. "Film" does not include video cassettes or discs intended for home viewing.

(b) Each episode of a series of films produced for television shall constitute a separate film notwithstanding that the series relates to the same principal subject and is produced during one or more television seasons.

(c) "Release date" means the date on which a film is placed in service. A film is placed in service when it is first telecast or exhibited to the primary audience for which the film was created. Thus, a motion picture theater film is placed in service when it is first publicly exhibited for entertainment purposes and an educational film is placed in service when it is first exhibited for instructional purposes. Each episode of a television series is placed in service when it is first telecast. A film is not placed in service merely because it is completed and therefore in a condition or state of readiness and availability for telecast or exhibition, or merely because it is telecast or exhibited to prospective exhibitors, sponsors, or purchasers, or is shown in a "sneak preview" before a select audience.

(d) A "film" is deemed to be tangible personal property.

(e) "Rent" shall include license fees for the exhibition or telecast of films.

(f) "Tangible personal property" used in the business, whether owned or rented, shall include but is not limited to sets, props, wardrobes, and other similar equipment or property.

(g) A "subscriber" to a subscription television telecaster is the individual residence or other outlet which is the ultimate recipient of the transmission.

(h) "Telecast" means the transmission of an electronic signal by radiowaves or microwaves or by wires, lines, coaxial cables, wave guides or other tangible conduits of communication.

(3) Apportionment of Business Income. The property, payroll and sales factor of the apportionment formula for Motion Picture and Television Film Producers shall be computed pursuant to ORS 314.655 through 314.665 and the regulations thereunder except as provided in this regulation.

(a) Property Factor.

(A) In General.

(i) In the case of rented studios, the net annual rental rate shall include only the amount of the basic or flat rental charge by the studio for the use of a stage and other permanent equipment such as sound recording equipment, etc., except that additional equipment rented from other sources or from the studio not covered in the basic or flat rental charge and used for one week or longer (even though rented on a day-to-day basis) shall be included. Lump-sum net rental payments for a period which encompasses more than a single income year shall be assigned ratably over the rental period.

(ii) The value of films shall:

(I) Be the original cost of producing the film as determined for federal income tax purposes, before any adjustment for federal credits which have not been claimed for state purposes, and

(II) Include talent salaries.

(iii) The value of a film shall not be included in the property factor until its release date.

(iv) Video cassettes and discs shall be included in the property factor at their inventory cost as shown in the taxpayer's books and records.

(B) Denominator.

(i) All real property and tangible personal property (other than films) whether owned or rented, which is used in the business, shall be included in the denominator.

(ii) Films, other than films the cost of which is expensed for Oregon tax purposes at the time of production, shall be included in the property factor at original cost for twelve years beginning with the release date.

(iii) Films of a topical nature including news or current event programs, sporting events or interview shows, the cost of which is expensed for Oregon tax purposes at the time of production, shall be included in the property factor at original cost for one year beginning with the release date.

(iv) All films, other than those included in the denominator under clause (ii) or (iii) of this subparagraph, shall be aggregated and treated as a single film property which shall be included in the property factor. Such property shall be valued at eight times the gross receipts generated during the income year from theater distribution, television syndication, cable television, subscription television and the marketing of video cassettes and discs through licensing or direct selling, or similar receipts, but in no event in an amount greater than the total original cost of such aggregated film property.

(C) Numerator.

(i) If tangible personal property (other than films) is located or used in this state for part of the income year, its value shall be determined by applying the ratio which the number of days the property is located or used in this state bears to the total number of days such property was owned or rented during the income year.

(ii) The total value of films that are included in the property factor under subparagraph (B) of paragraph (3)(a) shall be attributed to this state in the same ratio in which the total Oregon receipts from such films as determined in subparagraphs (A), (B), and (C) of paragraph (3)(c) pertaining to the sales factor bears to the total of such receipts everywhere.

(iii) If a film producer sells copies of a film to an affiliated corporation for distribution, at a price which does not reflect the actual cost of producing the film, the cost of the film in the hands of the distributor shall be redetermined under the provisions in subparagraph (A)(ii) of this paragraph, as if the distributor was the producer.

(b) Payroll Factor.

(A) Denominator. The denominator shall include all compensation paid to employees during the income years, including talent salaries. Residual and profit participation payments constitute compensation paid to employees.

(B) Numerator. Compensation of employees engaged in the production of a film on location shall be attributed to the state where the services are or were performed. Compensation of all other employees shall be governed by OAR 150-314.660(2).

(c) Sales Factor Numerator. The numerator shall include all gross receipts of the taxpayer from sources within this state including the following:

(A) Gross receipts from films in release to theaters and television stations located in this state.

(B) Gross receipts from films in syndicated release shall be attributed to this state in the ratio that the audience for such films located in Oregon bears to the total audience for the syndicated film everywhere. The audience shall be determined by rate card values published annually in the Television & Cable Factbook, Vol I, "Stations Volume," Television Digest, Inc., Washington, D.C., if available, or by other published market surveys, or, if none is available, by population data published by the U.S. Bureau of the Census.

(C) Gross receipts from films in release to subscription television telecasters shall be attributed to this state in the ratio that the subscribers for such telecaster located in Oregon to the total subscribers of such telecaster everywhere. If the number of subscribers cannot be determined accurately from records maintained by the taxpayer, the ratio shall be determined on the basis of the applicable year's statistics on subscribers published in Cable Vision, International Thompson Communications Inc., Denver, Colorado, if available, or by other published market surveys, or, if none is available, by population data published by the U.S. Bureau of the Census for all states in which the telecaster has subscribers.

(D) Receipts from sales and rentals of video cassettes and discs shall be included in the sales factor as provided in the rules under ORS 314.665.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.615
Hist.: RD 9-1992, f. 12-29-92, cert. ef. 12-31-92; RD 7-1993, f. 12-30-93, cert. ef. 12-31-93

150-314.620-(A)

Taxable in Another State; In General

Under ORS 314.615 the taxpayer is subject to the allocation and apportionment provisions of ORS 314.610 to 314.670 if it has income from business activity that is taxable both within and without this state. A taxpayer's income from business activity is taxable without this state if such taxpayer, by reason of such business activity (i.e., the transactions and activity occurring in the regular course of a particular trade or business), is taxable in another state within the meaning of ORS 314.620. A taxpayer is "taxable in another state" if it meets either one of two tests:

(1) If by reason of business activity in another state the taxpayer is subject to one of the types of taxes specified in ORS 314.620(1), namely: A net income tax, a franchise tax measured by net income, a franchise tax for the privilege of doing business, or a corporate stock tax; or

(2) If by reason of such business activity another state has jurisdiction to subject the taxpayer to a net income tax, regardless of whether or not that state imposes such a tax on the taxpayer. A taxpayer is not taxable in another state with respect to a particular trade or business merely because the taxpayer conducts activities in such other state pertaining to the production of nonbusiness income or business activities relating to a separate trade or business.

Stat. Auth.: ORS 305.100
Stats. Implemented:
Hist.: 1-65; 12-70; 8-73

150-314.620-(B)

Taxable in Another State; When a Taxpayer is "Subject To" Tax Under ORS 314.620(1)

(1) A taxpayer is "subject to" one of the taxes specified in ORS 314.620(1) only if it carries on business activity in such state and such state imposes such a tax thereon. Any taxpayer which asserts that it is subject to one of the taxes specified in ORS 314.620(1) in another state shall furnish to the Department upon its request evidence to support such assertion. The Department may request that such evidence include proof that the taxpayer has filed the requisite tax return in such other state and has paid any taxes imposed under the law of such other state; the taxpayer's failure to produce such proof may be taken into account in determining whether the taxpayer in fact is subject to one of the taxes specified in ORS 314.620(1) in such other state. If the taxpayer voluntarily files and pays one or more of such taxes when not required to do so by the laws of that state or pays a minimal fee for qualification, organization or for the privilege of doing business in that state, but (a) does not actually engage in business activity in that state, or (b) does actually engage in some business activity, not sufficient for nexus, and the minimum tax bears no relation to the taxpayer's business activity within such state, the taxpayer is not "subject to" one of the taxes specified within the meaning of ORS 314.620(1).

Example: State A has a corporation franchise tax measured by net income, for the privilege of doing business in that state. Corporation X files a return and pays the $50 minimum tax, although it carries on no activity in State A. Corporation X is not "taxable" in State A.

(2) The concept of taxability in another state is based upon the promise that every state in which the taxpayer is engaged in business activity may impose an income tax even though every state does not do so. In states which do not, other types of taxes may be imposed as a substitute for an income tax. Therefore, only those taxes enumerated in ORS 314.620(1) which may be considered as basically revenue raising rather than regulatory measures shall be considered in determining whether the taxpayer is "subject to" one of the taxes specified in ORS 314.620(1) in another state.

Example (i): State A requires all nonresident corporations which qualify or register in State A to pay to the Secretary of State an annual license fee or tax for the privilege of doing business in the state regardless of whether the privilege is in fact exercised. The amount paid is determined according to the total authorized capital stock of the corporation; the rates are progressively higher by bracketed amounts. The statute sets a minimum fee of $50 and a maximum fee of $500. Failure to pay the tax bars a corporation from utilizing the state courts for enforcement of its rights. State A also imposes a corporation income tax. Nonresident Corporation X is qualified in State A and pays the required fee to the Secretary of State but does not carry on any business activity in State A (although it may utilize the courts of State A). Corporation X is not "taxable" in State A.

Example (ii): Same facts as Example (i) except that Corporation X is subject to and pays the corporation income tax. Payment is prima facie evidence that Corporation X is "subject to" the net income tax of State A and is "taxable" in State A.

Example (iii): State B requires all nonresident corporations qualified or registered in State B to pay to the Secretary of State an annual permit fee or tax for doing business in the state. The base of the fee or tax is the sum of (1) outstanding capital stock, and (2) surplus and undivided profits. The fee or tax base attributable to State B is determined by a three factor apportionment formula. Nonresident Corporation X which operates a plant in State B, pays the required fee or tax to the Secretary of State. Corporation X is "taxable" in State B.

Example (iv): State A has a corporation franchise tax measured by net income for the privilege of doing business in that state. Corporation X files a return based upon its business activity in the state but the amount of computed liability is less than the minimum tax. Corporation X pays the minimum tax. Corporation X is subject to State A's corporation franchise tax.

Stat. Auth.: ORS 305.100
Stats. Implemented:
Hist.: 12-70; 11-71; 8-73

150-314.620-(C)

Taxable in Another State; When a State has Jurisdiction to Subject a Taxpayer to a Net Income Tax

The second test, that of ORS 314.620(2), applies if the taxpayer's business activity is sufficient to give the state jurisdiction to impose a net income tax by reason of such business activity under the Constitution and statutes of the United States. Jurisdiction to tax is not present where the state is prohibited from imposing the tax by reason of the provisions of Public Law 86-272, 15 USCA Sections 381-385. In the case of any "state" as defined in subsection (8) of ORS 314.610, other than a state of the United States or political subdivision of such state, the determination of whether such "state" has jurisdiction to subject the taxpayer to a net income tax shall be made as though the jurisdictional standards applicable to a state of the United States applied in that "state." If jurisdiction is otherwise present, such "state" is not considered as without jurisdiction by reason of the provisions of a treaty between that state and the United States.

Example: Corporation X is actively engaged in manufacturing farm equipment in State A and in foreign country B. Both State A and foreign country B impose a net income tax but foreign country B exempts corporations engaged in manufacturing farm equipment. Corporation X is subject to the jurisdiction of State A and foreign country B.

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented:
Hist.: 12-70; 8-73

150-314.620-(D)

Taxable in Another State; Washington Business and Occupation Tax

For the purposes of Oregon taxation, the Washington Business and Occupation (B & O) tax qualifies as a tax described in ORS 314.620(1). If the taxpayer is "subject to" the Washington B & O tax, it is not necessary that the business activity be of such a nature or of sufficient magnitude to cause the taxpayer to be subject to a net income tax. If the taxpayer is subject to the B & O tax, the requirement of taxability in Washington is met regardless of whether or not Public Law 86-272 would protect the taxpayer from an imposition of a Washington net income tax. It is important to note that the taxpayer must be "subject to" and not just making a minimal voluntary payment. OAR 150-314.620-(B) provides that the taxpayer will not be considered to be "subject to" the tax merely by making a voluntary minimal payment. The taxpayer must be filing returns and paying the tax. Oregon will follow the determinations by the State of Washington as to what activities create tax jurisdiction under the B & O tax.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.620
Hist.: RD 7-1991, f. 12-30-91, cert. ef. 12-31-91

Allocation of Nonbusiness Income

150-314.640

Allocation of Interest and Dividends

(1) Where it appears to the Department that a corporation using the apportionment method is improperly using interest deductions to avoid Oregon tax, the corporation will be required to include in apportionable income interest received to the extent of the deduction claimed for interest paid. See U.P.R.R. Co. et al v. Oregon State Tax Comm., 240 Or 628, 402 P2d 519 (June 3, 1965).

(2) Nonbusiness dividends are subtracted from modified federal income to compute apportionable business income. The subtraction shall be net of the Oregon dividend deduction claimed for such dividends under ORS 317.267. Nonbusiness dividends allocated to Oregon, net of the Oregon dividend deduction, shall be added to business income apportioned to Oregon.

Example: In 1991, Corporation D received $30,000 in dividends, $10,000 of which were nonbusiness dividends allocable to Oregon. Corporation D owned less than 20 percent of the stock in the corporations paying the dividends, so a 70 percent dividend received deduction is allowed on the Oregon return. In the computation of Oregon taxable income, $3,000 of nonbusiness dividends (net of the dividend deduction) are subtracted from net income before apportionment and then added to income apportioned to Oregon. The $3,000 is computed as follows: [Table not included. See ED. NOTE.]

[ED. NOTE: Tables referenced are available from the agency.]

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.640
Hist.: 1-65; 6-68; RD 9-1992, f. 12-29-92, cert. ef. 12-31-92

Apportionment of Business Income

150-314.650

Apportionment Formula

(1) All business income of each trade or business of the taxpayer must be apportioned to this state by use of the apportionment formula set forth in ORS 314.650. The apportionment formula includes the property factor provided in ORS 314.655 and the rules thereunder, the payroll factor provided in ORS 314.660 and the rules thereunder, and the sales factor provided in ORS 314.665 and the rules thereunder.

(2) For tax years beginning on or after July 1, 2005, business income is apportioned using only the sales factor.

(3) For tax years beginning on or after July 1, 2005, the apportionment formula for a taxpayer in the forest products industry meeting the criteria provided in ORS 314.650(2)(a) is the formula provided in sections (5) and (7) of this rule.

(4) For tax years beginning on or after May 1, 2003 and before July 1, 2005, the apportionment formula is 10 percent of the property factor, plus 10 percent of the payroll factor, plus 80 percent of the sales factor.

(5) For tax years beginning on or after January 1, 1991 and before May 1, 2003, the numerator of the apportionment formula is the sum of the property factor, plus the payroll factor, plus two times the sales factor. The denominator of the apportionment formula is four.

(6) For tax years beginning before January 1, 1991, the numerator of the apportionment formula is the sum of the property factor, plus the payroll factor, plus the sales factor. The denominator of the apportionment formula is three.

(7) For tax years beginning on or after January 1, 1989 and before May 1, 2003, if the denominator of the property, payroll, or sales factor is zero, the denominator of the apportionment formula is reduced by the number of factors with a denominator of zero.

(8) The apportionment factors of a corporation that is a member of a partnership, limited liability company treated as a partnership or unincorporated joint venture (i.e. the "related entity"), that is a part of the corporation's overall business operations, must include the corporation's share of the property, payroll and sales of the related entity. For the purpose of computing the apportionment factors, transactions between the corporation and the related entity must be eliminated to the extent of the corporation's percentage of interest in the related entity. The corporation's share of the related entity's property, payroll and sales are based on its percentage of interest in the related entity that is equal to the ratio of its capital account plus its share of the related entity's debt to the total of the capital accounts of all members of the related entity plus total related entity debt. The capital accounts of the members must reflect the average of the accounts for the period of the tax return. The average of the capital accounts may be computed by averaging the beginning and ending balances or monthly balances. Capital accounts of a related entity must be adjusted to reflect a member's adjusted basis in contributed property, rather than fair market value. The corporation's share of a related entity's debt is determined under IRC 752(a) and 752(b) and the regulations thereunder, irrespective of whether or not the related entity is a true partnership.

(9) For the purpose of computing the apportionment factors for a consolidated Oregon return, inter-company transactions between a unitary affiliate of a partner or member and the related entity described in section (8) of this rule are treated the same as intercompany transactions directly between the affiliated corporations, to the extent of the corporate partner's or member's ownership share of the related entity. Inter-company transactions between affiliated corporations filing a consolidated Oregon return are eliminated as provided in section (3) of OAR 150-317.715(3)(b).

Example: Corporations A, B, and C file a consolidated Oregon return. A and B each own 50 percent of partnership P. P is part of the overall business operations of the three corporations. P buys 80 percent of its raw materials from C. The intercompany sales between P and C must be eliminated from the apportionment formula for the consolidated Oregon return of the corporations. Transactions between C and P are considered to be directly between the three corporations.

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.650
Hist.: 8-73; RD 7-1983, f. 12-20-83, cert. ef. 12-31-83; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89; RD 9-1992, f. 12-29-92, cert. ef. 12-31-92; RD 5-1994, f. 12-15-94, cert. ef. 12-31-94; REV 7-1998, f. 11-13-98 cert. ef. 12-31-98; REV 12-1999, f. 12-30-99, cert. ef. 12-31-99; REV 6-2004, f. 7-30-04, cert. ef. 7-31-04; REV 11-2004, f. 12-29-04, cert. ef. 12-31-04; REV 3-2005, f. 12-30-05, cert. ef. 1-1-06

150-314.655(1)-(A)

Property Factor; In General

The property factor of the apportionment formula for each trade or business of the taxpayer shall include all real and tangible personal property owned or rented and used during the tax period in the regular course of such trade or business. The term "real and tangible personal property" includes land, buildings, machinery, stocks of goods, equipment, and other real and tangible personal property but does not include coin or currency. Property used in connection with the production of nonbusiness income shall be excluded from the property factor. Property used both in the regular course of taxpayer's trade or business and in the production of nonbusiness income shall be included in the factor only to the extent the property is used in the regular course of taxpayer's trade or business. The method of determining that portion of the value to be included in the factor will depend upon the facts of each case. The property factor shall reflect the average value of property includable in the factor. See OAR 150-314.655(3).

Stat. Auth.: ORS 305.100
Stats. Implemented:
Hist.: 12-70; 8-73

150-314.655(1)-(B)

Property Factor; Property Used for the Production of Business Income

Property shall be included in the property factor if it is actually used or is available for or capable of being used during the tax period in the regular course of the trade or business of the taxpayer. Property held as reserves or standby facilities or property held as a reserve source of materials shall be included in the factor. For example, a plant temporarily idle or raw material reserves not currently being processed are includable in the factor. Property or equipment under construction during the tax period (except inventoriable goods in process) shall be excluded from the factor until such property is actually used in the regular course of the trade or business of the taxpayer. If the property is partially used in the regular course of the trade or business of the taxpayer while under construction, the value of the property to the extent used shall be included in the property factor. Property used in the regular course of the trade or business of the taxpayer shall remain in the property factor until its permanent withdrawal is established by an identifiable event such as its conversion to the production of nonbusiness income, its sale, or the lapse of an extended period of time (normally, five years) during which the property is held for sale.

Example (i): Taxpayer closed its manufacturing plant in State X and held such property for sale. The property remained vacant until its sale one year later. The value of the manufacturing plant is included in the property factor until the plant is sold.

Example (ii): Same as above except that the property was rented until the plant was sold. The plant is included in the property factor until the plant is sold.

Example (iii): Taxpayer closed its manufacturing plant and leased the building under a five-year lease. The plant is included in the property factor until the commencement of the lease.

Example (iv): The taxpayer operates a chain of retail grocery stores. Taxpayer closed Store A, which was then remodeled into three small retail stores such as a dress shop, dry cleaning, and barber shop, which were leased to unrelated parties. The property is removed from the property factor on the date the remodeling of Store A commenced.

Stat. Auth.: ORS 305.100
Stats. Implemented:
Hist.: 12-70; 8-73

150-314.655(1)-(C)

Property Factor; Consistency in Reporting

In filing returns with this state if the taxpayer departs from or modifies the manner of valuing property, or of excluding or including property in the property factor, used in returns for prior years, the taxpayer shall disclose in the return for the current year the nature and extent of the modification. If the returns or reports filed by the taxpayer with all states to which the taxpayer reports under Article IV of the Multistate Tax Compact or the Uniform Division of Income for Tax Purposes Act are not uniform in the valuation of property and in the exclusion or inclusion of property in the property factor, the taxpayer shall disclose in its return to this state the nature and extent of the variance.

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented:
Hist.: 12-70; 8-73

150-314.655(1)-(D)

Property Factor; Numerator

The numerator of the property factor shall include the average value of the real and tangible personal property owned or rented by the taxpayer and used in this state during the tax period in the regular course of the trade or business of the taxpayer. Property in transit between locations of the taxpayer to which it belongs shall be considered to be at the destination for purposes of the property factor. Property in transit between a buyer and seller which is included by a taxpayer in the denominator of its property factor in accordance with its regular accounting practices shall be included in the numerator according to the state of destination. The value of mobile or movable property such as construction equipment, trucks or leased electronic equipment which are located within and without this state during the tax period shall be determined for purposes of the numerator of the factor on the basis of total time within the state during the tax period. An automobile assigned to a traveling employee shall be included in the numerator of the factor of the state to which the employee's compensation is assigned under the payroll factor or in the numerator of the state in which the automobile is licensed.

Stat. Auth.: ORS 305.100
Stats. Implemented:
Hist.: 12-70; 8-73

150-314.655(2)-(A)

Property Factor; Valuation of Owned Property

(1) Property owned by the taxpayer shall be valued at its original cost. As a general rule "original cost" is deemed to be the basis of the property for federal income tax purposes (prior to any federal adjustments) at the time of acquisition by the taxpayer and adjusted by subsequent capital additions or improvements thereto and partial disposition thereof, by reason of sale, exchange, abandonment, etc.

Example (i): The taxpayer acquired a factory building in this state at a cost of $500,000 and 18 months later expended $100,000 for major remodeling of the building. Taxpayer files its return for the current taxable year on the calendar year basis. Depreciation deduction in the amount of $22,000 was claimed on the building for its return for the current taxable year. The value of the building includable in the numerator and denominator of the property factor is $600,000 as the depreciation deduction is not taken into account in determining the value of the building for purposes of the factor.

Example (ii): During the current taxable year, X Corporation merges into Y Corporation in a tax-free reorganization under the Internal Revenue Code. At the time of the merger, X Corporation owns a factory which X built five years earlier at a cost of $1,000,000. X has been depreciating the factory at the rate of two percent per year, and its basis in X's hands at the time of the merger is $900,000. Since the property is acquired by Y in a transaction in which, under the Internal Revenue Code, its basis in Y's hands is the same as its basis in X's, Y includes the property in Y's property factor at X's original cost, without adjustment for depreciation, i.e., $1,000,000.

Example (iii): Corporation Y acquires the assets of Corporation X in a liquidation by which Y is entitled to use its stock cost as the basis of the X assets under Section 338 of the 1986 Internal Revenue Code (i.e. stock possessing 80 percent of voting power and stock value is purchased within a 12 month period.) Under these circumstances, Y's cost of the assets is the purchase price of the X stock, prorated over the X assets.

(2) If original cost of property is unascertainable, the property is included in the factor at its fair market value as of the date of acquisition by the taxpayer.

(3) Inventory of stock of goods shall be included in the factor in accordance with the valuation method used for federal income tax purposes. Payments for extracted natural resources shall be included in the property factor as inventory.

(4) Property acquired by gift or inheritance shall be included in the factor at its basis for determining depreciation for federal income tax purposes.

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.655
Hist.: 12-70; 8-73, RD 11-1988, f. 12-19-88, cert. ef. 12-31-88; RD 9-1992, f. 12-29-92, cert. ef. 12-31-92

150-314.655(2)-(B)

Property Factor; Valuation of Rented Property

This rule adopts the model regulation recommended by the Multistate Tax Commission to promote uniform treatment of this item by the states. This rule is adopted to further the purposes of ORS 305.655, Article I, section 2 and 314.605 to 314.670.

(1) Property rented by the taxpayer is valued at eight times its net annual rental rate. The net annual rental rate for any item of rented property is the annual rental rate paid by the taxpayer for such property, less the aggregate annual subrental rates paid by subtenants of the taxpayer.

(2) Subrents are not deducted when the subrents constitute business income because the property that produces the subrents is used in the regular course of a trade or business of the taxpayer when it is producing such income. Accordingly there is no reduction in its value.

Example 1: The taxpayer receives subrents from a bakery concession in a food market operated by the taxpayer. Since the subrents are business income they are not deducted from rent paid by the taxpayer for the food market.

Example 2: The taxpayer rents a 5-story office building primarily for use in its multistate business, uses three floors for its offices and subleases two floors to various other businesses on a short-term basis because it anticipates it will need those two floors for future expansion of its multistate business. The rental of all five floors is integral to the operation of the taxpayer's trade or business. Since the subrents are business income, they are not deducted from the rent paid by the taxpayer.

Example 3: The taxpayer rents a 20-story office building and uses the lower two stories for its general corporation headquarters. The remaining 18 floors are subleased to others. The rental of the 18 floors is not integral to but rather is separate from the operation of the taxpayer's trade or business. Since the subrents are nonbusiness income they are to be deducted from the rent paid by the taxpayer.

(3)(a) If the subrents taken into account in determining the net annual rental rate produce a negative or clearly inaccurate value for any item of property, another method that will properly reflect the value of rented property may be required by the department or requested by the taxpayer.

(b) In no case however may such value be less than an amount that bears the same ratio to the annual rental rate paid by the taxpayer for such property as the fair market value of that portion of the property used by the taxpayer bears to the total fair market value of the rented property.

Example 4: The taxpayer rents a 10-story building at an annual rental rate of $1,000,000. Taxpayer occupies two stories and sublets eight stories for $1,000,000 a year. The net annual rental rate of the taxpayer must not be less than two-tenths of the taxpayer's annual rental rate for the entire year, or $200,000.

(c) If property owned by others is used by the taxpayer at no charge or rented by the taxpayer for a nominal rate, the net annual rental rate for such property must be determined on the basis of a reasonable market rental rate for such property.

(4) "Annual rental rate" is the amount paid as rental for the property for a 12-month period (i.e., the amount of the annual rent). Where property is rented for less than a 12-month period, the rent paid for the actual period of rental is the "annual rental rate" for the tax period. However, where a taxpayer has rented property for a term of 12 or more months and the current tax period covers a period of less than 12 months (due, for example, to a reorganization or change of accounting period), the rent paid for the short period must be annualized. If the rental term is for less than 12 months, the rent may not be annualized beyond its term. Rent may not be annualized because of the uncertain duration when the rental term is on a month-to-month basis.

Example 5: Taxpayer A, that ordinarily files its returns based on a calendar year, is merged into Taxpayer B on April 30. The net rent paid under a lease with 5 years remaining is $2,500 a month. The rent for the tax period January 1, to April 30 is $10,000. After the rent is annualized the net rent is $30,000 ($2,500 x 12).

Example 6: Same facts as in Example (5) except that the lease would have terminated on August 31. In this case the annualized net rent is $20,000 ($2,500 x 8).

(5) "Annual rent" is the actual sum of money or other consideration payable, directly or indirectly, by the taxpayer or for its benefit for the use of the property and includes:

(a) Any amount payable for the use of real or tangible personal property, or any part thereof, whether designated as a fixed sum of money or as a percentage of sales, profits or otherwise.

Example 7: A taxpayer, pursuant to the terms of a lease, pays a lessor $1,000 per month as a base rental and at the end of the year pays the lessor one percent of its gross sales of $400,000. The annual rent is $16,000 ($12,000 plus one percent of $400,000 or $4,000).

(b) Any amount payable as additional rent or in lieu of rents, such as interest, taxes, insurance, repairs or any other items that are required to be paid by the terms of the lease or other arrangement, not including amounts paid as service charges, such as utilities, janitor services, etc. If a payment includes rent and other charges unsegregated, the amount of rent must be determined by consideration of the relative values of the rent and the other items.

Example 8: A taxpayer, pursuant to the terms of a lease, pays the lessor $12,000 a year rent plus taxes in the amount of $2,000 and interest on a mortgage in the amount of $1,000. The annual rent is $15,000.

Example 9: A taxpayer stores part of its inventory in a public warehouse. The total charge for the year was $1,000 of which $700 was for the use of storage space and $300 for inventory insurance, handling and shipping charges, and C.O.D. collections. The annual rent is $700.

(6) "Annual rent" does not include:

(a) Incidental day-to-day expenses such as hotel or motel accommodations, daily rental of automobiles, etc.; and

(b) Royalties based on extraction of natural resources, whether represented by delivery or purchase. For this purpose, a royalty includes any consideration conveyed or credited to a holder of an interest in property that constitutes a sharing of current or future production of natural resources from such property, irrespective of the method of payment or how such consideration may be characterized, whether as a royalty, advance royalty, rental or otherwise.

(7) Payments for lease bonus and delay rental expensed in the current tax year must be treated as rental property and valued at eight times the amount paid.

(8) Leasehold improvements must, for the purposes of the property factor, be treated as property owned by the taxpayer regardless of whether the taxpayer is entitled to remove the improvements or the improvements revert to the lessor upon expiration of the lease. Hence, the original cost of leasehold improvements must be included in the factor.

(9) The revisions to the rule effective on December 31, 2003 apply to all tax years open to adjustment on or after that date.

Stat. Auth.: ORS 305.100, 305.655 & 314.605 - 314.670
Stats. Implemented: ORS 314.655
Hist.: 12-70; 8-73; RD 12-1985, f. 12-16-85, cert. ef. 12-31-85; RD 11-1988, f. 12-19-88, cert. ef. 12-31-88; RD 5-1994, f. 12-15-94, cert. ef. 12-31-94; REV 4-2003, f. & cert. ef. 12-31-03

150-314.655(2)-(C)

Property Factor; Timber

The property factor includes all standing timber which the taxpayer owns and which is situated on land owned by the taxpayer, and includes timber which has been cut and has become a part of inventory. The factor does not include any standing timber to which the taxpayer has acquired cutting rights under a contract, regardless of when title passes under the terms of the contract.

Stat. Auth.: ORS 305.100
Stats. Implemented:
Hist.: 12-31-81

150-314.655(2)-(E)

Property Factor; Intangible Drilling Costs

Intangible drilling costs incurred by oil and gas producing companies in connection with producing oil and gas properties located within a taxing jurisdiction are included in the property factor. An election to expense intangible drilling costs for federal tax purposes has no effect on their inclusion in the property factor.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.655
Hist.: RD 10-1986, f. & cert. ef. 12-31-86

150-314.655(3)

Property Factor; Averaging Property Value

(1) As a general rule the average value of property owned by the taxpayer shall be determined by averaging the values at the beginning and ending of the tax period. However, the Department may require or allow averaging by monthly values if such method of averaging is required to properly reflect the average value of the taxpayer's property for the tax period. Averaging by monthly values will generally be applied if substantial fluctuations in the values of the property exist during the tax period or where property is acquired after the beginning of the tax period or disposed of before the end of the tax period.

Example: The monthly value of the taxpayer's property was as follows: [Example not included. See ED. NOTE.]

(2) Averaging with respect to rented property is achieved automatically by the method of determining the net annual rental rate of such property as set forth in OAR 150-314.655(2)-(B).

[ED. NOTE: Examples referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented:
Hist.: 12-70; 8-73

150-314.660(1)

Payroll Factor; In General

(1) The payroll factor of the apportionment formula for each trade or business of the taxpayer shall include the total amount of compensation paid by the taxpayer in the regular course of its trade or business during the tax period.

(2) The total amount "paid" to employees is determined upon the basis of the taxpayer's accounting method. If the taxpayer has adopted the accrual method of accounting, all compensation properly accrued shall be deemed to have been paid. Notwithstanding the taxpayer's method of accounting, at the election of the taxpayer, compensation paid to employees may be included in the payroll factor by use of the cash method if the taxpayer is required to report such compensation under such method for unemployment compensation purposes.

(3) The compensation of any employee on account of activities which are connected with the production of nonbusiness income shall be excluded from the factor.

Example 1: The taxpayer uses some of its employees in the construction of a storage building which, upon completion, is used in the regular course of taxpayer's trade or business. The wages paid to those employees are treated as a capital expenditure by the taxpayer. The amount of such wages is included in the payroll factor.

Example 2: The taxpayer owns various securities which it holds as an investment separate and apart from its trade or business. The management of the taxpayer's investment portfolio is the only duty of Mr. X, an employee. The salary paid to Mr. X is excluded from the payroll factor.

(4) The term "compensation" means wages, salaries, commissions and any other form of remuneration paid to employees for personal services. Guaranteed payments representing compensation for services to a partnership are considered remuneration paid to employees for personal services. Other than this exception relating to guaranteed payments, payments made to an independent contractor or any other person not properly classifiable as an employee are excluded.

(5) Guaranteed payments which represent a return of capital, interest paid on a capital account, or for any purpose other than compensation for services are excluded. Only amounts paid directly to employees are included in the payroll factor. Amounts considered paid directly include the value of board, rent, housing, lodging, and other benefits or services furnished to employees by the taxpayer in return for personal services, provided that such amounts constitute income to the recipient under the federal Internal Revenue Code. In the case of employees not subject to the federal Internal Revenue Code, e.g., those employed in foreign countries, the determination of whether such benefits or services would constitute income to the employees shall be made as though such employees were subject to the federal Internal Revenue Code.

(6) The term "employee" means (1) any officer of a corporation, or (2) any individual who, under the usual common-law rules applicable in determining the employer-employee relationship, has the status of an employee. Generally, a person will be considered to be an employee if he is included by the taxpayer as an employee for purposes of the payroll taxes imposed by the Federal Insurance Contributions Act; except that, since certain individuals are included within the term "employees" in the Federal Insurance Contributions Act who would not be employees under the usual common-law rules, it may be established that a person who is included as an employee for purposes of the Federal Insurance Contributions Act is not an employee for purposes of this rule.

(7) In filing returns with this state, if the taxpayer departs from or modifies the treatment of compensation paid as used in returns for prior years, the taxpayer shall disclose in the return for the current year the nature and extent of the modification.

(8) If the returns or reports filed by the taxpayer with all states to which the taxpayer reports under Article IV of the Multistate Tax Compact or the Uniform Division of Income for Tax Purposes Act are not uniform in the treatment of compensation paid, the taxpayer shall disclose in its return to this state the nature and extent of the variance.

(9) The denominator of the payroll factor is the total compensation paid everywhere during the tax period. Accordingly, compensation paid to employees whose services are performed entirely in a state where the taxpayer is immune from taxation are included in the denominator of the payroll factor.

Example 3: A taxpayer has employees in its state of legal domicile (State A) and is taxable in State B. In addition the taxpayer has other employees whose services are performed entirely in State C where the taxpayer is immune from taxation by Public Law 86-272. As to these latter employees, the compensation will be assigned to State C where their services are performed (i.e., included in the denominator-but not the numerator-of the payroll factor) even though the taxpayer is not taxable in State C.

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.660
Hist.: 12-70; 8-73; RD 5-1994, f. 12-15-94, cert. ef. 12-31-94; RD 3-1995, f. 12-29-95, cert. ef. 12-31-95

150-314.660(2)

Payroll Factor; Numerator

(1) The numerator of the payroll factor is the total amount of compensation paid in this state during the tax period by the taxpayer. The tests in subsection (2) of ORS 314.660 to be applied in determining whether compensation is paid in this state are derived from the Model Unemployment Compensation Act. Accordingly, if compensation paid to employees is included in the payroll factor by use of the cash method of accounting or if the taxpayer is required to report such compensation under such method for unemployment compensation purposes, it shall be presumed that the total wages reported by the taxpayer to this state for unemployment compensation purposes constitutes compensation paid in this state except for compensation excluded under OAR 150-314.660(1) above. The presumption may be overcome by satisfactory evidence that an employee's compensation is not properly reportable to this state for unemployment compensation purposes.

(2) Guaranteed payments which represent compensation for services are included in the numerator of the factor if the compensation would have been subject to Oregon unemployment insurance tax if paid to an employee.

(3) Compensation is paid in this state if any one of the following tests, applied consecutively, are met:

(a) The employee's service is performed entirely within the state.

(b) The employee's service is performed both within and without the state, but the service performed without the state is incidental to the employee's service within the state. The word "incidental" means any service which is temporary or transitory in nature, or which is rendered in connection with an isolated transaction.

(c) If the employee's services are performed both within and without this state, the employee's compensation will be attributed to this state:

(A) If the employee's base of operations is in this state; or

(B) If there is no base of operations in any state in which some part of the service is performed, but the place from which the service is directed or controlled is in this state; or

(C) If the base of operations or the place from which the service is directed or controlled is not in any state in which some part of the service is performed but the employee's residence is in this state.

(4) The term "base of operations" is the place of more or less permanent nature from which the employee starts work and to which the employee customarily returns in order to receive instructions from the taxpayer or communications from customers or other persons, or to replenish stock or other materials, repair equipment, or perform any other functions necessary to the exercise of the trade or profession.

(5) The term "place from which the service is directed or controlled" refers to the place from which the power to direct or control is exercised by the taxpayer.

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.660
Hist.: 12-70; RD 5-1994, f. 12-15-94, cert. ef. 12-31-94; RD 3-1995, f. 12-29-95, cert. ef. 12-31-95

150-314.665(1)-(A)

Sales Factor; In General

(1) Subsection (7) of ORS 314.610 defines the term "sales" to mean all gross receipts of the taxpayer not allocated under ORS 314.615 to 314.645. Thus, for the purposes of the sales factor of the apportionment formula for each trade or business of the taxpayer, the term "sales" means all gross receipts derived by a taxpayer from transactions and activity in the regular course of such trade or business. See OAR 150-314.665(6) regarding inclusion of income from the disposition of intangible assets in the sales factor. The following are rules for determining "sales" in various situations:

(a) In the case of a taxpayer engaged in manufacturing and selling or purchasing and reselling goods or products, "sales" includes all gross receipts from the sales of such goods or products (or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the tax period) held by the taxpayer primarily for sale to customers in the ordinary course of its trade or business. Gross receipts for this purpose means gross sales, less returns and allowances and includes all interest income, service charges, carrying charges, or time-price differential charges incidental to such sales. Federal and state excise taxes (including sales taxes) will be included as part of such receipts if such taxes are passed on to or collected from the buyer or included as part of the selling price of the product.

(b) In the case of cost plus fixed fee contracts, such as the operation of a government-owned plant for a fee, "sales" includes the entire reimbursed cost, plus the fee.

(c) In the case of a taxpayer engaged in providing services, such as the operation of an advertising agency, or the performance of equipment service contracts, research and development contracts, "sales" includes the gross receipts from the performance of such services including fees, commissions, and similar items.

(d) In the case of a taxpayer engaged in renting real or tangible property, "sales" includes the gross receipts from the rental, lease, or licensing the use of the property.

(e) In the case of a taxpayer engaged in the sale, assignment, or licensing of intangible personal property such as patents and copyrights, "sales" includes the gross receipts therefrom.

(f) If a taxpayer derives receipts from the sale of equipment used in its business, such receipts constitute "sales." For example, a truck express company owns a fleet of trucks and sells its trucks under a regular replacement program. The gross receipts from the sales of the trucks are included in the sales factor.

(g) If a taxpayer derives income from the operations of casinos, "gross drop" rather than "net drop" will be used in computing the gross receipts factor. "Gross drop" is computed as follows:

(A) Keno. Gross drop is the cumulative total cash paid in at the keno windows determined by totaling the amounts set forth on the customer's tickets.

(B) Slots. Gross drop is the cumulative total of all coins removed from the machines, plus jackpots paid less the coins previously added to the machines.

(C) Table games. Gross drop is the cumulative total of all cash funds and credit slips dropped in the cash boxes. When the cash method is used, only credit slips relating to chips removed from the tables should be considered.

(2)(a) Where substantial amounts of gross receipts arise from an incidental or occasional sale of a fixed asset used in the regular course of the taxpayer's trade or business, such gross receipts will be excluded from the sales factor. For example, gross receipts from the sale of a factory or plant will be excluded.

(b) Insubstantial amounts of gross receipts arising from incidental or occasional transactions or activities may be excluded from the sales factor unless such exclusion would materially affect the amount of income apportioned to this state. For example, the taxpayer ordinarily may include or exclude from the sales factor gross receipts from such transactions as the sale of office furniture, business automobiles, etc.

(3) In filing returns with this state, if the taxpayer departs from or modifies the basis for excluding or including gross receipts in the sales factor used in returns for prior years, the taxpayer will disclose in the return for the current year the nature and extent of the modification.

(4) If the returns or reports filed by the taxpayer with all states to which the taxpayer reports under Article IV of the Multistate Tax Compact or the Uniform Division of Income for Tax Purposes Act are not uniform in the inclusion or exclusion of gross receipts, the taxpayer will disclose in its return to this state the nature and extent of the variance.

(5) The denominator of the sales factor will include the total gross receipts derived by the taxpayer from transactions and activity in the regular course of its trade or business.

(6) Gross premium receipts. Gross premium receipts are all receipts paid in by the subscribers to the various coverages offered by the company, and are assigned to the state of the domicile of the subscriber. In the case of a group policy, the assignment is to the state of the domicile of the employer-agent who collects and remits the premiums to the company.

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.665
Hist.: 12-70; 8-73; RD 7-1983, f. 12-20-83, cert. ef. 12-31-83; RD 12-1985, f. 12-16-85, cert. ef. 12-31-85; RD 9-1992, f. 12-29-92, cert. ef. 12-31-92; RD 3-1995, f. 12-29-95, cert. ef. 12-31-95; REV 12-2000, f. 12-29-00, cert. ef. 12-31-00

150-314.665(1)-(B)

Sales Factor; Numerator

(1) For purposes of this rule:

(a) "No activity" means that the foreign corporation has no property or employees carrying on the business of the corporation in Oregon. Telephone and catalog solicitation and delivery by common carrier of goods sold do not constitute activity in the state.

(b) "Due process nexus" arises, for purposes of this rule, when a corporation engages in activities in this state that are protected from state taxation by Public Law 86-272. The protection provided by Public Law 86-272 applies to taxpayers whose only Oregon activity is the solicitation of sales of tangible personal property.

(c) "Jurisdiction to tax" is acquired by Oregon, for purposes of this rule, when a corporation engages in activities in this state that are not protected from state taxation by Public Law 86-272, e.g., maintaining an office or warehouse in Oregon, salespersons who accept orders or payment, etc.

(2) The numerator of the sales factor shall include gross receipts attributable to this state and derived by the taxpayer from transactions and activity in the regular course of its trade or business. All interest income, service charges, carrying charges, or time-price differential charges incidental to such gross receipts shall be included regardless of the place where the accounting records are maintained or the location of the contract or other evidence of indebtedness.

(3) If a foreign corporation has no activity in Oregon prior to the date Oregon acquires jurisdiction to tax, the numerator of the sales factor shall only include Oregon sales from the date Oregon acquired jurisdiction to tax.

Example: Corporation A operates on a calendar year basis. From the beginning of 1988, Corporation A of California solicited sales in Oregon by telephone and delivered its product by common carrier. On September 1, 1988, Corporation A sent salespersons into Oregon to take and approve orders, accept payment, and handle complaints and returns. Corporation A shall include sales from September 1, 1988 through the end of 1988 in the numerator of the sales factor.

(4) If a foreign corporation had due process nexus in Oregon and Oregon acquired jurisdiction to tax during the year, the numerator of the sales factor shall include sales from the date due process nexus arose or the beginning of the tax year, whichever is later.

Example: Corporation B of Washington began sending missionary salespersons to Oregon to merely solicit sales in July, 1987. Corporation B operates on a calendar year basis. On September 1, 1988, Corporation B added collection of payment and maintenance of a small inventory to the duties of its salespersons. Corporation B shall include sales for the entire 1988 tax year in its sales factor numerator.

(5) If a foreign corporation had no prior activity in Oregon and due process nexus arose during the tax year, and later during the tax year Oregon acquired jurisdiction to tax, the numerator of the sales factor shall include sales from the date due process nexus arose.

Example: Corporation C of Idaho has had catalog sales in Oregon, shipped via common carrier since 1970. Corporation C operates on a calendar year basis. On June 1, 1988, Corporation C sent salespersons into Oregon to merely solicit sales. On September 1, 1988, Corporation C authorized the salespersons to approve sales and accept payment. Sales from June 1, 1988, through the end of 1988 shall be included in the numerator of the sales factor.

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.665
Hist.: 12-70; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89; RD 3-1995, f. 12-29-95, cert. ef. 12-31-95

150-314.665(2)-(A)

Sales Factor; Sales of Tangible Personal Property in this State

The rule adopts provisions of a model regulation recommended by the Multistate Tax Commission to promote uniform treatment of this item by the states.

(1) For purposes of ORS 314.665 and the rules thereunder, “tangible personal property” means personal property that can be seen, weighed, measured, felt, or touched, or that is in any other manner perceptible to the senses. “Tangible personal property” includes electricity, water, gas, steam, and prewritten computer software.

(2) For purposes of apportioning income under ORS 314.665 and this rule, gross receipts from the sales of tangible personal property (except sales to the United States Government; see OAR 150-314.665(2)-(B)) are in this state:

(a) If the property is delivered or shipped to a purchaser within this state (Oregon) regardless of the f.o.b. point or other conditions of sale; whether transported by seller, purchaser, or common carrier; or

(b) If the property is shipped from an office, store, warehouse, factory, or other place of storage in this state and the taxpayer is not taxable in the state of the purchaser.

Example 1: A seller with a place of business in State A is a distributor of merchandise to retail outlets in multiple states. A purchaser with retail outlets in several states, including Oregon, makes arrangements to hire a common carrier to pick up merchandise, f.o.b. plant, at the seller’s place of business and have it delivered to the purchaser’s outlet in Oregon. The seller, who is subject to Oregon excise tax, must treat this as a sale of property delivered or shipped to a purchaser in Oregon.

Example 2: A seller with a place of business in Oregon is a distributor of merchandise to retail outlets in multiple states. A purchaser with retail outlets in several states, including State A, sends its own truck to pick up the merchandise at the seller’s place of business and have it transported to the purchaser’s outlet in State A. The seller is taxable in State A. The seller must treat this as a sale of property delivered or shipped to a purchaser in State A.

(c) Notwithstanding subsection (2)(b) of this rule, for tax years beginning on or after January 1, 2006, the sale of goods from a public warehouse is not considered to take place in Oregon if:

(A) The taxpayer’s only activity in Oregon is the storage of the goods in a public warehouse prior to shipment; or

(B) The taxpayer’s only activities in Oregon are the storage of the goods in the public warehouse prior to shipment and the presence of employees within this state solely for purposes of soliciting sales of the taxpayer’s products.

(3) Property is deemed to be delivered or shipped to a purchaser within this state if the recipient is located in this state, even though the property is ordered from outside this state.

Example 3: The taxpayer, with inventory in State A, sold $100,000 of its products to a purchaser having branch stores in several states including Oregon. The order for the purchase was placed by the purchaser’s central purchasing department located in State B. $25,000 of the purchase order was shipped directly to purchaser’s branch store in Oregon. The branch store in this state is the “purchaser within this state” with respect to $25,000 of the taxpayer’s sales.

(4) Property is delivered or shipped to a purchaser within this state if the shipment terminates in this state, even though the property is subsequently transferred by the purchaser to another state.

Example 4: The taxpayer makes a sale to a purchaser who maintains a central warehouse in Oregon at which all merchandise purchases are received. The purchaser reships the goods to its branch stores in other states for sale. All of taxpayer’s products shipped to the purchaser’s warehouse in Oregon is property “delivered or shipped to a purchaser within this state.”

(5) The term “purchaser within this state” includes the ultimate recipient of the property if the taxpayer in Oregon, at the designation of the purchaser, delivers to or has the property shipped to the ultimate recipient within Oregon.

Example 5: A taxpayer in Oregon sold merchandise to a purchaser in State A. Taxpayer directed the manufacturer or supplier of the merchandise in State B to ship the merchandise to the purchaser’s customer in Oregon pursuant to purchaser’s instructions. The sale by the taxpayer is in Oregon.

(6) When property being shipped by a seller from the state of origin to a purchaser in another state is diverted while enroute to a purchaser in Oregon, the sales are in Oregon.

Example 6: The taxpayer, a produce grower in State A, begins shipment of perishable produce to the purchaser’s place of business in State B. While enroute the produce is diverted to the purchaser’s place of business in Oregon, in which state the taxpayer is subject to tax. The sale by the taxpayer is attributed to Oregon.

(7) If the taxpayer is not taxable in the state of the purchaser, the sale is attributed to Oregon if the property is shipped from an office, store, warehouse, factory, or other place of storage in Oregon.

(a) Sales to a purchaser in a state other than Oregon will not be attributed to Oregon if the other state imposes a net income tax on the seller.

(b) Sales to a purchaser in a state other than Oregon will not be attributed to Oregon if the other state would have jurisdiction to tax the seller on net income under the constitution of the United States and federal Public Law (P.L.) 86-272.

(c) OAR 150-314.620-(C) provides that sales and activities in a foreign country will be treated the same as those in another U.S. state for determining if the foreign country has jurisdiction to tax the seller on net income.

(d) The guidelines provided by federal P.L. 86-272 apply equally to activities regarding sales to unrelated parties and sales to affiliated corporations.

(e) The immunity provided by P.L. 86-272 is not lost when a business engages in de minimis activities unrelated to the solicitation of orders in a state or foreign country where its only other activities are those protected by P.L. 86-272. Examples of such immune activities include the following:

(A) The board of directors of a corporation based in Oregon holds a meeting at a hotel in another state or in a foreign country,

(B) The president of a parent corporation based in Oregon meets with the managers of a subsidiary in a foreign country to discuss the subsidiary’s five-year plan and capital acquisitions budget.

(C) The controller of a parent corporation based in Oregon meets with the accounting staff of a subsidiary in a foreign country to discuss federal financial reporting requirements.

Example 7: The taxpayer has its head office and factory in State A. It maintains a branch office and inventory in Oregon. Taxpayer’s only activity in State B is the solicitation of orders by a resident salesman. All orders by the State B salesman are sent to the branch office in Oregon for approval and are filled by shipment from the inventory in Oregon. Since taxpayer is immune under Public Law 86-272 from tax in State B, all sales of merchandise to purchasers in State B are attributed to Oregon, the state from which the merchandise was shipped.

Example 8: A parent company sells its product to a subsidiary, organized in a foreign country, that uses the parent’s product in manufacturing its product. Because of the parent-subsidiary relationship, orders are not solicited in the same way as sales to unrelated customers. Instead, the products are shipped as needed to the subsidiary. Officials from the parent company maintain a close liaison with the foreign subsidiary on the planning and design of the items sold. After the parties agreed on a contract in which the parent would manufacture and sell certain items to the subsidiary, the close working relationship continued between the technicians of both companies. Many of the parent’s employees made regular trips to the subsidiary after the contract was signed, to take care of such items as manufacturing problems, installation problems, repair work, redesign discussions, and/or production problems. Parent’s production engineers, production workers, metallurgists, quality control managers, and assembly supervisors were some of the personnel who spent several weeks of the year working closely with the foreign subsidiary. The foreign country does not impose an income tax on the parent corporation. Based upon the above facts, the parent is not considered to be protected under P.L. 86-272 and therefore is not required to attribute sales to Oregon.

Example 9: A subsidiary organized in a foreign country purchases products from its parent, a manufacturing company in Oregon. The subsidiary places a purchase order with the parent on an “as needed” basis. The parent, upon receipt of the purchase order, makes shipment to the subsidiary. The subsidiary, upon receipt of the product, makes payment to the parent. The parent has a relationship with its foreign subsidiary that is unrelated to the sale of its product. Officials from the parent company occasionally visit the foreign subsidiary to discuss matters unrelated to the sale of its product, including: (1) public relations, (2) personnel matters, and (3) government relations. The foreign country does not impose an income tax on the parent corporation. Based upon the above facts, the parent is considered to be protected under P.L. 86-272 and is required to attribute the sales to Oregon.

(8) If a taxpayer whose salesman operates from an office located in Oregon makes a sale to a purchaser in another state in which the taxpayer is not taxable and the property is shipped directly by a third party to the purchaser, the following rules apply, under authority of ORS 314.670:

(a) If the taxpayer is taxable in the state from which the third party ships the property, then the sale is in such state.

(b) If the taxpayer is not taxable in the state from which the property is shipped, then the sale is in Oregon.

Example 10: The taxpayer in Oregon sold merchandise to a purchaser in State A. Taxpayer is not taxable in State A. Upon direction of the taxpayer, the merchandise was shipped directly to the purchaser by the manufacturer in State B. If the taxpayer is taxable in State B, the sale is in State B. If the taxpayer is not taxable in State B, the sale is in Oregon.

[Publications: Publications referenced are available from the Agency]

Stat. Auth.: ORS 305.100 & 314.670
Stats. Implemented: ORS 314.665
Hist.: 12-70; RD 9-1992, f. 12-29-92, cert. ef. 12-31-92; RD 5-1994, f. 12-15-94, cert. ef. 12-31-94; REV 11-2004, f. 12-29-04, cert. ef. 12-31-04; REV 3-2005, f. 12-30-05, cert. ef. 1-1-06; REV 5-2007, f. 7-30-07, cert. ef. 7-31-07; REV 14-2010(Temp), f. & cert. ef. 12-1-10 thru 5-27-11; REV 1-2011, f. & cert. ef. 3-21-11

150-314.665(2)-(B)

Sales Factor; Sales of Tangible Personal Property to United States Government in this State

(1) Gross receipts from the sales of tangible personal property to the United States Government are in this state if the property is shipped from an office, store, warehouse, factory, or other place of storage in this state, except as prohibited in paragraph (2) of this rule. For the purposes of this rule, only sales for which the United States Government makes direct payment to the seller pursuant to the terms of its contract constitute sales to the United States Government. Thus, as a general rule, sales by a subcontractor to the prime contractor, the party to the contract with the United States Government, do not constitute sales to the United States Government.

Example 1: A taxpayer contracts with General Services Administration to deliver X number of trucks which were paid for by the United States Government. The sale is a sale to the United States Government.

Example 2: The taxpayer as a subcontractor to a prime contractor with the National Aeronautics and Space Administration contracts to build a component of a rocket for $1,000,000. A sale by the subcontractor to the prime contractor is not a sale to the United States Government.

(2) For tax years beginning on or after January 1, 1994, gross receipts from the sales of tangible personal property to the United States Government are not in this state if:

(a) The sales are properly included in the numerator of a formula used to apportion business income to another state of the United States, a foreign country or the District of Columbia; and

(b) The other state, foreign country or the District of Columbia has properly imposed a tax on or measured by the apportioned business income.

Stat. Auth.: ORS 305.100
Stat. Implemented: ORS 314.665
Hist.: 12-70; 8-73; RD 7-1993, f. 12-30-93, cert. ef. 12-31-93

150-314.665(2)-(C)

Sales Factor; Sale of Electricity or Natural Gas

(1) A sale of tangible personal property, including but not limited to the sale of a commodity like electricity or natural gas, which is delivered or shipped to a purchaser with a contracted point of delivery in Oregon is a sale in this state. This is regardless of whether the purchaser uses the property in Oregon, transfers the property to another state, or resells the property in Oregon. If the contract states the point of delivery is at the border with another state, the sale is presumed to be in Oregon unless the taxpayer can demonstrate to the satisfaction of the department that delivery occurred in some other place.

Example 1: A provider of wholesale electricity enters into a contract to deliver a specified amount and duration of a supply of electricity to a purchaser who takes possession at a specified point of delivery in Oregon. The sale is an Oregon sale.

(2) A taxpayer who contracts to sell electricity to and also buy electricity from the same entity during the same period or partial period of time will have an offsetting contractual amount, also known as a book-out transaction. The gross sales of electricity, without regard to the offsetting purchase amount, are considered to be Oregon sales if the contracted point of delivery is in Oregon.

Example 2: Company A signed a contract on January 2, 2006, to purchase 50 megawatts of electricity for a period of 10 hours starting November 15, 2006, from Company B with a delivery point of Malin, Oregon. For this same time period, Company A signed a contract on March 15, 2004, to sell 30 megawatts of electricity to Company B with a point of delivery at Malin, Oregon. The 30 megawatts of power is recorded as a book-out transaction on both companies’ books for reporting to Oregon. The offsetting transaction for the 30 megawatts is deemed to be delivered in Oregon for the purposes of computing the Oregon sales factor. Company A will report the sale of 30 megawatts in its Oregon sales factor numerator and Company B will report the sale of 50 megawatts (20 megawatts to complete the sales contract plus 30 megawatts from the book-out transaction) of electricity in its Oregon sales factor numerator.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.665
Hist.: REV 5-2007, f. 7-30-07, cert. ef. 7-31-07; Suspended by REV 15-2010(Temp), f. & cert. ef. 12-1-10 thru 5-27-11; REV 1-2011, f. & cert. ef. 3-21-11

150-314.665(3)

Sales Factor; Sales of Software and Database Services

(1) The sale of commercial, off the shelf software (COTS) is considered to be the sale of tangible personal property. Include such sales in the sales factor as provided in OAR 150-314.665(2)-(A). For purposes of this rule, COTS is readily available to the general public, is subject to a nonexclusive license, and has not been substantially modified.

(2) The sale of customized software produced for a specific customer is considered to be the sale of a service. Include such sales in the sales factor as provided in OAR 150-314.665(4). If the taxpayer incurs the majority of the cost of performance for this service in Oregon, include the sale in the numerator and the denominator of the sales factor. If the company incurs the majority of the costs of performing this service (producing the software) outside of Oregon, include the sale in the denominator of the sales factor only.

Example 1: Software Inc., located in Texas, assigned two employees to design and program a new specialized inventory system for ABC Co., located in Oregon. The employees spent six weeks on the project. All of the work was done in Oregon. The payroll costs for the two employees were the entire direct cost of performance associated with the sale to ABC Co. The receipts from this project are included in the numerator and denominator of the Oregon sales factor.

Example 2: Use the same facts as in Example 1, except that the employees spent one week in Oregon reviewing ABC Co.'s needs. The other five weeks were spent in Texas designing and programming the specialized software. Since the majority of the work was performed outside of Oregon, the majority of the cost of performance was also incurred outside Oregon and the receipts are only included in the denominator of the Oregon sales factor.

(3) Database services have two different parts for purposes of the sales factor. The sale of the freestanding software that is needed to access on-line information is considered to be the sale of COTS. Include such sales in the sales factor as provided in section (1) of this rule. The on-line database service is treated as a service. Sales of the service are assigned to the state where the majority of cost of performance has occurred as provided in section (2) of this rule.

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.665
Hist. : REV 11-2006, f. 12-27-06, cert. ef. 1-1-07

150-314.665(4)

Sales Factor; Sales Other Than Sales of Tangible Personal Property in This State

(1) This rule is effective August 31, 2008 and applies to tax years beginning on or after January 1, 2008. For tax years beginning prior to January 1, 2008 an “income producing activity” did not include transactions performed on behalf of a taxpayer, such as those conducted on the taxpayer’s behalf by an independent contractor.

(2) In General. ORS 314.665(4) provides for the inclusion of gross receipts from transactions other than sales of tangible personal property (including transactions with the United States Government) in the numerator of the sales factor); under this section gross receipts are attributed to this state if the income producing activity that gave rise to the receipts is performed wholly within this state. Also, gross receipts are attributed to this state if, with respect to a particular item of income, the income producing activity is performed within and without this state but the greater proportion of the income producing activity is performed in this state, based on costs of performance. Income Producing Activity; Defined. The term "income producing activity" applies to each separate item of income and means the transactions and activity directly engaged in by the taxpayer in the regular course of its trade or business for the ultimate purpose of obtaining gains or profit. Income producing activity includes transactions and activities performed on behalf of a taxpayer, such as those conducted on its behalf by an independent contractor. Accordingly, income producing activity includes but is not limited to the following:

(a) The rendering of personal services by employees or by an agent or independent contractor acting on behalf of the taxpayer or the utilization of tangible and intangible property by the taxpayer or by an agent or independent contractor acting on behalf of the taxpayer in performing a service.

(b) The sale, rental, leasing, franchising, licensing or other use of real property.

(c) The rental, leasing, franchising, licensing or other use of tangible personal property.

(d) The sale, franchising, licensing or other use of intangible personal property. The mere holding of intangible personal property is not, of itself, an income producing activity.

(3)(a) Where the income producing activity in respect to business income from intangible personal property can be readily identified, the income is included in the denominator of the sales factor and, if the income producing activity occurs in this state, in the numerator of the sales factor as well. For example, usually the income producing activity can be readily identified in respect to interest income received on deferred payments on sales of tangible property (OAR 150-314.665(1)–(A)) and income from the sale, licensing or other use of intangible personal property.

(b) Where business income from intangible property cannot readily be attributed to any particular income producing activity of the taxpayer, the income cannot be assigned to the numerator of the sales factor for any state and must be excluded from the denominator of the sales factor. For example, where business income in the form of dividends received on stock, royalties received on patents or copyrights, or interest received on bonds, debentures or government securities results from the mere holding of the intangible personal property by the taxpayer, the dividends and interest must be excluded from the denominator of the sales factor.

(4) Costs of Performance; Defined. The term "costs of performance" means direct costs determined in a manner consistent with generally accepted accounting principles and in accordance with accepted conditions or practices in the trade or business of the taxpayer to perform the income producing activity that gives rise to the particular item of income. Included in the taxpayer’s cost of performance are taxpayer’s payments to an agent or independent contractor for the performance of personal services and utilization of tangible and intangible property which give rise to the particular item of income. For purposes of this rule, direct costs do not include costs that are not part of the income producing activity itself, such as accounting or billing expenses.

(5) Application.

(a) In General. Receipts (other than from sales of tangible personal property) in respect to a particular income producing activity performed by the taxpayer are in this state if:

(A) The income producing activity is performed wholly within this state; or

(B) The income producing activity is performed both in and outside this state and a greater proportion of the income producing activity is performed in this state than in any other state, based on costs of performance.

(b) Under the authority provided in ORS 314.670, paragraphs (A)–(C) of this subsection describe when receipts from certain income producing activities are in this state.

(A) Gross receipts from the sale, lease, rental, franchising, or licensing of real property are in this state if the real property is located in this state.

(B) Gross receipts from the rental, lease, franchising, or licensing of tangible or intangible personal property are in this state if the property is located in this state.

(i) The rental, lease, franchising, licensing or other use of tangible or intangible personal property in this state is a separate income producing activity from the rental, lease, licensing or other use of the same property while located in another state; consequently, if the property is within and without this state during the rental, lease, franchising or licensing period, gross receipts attributable to this state must be measured by the ratio that the time the property was physically present or was used in this state bears to the total time or use of the property everywhere during the period.

Example 1: Taxpayer is the owner of 10 railroad cars. During the year, the total of the days each railroad car was present in this state was 50 days. The receipts attributable to the use of the 10 railroad cars in this state are a separate item of income and are determined as follows: 10 cars x 50 days = 500 car days 10 cars x 365 days = 3,650 car days x Total Receipts = Receipts Attributable to this State

(ii) Intangible personal property is located in this state if the property is used in business activity in this state, whether the use is by the taxpayer, a third-party licensee, or another entity with the right to use the property. Intangible personal property may be used in more than one state at the same time. The use of intangible personal property in this state is a separate income producing activity from use of the same property in another state. Use is determined in each tax year.

(C) Gross receipts for the performance of personal services are attributable to this state to the extent the services are performed in this state. If services relating to a single item of income are performed partly within and partly without this state, the gross receipts from the performance of the services are attributable to this state only if a greater proportion of the services were performed in this state, based on costs of performance. Usually, where services are performed partly within and partly without this state, the services performed in each state will constitute a separate income producing activity; in these cases the gross receipts for the performance of services attributable to this state must be measured by the ratio which the time spent in performing the services in this state bears to the total time spent in performing the services everywhere. Time spent in performing services includes the amount of time expended in the performance of a contract or other obligation that gives rise to the gross receipts. Personal service not directly connected with the performance of the contract or other obligation, as for example, time expended in negotiating the contract, is excluded from the computations.

Example 2: Taxpayer, a road show, gave theatrical performances at various locations in State X and in this state during the tax period. All gross receipts from performances given in this state are attributed to this state.

Example 3: The taxpayer, a public opinion survey corporation, conducted a poll by its employees in State X and in this state for the sum of $9,000. The project required 600 hours to obtain the basic data and prepare the survey report. Two hundred of the 600 hours were expended in this state. The receipts attributable to this state are $3,000. 200 hours/ 600 hours x $9,000

(c) Services on behalf of taxpayer. An income producing activity performed on behalf of a taxpayer by an agent or independent contractor is attributed to this state if the income producing activity is in this state.

(A) In order to determine if income producing activity is in this state, consider the following list in sequential order:

(i) When the taxpayer can reasonably determine at the time of filing that the income producing activity is actually performed in this state by the agent or independent contractor, but the activity occurs in more than one state, the location where the income producing activity is actually performed shall be deemed to be not reasonably determinable at the time of filing under this subsection;

(ii) If the taxpayer cannot reasonably determine at the time of filing where the income producing activity is actually performed, when the contract between the taxpayer and the agent or independent contractor indicates it is to be performed in this state and the portion of the taxpayer’s payment to the agent or contractor associated with the performance is determinable under the contract;

(iii) If it cannot be determined where the income producing activity is actually performed and the agent or independent contractor's contract with the taxpayer does not indicate where it is to be performed, when the contract between the taxpayer and the taxpayer's customer indicates it is to be performed in this state and the portion of the taxpayer’s payment to the agent or contractor associated with the performance is determinable under the contract; or

(iv) If it cannot be determined where the income producing activity is actually performed and neither contract indicates where it is to be performed or the portion of the payment associated with the performance, when the domicile of the taxpayer’s customer is in this state. If the taxpayer’s customer is not an individual, “domicile” means commercial domicile as defined in ORS 314.610.

(B) If the location of the income producing activity by an agent or independent contractor, or the portion of the payment associated with the performance, cannot be determined under OAR 150-314.665(4)(5)(c)(a)(i) through 150-314.665(4)(5)(c)(a)(iii), or the taxpayer’s customer’s domicile cannot be determined under 150-314.665(4)(5)(c)(a)(iv), or, although determinable, the income producing activity is in a state where the taxpayer is not taxable, the income producing activity will be disregarded.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.665 & 314.670
Hist.: 12-70; 8-73; 12-31-85, Renumbered from 150-314.665(3); RD 5-1994, f. 12-15-94, cert. ef. 12-31-94; REV 11-2006, f. 12-27-06, cert. ef. 1-1-07; REV 11-2008, f. & cert. ef. 9-23-08

150-314.665(5)

Gross Receipts Related to Deferred Gain or Loss

(1) In general. In all cases where gain or loss is realized for accounting purposes in the year of the associated transaction, but not fully recognized for tax purposes in that year, the total gross receipts from the transaction must be included in the sales factor for the year of the transaction if the associated gain or loss is considered business income or loss under ORS 314.610, except where:

(a) The gross receipts are excluded from "sales" under ORS 314.665(6)(a) and (6)(c); or

(b) The net gain rather than gross receipts is included in the sales factor under ORS 314.665(6)(b). Also see OAR 150-314.615-(G) regarding the apportionment of installment sale income and OAR 150-314.650 regarding apportionment of deferred gain subject to tax in a year after the year of disposition.

Example 1: Big Equipment Sales Corporation (BESC) has locations in Oregon and Idaho. BESC sold a large piece of construction equipment in 2003 on an installment contract. The total sales price was $1,000,000. BESC must include the full sales price of $1,000,000 in the sales factor for tax year 2003.

(2) Gross receipts from deferred gain on exchanges of property. In regard to exchanges of property qualifying for the deferral of tax on the gain or loss under section ORS 317.327 and sections 1031 or 1033 of the Internal Revenue Code, "gross receipts" means the fair market value of the property acquired on the date of exchange.

Example 2: Major Manufacturing Corporation (MMC) exchanges tangible personal property used in its business activity in Oregon for property of like kind in California during tax year 2002. The fair market value of the acquired property is $800,000 on the date of the exchange. The gross receipts from the exchange of property are not excluded from MMC's "sales" under ORS 314.665(6)(a) or (6)(c). MMC's sales factor numerator and denominator for tax year 2002 must include $800,000, the gross receipts from the exchange as measured in 2002.

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.665 & 317.327
Hist: REV 6-2004, f. 7-30-04, cert. ef. 7-31-04

150-314.665(6)

Sales Factor; Inclusion of Income from Disposition of Intangible Assets; Determination of Primary Business Activity

(1) As provided in ORS 314.665, paragraph (6), the sales factor may or may not include gross receipts or net gains from the disposition of intangible assets, depending on what the taxpayer's "primary business activity" is.

(2) If a taxpayer files a separate Oregon excise tax return, the primary business activity is determined for that separate corporation. If the taxpayer files a consolidated Oregon return, the primary business activity is determined for the entire unitary group.

(3) A taxpayer's "primary business activity" is determined for a particular tax year based on consideration of criteria including, but not limited to, the following:

(a) The stated business in the articles of incorporation.

(b) The business category entered on the Securities and Exchange Commission Form 10-K of a publicly held corporation.

(c) The business designation in a "mission statement."

(d) The business activity with the greatest average investment in tangible and intangible assets from the balance sheet for the tax return.

(e) The business designation in advertising.

(f) The business with the greatest amount of net sales of product and services as reported under Generally Accepted Accounting Principles.

(g) The business activity from which working capital is transferred to investments in intangible assets and to which the working capital and income is returned.

Example 1: A Corporation (A) is headquartered in Seattle Washington and manufactures and sells household appliances. A has a warehouse in Portland, Oregon. It has large amounts of temporary excess working capital each year during the summer after big spring sales and before buying raw materials in the fall. Employees of A at its headquarters invest the temporary excess working capital in short-term debt instruments that are bought and sold each week for a three month period before the invested principal and any earnings are returned to the working capital of the manufacturing business. The income from the investment activity is business income. B's primary business activity is the production and sale of tangible personal property, not the purchase of, holding of, dealing in or sales of intangible assets. A must include the net gain from sales of short-term debt instruments in its sales factor.

(4) When some criteria for a corporation indicate the primary business activity is dealing in intangible assets while other criteria indicate the primary business activity is the production or sale of tangible property or the provision of services, more weight will be given to criteria reflecting what the corporation actually did during the tax year as opposed to what the corporation did in the past or represents itself as doing.

Example 2: For the current tax year, over 60 percent of B Corporation's (B's) assets are invested in intangible oil royalty rights and over 70 percent of B's net sales come from the sale of intangible oil royalty rights. The SIC code on its last 15 corporate tax returns has been for "Oil Royalty Traders." B's 25 years old articles of incorporation and it's current advertising indicate that B is in the business of selling petroleum products. B's primary business activity is the acquisition, holding and disposal of intangible assets and it must include the gross receipts from oil royalties and the sale of oil royalty rights in the sales factor on it's Oregon return.

(5) The provisions of this rule do not apply to financial corporations subject to the provisions of OAR 150-314.280-(N).

Stat. Auth.: ORS 305.100
Stats. Implemented.: ORS 314.665
Hist.: REV 12-2000, f. 12-29-00, cert. ef. 12-31-00

150-314.665(6)(a)

Sales Factor for Affiliated Group: Inclusion of Gross Receipts From Disposition or Holding of Intangible Assets

(1) If a taxpayer's primary business activity, as defined in OAR 150-314.665(6), produces income from the disposition (i.e., sale, exchange, redemption) or holding of intangible assets, and the taxpayer files an Oregon consolidated return (See OAR 150-317.715(3)(b)), the gross receipts from the disposition or holding of the intangible assets must be included in the sales factor numerator and denominator if:

(a) The taxpayer is the only member of a unitary affiliated group that is subject to Oregon taxation of income; or

(b) The taxpayer is one of a number of members of a unitary affiliated group subject to Oregon taxation of income, and the unitary group as a whole is engaged in a primary business activity that produces income from the disposition or holding of intangible assets.

(2) If the taxpayer filing an Oregon consolidated return is a member of a unitary group that includes one or more corporations not subject to Oregon taxation, and the nonsubject corporations' primary business activity produces income from the disposition or holding of intangible assets, the gross receipts from that activity must be excluded from the sales factor.

Stat. Auth.: ORS 305.100
Stats. Implemented.: ORS 314.665
Hist.: REV 1-2001, f. 7-31-01, cert. ef. 8-1-01

150-314.665(6)(b)

Sales Factor: Definition of Net Gains

For purposes of including net gains from the sale, exchange, or redemption of intangible assets not derived from the taxpayer's primary business activity in the sales factor under ORS 314.665(6)(b), "net gains" means the excess of gains over losses from asset sales. If the net of gains and losses results in a negative amount, the correct amount for factor purposes is zero.

Example 1: Heavy Equipment Manufacturing Corporation (Heavy) sold two short-term investments in commercial paper during calendar tax year 2000. The first sale resulted in a net gain of $100,000, and the second resulted in a net loss of $30,000. The income from selling the commercial paper was not derived from Heavy's primary business activity of manufacturing, and Heavy must include net gain of $70,000 ($100,000 gain less $30,000 loss) in the sales factor.

Example 2: Assume the same set of facts as in Example 1, except that the first sale resulted in a $100,000, loss and the second sale resulted in a $30,000 gain. The net result of sales of intangible assets not derived from the taxpayer's primary business activity is a negative amount, so no amount of net gain from sale of intangible assets is included in Heavy's sales factor.

Stat. Auth.: ORS 305.100
Stats. Implemented.: ORS 314.665
Hist.: REV 1-2001, f. 7-31-01, cert. ef. 8-1-01

150-314.665(6)(c)

Sales Factor: Definition of Gross Receipts

This rule adopts the model regulation recommended by the Multistate Tax Commission to promote uniform treatment of this item by the states. This rule is adopted to further the purposes of ORS 305.655, Article I, section 2 and 314.605 to 314.670.

(1) "Gross receipts" are the gross amounts realized (the sum of money and the fair market value of other property or services received) on the sale or exchange of property, the performance of services, or the use of property or capital (including rents, royalties, interest and dividends) in a transaction which produces business income, in which the income or loss is recognized (or would be recognized if the transaction were in the United States) under the Internal Revenue Code. Amounts realized on the sale or exchange of property are not reduced for the cost of goods sold or the basis of property sold. Except as provided in ORS 314.665(6)(a), gross receipts, even if business income, generally do not include such items as:

(a) Repayment, maturity, or redemption of the principal of a loan, bond, or mutual fund or certificate

of Deposit or similar marketable instrument;

(b) The principal amount received under a repurchase agreement or other transaction properly characterized as a loan;

(c) Proceeds from issuance of the taxpayer's own stock or from sale of treasury stock;

(d) Damages and other amounts received as the result of litigation;

(e) Property acquired by an agent on behalf of another;

(f) Tax refunds and other tax benefit recoveries;

(g) Pension reversions;

(h) Contributions to capital (except for sales of securities by securities dealers);

(i) Income from forgiveness of indebtedness; or

(j) Amounts realized from exchanges of inventory that are not recognized by the Internal Revenue Code.

(2) Exclusion of an item from the definition of "gross receipts" is not determinative of its character as business or nonbusiness income. Nothing in this definition shall be construed to modify, impair or supersede any provision of ORS 314.610 through 314.670.

(3) This rule applies to all tax years open to adjustment on or after December 31, 2003.

Stat. Auth.: ORS 305.100, 305.655, Article I, section 2, 314.605 - 314.670
Stats. Implemented: ORS 315.164
Hist.: REV 4-2003, f. & cert. ef. 12-31-03

150-314.670-(A)

Modified Factors for Publishing

The following special rules are established with respect to the apportionment of income derived from the publishing, sale, licensing or other distribution of books, newspapers, magazines, periodicals, trade journals or other printed material. The rule adopts a model regulation recommended by the Multistate Tax Commission to promote uniform treatment of these items by the states.

(1) In General. Except as specifically modified by this rule, when a person in the business of publishing, selling, licensing or distributing newspapers, magazines, periodicals, trade journals or other printed material has income from sources both within and without this state, the amount of business income from sources within this state from such business activity will be determined pursuant to ORS 314.650 through 314.665 and the rules thereunder.

(2) Definitions. The following definitions are applicable to the terms contained in this rule.

(a) "Outer-jurisdictional property" means certain types of tangible personal property, such as orbiting satellites, undersea transmission cables and the like, that are owned or rented by the taxpayer and used in the business of publishing, licensing, selling or otherwise distributing printed material, but that are not physically located in any particular state.

(b) "Print or printed material" includes, without limitation, the physical embodiment or printed version of any thought or expression including, without limitation, a play, story, article, column or other literary, commercial, educational, artistic or other written or printed work. The determination of whether an item is or consists of print or printed material will be made without regard to its content. Printed material may take the form of a book, newspaper, magazine, periodical, trade journal or any other form of printed matter and may be contained on any medium or property.

(c) "Purchaser" and "Subscriber" mean the individual, residence, business or other outlet that is the ultimate or final recipient of the print or printed material. Neither of such terms will mean or include a wholesaler or other distributor of print or printed material.

(d) "Terrestrial facility" will include any telephone line, cable, fiber optic, microwave, earth station, satellite dish, antennae or other relay system or device that is used to receive, transmit, relay or carry any data, voice, image or other information that is transmitted from or by any outer-jurisdictional property to the ultimate recipient thereof.

(3) Apportionment of Business Income.

(a) The Property Factor.

(A) Property Factor Denominator. All real and tangible personal property, including outer-jurisdictional property, whether owned or rented, that is used in the business will be included in the denominator of the property factor.

(B) Property Factor Numerator.

(i) All real and tangible personal property owned or rented by the taxpayer and used in this state during the tax period will be included in the numerator of the property factor.

(ii) Outer-jurisdictional property owned or rented by the taxpayer and used in this state during the tax period will be included in the numerator of the property factor in the ratio that the value of such property that is attributable to its use by the taxpayer in business activities in this state bears to the total value of such property that is attributable to its use in the taxpayer's business activities everywhere. The value of outer-jurisdictional property to be attributed to the numerator of the property factor of this state will be determined by the ratio that the number of uplinks and downlinks (sometimes referred to as "half-circuits") that were used during the tax period to transmit from this state and to receive in this state any data, voice, image or other information bears to the total number of uplinks and downlinks or half-circuits that the taxpayer used for transmissions everywhere. Should information regarding such uplink and downlink or half-circuit usage not be available or should such measurement of activity not be applicable to the type of outerjurisdictional property used by the taxpayer, the value of such property to be attributed to the numerator of the property factor of this state will be determined by the ratio that the amount of time (in terms of hours and minutes of use) or such other measurement of use of outerjurisdictional property that was used during the tax period to transmit from this state and to receive in this state any data, voice, image or other information bears to the total amount of time or other measurement of use that was used for transmissions everywhere.

(iii) Outer-jurisdictional property will be considered to have been used by the taxpayer in its business activities within this state when such property, wherever located, has been employed by the taxpayer in any manner in the publishing, sale, licensing or other distribution of books, newspapers, magazines or other printed material and any data, voice, image or other information is transmitted to or from this state either through an earth station or terrestrial facility located in this state.

Example: One example of the use of outer-jurisdictional property is where the taxpayer either owns its own communications satellite or leases the use of uplinks, downlinks or circuits or time on a communications satellite for the purpose of sending messages to its newspaper printing facilities or employees in a state. The state or states in which any printing facility that receives the satellite communications is located and the state from which the communications were sent would, under this rule, apportion the cost of the owned or rented satellite to their respective property factors based upon the ratio of the in-state use of said satellite to its total usage everywhere.

Assume that ABC Newspaper Co. owns a total of $400,000,000 of property everywhere and that, in addition, it owns and operates a communication satellite for the purpose of sending news articles to its printing plant in this state, as well as for communicating with its printing plants and facilities or news bureaus, employees and agents located in other states and throughout the world. Also assume that the total value of its real and tangible personal property that was permanently located in this state for the entire income year was valued at $3,000,000. Assume also that the total original cost of the satellite is $100,000,000 for the tax period and that of the 10,000 uplinks and downlinks of satellite transmissions used by the taxpayer during the tax period, 200 or 2% are attributable to its satellite communications received in and sent from this state.

Assume further that the company's mobile property that was used partially within this state, consisting of 40 delivery trucks, was determined to have an original cost of $4,000,000 and such mobile property was used in this state for 95 days.

The total value of property to be attributed to this state would be determined as follows:

Value of property permanently in state: $3,000,000

Value of mobile property:

95/365 (or .260274) x $4,000,000: $1,041,096

Value of leased satellite property used in-state:

.02 x $100,000,000: $2,000,000

Total value of property attributable to state: $6,041,096

Total property factor %: $6,041,096/$500,000,000: 1.2082%

(b) The Payroll Factor. The payroll factor will be determined in accordance with OAR 150-314.660 and the rules thereunder.

(c) The Sales Factor:

(A) Sales Factor Denominator. The denominator of the sales factor will include the total gross receipts derived by the taxpayer from transactions and activity in the regular course of its trade or business, except receipts that may be excluded under ORS 314.665 and the rules thereunder.

(B) Sales Factor Numerator. The numerator of the sales factor will include all gross receipts of the taxpayer from sources within this state, including, but not limited to, the following:

(i) Gross receipts derived from the sale of tangible personal property, including printed materials, delivered or shipped to a purchaser or a subscriber in this state.

(ii) Except as provided in subsection (3)(c)(B)(iii), gross receipts derived from advertising and the sale, rental or other use of the taxpayer's customer lists or any portion thereof will be attributed to this state as determined by the taxpayer's "circulation factor" during the tax period. The circulation factor will be determined for each individual publication by the taxpayer of printed material containing advertising and will be equal to the ratio that the taxpayer's in-state circulation to purchasers and subscribers of its printed material bears to its total circulation to purchasers and subscribers everywhere. The circulation factor for an individual publication will be determined by reference to the rating statistics as reflected in such sources as Audit Bureau of Circulations or other comparable sources, provided that the source selected is consistently used from year to year for such purpose. If none of the foregoing sources are available, or, if available, none is in form or content sufficient for such purposes, then the circulation factor will be determined from the taxpayer's books and records.

(iii) When specific items of advertisements can be shown, upon clear and convincing evidence, to have been distributed solely to a limited regional or local geographic area in which this state is located, the taxpayer may petition, or the Department of Revenue may require, that a portion of such receipts be attributed to the sales factor numerator of this state on the basis of a regional or local geographic area circulation factor and not upon the basis of the circulation factor provided by subparagraph (3)(c)(B)(ii). Such attribution will be based upon the ratio that the taxpayer's circulation to purchasers and subscribers located in this state of the printed material containing such specific items of advertising bears to its total circulation of such printed material to purchasers and subscribers located within such regional or local geographic area. This alternative attribution method will be permitted only upon the condition that such receipts are not double counted or otherwise included in the numerator of any other state.

(iv) In the event that the purchaser or subscriber is the United States Government or that the taxpayer is not taxable in a state, the gross receipts from all sources, including the receipts from the sale of printed material, from advertising, and from the sale, rental or other use of the taxpayer's customer's lists, or any portion thereof that would have been attributed by the circulation factor to the numerator of the sales factor for such state, will be included in the numerator of the sales factor of this state if the printed material or other property is shipped from an office, store, warehouse, factory, or other place of storage or business in this state.

Stat. Auth.: ORS 305.100 & 314.670
Stats. Implemented: ORS 314.670
Hist.: REV 11-2004, f. 12-29-04, cert. ef. 12-31-04

150-314.675

Apportionment of Net Loss

(1) When a corporation or consolidated group of corporations is taxable both within and without this state, their Oregon net loss must be computed using the apportionment provisions in ORS 314.280, or 314.610 through 314.670.

(2) If a corporation filed a combined return (prior to 1986) or a separate (not consolidated) return in the year of the loss, and files a consolidated return in the year to which the loss is carried, the net loss deduction may be limited. The allowable net loss deduction cannot exceed the Oregon net income attributed to the corporation with the net loss carryover. For the purpose of determining the net loss deduction allowable, the consolidated Oregon net income must be attributed to the corporation based on its share of the Oregon apportionment percentage. The following example demonstrates the application of this section: Example: [Example not included. See ED NOTE].

(3) If a corporation was included in a consolidated return in the year of the net loss and now files a separate return, or is included in a different consolidated return in the year to which the net loss is carried, the consolidated Oregon net loss must be apportioned to the corporations included in the net loss return for purposes of determining the allowable net loss carryover. The consolidated Oregon net loss must be apportioned to the corporations with taxable activities in Oregon, based upon their Oregon apportionment percentages. The net losses computed can be carried forward and deducted in subsequent years' returns (subject to the carryover limitations specified in OAR 150-317.476(4)). The following example demonstrates the application of this section: Example: [Example not included. See ED NOTE].

(4) Net losses that are attributed to corporations which continue to be included in the same consolidated Oregon return can be deducted fully against the Oregon consolidated net income. Example: [Example not included. See ED NOTE].

(5) Paragraphs (2), (3), and (4) of this rule apply to Oregon net losses carried forward and deducted in tax years beginning on or after January 1, 1986.

(6) The net loss carryover to a consolidated return when the loss is from a separate return of a prior year in which the taxpayer should have filed a combined or consolidated return must be recalculated as if the taxpayer had filed a combined or consolidated return.

Example: Corporation A reported a loss in 1999 on a separate return. Corporation A should have filed a consolidated return with Corporation B in 1999 A 1999 consolidated return would have resulted in net income. The net loss carryover for Corporation A from 1999 is zero.

[ED. NOTE: Examples referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.675
Hist.: 1-65; RD 10-1986, f. & cert. ef. 12-31-86; RD 15-1987, f. 12-10-87, cert. ef. 12-31-87; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89; REV 5-2000, f. & cert. ef. 8-3-00

150-314.684(4)

Sales Factor for Interstate Broadcasters

(1) In general, if a taxpayer broadcasts to subscribers or to an audience that is located both within and without this state and the broadcaster is taxable in another state under the provisions of ORS 314.620, then the interstate broadcaster is required to use an audience factor to determine the amount of gross receipts from broadcasting attributable to this state.

(2) The audience factor for television, radio, or network programming shall be determined by the ratio that the taxpayer's in-state viewing or listening audience bears to its total United States viewing or listening audience. In the case of television, the audience factor shall be determined by reference to the rating statistics as reflected in such sources as Arbitron, Nielsen or other comparable resources or by the average circulation statistics published annually in the Television and Cable Factbook, "Stations Volume" by Television Digest, Inc., Washington, D.C., provided that the source selected is consistently used from year to year for such purpose. In the case of radio, the audience factor shall be determined by reference to rating statistics as reflected in such sources as Arbitron, Birch/Scarborough Research, or other comparable resources, provided that the source selected is consistently used from year to year for such purpose.

(3) If none of the forgoing sources are available, or if available, none is in form or content sufficient for such purposes, then the audience factor shall be determined by the ratio that the population of the broadcast area located within this state bears to the population of the broadcast area in all states.

(4) Gross receipts from live telecasts and films in release to or by a cable television system shall be attributed to this state in the ratio (hereafter "audience factor") that the number of subscribers located in this state for such cable television system bears to the total number of subscribers of such cable television system in the United States. If the number of subscribers cannot be accurately determined from the records maintained by the taxpayer, the audience factor ratio shall be determined on the basis of the applicable year's subscription statistics published in Cable Vision, International Thompson Communications, Inc., Denver, Colorado, if available, or, if not available, by other published market surveys.

(5) If none of the foregoing resources are available, or, if available, none is in form or content sufficient for such purposes, then the audience factor shall be determined by the ratio that the population of the area served by the cable system service located within this state bears to the population of the area served by the cable system in all states in which the cable system has subscribers.

(6) To the extent that the gross receipts from such live television broadcasting, film, or radio programming, as determined pursuant to paragraphs (2) through (5), include receipts derived from broadcasts to audiences located outside the United States ("foreign-based receipts"), the total gross receipts against which the audience factor shall be applied shall be modified so that such foreign-based receipts are not used to affect the amount of receipts that are to be apportioned to the state. Such modification shall consist of deducting from total receipts, prior to the application thereto of the audience factor, that amount of receipts derived from broadcasts to audiences located outside the United States.

Example: XYZ Television Network Co. has gross receipts from all broadcasting of films of $1 billion of which a total of $200,000,000 was derived from advertising receipts and license fees attributable to releases of its films in foreign television markets and $800,000,000 attributable to the United States market. Assume that the foreign countries into which its programming has been telecast or sold or licensed for telecast would have jurisdiction to impose their income tax upon XYZ Television Network Co., then its in-state gross receipts attributable to its telecasting activity would be determined as follows: $1,000,000,000 - $200,000,000 ($800,000,000) = (audience factor).

(7) Receipts from the sale, rental, licensing or other disposition of audio or video cassettes, discs, or similar medium intended for home viewing or listening shall be included in the sales factor as provided in OAR 150-314.665(2)-(A) and 150-314.665(2)-(B).

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.684
Hist.: RD 12-1990, f. 12-20-90, cert. ef. 12-31-90; RD 3-1995, f. 12-29-95, cert. ef. 12-31-95

150-314.686

Interstate Broadcasters: Net Income Attributable to this State

(1) The allocation and apportionment provisions in ORS 314.610 to 314.670 as modified by ORS 314.684, are required for interstate broadcasters unless the application of those provisions does not fairly and accurately reflect the extent of the taxpayer's business activities in this state. The burden is on the taxpayer to show that the allocation and apportionment provisions do not fairly and accurately reflect their activities within the state.

(2) If the application of the allocation and apportionment provisions do not fairly and accurately reflect the extent of the taxpayer's business activities in this state, Oregon net income shall be computed using segregated accounting.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.686
Hist.: RD 12-1990, f. 12-20-90, cert. ef. 12-31-90

Partnerships

150-314.714(3)

Consistent Treatment of Partnership Items

(1) General Rule.

(a) In general, the treatment of a partnership item on the partner's return must be consistent with the treatment of that item by the partnership in all respects including the amount, timing, and characterization of the item. The following examples illustrate instances of inconsistent treatment:

Example 1: B is a partner of Partnership P. Both B and P use the calendar year as the taxable year. In December 1993, P receives an advance payment for services to be performed in 1994 and reports this amount as income for calendar year 1993. However, B reports B's distributive share of that amount on B's income tax return for 1994 and not on B's return for 1993. B's treatment of this partnership item is inconsistent with the treatment of the item by P.

Example 2: Partnership P incurred certain start-up costs before P was actively engaged in business. P capitalized these costs. C, a partner in P, deducted C's proportionate share of these start-up costs. C's treatment of the partnership expenditure is inconsistent with the treatment of the item by P.

(b) If a partner does not treat a partnership item on the partner's return in a manner that is consistent with the treatment of that item by the partnership, and the partner does not notify the department in the manner described in section (2) of this rule, the department may conform the partner's return to the partnership return and assert against the partner a deficiency as described in ORS 305.265. The notice of deficiency may be issued in this case without the department opening a formal examination or an audit of either the partnership return or the partner's return.

(c) Partner notification of an inconsistent treatment of a partnership item does not bind the department into acceptance of the partner's treatment of that item.

(2) Manner of Notification of Inconsistency. If a partner does not treat a partnership item on the partner's return in a manner that is consistent with the treatment of that item by the partnership, the partner must notify the department of the inconsistent treatment. Such notification shall be made by attaching a statement to the partner's return. The statement must contain the following information:

(a) Partner name and identification number;

(b) Partnership name and identification number;

(c) Beginning and ending date of partner's tax year;

(d) Beginning and ending date of partnership's tax year;

(e) A description of each inconsistently treated item. Include whether the inconsistent treatment is in the amount, timing or characterization of the item;

(f) The amount of each inconsistent item as shown on Schedule K-1;

(g) The amount of each inconsistent item as reported on the partner's return;

(h) A complete explanation as to the reason for treating the items in an inconsistent manner.

(3) Multiple Inconsistencies. A partner who reports the inconsistent treatment of partnership items on the partner's return is protected from computational adjustments under section (1) of this rule only with respect to those partnership items the inconsistent treatment of which is reported. Thus, if a partner notifying the department with respect to one item fails to report the inconsistent treatment of another item, the partner is subject to a computational adjustment with respect to that latter item.

Example: Partner A of Partnership P treats a deduction and a capital gain arising from P and A's return in a manner that is inconsistent with the treatment of those items by P. A reports the inconsistent treatment of the deduction but not of the capital gain. A is subject to a computational adjustment under section (1) of this rule with respect to the capital gain.

(4) Adjustments Not Limited. If the department conducts a formal examination or audit of a return of a partner whose partnership items have been reported as being treated inconsistently, the department is not limited to making adjustments that merely conform the partner's return to the partnership return.

Example: Partnership P allocates to E, one of its partners, a loss of $8,000. E. however, claims a loss of $9,000 and reports the inconsistent treatment. As a result of an examination of E's return, the department may issue a deficiency notice which could include reducing the loss to $3,000.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.714
Hist.: RD 7-1993, f. 12-30-93, cert. ef. 12-31-93

150-314.722

Publicly Traded Partnerships Taxed as Corporations

(1) "Publicly traded partnership" means a partnership with interests traded on an established securities market or readily tradable on a secondary market (or its substantial equivalent), including master limited partnerships, under the provisions of IRC 7704. Oregon adopted the provisions of IRC 7704 retroactively.

(2) Publicly traded partnerships deriving less than 90 percent of their gross income from qualifying passive-type income sources are treated as corporations for federal and Oregon tax purposes. Examples of qualifying income sources include interest, dividends, real property rents, gain from the disposition of real property, mining and natural resource income, and gain from the disposition of capital assets or IRC 1231(b) property held for the production of such income.

(3) A publicly traded partnership that was not an existing partnership on December 17, 1987, shall be treated as a corporation for tax years beginning after December 31, 1987.

(4) A publicly traded partnership that was an existing partnership on December 17, 1987, shall be treated as a corporation for tax years beginning after December 31, 1997.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.722
Hist.: RD 9-1992, f. 12-29-92, cert. ef. 12-31-92

150-314.724

Partnership Information Returns

(1) Partnership required to file. A partnership shall file for Oregon an information return of its business activity and include other information as required by section (2) of this rule if the partnership:

(a) Has income that is derived from or connected with sources within Oregon; or

(b) Has one or more Oregon resident partners during the taxable year of the partnership.

(2) Information Required. Every partnership required to file a return under section (1) of this rule shall file with Oregon:

(a) An Oregon Form 65 (Oregon Partnership Return of Income).

(b) An Oregon Depreciation Schedule if Oregon depreciation is different than federal.

(c) A copy of federal Form 1065 (U.S. Partnership Return of Income) and all attachments filed for federal. See section (3) for information regarding attachment of Schedule K-1 (Partner's Share of Income, Credits, Deductions, etc.).

(d) A schedule showing the disposition of all assets and liabilities if this is the final return of a terminated partnership. The schedule shall include each asset's Oregon adjusted basis and fair market value.

(3) Attachment of Federal Schedule K-1.

(a) The partnership shall attach a copy of each partner's federal Schedule K-1 if any of the following occurs during the partnership's taxable year:

(A) The partnership incurs a net loss (including capital losses or passive losses);

(B) There are changes to either the ownership structure or the profit/loss sharing percentages of the partnership; or

(C) Any Oregon modifications or amounts shown on the federal Schedule K (including guaranteed payments) are not divided according to each partner's partnership share of profits and losses.

(b) Exception. Partnerships that have no income connected with or derived from sources within Oregon and have no activity within Oregon shall file a copy of the partner's federal Schedule K-1 only when:

(A) The partner was an Oregon resident partner at some time during the taxable year of the partnership; and

(B) Any of the situations described in paragraph (3)(a) occur. All other filing requirements of section (2) of this rule must still be satisfied.

(c) Substitute Schedule K-1. If the number of Schedule K-1s required to be attached to the Oregon return exceeds ten, the partnership shall attach a summary of partner information in lieu of attaching each partner's Schedule K-1. The summary shall include the partner's names, social security numbers or federal identification numbers, addresses, and profit/loss sharing percentages.

(4) Multiple Nonresident Income Tax Returns. See ORS 314.760 for multiple nonresident income tax return filing requirements.

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.724
Hist.: RD 7-1989, f. 12-18-89, cert. ef. 12-31-89; RD 12-1990, f. 12-20-90, cert. ef. 12-31-90; RD 3-1995, f. 12-29-95, cert. ef. 12-31-95; RD 5-1997, f. 12-12-97, cert. ef. 12-31-97

150-314.724(3)

Partnership Penalty

(1) A penalty is assessable against a partnership that transacts business in Oregon, but fails to timely file a partnership return (including extensions) or fails to show the required information as defined in ORS 314.724. Under ORS 305.229, a penalty will not be imposed unless the partnership fails to file or to supply required filing information after requested in writing by the department to do so.

(2) The penalty is $50 per month or part of a month that the partnership return is late or incomplete up to a maximum of five months. The penalty amount is multiplied by the total number of partners in the partnership during any part of the tax year for which the return is due. Although the penalty is assessed against the partnership each partner is individually liable for the penalty to the extent that the partner is liable for partnership debts generally.

Example 1: A partnership return for 2006 is due April 17, 2007. However, the return is not filed until July 3, 2007. No penalty will be assessed even though the partnership return is filed late.

Example 2: A partnership return for 2006 is due April 17, 2007. After written requests to file by the department, the partnership still does not file a return. The partnership has one general partner and three limited partners. Penalty will be assessed for failure to file a return. The penalty computation is shown below:

$50 - 5 months - 4 partners = $1,000 penalty

(3) The penalty described above is in addition to any other penalty provided by law. Any partnership assessed with this penalty may appeal to the director as provided in ORS 305.275.

(4) The department may waive all or any part of the penalty if the partnership can show that there was a circumstance beyond the partnership's control that caused the failure to file a complete or timely return. See OAR 150-305.145(4).

[ED. NOTE: Computations referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.724
Hist.: RD 12-1985, f. 12-16-85, cert. ef. 12-31-85; RD 15-1987, f. 12-10-87, cert. ef. 12-31-87; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89, Renumbered from 150-316.467; RD 5-1994, f. 12-15-94, cert. ef. 12-31-94; REV 6-2007, f. 7-30-07, cert. ef. 7-31-07

150-314.732(2)(c)

Corporation Tax Credits -- Converting a C Corporation to an S Corporation

Tax credits carried forward from a tax year of C corporation status are only available to offset corporate tax liabilities when S corporation status is elected. They are not available for pass through to S corporation shareholders. In addition, Oregon corporate taxes attributable to an S corporation's built-in gains or C corporation taxes following termination of S corporation status can be offset by such carryover credits. S corporation taxes attributable to excess net passive investment income cannot be offset by carryover credits.

Example: Corporation Z is a C corporation in 1988 with a $6,000 tax liability. Corporation Z qualifies for a $7,000 tax credit for investment in a dependent care facility. The $1,000 unused tax credit is carried forward to 1989. Corporation Z elects to be an S corporation in 1989 and has a corporate tax liability of $5,000 from built-in gains. Corporation Z shall offset its tax with the $1,000 credit carry forward. The credit carry forward is not available for pass through to the shareholders.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.732
Hist.: RD 7-1991, f. 12-30-91, cert. ef. 12-31-91

150-314.732(2)(d)

Corporation Tax Credits -- Converting an S Corporation to a C Corporation

Tax credits passed through to shareholders and not used entirely to offset the shareholders' tax liabilities in the year of pass-through shall be carried forward by the shareholders. Such unused credits may not offset corporation tax liabilities in future years when C corporation status has been elected.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.732
Hist.: RD 7-1991, f. 12-30-91, cert. ef. 12-31-91

150-314.752

Business Tax Credits Available to S Corporation Shareholders

The following credits may be claimed by shareholders of an S corporation filing individual returns, as provided in subsection (2) of ORS 314.752, but are not available to shareholders included in a composite return as provided in subsection (2)(b) of OAR 150-314.775:

(1) Voluntary removal of riparian land from farm production credit provided by ORS 315.113,

(2) On-farm processing facilities credit provided by ORS 315.119,

(3) Employee and dependent scholarship program payments provided by ORS 315.237,

(4) First break program credit provided by ORS 315.259,

(5) Individual development accounts credit provided by ORS 315.271,

(6) Emission reducing production technology or process (pollution prevention) credit provided by ORS 315.311,

(7) Long term care insurance credit provided by ORS 315.610,

(8) Trust for cultural development account contributions credit provided by ORS 315.675,

(9) Lending institution loans for affordable housing credit provided by ORS 317.097,

(10) Energy conservation loans to residential fuel oil customers or wood heating residents credit provided by ORS 317.112,

(11) Long term enterprise zone facilities credit provided by ORS 317.124,

(12) Farmworker housing loans credit provided by ORS 317.147,

(13) Contribution of computers or scientific equipment for research to educational organizations credit provided by ORS 317.151,

(14) Qualified research activities credit provided by ORS 317.152,

(15) Alternative qualified research activities credit provided by ORS 317.154,

(16) University venture development fund contributions credit provided by ORS 315.521,

(17) Water transit vessels credit provided by ORS 315.517, and

(18) Film production development contributions credit provided by ORS 315.514.

Stat. Auth.: ORS 305.100 & 314.752
Stats. Implemented: ORS 314.752
Hist.: REV 2-2003, f. & cert. ef. 7-31-03; REV 3-2005, f. 12-30-05, cert. ef. 1-1-06; REV 16-2008, f. 12-26-08, cert. ef. 1-1-09

Nonresident Return by Shareholder or Partner

150-314.775

Definitions for Composite Tax Returns and Pass-through Entity Withholding

The following definitions apply for purposes of ORS 314.775 to 314.784, this rule, and OAR 150-314.778 to 150-314.784:

(1) “Disregarded entity” is an entity that is not recognized for income tax purposes and all items related to the entity are reported on the owner’s income tax return. Examples of disregarded entities are:

(a) Single member limited liability company (LLC), and

(b) Grantor trusts.

(2) "Distributive income" means the net amount of income, gain, deduction, or loss of a pass-through entity for the tax year of the entity and includes those items directly related to the entity that are considered in determining the federal taxable income of the owner or, in the case of an owner that is a corporation, would be included in its federal taxable income if the corporation were an individual.

(3) "Electing owner" means a nonresident owner that elects to participate in an Oregon composite tax return filed by a pass-through entity. An electing owner also includes the nonresident owner of a disregarded entity.

(4) "Modified distributive income" means the distributive income as defined in section (1) of this rule, of a pass-through entity, with the modifications provided in ORS Chapter 316 and other Oregon law that directly relate to those items taken into consideration by the pass-through entity in arriving at its distributive income. Such modifications include, but are not limited to, any Oregon modification necessary for depreciation, depletion, gain or loss difference on the sale of depreciable property, and any modification for federal tax credits, and do not include the federal tax subtraction, itemized deductions, and the Oregon standard deduction. Guaranteed payments are treated as a business income component of the entity's distributive income and attributed directly to the owner receiving the payment.

(5) "Nonelecting owner" means a nonresident owner of a pass-through entity that is eligible, but does not elect to participate in a composite return and who is required to file an Oregon tax return.

(6) "Oregon-source distributive income" means the portion of the entity's modified distributive income that is derived from or connected with Oregon sources. For entities operating in Oregon and one or more other states, Oregon-source distributive income is determined by attributing to Oregon sources that portion of the modified distributive income of the entity, as defined in section (3) of this rule, determined in accordance with the allocation and apportionment provisions of ORS 314.280 or 314.625 to 314.675.

(7) "Pass-through entity" means any entity that is recognized as a separate entity for federal income tax purposes, for which the owners are required to report income, gains, losses, deductions or credits from the entity for federal income tax purposes. Examples include:

(a) A partnership;

(b) An S corporation;

(c) A limited liability company that is treated as one of the above for tax purposes; and

(d) A trust that has been established or maintained primarily for tax avoidance purposes, including: an abusive tax shelter as defined in ORS 314.402, an entity subject to a penalty for promoting an abusive tax shelter under Internal Revenue Code (IRC) section 6700, and a tax shelter as defined under IRC section 6662 and related Treasury regulations.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.775
Hist.: REV 3-2005, f. 12-30-05, cert. ef 1-1-06; REV 2-2006, f. & cert. ef. 7-31-06, Renumbered from 150-2005 OL, Ch. 387; REV 10-2010, f. 7-23-10, cert. ef. 7-31-10; REV 10-2013, f. 12-26-13, cert. ef. 1-1-14

150-314.778

Oregon Composite Tax Return

(1) General provisions. A pass-through entity (PTE) doing business in or deriving income from sources within this state is required to file an Oregon composite tax return if requested by one or more electing owners. Estimated tax payments are required for the composite return if the total Oregon tax due for any electing owner is expected to be $1,000 or more for an individual; or $500 or more for a corporation.

(a) Computation of tax. Each PTE filing a composite return on behalf of electing owners must calculate the tax for each electing owner. The tax liability for each electing owner on the composite return, determined without regard to the tax credits allowed under subsection (1)(b) of this rule, is calculated by applying the Oregon tax rates based on the owner's filing status to the difference between the owner's share of the entity's Oregon-source distributive income for the taxable year and the owner's self-employment tax deduction, as provided for in subsection (1)(b) of this rule. If distributive income is apportioned, the deduction must also be apportioned by multiplying the owner's federal deduction for one-half self-employment tax (attributable to the owner's share of the entity's net earnings from self-employment) by the apportionment percentage provided in ORS 314.650 through 314.675. The PTE will report on the Oregon composite return the tax computed for each electing owner and total amounts for all electing owners.

(b) Credits and deductions. Below is a list of items that may or may not be allowed for electing owners. [Table not included. See ED. NOTE.]

(c) Losses.

(A) Net operating losses for Oregon nonresidents are computed under ORS 316.028. A PTE that has filed an Oregon composite tax return on behalf of nonresident individual owners may file amended returns to carry back the Oregon net operating losses incurred by the PTE. A schedule must be attached to any return filed under these provisions indicating the taxpayers affected and calculations of the loss amounts. These losses may also be carried forward. The allowed carryback and carryforward periods (including elections to forego the carryback period) are the same as provided under Internal Revenue Code section 172. The election to forego the carryback period must be made by attaching a statement to the Oregon composite return filed on or before the due date (including extensions) of the return for the loss year. Corporations are not allowed to carry back a net operating loss (ORS 317.476).

(B) Any refund of tax made pursuant to an original or amended composite return filed under these provisions will be paid to the PTE, regardless of changes in ownership or changes in the identity of nonresidents participating in an Oregon composite filing.

(2) Election to participate in an Oregon composite tax return. The following provisions apply:

(a) The owner must make a separate election for each tax year;

(b) The owner must not have been a resident of Oregon at any time during the owner's tax year;

(c) The owner is considered to have made the election on the date the PTE files the composite return that includes the electing owner;

(d) By making the election, the owner elects to have the owner's Oregon tax liability paid and reported by the PTE; and

(e) An electing owner is ultimately liable for tax, penalty and interest if the PTE fails to file a composite tax return or pay the tax on behalf of the owner.

(f) An electing owner may be a disregarded entity. The PTE must look to the owner of the disregarded entity to determine whether the owner of the disregarded entity will choose to join in the composite filing.

Example 1: Hermiston Partners is owned by four individuals, one grantor trust, and one single-member LLC. Both of these owners are disregarded entities. Therefore, Hermiston Partners will look to the nonresident owner of each disregarded entity to determine if that nonresident owner elects to join in the filing of a composite return.

The grantor trust is owned by a nonresident individual. Hermiston Partners looks to the individual who owns the grantor trust. Hermiston Partners must allow the individual to join in the filing of the composite return. Hermiston Partners will use the individual’s name and Social Security number on the composite, not the name or tax identification number of the disregarded trust. If the individual doesn’t join in the composite filing or file an affidavit, Hermiston Partners must send in estimated payments on the individual’s behalf as required in OAR 150-314.781.

The single-member LLC is solely owned by another partnership, Ontario LP. A partnership can’t join in the filing of a composite return. Thus, Hermiston Partners cannot include Ontario LP in the composite return and is not required to send in estimated payments on behalf of the LP. Ontario LP is the entity responsible for filing a composite return or sending estimated payments for its owners.

(3) Filing and payment requirements.

(a) Due date. The Oregon composite tax return is due the 15th day of the fourth month after the close of the tax year of the majority of the electing owners, in accordance with ORS 314.385.

Example 2: Around-the-Bend LLC (ATB) has a tax year ending June 30. The electing owners consist of four individuals and three corporations. Because the individuals are all calendar year taxpayers, the majority of the electing owners have a calendar tax year which ends December 31. Therefore the composite return and any estimated payments are due using a calendar tax year. For tax year 2010, the composite return will include the income reported by ATB for its 2009 tax year ending June 30, 2010. The 2010 composite return that ATB will file on behalf of its owners is due April 15, 2011.

Example 3: Coast Around Oregon Incorporated (CAO) is an S Corporation with a tax year ending October 31. The electing owners consist of 15 individuals, so they are all calendar year taxpayers. For tax year 2010, the composite return will include the income reported by CAO for its 2009 tax year ending October 31, 2010. The 2010 composite return that CAO will file on behalf of its owners is due April 15, 2011.

(b) Payment of amounts due. Payment of the amount due is made by the PTE on the owner's behalf and must accompany the filing of the Oregon composite tax return in accordance with ORS 314.395. The payment must include the tax due plus any penalty or interest provided by Oregon law.

(c) Extensions of time to file. If the entity is granted a federal or Oregon extension of time to file the entity's return (partnership return or S corporation return), an extension for filing the Oregon composite return is allowed. This is true even if the composite return reports the income in a different tax year than the entity’s partnership or S corporation return. The entity must keep a copy of the federal extension with its tax records. The extension to file the composite return is 6 months from the composite return due date regardless of the length of extension the entity received for its partnership or S corporation tax return.

Example 4: Pendleton LLC filed for extension for its 2012 fiscal tax year ending June 30, 2013 (2012 partnership return). The partnership return had a due date of October 15, 2013. Partnerships receive a 5-month extension so the due date with extension is March 15, 2014 for the partnership return. The owners of Pendleton LLC are calendar year filers. Therefore, they report the income in tax year 2013. The nonresident owners that elect to participate in the 2013 composite return filed by Pendleton have an extension to file because the partnership has an extension to file for the partnership return. The 2013 composite return reporting this income is due April 15, 2014; however, with the extension, it is due October 15, 2014. The 6-month extension applies, even though the income is reported in a different tax year for the owners and Pendleton LLC received a 5-month extension for filing its partnership return.

(d) An electing owner may file a separate tax return without revoking the election to join in the filing of a composite return. The income reported on the composite return is subtracted on the electing owner’s separate return and tax is paid only on the Oregon source income not reported on the composite return.

(4) Ineligibility or revoking an election to participate in a composite return.

(a) One or more owners may revoke the election to join in the Oregon composite tax return after the Oregon composite tax return has been filed. The revocation of the election must be made within three years from the date the Oregon composite tax return was filed. To revoke a previous election:

(A) The PTE must file an amended Oregon composite return removing the owner and request a transfer of any payment made on the owner’s behalf to the now nonelecting owner’s account, and

(B) The owner must file a separate return with the department showing all items of income and deduction from the PTE. This separate return will be treated as an original return and, if filed after the due date, any tax liability shown on the return is subject to interest and penalties in the same manner as any other delinquently filed original return. The decision to revoke a previous election by one or more owners has no effect on the election of the remaining owners.

(b) If any of the owners becomes ineligible, revokes an election, or declines to participate in filing an Oregon composite tax return, and the PTE made tax payments on the owner's behalf, the PTE must submit a written transfer request to the department. The department will transfer the tax payment to the account of the nonresident owner only if the entity submits such a written request to the department. The request must contain:

(A) The name and federal employer identification number of the entity that made the tax payment(s);

(B) The name and social security number of the nonresident owner; and

(C) The specific dollar amount to transfer to the account of the owner.

(c) An owner who does not or cannot elect to participate, or who revokes a prior election, is subject to withholding on the owner's share of the Oregon source distributive income under ORS 314.781 and OAR 150-314.781.

(5) Payment of tax on behalf of electing owners. An entity may be required to make quarterly tax payments to the department on behalf of all electing owners. The tax liability required to be paid is the sum of each electing owner's estimated tax liability for that quarter that is attributable to each owner's interest in the entity. In determining the electing owner's tax liability, the provisions of ORS 314.505 to 314.525 or 316.579 to 316.589 regarding calculation of estimated tax apply. The entity must remit the tax payments to the department using forms and instructions provided by the department.

[Publications: Publications referenced are available from the agency.]
[ED. NOTE: Tables referenced are not included in rule text. Click here for PDF copy of table(s).]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.778
Hist.: REV 10-2010, f. 7-23-10, cert. ef. 7-31-10; REV 10-2013, f. 12-26-13, cert. ef. 1-1-14

150-314.781

Pass-through Entity Withholding Requirements

(1) Withholding requirement. A pass-through entity with Oregon-source distributive income and one or more nonresident owners that have no other Oregon-source income, is required to withhold tax on behalf of the owner unless that owner makes an election as described in OAR 150-314.778 or meets an exception described in 150-314.784. “Tax payment” or “owner payment” means pass-through entity withholding, which is an estimated tax payment sent on behalf of the owner. The entity must withhold tax as follows:

(a) For nonelecting owners subject to tax under ORS Chapter 316, each owner's share of estimated Oregon-source distributive income for the taxable year multiplied by the highest percent in 316.037; and

(b) For nonelecting owners subject to tax under ORS Chapter 317 or 318, each owner's share of estimated Oregon-source distributive income for the taxable year multiplied by the rates in 317.061.

(2) Information retention requirement. The pass-through entity must retain in its records the information listed in this section and submit it to the Department of Revenue on request:

(a) Calculation of the amount required to be withheld pursuant to this rule;

(b) Whether payments were submitted in addition to the quarterly withholding tax amounts required to be remitted under section (4) of this rule; and

(c) A detailed summary of the nonelecting owner's share of the aggregate withholding tax payments made by the pass-through entity for the taxable year and the nonelecting owner's share of the aggregate additional withholding tax liability paid. See the annual report requirement in section (5) of this rule.

(3) Information reporting to owner requirement. The pass-through entity, by the due date of its information return, must provide each applicable nonelecting owner with an information statement containing the owner's share of the entity's withholding tax payments to be claimed as estimated tax payments on the owner’s tax return.

(4) Periodic remittance requirement.

(a) The entity must remit amounts required to be withheld to the department on a quarterly basis using a method approved by the department. The quarterly withholding tax remittance amounts are generally the sum of:

(A) The highest marginal tax rate for the end of the entity’s tax year in ORS 316.037 multiplied by the sum of the noncorporate nonelecting owner's estimated share of the entity's Oregon-source distributive income and then multiplied by 25 percent; and

(B) The applicable rate in ORS 317.061 multiplied by the sum of the corporate nonelecting owner's estimated share of the entity's Oregon-source distributive income and then multiplied by 25 percent.

(b) The due dates of these required payments are the 15th day of the 4th, 6th, 9th, and 12th month of the entity’s tax year. Due dates are moved to the next business day when they occur on a weekend or legal holiday. Exception: Fiscal year entities whose owners are all noncorporate taxpayers using a calendar tax year can elect to use the due dates for the owners’ calendar tax year instead. This is the 15th day of the 4th, 6th, and 9th month of the tax year and the 1st month of the succeeding tax year for the calendar year containing the entity’s fiscal year end.

Example 1: Mountain LLC uses a fiscal tax year ending April 30th. Its fiscal year 2013 is from May 1, 2013 to April 30, 2014. Using its tax year, the quarterly payments are due August 15th, 2013; October 15th, 2013; January 15, 2014; and April 15, 2014. Since all of the owners of Mountain LLC are individuals using a calendar tax year, the LLC can opt to use the due dates for the owners’ tax year instead. Because those owners report this income on their 2014 calendar year return, those due dates are: April 15, 2014; June 16, 2014; September 15, 2014; and January 15, 2015.

(5) Annual report requirement. For estimated tax payments due on or after January 1, 2013, the entity will submit an annual report. The report is due the last day of the second month following the close of the entity’s tax year. The report will have the following information for each owner included in the pass-through entity withholding payments: owner’s name, owner’s federal tax identification number, owner’s mailing address, owner’s share of each payment made on the owner’s behalf, and any additional information requested by the department in the filing instructions. The department may request other information as needed. The owners will not receive credit for payments made on their behalf until the annual report has been filed by the entity.

Example 2: ABC Partners, an Oregon partnership, has 2 nonresident owners who each own 25 percent of the partnership. One is an individual, Rachel, and one is a corporation, Eli & Alexandria Inc. (E&A). Because neither elects to join in filing a composite return and neither has filed an affidavit, ABC must withhold Oregon tax. ABC Partners estimates its Oregon-source distributive income for 2013 will be $1,500,000. For 2013, the entity will calculate the tax payment for each period based on the nonresident owners’ share of 25 percent of $1,500,000 and the appropriate tax rate. Rachel’s pass-through entity withholding is 9.9 percent (the highest marginal tax rate for 2013) multiplied by $375,000 multiplied by 25 percent. This is $9,281 (rounded) for each period. E&A’s pass-through entity withholding is 6.6 percent multiplied by $375,000 multiplied by 25 percent. This is $6,188 (rounded) for each period. ABC Partners will add together the amounts estimated for all owners and send in one payment each period of $15,469. ABC Partners will submit these payments using its tax year. Since ABC Partners uses a calendar tax year, the due dates for each payment for tax year 2013 are April 15, June 17, September 16, 2013 and January 15, 2014. If ABC Partners was a fiscal year taxpayer, then it would submit pass-through entity owner payments by the estimated tax payment due dates for that fiscal tax year instead. At the end of its tax year, ABC Partners will submit an annual report. Since it has no changes to account for, it will show $9,281 of each quarterly payment belongs to Rachel and $6,188 of each quarterly payment belongs to E&A Inc.

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.781
Hist.: REV 10-2010, f. 7-23-10, cert. ef. 7-31-10; REV 9-2012, f. 12-18-12, cert. ef. 1-1-13; REV 2-2013, f. & cert. ef. 3-28-13

150-314.784

Exceptions to Pass-through Entity Withholding Requirements

(1) A pass-through entity may be required to withhold tax on behalf of an owner unless the owner makes an election as described in OAR 150-314.778 or meets an exception described in this rule.

(2) A pass-through entity is not required to withhold income taxes for an owner if:

(a) The owner is an electing owner as defined in OAR 150-314.775;

(b) The owner's share of Oregon-source distributive income from the entity is less than $1,000;

(c) The owner made estimated tax payments the prior tax year based on the owner's share of Oregon-source distributive income from the entity and continues to make estimated tax payments for the current tax year;

(d) The entity is a publicly traded partnership, as defined in Internal Revenue Code section 7704(b), that:

(A) Is treated as a partnership for federal tax purposes; and

(B) Files an annual information report including the nonresident's name, address, social security number or taxpayer identification number, ownership percentage, and share of the federal income; or

(e) The owner files with the Department of Revenue a signed affidavit that contains:

(A) The owner's name, address, and social security number or tax identification number (i.e. federal employer identification number or Oregon business identification number);

(B) The entity's name and tax identification number;

(C) The entity's tax year and end date

(D) A statement that the owner agrees to file the owner's Oregon income or excise tax return and make timely payments of all taxes imposed with respect to the owner's share of the Oregon income of the entity; and

(E) Acknowledgement that the owner is subject to the jurisdiction of the State of Oregon for purposes of collection of unpaid income tax, penalties, and interest.

[Publications: Publications referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.784
Hist.: REV 10-2010, f. 7-23-10, cert. ef. 7-31-10

150-314.835

Divulging Particulars of Returns and Reports Prohibited

(1) This section applies generally to deputies, agents, officers, or other employees of the Department of Revenue. Disclosure of information from a taxpayer's filed return or report to a third person is prohibited under this statute, it being essential to encourage voluntary reporting and payment of taxes and to assure taxpayers that they will not suffer any adverse consequences of being frank and honest on their return. Other persons or entities having acquired information disclosed in a taxpayer's filed return or report pursuant to ORS 314.840(2) are bound by the same rules of secrecy under this section as any member of the Department of Revenue and are subject to the same penalties for violation of ORS 314.835.

(2) Except as provided by ORS 314.840, it is illegal to divulge in any manner any particular set forth or disclosed in any report or return filed with the department in compliance with any law imposing a tax upon or measured by net income. Penalties are those provided in ORS 314.991. The meaning of "any particular" must be interpreted in its broadest concept to include, but not necessarily limited to, such items as the taxpayer's name, address, telephone number, any item or amount of income, deductions, refund amount, amount due, any information entering into the computation of tax, including the tax itself, or any credit or debit card number, card expiration date, personal identification number, password, bank account number and routing number if that information was obtained from a report or return to which ORS 314.835(1) applies.

(3) The disclosure of information from a report includes not only such reports as are required to be filed with the individual's return, but any report required under a law imposing a tax upon or measured by gross or net income, such as quarterly and reconciliation withholding reports filed by employers. Any information obtained from sources not covered by the prohibitions of ORS 314.835 or any other confidentiality provision in any law administered by the department may be released at the department's discretion, provided the information requested is necessary and is to be used for lawful purposes.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.835
Hist.: 11-71; 11-73; 12-19-75; TC 19-1979, f. 12-20-79, cert. ef. 12-31-79; TC 9-1981, f. 12-7-81, cert. ef. 12-31-81; RD 7-1988, f. 12-19-88, cert. ef. 12-31-88; RD 7-1993, f. 12-30-93, cert. ef. 12-31-93; REV 8-2001, f. & cert. ef. 12-31-01

150-314.840

Information That May Be Furnished

(1) Definitions. For purposes of ORS 314.840 and this rule:

(a) "Taxpayer," includes:

(A) The executor or personal representative of a decedent's estate or a person who is appointed or authorized by law to pay the taxes of a decedent, and a trustee or other person who, by law, must pay the income taxes of a trust, and

(B) Any entity required to file a return with the department.

(b) An "authorized representative" is a person authorized to represent the taxpayer under ORS 305.230 and any of its related administrative rules.

(c) A "designee" is a person, firm, organization, or agency designated by a taxpayer to receive the taxpayer's confidential information. For entities, designations are to be made by an individual authorized by law to act for the entity.

(2) As permitted by law, the department may disclose and give access to information described in ORS 314.835 to certain categories of persons, including, but not limited to:

(a) Department of Human Services:

(A) Under provisions of ORS 412.094, the Department of Human Services may request in writing any information contained in the department's tax files as to the location, income, and property of parents who, according to the Department of Human Services, have abandoned or deserted or are failing to support their children receiving public assistance. The request must clearly specify the information desired and must supply the information the department requires. The request must contain a certification by the Department of Human Services that the information is being requested pursuant to ORS 412.094. The information must be used only for the purposes specified by the law authorizing the disclosure.

(B) Upon written request of the Department of Human Services, the department will disclose the names, addresses and social security numbers of applicants for elderly rental assistance under ORS 310.630 to 310.706 as authorized by ORS 314.860. The department must maintain a record of all requests for such disclosure. The information must be used only for the purposes specified by the laws authorizing the disclosure.

(b) Division of Child Support. Under the provisions of ORS 412.094 and 180.320, the Division of Child Support of the Department of Justice may request any information contained in the department's tax files for the purposes and under the limitations set forth in that statute. The rules set forth in paragraph (2)(a)(A) of this rule for supplying information to the Department of Human Services will be followed in complying with any such requests. The information must be used only for the purposes specified by the laws authorizing the disclosure.

(c) District Attorneys. Under provisions of ORS 412.094 , the District Attorney of any county in the state may request any information contained in the department's tax files for the purposes and under the limitations set forth in that statute. The rules set forth in paragraph (2)(a)(A) of this rule for supplying information to the Department of Human Services will be followed in complying with any such requests. The information must be used only for the purposes specified by the law authorizing the disclosure.

(d) Corporations. The returns of a corporation will be open to inspection by any officer of the corporation or its authorized representative.

(e) Partnerships and Limited Liability Partnerships (LLPs). The return of a partnership or LLP will be open to inspection by any person who was a partner during any part of the tax year covered by the return, provided that a showing satisfactory to the department is made that the person was a partner during the tax year covered by the return. In the event of the death of a partner, the return of the partnership or LLP will be open to inspection by the executor as defined in ORS 118.005 who is responsible for filing an inheritance tax return with respect to the deceased partner. Any person requesting information under this subsection must make known to the department the reason for the request and the use to be made of the information.

(f) Limited Liability Companies (LLCs). Under ORS 63.810, an LLC is classified for tax purposes in the same manner as it is classified for federal income tax purposes. Therefore:

(A) If an LLC is classified as a corporation for tax purposes, the returns may be disclosed as provided in subsection (2)(d) above. Any manager or member-manager will be treated in the same manner as an officer except as otherwise provided in the LLC’s organizational documents.

(B) If an LLC is classified as a partnership for tax purposes, the returns may be disclosed as provided in subsection (2)(e) above.

(g) Registered Agents. The department may serve an entity that has a registered agent any notice, demand, or process required or permitted by law to be served on the entity by serving the notice, demand, or process to the entity’s registered agent on file with the Secretary of State or as otherwise determined by law.

(3) Conflicting Claims to a Dependency Deduction. The returns of two taxpayers claiming the same dependent(s) will be open to inspection by those two taxpayers as allowed in ORS 305.215.

(4) Husband and Wife Filing Separately. If a husband and wife have filed separate tax returns, neither spouse nor authorized representative will be permitted to inspect the separate return of the other spouse or to obtain any information from it or any related report without first having obtained written consent to do so from such other spouse except as provided in section (3) above.

(5) Taxpayer, Authorized Representative, or Designee. Upon request and unless otherwise prohibited by an Internal Revenue Service agreement, the department will permit the taxpayer, the taxpayer's authorized representative, or the taxpayer's designee to obtain copies of the taxpayer's income tax returns filed with the department for any tax year, copies of reports filed by the taxpayer in connection with such returns, and any other information that the department considers necessary in the administration of the tax laws. Upon request and payment of the charges set forth in OAR 150-192.440, the department will furnish copies of these documents. Such requests may be made in person, in writing, or by telephone, e-mail or other generally used means of communication.

(6) Taxpayer Authorization and Designation. Taxpayer authorization to disclose to a designee may be in writing, verbal, or implied. See OAR 150-305.193.

(a) The department will recognize that a person is authorized to represent the taxpayer upon the filing with the department or magistrate division of a document signed by the taxpayer clearly authorizing such representation, or if the magistrate division is satisfied that the person is so authorized. If the magistrate division accepts a document signed by a person on behalf of a taxpayer, or has issued an order declaring that the person is authorized to represent the taxpayer, the department will consider the magistrate division to be satisfied that the person is an authorized representative. Unless a written authorization by the taxpayer clearly provides otherwise, the department will presume the person is authorized to represent the taxpayer only with respect to the proceeding before the department or the magistrate division and will disclose only documents and information relating to the tax years at issue in that proceeding.

(b) Only the tax information that relates to the duty of an executor, a decedent estate's personal representative, a person who is appointed by law to pay the taxes of a decedent, or a trustee or other person who, by law, must pay the income taxes of a trust may be disclosed.

(c) Power of Attorney. The department may accept a signed power of attorney as consent from the taxpayer to disclose confidential information. The department may accept a signed power of attorney as a taxpayer's designation to appoint another individual as their agent. The department will not accept a federal power of attorney Form 2848 unless the taxpayer has specifically indicated that it applies to the Oregon Department of Revenue.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.840, 63.810, 63.130
Hist.: 11-71; 11-73; 12-19-75; 1-1-77; TC 19-1979, f. 12-20-79, cert. ef. 12-31-79; TC 9-1981, f. 12-7-81, cert. ef. 12-31-81; RD 12-1985, f. 12-16-85, cert. ef. 12-31-85; REV 2-1998, f. & cert. ef. 5-1-98; REV 6-2002(Temp), f. & cert. ef. 10-3-02 thru 3-31-03; REV 8-2002, f. & cert. ef. 12-31-02; Rev 4-2003, f. & cert. ef. 12-31-03; REV 10-2010, f. 7-23-10, cert. ef. 7-31-10

150-314.855

Rewards for Information

The Department, under the secrecy clause, ORS 314.835, cannot reveal to an informer whether or not the information offered is useful to the Department, and the Department can make no payment of an award until the additional tax recovered by virtue of the information has actually been paid and received. Informers must be advised in advance that they must rely on the Department for fair treatment and have no recourse, and that payments of rewards may be long delayed while issues involved in determination of tax liability are finally resolved.

Stat. Auth.: ORS 305.100
Stats. Implemented:
Hist.: 1955

Special Provisions

150-314.870

Combat Zone Benefits

The rule under OAR 150-316.789(2) shall be followed.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 314.870
Hist.: RD 9-1992, f. 12-29-92, cert. ef. 12-31-92

150-314.HB2071(A) [Renumbered to 150-314.364(A)]

150-314.HB 2071(B) [Renumbered to 150-314.364(B)]

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