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The Oregon Administrative Rules contain OARs filed through July 15, 2014
 
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DEPARTMENT OF REVENUE

 

DIVISION 316

PERSONAL INCOME TAX GENERAL PROVISIONS

150-316.007

Oregon Net Operating Losses — Treatment Before 1985

(1) Applicability of this Rule.

(a) The provisions set forth in this rule shall apply to the computation of net operating losses occurring in loss years beginning before January 1, 1985; net operating loss deductions allowed in tax years beginning before January 1, 1985, from losses that originated in loss years beginning before January 1, 1985; and net operating loss carrybacks and carryovers applied in tax years beginning before January 1, 1985, that originated in loss years beginning before January 1, 1985.

(b) For the computation and application of Oregon net operating losses; net operating loss deductions with regard to loss years and net operating loss carrybacks and net operating loss carryovers originating after December 31, 1984, see OAR 150-316.028.

(2) Negative Oregon Taxable Income Defined. For purposes of this rule, negative Oregon taxable income means federal taxable income as defined in the laws of the United States, with the modifications, additions and subtractions provided in ORS Chapter 316, which is less than zero.

(3) The Computation of a Net Operating Loss for Loss Years Beginning before January 1, 1985.

(a) For purposes of this rule, "loss years" means those tax years in which a net operating loss occurs. The computation of a net operating loss for Oregon purposes begins with negative Oregon taxable income. Internal Revenue Code Section 172 is generally applied to items of income, deduction and modification on the Oregon return in both the year of the loss and in the year or years to which the loss deduction is carried.

(b) There are five items that may reduce negative Oregon taxable income. These are: net operating loss deduction from other years; exemption deductions, if applicable; the nonbusiness deductions less nonbusiness income modification required by IRC Section 172; Oregon capital gains deduction; and the net Oregon capital loss deduction. The amount of negative Oregon taxable income remaining after the above items have been taken into account, shall be considered the amount of the taxpayer's Oregon net operating loss deduction.

Example: Sandy and Joe filed federal and Oregon tax returns for 1984. On their federal return they reported wages of $12,000, a business loss of $40,000 (a part of which was attributable to depreciation), a gain on the sale of stock of $400 (net of $600 capital gains deduction), interest income of $800, and a taxable pension from the U.S. Government of $2,000. They paid no federal or state taxes in 1984 and reported total itemized deductions of $6,800. These deductions were considered nonbusiness.

On their Oregon return Sandy and Joe also reported $500 municipal bond interest from California that was exempt from federal income tax, they were allowed to deduct $1,000 more depreciation for Oregon purposes than for federal purposes, and, they were allowed to deduct the entire pension income on their Oregon return as a U.S. Public Retirement subtraction. Their allowable Oregon net operating loss is computed as follows: [Table not included. See ED. NOTE.]

(4) Oregon Net Operating Losses-Reduction Due to the Net Oregon Capital Loss Deduction. Oregon net operating losses shall be reduced by the amount of net Oregon capital loss deduction claimed on the Oregon return. The net capital loss deduction is generally the same as the amount deducted on the federal return. However, there are modifications that are required under Oregon law which cause the capital loss deduction to be different for Oregon purposes. These modifications must be taken into account in determining the amount of capital loss deduction that is part of negative Oregon taxable income. This difference may be due to depreciation differences upon the sale of a capital asset.

Example: Gary sells a capital asset to Helen for $10,000. The federal adjusted basis is $9,000 and the Oregon adjusted basis is $12,000. For federal purposes Gary has a gain of $1,000. However, Gary has a capital loss for Oregon purposes of $2,000 ($10,000 – $12,000). For purposes of this example, assume the loss is a short-term capital loss. Gary's negative Oregon taxable income is reduced by $2,000, the amount of the capital loss deduction for Oregon purposes.

(5) Oregon Net Operating Losses-Reduction Due to Nonbusiness Deductions in Excess of Nonbusiness Income. In order to compute an Oregon net operating loss, the taxpayer's negative Oregon taxable income is reduced by the amount of excess nonbusiness deductions over nonbusiness income. Oregon modifications, additions, and subtractions used in computing negative Oregon taxable income may reduce the allowable Oregon net operating loss. Use the following list to help determine which of the more common Oregon modifications, additions or subtractions are considered business or nonbusiness. The list is not complete. It is intended to be a guide. [List not included. See ED. NOTE.]

(6) Part-year residents and Nonresidents.

(a) Tax years beginning before January 1, 1983. The base for computing an Oregon net operating loss for a part-year resident or a nonresident shall be negative Oregon taxable income. To compute an Oregon net operating loss, negative Oregon taxable income shall be modified as provided in (3) above by those modifications which relate to items of Oregon income or deduction only.

(b) Tax years beginning after December 31, 1982 and before January 1, 1984. A part-year resident or nonresident shall be allowed an Oregon net operating loss deduction only if the taxpayer had negative Oregon taxable income as defined in (2) of this rule, in the year of the loss.

(c) Tax years beginning after December 31, 1983 and before January 1, 1985. In computing an Oregon net operating loss, for part-year residents, negative Oregon taxable income shall be modified as provided in (3) above by those modifications which relate to items of Oregon income or deduction only. Nonresidents shall calculate their Oregon net operating loss as provided in (6)(a) above.

(7) Non-Oregon Source Net Operating Losses. If a non-Oregon source net operating loss arises while the taxpayer is a nonresident, the resulting net operating loss deduction shall not be allowed when computing Oregon taxable income.

(8) Oregon Source Net Operating Losses.

(a) Taxpayers shall be allowed a deduction for Oregon source net operating losses as determined in section (3) of this rule. Taxpayers may also carryover the Oregon net operating loss deduction in a manner consistent with IRC Section 172.

(b) Generally, if a taxpayer carries a net operating loss deduction back for federal purposes, the taxpayer shall carry the Oregon net operating loss back for Oregon purposes also. The same principle applies to net operating loss carryovers and carryforwards.

(c) An exception to this rule arises if the taxpayer is not required to file an Oregon return for all the years to which the federal net operating loss deduction is applied. In this case, the following rule applies:

In the case of a net operating loss carryback, if the taxpayer was not required to file an Oregon return for the third year prior to the Oregon net operating loss, the Oregon net operating loss deduction shall be carried over to the year succeeding the carried back year. If the taxpayer was not required to file an Oregon tax return in that year, the Oregon net operating loss deduction shall be carried over to that year in which the loss may be first applied. The total number of years to which a net operating loss deduction may be carried back or forward shall be the same for Oregon and federal net operating losses. The number of years allowed is determined by IRC Section 172(b).

Example: Jane computed her allowable Oregon source net operating loss deduction for tax year 1984. For federal purposes, she carried back her federal net operating loss deduction back to tax year 1981. Since she carried her loss back for federal purposes, she shall carry her loss back for Oregon purposes to her 1981 Oregon tax return. If she was not required to file an Oregon tax return for 1981, she may carry her Oregon net operating loss deduction to her 1982 Oregon tax return.

(9) Filing Status.

(a) Oregon net operating losses may be split among spouses. Taxpayers who change their filing status, for example, generally need to identify their separate items of income, deductions, Oregon modifications, etc., to compute their separate Oregon net operating loss deduction.

(b) Items of income are split between the spouses in a manner consistent with Treasury Regulation Section 1.172.7. Modifications to federal adjusted gross income (AGI), as required under Chapter 316, are allocated between the spouses. Each spouse is entitled to those modifications that belong only to him or her. For those modifications which are not clearly attributable to any one spouse, multiply the dollar amount by the following percentage: [Table not included. See ED. NOTE.]

(c) Other deductions, such as itemized deductions, are treated in the same manner as modifications described in the preceding paragraph. Those deductions that specifically belong to a spouse are used in computing that spouse's separate itemized deductions. All other itemized deductions shall be allocated each spouse based on the percentage described above. State taxes are to be allocated in a manner consistent with Revenue Rulings 80-6 and 80-7.

(10) For Oregon's exemption deduction and/or credit, each spouse may claim his or her own personal exemption. Each spouse may also claim dependents based on provision of support or a spousal agreement.

[ED NOTE: Tables & Lists referenced in this rule are available from the agency.]

[Publications: Publications referenced in this rule are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.007
Hist.: RD 12-1984, f. 12-5-84, cert. ef. 12-31-84; RD 12-1985, f. 12-16-85, cert. ef. 12-31-85; RD 4-1986(Temp), f. & cert. ef. 7-29-86; RD 7-1986, f. & cert. ef. 12-31-86; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89

150-316.007-(A)

Policy--Application of Various Provisions of the Federal Internal Revenue Code

The policy of the State of Oregon is to follow the Internal Revenue Code as closely as possible relating to the computation of taxable income of individuals. Other areas, such as tax credits, special tax computations, and administrative provisions are not tied to federal law because they do not relate to the computation of taxable income.

(1) Claim of right: See Chapter 1007, Oregon Laws 1999 for provisions allowing recovery of state tax paid on items of income that are repaid.

(2) Installment sale reporting: A taxpayer may report a loss on the sale of an asset for federal purposes. The same sale can result in a gain at the Oregon level because of differences in the basis of the asset. The taxpayer cannot use the installment reporting method for federal purposes if the asset is sold at a loss for federal purposes. However, for Oregon tax purposes, the taxpayer may report the gain using the installment method. The difference between the loss claimed on the federal return and the Oregon gain will be an adjustment on the Oregon return.

(3) Beneficiaries of a qualified Subchapter S trust. ORS 316.007 provides that Oregon law is made identical in effect to the provisions of federal law. Under IRC section 1361(d)(1)(B), a beneficiary of a qualified Subchapter S trust (QSST) is treated as the owner of that portion of the trust which consists of stock in an S corporation with respect to which the QSST election was made. For purposes of Chapter 316, the beneficiary of a qualified Subchapter S Trust (QSST) shall be treated as if the beneficiary were a shareholder of the S corporation whose stock is owned by the trust.

Example 1: Mr. Bishop is the trustee and sole income beneficiary of the Bishop Trust, a qualified Subchapter S trust. The trust owns 100 shares (15 percent) of the common stock of United Lumber, an S corporation. United paid income taxes during the current year to other states on income that was also taxable by Oregon. Mr. Bishop, as beneficiary of the QSST, is treated as the owner of the S corporation shares owned by the QSST. As such, Mr. Bishop is entitled to claim a credit for taxes paid by United to other states under ORS 316.082.

Example 2: Ms. Johnson is a beneficiary of a trust that owns shares of an S corporation. The S corporation is one of several partners that own and operate a waste co-generation plant. The facility placed into service equipment that qualifies for a business energy credit under ORS 315.354. As beneficiary of the QSST, Ms. Johnson is entitled to claim the portion of the credit attributable to S corporation shares owned by the trust.

[Publications: Publications referenced in this rule are available from the agency]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.007
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; REV 9-1999, f. 12-30-99, cert. ef. 12-31-99; REV 5-2000, f. & cert. ef. 8-3-00

150-316.007-(B)

Policy — Application of Various Provisions of Tax Law to Domestic Partners

(1) Definitions.

(a) As used in this rule, "fringe benefits" means employee benefits provided to an employee's domestic partner that are tax exempt when provided to an employee's spouse. Fringe benefits typically include, but are not limited to:

(A) Health insurance;

(B) Tuition payments; and

(C) Tuition reduction programs.

(b) As used in this rule, "imputed value" means the amount included in federal taxable income of the employee because the fringe benefits are provided to the domestic partner rather than a spouse.

(c) As used in section (2) of this rule, "domestic partner" means a “partner” as that term is defined in Section 3(2) of 2007 Oregon Laws, chapter 99. The Act defines “partner” to be “an individual joined in a domestic partnership” and “domestic partnership” is defined as “a civil contract entered into in person between two individuals of the same sex who are at least 18 years of age, who are otherwise capable and at least one of whom is a resident of Oregon.”

(2) Policy after effective date of the Oregon Family Fairness Act (2007 Oregon Laws, Chapter 99). The imputed value of certain fringe benefits provided by an employer on or after February 1, 2008 to an employee's domestic partner is exempt from Oregon income tax if those benefits are exempt from federal income tax for married individuals.

(3) Sections (4)–(5) of this rule are effective for benefits provided on or after January 1, 2000 through January 31, 2008.

(4) Policy from January 1, 2000 through January 31, 2008. The imputed value of certain fringe benefits provided by an employer to an employee's domestic partner are exempt from state income tax.

(5) As used in section (4) of this rule, "domestic partner" means a person in a relationship with an employee, each of whom:

(a) Is under no legal disability to marry the other person, but for the fact that each is of the same sex;

(b) Desires a relationship of marriage under Oregon law and would enter into marriage with the other person, and only with the other person, if Oregon law permitted it;

(c) Is committed to the care and support of the other person;

(d) Is responsible for the needs of the other person;

(e) Is responsible for financial obligations to others equivalent to such financial obligations that arise within a marriage recognized under Oregon law; and

(f) Is not married and has no similar commitment and responsibility relative to any other individual.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.007 & 2007 OL Ch. 99
Hist.: REV 9-1999, f. 12-30-99, cert. ef. 12-31-99; REV 9-2000, f. 8-15-00, cert. ef. 9-1-00; REV 10-2006, f. 12-27-06, cert. ef. 1-1-07; REV 19-2008, f. 12-26-08, cert. ef. 1-1-09; REV 1-2009, f. & cert. ef. 1-5-09

150-316.012

Adoption of Federal Law

With the adoption of the Personal Income Tax Act of 1969, Oregon personal income tax law was tied to the Federal Internal Revenue Code of 1954 with certain modifications. However, there have been periods during which Oregon law did not automatically adopt federal law amendments and enactments. The most recent of these periods and the federal law date to which each referenced period is connected are:

(1) For the period beginning January 1, 1985, Oregon personal income tax law is tied to federal law in effect, amended or enacted on or before December 31, 1984 with certain technical corrections, specifically Internal Revenue Code Sections 274(d) and 280F.

(2) For the period beginning January 1, 1987, Oregon personal income tax law is tied to the Federal Internal Revenue Code of 1986, as amended on or before December 31, 1986, with certain modifications.

(3) For the period beginning January 1, 1989, Oregon personal income tax law is tied to the Federal Internal Revenue Code of 1986, as amended on or before December 31, 1988, with certain modifications.

(4) For the period beginning January 1, 1991, Oregon personal income tax law is tied to the Federal Internal Revenue Code of 1986, as amended on or before December 31, 1990, with certain modifications.

(5) For the period beginning January 1, 1993, Oregon personal income tax law is tied to the Federal Internal Revenue Code of 1986, as amended on or before December 31, 1992, with certain modifications.

(6) For the period beginning January 1, 1995, Oregon personal income tax law is tied to the Federal Internal Revenue Code of 1986, as amended on or before April 15, 1995, with certain modifications.

(7) For the period beginning January 1, 1997, Oregon personal income tax law is tied to the Federal Internal Revenue Code of 1986 or as in effect for that tax year of the taxpayer.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.012
Hist.: Repealed by TC 9-1981, f. 12-7-81, cert. ef. 12-31-81; 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 7-1991, f. 12-30-91, cert. ef. 12-31-91; RD 3-1995, f. 12-29-95, cert. ef. 12-31-95; RD 5-1997, f. 12-12-97, cert. ef. 12-31-97

150-316.014 [Renumbered to 150-316.028]

150-316.021

Tax Reform Act of 1984 Adjustments

(1) Any adjustments to a taxpayer's 1984 Oregon taxable income due to modifications required under ORS 316.021 shall be made using either of the following methods:

(a) The taxpayer may amend the 1984 Oregon tax return and include such adjustments as increases or decreases to the taxpayer's 1984 Oregon taxable income; or

(b) The taxpayer may include the amount computed in (C) below as an increase or decrease in the taxpayer's 1985 Oregon tax liability. (This method is available to taxpayers who are required to file a 1985 Oregon tax return.)

(A) Compute the taxpayer's 1984 Oregon tax liability without regard to the adjustments required in this subsection.

(B) Compute the taxpayer's 1984 Oregon tax liability with regard to the adjustments required in this subsection.

(C) Subtract the amount computed in (A) from the amount computed in (B).

(D) If the amount computed in (C) is less then zero then the difference computed in (C) decreases the taxpayer's 1985 Oregon tax liability. If the amount computed in (C) is greater than zero, then the difference computed in (C) increases the taxpayer's 1985 Oregon tax liability.

(2) For purposes of this rule, "taxpayer" means any natural person, estate, trust, or beneficiary whose income is in whole or in part subject to the taxes imposed by ORS Chapter 316.

(3) Any adjustments necessary to a partner's 1984 Oregon tax return due to the provisions of this subsection, shall be reflected on the corresponding partnership return to which such adjustment applies.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.021
Hist.: RD 12-1985, f. 12-16-85, cert. ef. 12-31-85

150-316.027(1)

Definition: "Resident"

(1) For purposes of ORS 316.027(1):

(a) "Domicile" means the place an individual considers to be the individual's true, fixed, permanent home. Domicile is the place a person intends to return to after an absence. A person can only have one domicile at a given time. It continues as the domicile until the person demonstrates an intent to abandon it, to acquire a new domicile, and actually resides in the new domicile. Factors that contribute to determining domicile include family, business activities and social connections.

Example 1: Ron maintains a home in Oregon and works in Oregon. He purchased a summer home in Nevada and each year thereafter spent about three or four months in that state. He continued to spend six or seven months of each year in Oregon. He continued to maintain his home and his social, club and business connections in Oregon, but established his bank accounts in Nevada. The months not spent in Nevada or Oregon he spent traveling in other states or countries. Ron is domiciled in Oregon and is taxed as a resident of Oregon because he has not demonstrated intent to abandon his Oregon domicile nor has he shown an intent to make Nevada his permanent home.

(b) "Permanent place of abode" means a dwelling place permanently maintained by the taxpayer, whether or not owned by the taxpayer, and generally includes a dwelling place owned or leased by the taxpayer's spouse. To constitute a permanent place of abode, the taxpayer must maintain a fixed place of abode over a sufficient period of time to create a well-settled physical connection with a given locality. It is distinguishable from "domicile" in that an individual may have several residences (or abodes), but only one domicile, at any given time.

(A) Rented or leased premises. A person is deemed to have a permanent place of abode even in rented premises, which he or she is free to leave at will, but from which the person has no present intent or desire to change. Factors that contribute to permanence include the amount of time spent in the locality, the nature of the place of abode, activities in the locality and the taxpayer's intentions with regard to the length and nature of the stay.

(B) Other residential property. Generally, residential property, such as a house, condominium, or apartment, is not considered a permanent place of abode if the individual never uses the property as a dwelling. For example, if the taxpayer acquires residential property for investment or rental purposes, as the result of an estate settlement, or as part of a settlement in a divorce proceeding, and the property is never used by the taxpayer or the taxpayer's family, the property is not considered a permanent place of abode for the taxpayer. For purposes of this rule, family includes the taxpayer, the taxpayer's spouse, and lineal ascendants and descendants of the taxpayer. If the property is used during the tax year by the taxpayer, even if for just a day, and also used by the taxpayer's family for a sufficient period of time to create a well-settled physical connection, then it is generally deemed to be a permanent place of abode for the taxpayer. However, use of the residential property by a family member will generally not be attributed to the taxpayer if the residential property is rented to the relative for fair rental value in an arm's-length transaction or if the taxpayer never uses the property as a dwelling during the tax year at issue.

(C) Vacation home. A camp or cottage that is suitable for and used only for vacations is not a permanent place of abode. A dwelling that does not contain facilities ordinarily found in a dwelling, such as facilities for cooking and bathing, is generally not considered a permanent place of abode. A second home that contains all the amenities found in a primary residence does not constitute a camp or cottage even if it is located in a vacation area. Therefore, a second home that contains cooking and bathing facilities and is suitable for year-round living may constitute a permanent place of abode even though used primarily for vacations or on weekends.

(D) Temporary stay. A place of abode, whether in Oregon or elsewhere, is not deemed permanent if it is maintained only during a temporary stay of short duration for the accomplishment of a particular purpose.

Example 2: Wayne is a long-haul truck driver for an Oregon company. His work requires that he travel throughout the United States. He is domiciled in Oregon but does not maintain a permanent place of abode in Oregon. Wayne spends less than 31 days in Oregon during the year. Wayne's only residence is in his truck, which has a sleeper unit, closet and refrigerator. Except for two weeks vacation each year, Wayne stays in any given locale only temporarily and only for the purpose of delivering or picking up a load. Because Wayne does not maintain a permanent place of abode elsewhere, he is taxable as a resident of Oregon.

Example 3: Douglas has lived and worked in Oregon all his life. On January 1, he retired, sold his personal residence, and began traveling throughout the United States. He has not established a new domicile outside of Oregon nor does he intend to give up his Oregon domicile. Because Douglas does not maintain a fixed place of abode over a sufficient period of time to create a well-settled physical connection with a given locality, he is considered not to have a permanent place of abode elsewhere. Thus, Douglas is taxed as an Oregon resident.

Example 4: James is domiciled in Oregon. After retiring, James sold his Oregon home and purchased a recreational vehicle (RV). James rents space year-round at an RV park in Arizona where he spends 7 to 9 months each year. James spends the remainder of his time traveling in the United States, including Oregon, but he does not remain in any particular locality more than thirty days. James is considered to have a permanent place of abode in Arizona, as his stay at the Arizona RV park constitutes the maintenance of a fixed place of abode over a sufficient period of time to create a well-settled physical connection with that locality. James is taxed as a nonresident as long as he does not establish a permanent place of abode in Oregon and he spends less than 31 days in this state.

(E) Military personnel. For purposes of this rule, an individual serving in the military is considered to have a permanent place of abode elsewhere during the time the individual resides outside of Oregon.

(2) For purposes of ORS 316.027(1)(a)(B), "temporary or transitory" means that a person's stay in Oregon is not permanent and is not expected to last indefinitely. Generally, an individual who is domiciled elsewhere and who is simply passing through this state on the way to another state or country, is here for a brief rest or vacation, or to complete a particular transaction that requires presence in this state only for a short period, is treated as being in this state for temporary or transitory purposes, and is not considered a resident by virtue of physical presence here. Whether a person's stay is temporary or transitory depends to a large extent upon the facts and circumstances of each particular case.

Example 5: Mark and Kim are domiciled in Minnesota. They maintain their family home there. Each October they come to the Oregon coast and stay through April, spending more than 200 days here during the year. Originally they rented an apartment or house for the duration of their stay. Three years ago they purchased a house in Oregon. The house is either rented or put in the charge of a caretaker from May to October. Mark has retired from active control of a Minnesota business but still keeps office space and nominal authority in it. Mark and Kim belong to clubs in Minnesota, but none in Oregon. Mark and Kim have no business interest in Oregon. Mark and Kim are not taxed as Oregon residents because their presence here is temporary or transitory.

Example 6: Juan is domiciled in Illinois. Following graduation from high school, he moved to Oregon to attend college. Juan works in Oregon during the summer and returns to Illinois to visit family several times each year. Juan is taxed as a nonresident as his stay in Oregon is for a temporary or transitory purpose.

(a) Temporary employment in Oregon. An individual domiciled in another state may be assigned to work in Oregon for a fixed and limited period, after which the person is to return to the permanent location. If the person takes an apartment or other housing in Oregon during this period, the individual is not deemed a resident, even though the individual spends more than 200 days of the taxable year in Oregon, because the person's stay in Oregon is temporary or transitory. The individual will be taxable as a nonresident on income from Oregon sources.

Example 7: Don, a computer consultant, is domiciled in New York where he owns a home in which his family lives and where he keeps the bulk of his personal belongings. He votes in New York, maintains bank accounts there and returns to his home whenever possible. He accepts a position in Oregon with a large corporation with the expectation that the work will take one and one-half years. He spends virtually the entire time in Oregon, living in a house built by the employer, where his wife and family join him in the summer. He intends to return to New York when the job is completed. During this period he will be taxed as a nonresident, even though he is in the state more than 200 days during the year, because he is in the state for a temporary or transitory purpose.

(b) Indefinite employment in Oregon. If a work assignment in Oregon is not for a fixed and limited period, the person is not considered to be present in Oregon for a temporary or transitory purpose. If a permanent place of abode is maintained in Oregon, and the person is in this state for more than 200 days during the tax year, then the person is taxed as a resident of Oregon.

Example 8: Fran is domiciled in California. In January, she accepts a transfer to her employer's Medford, Oregon office and rents an apartment there. The length of her assignment is indefinite, although Fran believes she may be able to obtain a promotion and transfer back to California within three years. Fran's husband and children remain at the California residence and Fran returns there on weekends and holidays. Fran is taxable as a resident of Oregon because she maintains a permanent place of abode in Oregon, spends more than 200 days here, and her presence is not temporary or transitory.

Example 9: Li is domiciled in Idaho and works as a sales person for a manufacturing company. She spends her workweek traveling in a motor home in Oregon meeting with existing and potential customers. She returns to her Idaho home when it is convenient, but may be in Oregon for 2 or 3 months at a time. Li's assignment is indefinite and thus she is not in Oregon for a temporary or transitory purpose. However, she does not maintain a permanent place of abode in Oregon, as she does not remain in any place for a sufficient period of time to create a well-settled physical connection with a given locality. Li is taxed as a nonresident.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.027
Hist.: 1-69; RD 9-1992, f. 12-29-92, cert. ef. 12-31-92; RD 5-1997, f. 12-12-97, cert. ef. 12-31-97; REV 12-2000, f. 12-29-00, cert. ef. 12-31-00, Renumbered from 150-316.027

150-316.027(1)(b)

Status of Individuals in a Foreign Country

(1) General. For purposes of ORS Chapter 316, a nonresident includes a person who is a foreign nonresident as defined by this rule.

(2) "Foreign nonresident" means:

(a) An individual who is a "qualified individual" under Internal Revenue Code section 911(d)(1); and

(b) An individual who would be considered a "qualified individual" under IRC 911(d)(1) except that the person is not a U.S. citizen.

Example 1: Ricardo, a citizen of Mexico, is domiciled in Oregon. He has established his tax home & bona fide residence in Canada. Even though he is not a "qualified individual" under IRC 911(d)(1) because he is not a U.S. citizen, he is considered a foreign nonresident for Oregon tax purposes.

(3) To be considered a "qualified individual" under IRC 911, a person must maintain a tax home in a foreign country or countries and, for the same period of time, meet either:

(a) The bona fide residence test described in subsection (4); or

(b) The physical presence test described in subsection (5).

(4) To meet the requirements of the "bona fide residence" test, the taxpayer must:

(a) Establish, to the satisfaction of the Secretary of the U.S. Treasury, bona fide residence in a foreign country or countries, and

(b) Maintain bona fide residence for an uninterrupted period of time that includes a full tax year.

Example 2: Sandra is a calendar year taxpayer. She establishes bona fide residence in Russia on November 12, 1997. She is transferred back to the United States on December 30, 1998. She does not meet this test as the period of bona fide residence does not include a full tax year (i.e., all of a calendar year). Sandra may qualify under the physical presence test if she meets its requirements.

Example 3: Assume the same facts as in Example 2, except that Sandra is transferred to England on December 30, 1998. She establishes bona fide residence in England where she continues to work until October 9, 1999 before returning to the United States. She qualifies under the bona fide residence test & will be taxed as an Oregon nonresident from November 12, 1997 to October 9, 1999.

(5) Physical presence test. To meet the "physical presence" test, the taxpayer's tax home must be in a foreign country and the taxpayer must be physically present in a foreign country or countries for 330 full days out of a 12 consecutive month period.

(a) A full day means a period of 24 consecutive hours beginning at midnight.

(b) The 12-month period may begin on any day of the calendar month and ends with the day before the corresponding calendar day twelve months later. For example, a period beginning July 1 will end June 30 of the next year. If the period begins on February 29, it will end February 28 of the next year.

(c) The 12-month period may begin before or after arrival in a foreign country and may end before or after departure.

Example 4: John arrives in England on April 24, 1998, at noon. He remains in Europe until 2 p.m. on March 21, 1999 when he returns to the United States. John is present in a foreign country for 330 full days during at least two twelve-month periods: April 25, 1998 through April 24, 1999 & March 21, 1998 through March 20, 1999. John qualifies for foreign nonresident treatment from April 25, 1998 through March 20, 1999.

(6) Federal employees. Amounts paid by the U.S. government to its employees are not foreign earned income, and thus, do not qualify for a foreign earned income exclusion or a housing exclusion. However, if federal or military employees meet the bona fide residence test or the physical presence test, they may be taxed as foreign nonresidents for Oregon purposes.

(7) Spouses of foreign nonresidents. A spouse who does not qualify as a foreign nonresident shall be treated as a nonresident only if the spouse does not maintain a principal place of abode in Oregon for the tax year.

Example 5: Henry accepts an overseas assignment & leaves Oregon in July 1998. His wife remains in Portland at the family residence. Henry may be treated as a foreign nonresident if he meets the tests previously described. However, his wife will be taxed as a full year Oregon resident since her principal place of abode was not outside of Oregon.

(8) Effective date: The provisions of this rule are effective for tax years beginning on or after January 1, 1995. Claims for refund based on retroactive application of the changes to ORS 316.027 may be filed at any time.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.032
Hist.: REV 9-1999, f. 12-30-99, cert. ef. 12-31-99

150-316.028

Oregon Net Operating Losses — Treatment After 1984

(1) Applicability of this Rule.

(a) This rule applies to the computation of net operating losses occurring in loss years beginning after December 31, 1984; and net operating loss deductions allowed or allowable in tax years beginning after December 31, 1984.

(b) For the computation and application of Oregon net operating losses for loss years beginning before January 1, 1985; net operating loss deductions with regard to loss years beginning before January 1, 1985; and net operating loss carrybacks and net operating loss carryovers applied in tax years beginning before January 1, 1985 that also originated in tax years beginning before January 1, 1985, see OAR 150-316.007.

(2) Definitions for Purposes of this rule.

(a) Prohibited amounts. “Prohibited amounts” means those amounts that the state of Oregon is prohibited from taxing, such as all stocks, bonds, Treasury notes, and other obligations of the United States as provided in 31 United States Code Section 3124. Prohibited amounts do not include such items as federally taxable social security benefits since Oregon is not prohibited from indirectly taxing such types of income.

(b) Oregon Adjusted Gross Income (Oregon AGI). For a full-year resident, Oregon AGI is generally the same as federal AGI. For a nonresident, “Oregon AGI” means the items included in federal adjusted gross income as defined in IRC Section 62 that relate to Oregon sources without modifications.

(c) Modified Oregon Taxable Income. “Modified Oregon taxable income” means Oregon AGI reduced by the sum of the following:

(A) Oregon itemized deductions. For a resident, Oregon itemized deductions are generally the same amount as federal. For part-year and nonresident taxpayers, Oregon itemized deductions are the Oregon percentage of federal itemized deductions; or

(B) Oregon standard deduction. For part-year and nonresident taxpayers, only the Oregon percentage of the standard deductions can be used;

(C) Federal personal exemption(s); and

(D) Prohibited amounts included in Oregon AGI.

(3) Computation of an NOL for a Resident.

(a) For Oregon purposes, a resident’s net operating loss is computed in the same manner as for federal purposes without Oregon modifications. Generally, the Oregon NOL is the same as the federal NOL. The only modification necessary is to subtract prohibited amounts.

(b) The computation of the Oregon NOL begins with the Oregon adjusted gross income (AGI) to arrive at modified Oregon taxable income. Then the modified Oregon taxable income is adjusted as required by IRC Section 172(d).

Example 1. Susan and Joe filed joint 2009 federal and Oregon tax returns. On their federal return, they reported wages of $26,000, a business loss of $50,000, a gain on the sale of stock of $400, and interest income of $800 from a bank. They also reported total itemized deductions of $12,800 which were all nonbusiness and claimed personal exemptions of $7,300. On their Oregon return, Susan and Joe also reported $500 municipal bond interest from California that was exempt from federal income tax. Their allowable Oregon NOL is computed as follows: [Formula not included. See ED. NOTE.]

Note: Except for prohibited amounts, the Oregon NOL is computed based on the federal NOL method and definitions without Oregon modifications.

Example 2. The facts are the same as in Example 1, except that the interest of $800 is from U.S. government securities (prohibited amounts). The Oregon NOL for Susan and Joe is ($24,800) computed as follows: [Formula not included. See ED. NOTE.]

Note: The U.S. government interest (prohibited amounts) is not used in computing Oregon NOL.

(4) Computation of an NOL for a Part-year Resident and a Nonresident

(a) A nonresident is allowed an Oregon NOL for any loss year when the NOL is attributable to Oregon sources. A taxpayer is not allowed an NOL or carryover on the Oregon return if the loss was incurred while the taxpayer was a nonresident and the loss was not attributable to Oregon. The computation of the allowable net operating loss for Oregon purposes begins with Oregon adjusted gross income as defined in this rule. Any modifications provided in IRC Section 172(d) apply to all items of income and deduction as they apply to modified Oregon taxable income with the exception of prohibited amounts.

(b) The IRC Section 172(d) modifications attributable to Oregon sources are the following:

(A) Oregon NOL deduction from prior years included in Oregon income after adjustments.

(B) Net Oregon capital loss deduction.

(C) Federal personal exemption amount.

(D) Excess of nonbusiness deductions over nonbusiness income included in modified Oregon taxable income.

Example 3. Herb and Sallie are married nonresidents and file a joint 2009 return. On their federal return, they have itemized deductions of $14,000 (all nonbusiness) and claimed exemptions of $10,950. They also had a business loss of $25,000 from Oregon sources and $1,000 non-Oregon source corporate bond interest. On their Oregon nonresident return, the Oregon percentage is zero (0). They compute their Oregon NOL as follows: [Formula not included. See ED. NOTE.]

NOTE: The Schedule A itemized deductions are -0- for Oregon purposes because their Oregon percentage is zero.

(5) Application of an NOL.

(a) General rule. An Oregon net operating loss for any loss years is applied in the same manner as the federal net operating loss as provided in IRC Section 172(b). If the loss was not attributable to Oregon sources and was incurred while the taxpayer was a nonresident, there is no Oregon NOL to carry over even if the taxpayer later becomes an Oregon resident. In such cases, the amount of the NOL carryover that is not attributable to Oregon sources is added back on the Oregon resident tax return. If a taxpayer carries back a federal NOL, the taxpayer is treated as carrying the loss back for Oregon purposes as well. If a taxpayer makes an election to carry over the federal NOL, the taxpayer is treated as making the same irrevocable election for Oregon purposes as well.

(b) Exceptions.

(A) If a taxpayer has an Oregon NOL but does not have a federal NOL, the taxpayer may elect to carry the Oregon NOL over to the next succeeding year, if the taxpayer makes an irrevocable election on the timely filed Oregon loss year return (including extensions). If no such election is made, then the taxpayer may only carry the Oregon loss back in the same manner as provided in IRC Section 172(b).

(B) If a taxpayer is not required to file an Oregon return for all years to which the federal NOL deduction (NOLD) is applied, the Oregon NOL is carried back to the year in which the loss may be first applied.

(C) The total number of years to which an NOL may be carried back or forward is the same for Oregon and federal, and is generally determined as follows:

(i) For net operating losses incurred in tax years beginning on or after January 1, 2003, the carry back period is two years with a twenty year carryover period. Oregon follows any exceptions allowed under federal law for these tax years.

(ii) For net operating losses incurred in tax years beginning on or after January 1, 2001 and before January 1, 2003, the carryback period is five years with a twenty year carryover period.

(iii) For net operating losses incurred in tax years beginning on or after August 5, 1997 and before January 1, 2001, the carryback period is two years with a twenty year carry over period.

(iv) For net operating losses incurred in tax years beginning prior to August 6, 1997, the carryback period is three years with a fifteen year carryover period. See IRC 172 and the related regulations for exceptions to the general carryback periods for net operating losses attributable to certain casualty losses, disaster areas and farming losses.

Example 4. Joe has a net operating loss for federal and Oregon for tax year 2009. For federal purposes, Joe carried his federal NOL back to 2007. Since he carried back his loss for federal purposes, he must carry back the loss for Oregon purposes to his 2007 Oregon tax return. If he is not required to file an Oregon tax return for 2007, he may carry his Oregon NOL to his 2008 Oregon tax return.

Example 5. Assume the same facts as in Example 4. However, Joe was not required to file an Oregon tax return prior to tax year 2009. Joe may carry his Oregon NOL over to his 2010 Oregon tax return even if the loss was carried back for federal purposes.

Example 6. As the result of a stimulus bill passed by Congress in 2009, Kerry, an Oregon resident and small business owner, is eligible to carry back her loss up to five years (instead of the normal two years). Kerry chose to carry her loss back five years on her federal return, so she must use the same five year carry back for purposes of her Oregon return.

Example 7. Devin, a Washington resident, incurs a $25,000 NOL in 2009 from his Washington area business and elects to carry the loss forward. Devin moves to Oregon on January 1, 2010. Since the loss was incurred while Devin was a nonresident of Oregon and the loss is not from an Oregon source, there is no Oregon NOL and Devin must make an addition on his 2010 Oregon return to add back the $25,000 NOL included in federal adjusted gross income.

(6) A Net Operating Loss Deduction, Carryback and Carryover Amount.

(a) A taxpayer’s net operating loss deduction (NOLD), carryback and carryover amount is computed in the same manner as for federal purposes. The method to compute the carryback and carryover amount is not modified for Oregon purposes.

(b) For a full-year resident, generally an NOLD, carryback and carryover amount is the same as for federal purposes except that prohibited amounts as defined in section (2)(a) of this rule are not taken into consideration.

Example 8. John and Joyce incurred losses in 2009 from partnerships and S corporations. They compute an NOL of $12,000 and elect to carry the loss back. The 2007 return shows negative taxable income, so the 2009 NOL is first applied to 2008 where the loss is completely absorbed. John and Joyce have a federal AGI in 2008 of $50,000. The fully absorbed 2009 NOL is applied as follows: [Formula not included. See ED. NOTE.]

Example 9. Assume the same facts in Example 8, except that John and Joyce elect to carry forward the 2009 NOL for federal and Oregon purposes. In 2010, John and Joyce have federal AGI of $15,000 and have reported additions of $8,000 and subtractions of $3,000. John and Joyce will apply the NOL to 2010 and compute the amount carried over to 2011 as follows: [Formula not included. See ED. NOTE.]

(c) A part-year resident and a nonresident use the federal method without modifications, except that prohibited amounts are not taken into consideration, and the NOLD, carryback and carryover are based only upon amounts attributable to Oregon sources.

Example 10. In 2008, while residents of California, Ron and Valerie incurred losses from an Oregon partnership creating an Oregon only NOL in the amount of $85,000. Prior to 2008, neither Ron nor Valerie needed to file Oregon returns. In 2009, Ron and Valerie moved to Oregon and filed a part-year Oregon return. They reported federal income after adjustments of $385,000, Oregon income after adjustments of $235,000, and itemized deductions of $10,000. Ron and Valerie calculate their 2009 Oregon taxable income as follows: [Formula not included. See ED. NOTE.]

Example 11. Scott and Jill live in Vancouver, Washington and Scott operates a business in Oregon. In 2008, Scott and Jill filed a nonresident Oregon return reporting an Oregon only NOL of $6,000. Scott and Jill elected to carry the NOL forward. In 2009, Scott and Jill reported Oregon income after adjustments of $1,600, federal income after adjustments of $32,000, and federal itemized deductions of $9,200. Their Oregon itemized deductions are $460 [($1,600/$32,000) x $9,200]. Scott and Jill calculate their net operating loss deduction for 2009 and the carryover to 2010 as follows: [Formula not included. See ED. NOTE.]

(7) Net Operating Loss Carrybacks to Amnesty Years A net operating loss deduction (NOLD) carried back to an amnesty return (as that term is defined in OAR 150-305.100-(C)) may not result in a refund of any tax reported and paid pursuant to the amnesty program. However, if a NOLD is carried back to a year in which a taxpayer participated in amnesty, a refund that is otherwise allowed may be granted to the extent that the taxpayer has adequate income reported outside the amnesty program to absorb the loss (or portion thereof). A NOLD resulting in a denied refund due to participation in the amnesty program does not change the net operating loss deduction calculation or the amount that can be carried to another tax year.

Example 12. Ed, an Oregon resident, qualified for amnesty in November 2009 and received penalty and interest relief for tax year 2005 under the program. Ed’s original 2005 return (which was filed timely on April 17, 2006) showed a tax liability of $20,000, which Ed paid when he filed his original 2005 return. The amended return for 2005 filed under amnesty increased his tax by an additional $15,000 for a total of $35,000 in Oregon tax liability. In tax year 2009 his business experienced a loss that created a net operating loss for tax year 2009. Ed elects to carry the loss back to tax year 2005 and amends his 2005 federal return. On June 1, 2010, he amends his 2005 Oregon return to claim the net operating loss deduction (NOLD). After applying the NOLD, Ed claims an Oregon refund of $30,000 for 2005. (Ed’s 2005 net tax liability has been decreased to $5,000.) The department agrees with Ed’s calculations but only allows a refund of $20,000 because that is the amount of tax Ed paid for 2005 before the amnesty program. The refund is limited because the law prohibits refunds of tax paid under amnesty. Ed’s carryover of the NOLD is not changed because of the amnesty refund denial. Even though the refund was partially denied, the NOLD has been absorbed and there is no carryforward to tax year 2006.

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

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.028
Hist.: RD 4-1986(Temp), f. & cert. ef. 7-29-86; RD 7-1986, f. & cert. ef. 12-31-86; 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 5-1994, f. 12-15-94, cert. ef. 12-31-94; REV 9-1999, f. 12-30-99, cert. ef. 12-31-99; REV 11-2004, f. 12-29-04, cert. ef. 12-31-04; REV 10-2010, f. 7-23-10, cert. ef. 7-31-10; Renumbered from 150-316.014 by REV 4-2012, f. 7-20-12, cert. ef. 8-1-12; Renumbered from 150-316.014, REV 6-2013, f. & cert. ef. 12-26-13

150-316.032(2)

Administrative and Judicial Interpretations

As used in ORS 316.032(2) "administrative and judicial interpretations of the federal income tax law" include interpretive regulations promulgated by the Secretary of the Treasury, Revenue Rulings and Revenue Procedures issued by the Commissioner of Internal Revenue, and decisions of the federal courts interpreting those provisions of the Internal Revenue Code that are incorporated into Oregon law under ORS 316.007, regardless of the date of promulgation or issuance of the regulation, ruling, procedure or decision.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.032
Hist.: RD 12-1985, f. 12-16-85, cert. ef. 12-31-85

150-316.037

Taxable Income of Nonresidents and Part-year Residents

(1) The taxable income of a nonresident is the taxpayer's federal taxable income from Oregon sources as defined in ORS 316.127, with the modifications provided in ORS Chapter 316 and other Oregon laws as they relate to nonresidents. In computing taxable income, nonresident taxpayers are allowed a proportionate share of all deductions, with required modifications. This includes the accrued federal tax deduction, and itemized deductions or the optional standard deduction. The fraction to be used in making the proration of deductions is provided in OAR 150-316.117-(A).

(2) The taxable income of a part-year resident is the taxpayer's federal taxable income, as defined in the laws of the United States, modified and adjusted by ORS Chapter 316 and other Oregon laws. The tax on the entire taxable income of part-year residents is multiplied by the fraction provided in OAR 150-316.117-(A) to determine the tax on income derived from Oregon sources.

(3) For purposes of determining the proration of tax under ORS 316.117, a part-year Oregon resident includes in Oregon source income the sum of:

(a) All guaranteed payments and taxable cash distributions from a partnership or S corporation received while the partner or shareholder was an Oregon resident, plus

(b) Payments or distributions received from an entity that has business activity in Oregon while the taxpayer was not an Oregon resident. The payments or distributions are subject to the allocation and apportionment provisions of ORS 314.605 to 314.675.

Example: Joe was a California resident all of 2000 and a partner in a California partnership. The partnership has no property, payroll, or sales in Oregon. Joe moved to Oregon March 1, 2001. He files calendar year returns. He receives $1,000 each month as a guaranteed payment. The payments received through February, 2001 are not Oregon source income because they were received prior to the date Joe became an Oregon resident from an entity with no business activity in Oregon.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.037
Hist.: 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 12-1985, f. 12-16-85, cert. ef. 12-31-85; RD 11-1988, f. 12-19-88, cert. ef. 12-31-88; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89, Renumbered from 150-316.037(1)(b); REV 7-2001(Temp), f. & cert. ef. 12-31-01 thru 6-28-02; REV 3-2002, f. 6-26-02, cert. ef. 6-30-02; REV 6-2008, f. 8-29-08, cert. ef. 8-31-08

150-316.045

Farm Capital Gain

(1) Definitions. For purposes of ORS 316.045 and this rule:

(a) “Substantially complete termination” means the taxpayer is:

(A) No longer involved, directly or indirectly, in a trade or business engaged in farming, or

(B) No longer owns, directly or indirectly, property used in the trade or business of farming.

(b) “A trade or business engaged in farming” means a distinct farming operation separately run from the taxpayer’s other businesses. Businesses that share employees, equipment, buildings, or land are not separate businesses. Businesses that share records, accounts, registration, identification numbers, or a business name are also not separate businesses.

(2) A taxpayer’s net long-term capital gain qualifies for the reduced tax rate if all four of the following tests are met:

(a) Asset Test. The gain is derived from either IRC section 1231 assets or an ownership interest of at least 10 percent in an entity.

(b) Use Test. The property that was sold consisted of:

(A) An ownership interest in an entity engaged in the trade or business of farming; or

(B) Property that was predominantly used in the trade or business of farming.

(c) Relationship Test. The assets are not sold to a related taxpayer as defined under IRC section 267.

(d) Termination Test. The sale is a substantially complete termination of all of the taxpayer’s ownership interests in:

(A) A trade or business engaged in farming; or

(B) Property that is predominantly used in the trade or business of farming.

(3) Asset Test. The part of the taxpayer’s net long-term capital gain that is eligible for the reduced rate must be from capital assets under IRC section 1231 or a 10 percent or more ownership interest in an entity engaged in the trade or business of farming (see section (13) for related examples).

Example 1: Sofie owns 50 acres of land. Of the 50 acres, she used 10 acres for her hobby of showing horses. She had a small arena and stables on the land for her horses. Sofie sold the entire 50 acres to her neighbor. The gain from the sale does not qualify for the reduced tax rate because the asset does not meet the asset test. The land was not used in a trade or business, thus the asset was not an IRC section 1231 asset. If Sofie had been in the trade or business of showing horses, the land used would have been a qualifying asset and Sofie would then be required to look at the other three tests to determine whether she qualifies for the reduced tax rate.

Example 2: Forty years ago, Wayne and Patty purchased an orchard next to their home. They did not regularly harvest the fruit, care for the trees, or file farm schedules with any of their tax returns. They mostly used the property for themselves and the horses they owned for personal use and usually gave extra fruit away to family and friends. Every two or three years they held U-Pick sales at the orchard, and claimed the not-for-profit income as required. Last year, the urban growth boundary moved to include their parcel. Wayne and Patty wanted to sell the property to developers so they had all the trees removed and sold the property. The sale of the orchard does not qualify for the reduced rate because it was not held as a trade or business thus it was not an IRC section 1231 asset. It was land held for investment and personal use.

(4) Use Test. The asset that was sold must be predominantly used in the trade or business of farming. Any other use of the asset must be incidental to, and not interfere with, the primary purpose of being engaged in the trade or business of farming.

(a) Property used 80 percent or more in a farming trade or business. Property used 80 percent or more in the trade or business of farming is considered and presumed to be predominant use. Accepted farming practices common to the type of farming activity and region, such as land lying fallow for one year, are included in the trade or business of farming.

(b) Property used more than 50 percent but less than 80 percent in a farming trade or business. Upon review of the facts and circumstances of each case, property used more than 50 percent but less than 80 percent in the trade or business of farming qualifies as predominant if the difference between the actual percentage use in a farming trade or business and 80 percent use in a farming trade or business is incidental. Incidental use does not include holding property as an investment, using property for personal (non-business) use, or using property for another business. Incidental use includes, but is not limited to:

(A) Farmland that is bordered by or contains a waterway;

(B) Land that consists of terrain that cannot be farmed (i.e. marshland, desert);

(C) Land that contains a utility easement which makes farming impracticable or impossible; or

(D) The period of the time when the farm property or business was “actively for sale” immediately prior to the sale. A property was “actively for sale” if the property was listed and advertised for sale for a price comparable to similar properties and the seller did not reject any reasonable offers.

(c) Property used for personal or business activities that take place on the land concurrently and do not interfere with the primary farming trade or business use are considered incidental use.

(d) Allocation. Property that is used less than 80 percent in a farm trade or business may be allocated between the actual portion that is predominantly used in the business of farming and the portion not predominantly used in the business of farming.

Example 3: Cinda raised corn and beans on 500 acres the entire time she owned the acreage. She used the cornfields as a corn maze after she harvested all the corn. She sold the 500 acres of corn and bean fields to the cannery and recognized a capital gain. Assuming the gain from the sale meets the other three tests, the gain from the sale of Cinda’s farm qualifies for the reduced tax rate because Cinda used the property predominantly (80 percent or more) in the trade or business of farming even though Cinda used the farmland for an incidental purpose after the harvest.

Example 4: Hilda and Steve owned and operated a 30 acre farm. Their farm had a waterway and riparian land that was not farmed which took up 10 acres of the farm. Assuming they meet the other three tests, Hilda and Steve qualify for the reduced tax rate because their property was predominantly used in the business of farming. The farm use qualifies as predominant for the entire 30 acres because their farm use was more than 50 percent, but less than 80 percent and the 33 percent (10 acres/30 acres) not used for farming was incidental.

Example 5: Deborah sold 20 acres of land. While she owned the land, she leased out 15 acres to a farmer who grew crops. She used the remaining 5 acres as a motor cross training area where she ran a business giving riding lessons and charging people to use it for practice. Assuming Deborah meets the other three tests, the 15 acres used for farming qualifies for the reduced tax rate. If Deborah had used the 5 acres for personal use instead of a separate business, she still would qualify for the reduced tax rate on the 15 acres used for farming.

Example 6: Lois inherited some land 20 years ago. At that time, a farmer was leasing the land and continued to farm the land until he retired 5 years later. For the last 15 years, Lois held the land for investment and did not use the land in the trade or business of farming. Lois does not qualify for the reduced tax rate because she only used the property in the business of farming for 25 percent of the time she owned it (5/20 years = .25 or 25%).

(5) Relationship test. The gain from the sale of an asset does not qualify for the reduced tax rate if the asset is sold to a related taxpayer under IRC section 267 even if all of the other three tests are met.

Example 7: Claudia and Janie are cousins who own a farm together as a partnership. They decide to sell the business to Darren, Claudia’s brother (and Janie’s cousin). Assume the sale meets the other three tests. Janie’s qualifying capital gain is eligible for the reduced tax rate. Claudia’s capital gain is not eligible because Darren is a related party according to IRC section 267.

(6) Termination Test. If a taxpayer sold the taxpayer’s interest in a trade or business that is engaged in farming, the taxpayer may not be directly or indirectly engaged in that farming trade or business. The sale of the taxpayer’s interests through an installment sale constitutes a substantially complete termination for purposes of ORS 316.045 and this rule. A taxpayer has substantially terminated his interests in the trade or business of farming even though the taxpayer retained a portion of the farm for personal use.

Example 8: Rich and Darcy own 20 acres. They grow corn and squash on 15 acres, and have a five-acre apple orchard. They operate their orchard and crops as one business. They sell the five-acre apple orchard for a gain of $50,000 and retain the other 15 acres. The gain from the sale of the apple orchard does not qualify for the reduced rate because they did not substantially terminate all of their interests in a trade or business engaged in farming. If Rich and Darcy had sold the entire business including all of their property used in the trade or business of farming and the other three tests were met, the gain from the sale would qualify for the reduced tax rate.

Example 9: Bill and Sharon owned a dairy operation and a hops farm. The two businesses were completely separate. They had separate employees, equipment, and records. The two businesses also had different names, records, and federal identification numbers. Bill and Sharon sold the dairy farm. After selling all of their dairy equipment and dairy cows (Holstein), they realized a capital gain of $350,000. They decided not to sell the hops farm. Their gain on the sale of the dairy operation qualifies for the reduced tax rate. Even though Bill and Sharon still own the hops farm, they have sold their entire dairy business.

Example 10: Shawn sold 18 of his 20 acres in which he farmed Christmas Trees. The 2 acres Shawn still owns are for personal use and he does not sell the trees produced on his personal farm. Assuming the other three tests are met, Shawn is no longer in the business of farming and he qualifies for the reduced tax rate on the capital gain from the sale.

(7) A sale that includes the farm dwelling or homesite. The sale of a homesite and the land and structures consistently and routinely used in conjunction with the home at the same time as the sale of a farming activity requires allocation of the gain between the homesite and the other assets. The proceeds from the sale of the homesite is not property employed in the trade or business of farming and do not qualify for the reduced tax rate.

Example 11: Homer and Ruth raised various crops on 80 acres of farmland they owned. Homer and Ruth lived close to town so they rented the farm home that was located on a parcel next to the acreage. Homer and Ruth retired from the farming business and sold the farmland and the rental for a gain of $1 million ($400,000 attributed to the farmland and $600,000 attributed to the homesite and structures and land associated with the homesite). Because the sale of the 80 acres met each of the four tests, the $400,000 capital gain from the sale of the farmland qualifies for the reduced tax rate. The proceeds from the sale of the rental do not qualify for the reduced rate because rental real estate is not employed in the trade or business of farming.

Example 12: Assume the same facts as Example 11 except that when Homer and Ruth sold the farm, they had lived in the home that was adjacent to the farmland for the entire twenty-five years. The gain from the sale that is attributable to the farmland, or $400,000, qualifies for the reduced rate. The gain of $600,000 on the sale of the residence does not qualify for the reduced rate; however, a portion of it may qualify for the principal residence exclusion under IRC section 121.

(8) Depreciation Recapture. IRC section 1231 gain may be treated as ordinary income under IRC sections 1245 and 1250 recapture rules. If the capital asset is subject to depreciation recapture under IRC sections 1245 or 1250, the portion of the gain that is treated as ordinary income does not qualify for the reduced tax rate.

Example 13: Frank sold his farm, which included three silos, and all four tests were met. The silos are capital assets subject to IRC section 1245 recapture. The part of the gain from the sale of the silos that is treated as ordinary income is not eligible for the reduced tax rate. However, the part of the gain from the sale of the silos that is treated as long-term capital gain on the federal return is eligible for the reduced tax rate on the Oregon return.

(9) Capital loss. If all four tests are met and the taxpayer is reporting a capital loss, it could affect the capital gain eligible for the reduced tax rate. Compute the net capital gain or loss from all other property sales or exchanges for the year that are taxable to Oregon. If this is a net capital loss, the amount eligible for the reduced tax rate is the qualifying farm capital gain minus the net capital loss from other property sales or exchanges taxable to Oregon.

Example 14: Ron sold his farming business for a net long-term capital gain of $800,000. During the year, he also sold other property for a net capital loss of $150,000. Assuming his sale of a farm business meets all four tests, he is only eligible for the reduced tax rate on $650,000 (net farm long-term capital gain minus other net capital loss) of his taxable income.

(10) Installment Method under IRC ¦453. Installment sales are eligible for the reduced tax rate if the sale meets all four tests as explained in section (2) of this rule. The amount of capital gain eligible for the reduced tax rate must be determined each year. The percentage of gain eligible for the reduced tax rate is equal to the qualifying farm long-term capital gain from the sale divided by all capital gain from the sale. Apply this percentage to the capital gain from the sale reported each year to determine the amount that qualifies for the reduced tax rate. If there is capital loss from the sale of other property as described in section (9) of this rule, during a tax year that the installment sale is reported, this may reduce the gain eligible for the reduced tax rate.

Example 15: Larry sells his farm in 2007 and meets all four tests to receive the reduced tax rate. He elects to recognize the income from the sale using the installment method under IRC ¦453. Larry will receive half of the sale price in 2007 and one-fourth of the sale price each in 2008 and 2009 plus interest. Of the capital gain from the sale, $300,000 qualifies for the reduced tax rate and $100,000 does not. Larry’s percentage eligible for the reduced tax rate is $300,000 of eligible capital gain divided by $400,000 of total capital gain, or 75 percent. The buyer also paid interest to Larry, but it is claimed separately on the return. In 2007, Larry will claim his capital gain from the sale of $200,000. Of that amount, 75 percent or $150,000 is eligible for the reduced tax rate. In 2008 and 2009, Larry will claim the farm capital gain rate for $75,000 ($100,000 x 75 percent) of capital gain from the sale reported each year.

Example 16: Assume the same facts as example 15 except that Larry has a net capital loss of $40,000 in 2008 from the sale of other property. In 2008, the amount eligible for the reduced tax rate is $35,000 (qualifying net long-term capital gain minus other capital loss) of his capital gain.

(11) Like-kind Exchanges. Like-kind exchanges may be eligible for the reduced tax rate when the gain is recognized assuming all four tests are met. The taxpayer must keep detailed records to show that the property would have qualified for the reduced tax rate if it had been a sale instead of an exchange.

Example 17: Morgan had farmland and decided to exchange it for land that he wants to hold for investment. The exchange meets all four tests. If Morgan had sold the property, he would have had capital gain of $400,000 that would have qualified for the reduced tax rate. Later Morgan sells the investment property and claims capital gain of $700,000. Of this amount, $400,000 is eligible for the reduced tax rate for farm capital gain, because it would have been eligible if he had not deferred it.

(12) Sale of property by pass-through entities. Trust, partnership, or S corporation sale of farm property may be eligible for the reduced tax rate. To qualify, each individual beneficiary, partner, or shareholder (as the case may be) must meet all four tests as described in section (2) of this rule.

Example 18: Becky, Martha, and Jessica are equal owners of a partnership. The partnership sold its only farm property to Jessica’s father for a gain of $600,000. The sale was to a related party of Jessica, so Jessica does not meet all four tests even though her father was not a related party to the partnership. Becky and Martha are eligible for the reduced tax rate for their share of the gain. If the partnership still owned other farm property that was part of the same farm business as the property that was sold, none of the owners would be eligible for the reduced tax rate.

Example 19: Kendra owns 5 percent of an S-corporation that owns a cattle ranch and a crop operation. The cattle ranch and crop operation are completely separate businesses. The S-corporation sold the cattle ranch to a party unrelated to Kendra. The 1231 gain from the sale of a farming business flows through to Kendra and she is eligible for the reduced tax rate.

(13) Sale of interest in pass-through entity. Sale of interest in a pass-through entity (partnership or S-corporation) that is in the business of farming, may qualify for the reduced tax rate. All four tests must be met and the taxpayer must be a 10 percent owner of the pass-through entity to qualify. Assuming all four tests are met, the amount of gain eligible for the reduced tax rate is the amount of farming business of the entity divided by all business of the entity. The amount of capital gain eligible for the reduced tax rate can be determined using the “income method.” The taxpayer may use a different method if the department determines it reasonably reflects the entity’s income and expenses.

(a) Income method is the entity’s farm income divided by the entity’s total income as shown on the partnership or S-corporation return the year the interest is sold. Multiply this percentage by the capital gain reported from the sale of interest in the entity.

Example 20: Ian sold his entire partnership interest of 25 percent to an unrelated party during the year. The partnership had various businesses, most were farming activities, but some were not. That year, the partnership reported farming income of $600,000 and total income of $800,000. Ian will report his share of the partnership income before the sale and the long-term capital gain from the sale of his interest in the partnership. Of the long-term capital gain from the sale, 75 percent ($600,000 divided by $800,000) qualifies for the reduced tax rate.

Example 21: Darlene owned shares in an S-corporation that were 10 percent of the total shares. The S-corporation sold a partnership that grew crops. The S-corporation owned 50 percent of the partnership and sold all of its interests. The partnership interest was sold to someone unrelated to Darlene and Darlene has no other interests in the partnership. The gain from Darlene’s ownership interest in the partnership does not qualify for the reduced tax rate. Darlene was only a 5 percent owner of the partnership (10% x 50% = 5%). If the S-corporation had owned the business, Darlene would have been eligible for the reduced rate on her portion of the 1231 gain.

(14) Sale in more than one tax year. Prior-year sales of farm property or a farming business sold over more than one year may be eligible for the reduced tax rate. It can take more than one year to sell a farming business or all of a taxpayer’s property used in farming because the property is sold to more than one buyer. To qualify for the reduced tax rate, all farm property (or all property from a farming business) must be actively for sale from the year of the first sale until the year of the final sale. Each sale is separately considered to see if it meets the requirements to qualify for the reduced tax rate, but all farm property or property from a farming business must be sold within a reasonable amount of time (usually no more than three tax years from the first sale to the final sale of qualifying farm property) for any of the prior year sales to qualify. The reduced tax rate on the prior year sales cannot be claimed until the taxpayer has sold all farm property or all property from a farming business. A property is “actively for sale” if the property was listed and advertised for sale for a price comparable to similar properties and the seller did not reject reasonable offers.

Example 22: Deanna wants to retire from farming. She owns 100 acres of farmland in four different locations all run as one business and all property is actively for sale. She sells 20 acres to an unrelated neighbor in 2006. She files her 2006 tax return and cannot claim the reduced tax rate on the gain because she is not out of the business of farming. In 2007, she gave one farm to her daughter and sold one farm to an unrelated party. She files her 2007 tax return and again cannot claim the reduced tax rate because she is still in the business of farming. Finally, in September 2008 Deanna sells the remaining farmland and equipment and is out of the business of farming. The long-term capital gain from three of the sales qualifies for the reduced tax rate because the property was actively for sale the entire time. The gift to a related party does not stop the other sales from qualifying for the reduced tax rate. Deanna may now amend her tax returns for 2006 and 2007 and claim the reduced tax rate on the qualifying capital gain from the earlier sales that qualify.

Example 23: Gary owned two farms and operated them as one business. He sold one of his farms in March 2006 to the farmer who had been leasing the property. In 2007, his health worsened and he decided to retire from farming and put his remaining farm up for sale. In 2008, he finds a buyer and sells the remaining farm and equipment. The sale in 2006 does not qualify for the reduced tax rate because Gary did not have his remaining farm property actively for sale and he had not sold all of the property from his farming business. The sale in 2008 does qualify for the reduced tax rate because Gary is now out of the business of farming.

(15) Sold farm property and then bought another. If a taxpayer sells farm property and then buys other farm property, they may qualify for the reduced tax rate. The taxpayer must meet all four tests as described in section (2) of this rule with the sale of farm property before purchasing other farm property to qualify for the reduced tax rate.

Example 24: Jeanine sold her farm and equipment so she could start a retail business. After difficulty getting started, she decided to go back to farming and purchased another farm. Jeanine qualifies for the reduced tax rate because she had completely terminated her interest in property used in farming at the time of the sale and met the other tests.

Example 25: Frances put her farm up for sale, but before it sold, her father died and she inherited some of his farming property. She decided not to sell the inherited property, but to continue to farm it as a separate business after her original farm was sold. Frances qualifies for the reduced tax rate because she sold a farming business.

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

Stat. Auth.: ORS 305.100, 316.045
Stats. Implemented: ORS 316.045
Hist.: REV 6-2008, f. 8-29-08, cert. ef. 8-31-08

150-316.047-(A)

Transitional Provision to Prevent Doubling Income or Deductions

This section allows and requires adjustments to the taxpayer's net income to alleviate inconsistent treatment of income and deductions resulting from the transition from the Personal Income Tax Act of 1953 to the Internal Revenue Code.

The section allows and requires adjustments to prevent income items from being doubly taxed and deduction items from being deducted twice. In addition adjustments are allowed or required to prevent income from escaping taxation or the loss of a deduction due to the inconsistent treatment.

This section will not apply unless it can be shown that failure to allow or require an adjustment will result in the taxation of income or allowance of a deduction that had already entered into the computation of Oregon income in years beginning prior to January 1, 1969, or, failure to allow or require an adjustment will result in income escaping taxation or loss of a deduction that had already entered into the computation of federal income in years beginning prior to January 1, 1969 and would have been taxed or deducted on an Oregon return if it were not for the change in the Oregon Law. This section does not allow or require adjustments to account for items that are not solely transitional, viz., it does not allow or require adjustments for items of income or deductions not otherwise taxable or deductible under the Internal Revenue Code in years beginning prior to January 1, 1969 or beginning on and after January 1, 1969.

Example (1). Federal taxes on telephone and telegraph tolls were deductible in years beginning prior to January 1, 1969 for Oregon purposes under the Personal Income Tax Act of 1953. They are not deductible under the Internal Revenue Code and, therefore, not deductible for Oregon purposes for tax years beginning on or after January 1, 1969.

No adjustment is allowed under ORS 316.047 to deduct these taxes for Oregon purposes. The item is not transitional. They were not deductible under the Internal Revenue Code for tax years beginning before January 1, 1969 nor for tax years beginning on or after January 1, 1969.

Example (2). A net operating loss as defined in section 172, Internal Revenue Code, was realized in 1968 for both state and federal purposes. The loss was carried back three years and deducted for federal purposes with none to be carried forward to subsequent years. Oregon law for tax years beginning prior to January 1, 1969 allowed a five year carry-forward and no carry-back. An adjustment is allowed under this section to carry the net operating loss forward for five years. The amount of the net operating loss and the amount deductible in each year shall be determined under section 172, Internal Revenue Code, without regard to the carry-back provisions. This is a deduction that had entered into the computation of federal net income in years beginning prior to January 1, 1969 and would have been deducted on an Oregon return if it were not for the change in the Oregon law.

[Publications: Publications referenced in this rule are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.047
Hist.: 1-69; 11-73; 12-19-75

Computation of Taxable Income
(Generally)

150-316.048

Taxable Income of Resident

(1) Definition. The taxable income of a resident of this state is taxable income as defined in the laws of the United States, modified and adjusted by ORS Chapter 316 and other laws of this state applicable to personal income taxation. Such laws have the general effect of incorporating all the provisions of the federal Internal Revenue Code with regard to the measurement of personal taxable income except as otherwise specifically provided by Oregon law. For example, the Oregon standard deduction is not deductible in the same amount as the federal standard deduction amount.

(2) Oregon Adjusted Gross Income Defined.

(a) For tax years beginning prior to January 1, 1985, Oregon adjusted gross income is federal adjusted gross income as defined under IRC Section 62 as of the dates specified in ORS 316.012. Oregon adjusted gross income incorporates any differences between the federal definition of adjusted gross income and the Oregon definition of adjusted gross income for any given year.

(b) For tax years beginning after December 31, 1984, Oregon adjusted gross income is federal adjusted gross income without any of the modifications, additions, or subtractions required under ORS Chapter 316.

(3) Transfers of property between spouses or incident to divorce. The transfer of property from one spouse to another incident to a divorce property settlement is considered a nontaxable event for Oregon purposes. The basis of the property transferred in the hands of the transferor shall carry over and become the basis of the property in the hands of the transferee.

(4) Community property income. An Oregon resident whose spouse resides in a community property state is taxable upon the share of the spouse's community property income that is considered earned by the Oregon resident according to the laws of the community property state. Credit for taxes paid to another state under ORS 316.082 is allowed to Oregon residents whose share of community property income is taxed by Oregon and another state. See ORS 316.082 and the rules thereunder for computation of the credit.

Example 1: Van and Lisa are married. Lisa lives and works in Salem, Oregon. Van lives and works in Seattle, Washington. Van and Lisa each deposit their separate paychecks into a joint Oregon checking account that is used to pay living expenses for both of them. They visit each other frequently. They are not permanently separated by a legal decree and have no intention of filing for divorce. Under Washington law, all property acquired after marriage by either husband or wife or both, other than by gift, bequest or inheritance, is community property. Because Van's wages are community property under Washington law, and Van and Lisa are not permanently separated, Lisa must include one-half of Van's Washington earnings in Oregon income. Lisa may not claim a credit for taxes paid to another state because there is no state income tax imposed on the earnings by both Oregon and Washington.

Example 2: Juan and Maria are married. Juan receives a promotion and moves to Boise, Idaho, to live and work until retirement. Maria stays in Medford, Oregon, and continues her job until she can retire in five years. They are not permanently separated by a legal decree and have no intention of filing for divorce. Under Idaho law, earnings of spouses domiciled in Idaho are community property absent a written agreement that provides otherwise. Since Juan and Maria are not permanently separated and have not agreed to treat their earnings as separate income, Maria must include one-half of Juan's Idaho wages in her Oregon income. Maria would be entitled to claim credit for taxes paid to another state based on the income that is taxed by both Oregon and Idaho.

(5) Distribution of a trust's income accumulation. See ORS 316.737 and OAR 150-316.737 for the treatment of trust income accumulation distributions.

(6) Retirement benefit plans.

(a) Resident taxpayers must include in Oregon taxable income all amounts received from retirement benefit plans. For tax years beginning on or after January 1, 1996, and before January 1, 2000, nonresidents are not taxed by Oregon on retirement income. For tax years beginning after December 31, 1999, nonresidents who retain their Oregon domicile are taxable on Oregon source retirement income. See ORS 316.127(a).

(b) Conversion of a traditional IRA to a Roth IRA under IRC Section 408A is deemed a distribution for federal tax purposes. The amount included in federal taxable income is taxable to an Oregon resident. A taxpayer who is an Oregon resident for a part of tax year 1998 and who elects to recognize the conversion amount over four years, must include a prorated amount in Oregon income. If the election to recognize income over four years is not made, the converted amount must be included in income if the taxpayer is an Oregon resident at the date of conversion.

Example 1: Sam was a resident of Nevada at the time he converted his traditional IRA to a Roth IRA in 1998. The total amount of the 1998 distribution was $2,000. Sam will recognize the IRA distribution over the four-year period beginning with 1998. In Oct. 1, 1999, Sam established permanent residency in Oregon. The 1998 IRA distribution will be recognized in taxable income as follows: [Table not included. See ED. NOTE.]

(c) Conversion of traditional IRAs to Roth IRAs after 1998. For tax years after 1998, converted amounts must be included in Oregon taxable income if, at the time the conversion is made, the taxpayer is an Oregon resident.

[ED NOTE: Tables referenced in this rule are available from the agency.]

[Publications: Publication(s) referenced are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.048
Hist.: 1-69; 12-70; 11-73; 12-19-75; 1-1-77; TC 9-1978, f. 12-5-78, cert. ef. 12-31-78, Renumbered from 150-316.062; ; 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 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; 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 7-1998, f. 11-13-98 cert. ef. 12-31-98; REV 9-1999, f. 12-30-99, cert. ef. 12-31-99; REV 1-2001, f. 7-31-01, cert. ef. 8-1-01

150-316.054

Social Security and Railroad Retirement Benefits Eligible for Subtraction

A subtraction from federal taxable income is allowed for social security and tier I railroad retirement benefits as defined under Internal Revenue Code Section 86. Other benefits paid by the Railroad Retirement Board (tier II, windfall, vested dual, supplemental annuities, unemployment, and sickness) are also allowed as a subtraction from federal taxable income. In all cases, the subtraction is allowed only to the extent that such benefits are included in federal taxable income.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.054
Hist.: RD 7-1993, f. 12-30-93, cert. ef. 12-31-93; REV 4-2003, f. & cert. ef. 12-31-03

Credits

150-316.078

Oregon Child Care Credit

(1) For tax years beginning on or after December 31, 1988, the credit allowed under ORS 316.078 shall be based on a percentage of the qualifying employment related expenses allowed by Section 21 of the Internal Revenue Code. The percentage is determined by federal taxable income, as shown in the table under ORS 316.078.

When calculating the Oregon child care credit, taxpayers must use the same employment related expenses used for calculating the federal credit, subject to the same limitations and eligibility requirements outlined in the IRC Section 21. However, it is not necessary to claim the federal child care credit in order to claim the credit for Oregon.

Any credit allowable under ORS 316.078 that is not used may be carried forward for up to five years.

Example 1: Bill and Martha are married and file a joint return. They have federal taxable income of $12,000 in 1989. Using IRC Section 21 guidelines, they determine they have $1,500 qualifying employment related expenses. Using the table in ORS 316.078, Bill and Martha compute an allowable Oregon child care credit in the amount of $120 (8 percent of $1,500). Bill and Martha have a 1989 tax liability of $105. Since their Oregon child care credit exceeds their tax liability, they may carryforward the $15 excess to 1990. They must use the carryforward credit by tax year 1994.

(2) For tax years beginning after December 31, 1986, and before January 1, 1989, the Oregon credit is equal to 40 percent of the "allowable federal credit." The allowable federal credit is the credit computed under Section 21 of the Internal Revenue Code, not the amount actually used to reduce the federal tax liability. The allowable federal credit may be greater than the amount actually claimed on the federal return.

(3) For tax years beginning after December 31, 1984, and before January 1, 1987, the Oregon credit is limited to 40 percent of the "allowed federal credit." The allowed federal credit is the amount actually claimed on the federal return which reduces the federal tax liability (but not below zero). The allowed federal credit may be less than the allowable federal credit. "Federal tax liability" has the same meaning as under Section 26 of the Internal Revenue Code.

(4) For tax years beginning after December 31, 1984 and before January 1, 1987, if the taxpayer would be allowed to claim a credit under ORS 316.078 and ORS 316.087, the taxpayer may choose whichever of the amounts allowable pursuant to these statutes is to be applied against the Oregon tax liability.

Example 2: Joan and Jerry are married and file a joint income tax return. They have a federal tax liability (before any federal credits) of $200 for their 1985 tax year. In addition, they compute that they are allowed a federal credit for the elderly of $175 and a federal child care credit of $250. Joan and Jerry would figure the maximum credit allowable of $80 to apply against their Oregon tax liability as follows. [Example not included. See ED. NOTE.]

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

[Publications: Publications referenced in this rule is available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.078
Hist.: Repealed by TC 8-1980, f. 11-28-80, cert. ef. 12-31-80; 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

150-316.079

Credit for Loss of Use of Limb(s); Substantiation

For tax years beginning on or after January 1, 1994. A Disability Certification form shall be obtained from the county public health officer the first year the credit is claimed. This form should not be attached to the tax return, but shall be kept with the taxpayer's records. Upon audit or examination, the information shall be made available to the department to verify any credit claimed under this section

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.079
Hist.: RD 3-1995, f. 12-29-95, cert. ef. 12-31-95

150-316.082(1)-(A)

Credit for Income Taxes Paid to Another State

(1) General: A taxpayer may claim a credit against income tax imposed under Chapter 316 when:

(a) Another state has jurisdiction to impose an income tax; and

(b) The other state imposes an income tax on an item of income that is also subject to Oregon tax.

(2) The credit may only be used to reduce tax and cannot be claimed as an offset against interest or penalty charges imposed by Oregon.

(3) The credit is limited to taxes imposed upon income, but may be claimed with respect to gross income taxes as well as net income taxes.

(4) Definitions. For purposes of ORS 316.082 and ORS 316.131:

(a) "Income tax" means either a gross income tax, a net income tax, or an excise tax or franchise tax that is measured by income of an S corporation.

(b) "Gross income tax" means a tax imposed on gross income.

(c) "Gross income" generally means gross receipts less cost of goods sold, and is further defined in U.S. Treasury Regulation Section 1.61-3.

(d) "State" includes the Commonwealth of Puerto Rico, and a territory or possession of the United States.

(5) Payments for which a credit is not allowed include, but are not limited to:

(a) Taxes imposed on gross receipts, gross revenue, or gross sales (e.g. Washington Business and Occupation Tax);

(b) Property, transactions, sales or consumption taxes;

(c) Amounts paid for the privilege of doing business unless imposed upon income or measured by an S corporation's income;

(d) Interest or penalties paid in connection with a law imposing an income tax;

(e) Amounts paid as a minimum tax unless imposed upon or measured by income. Idaho's Permanent Building Fund tax is an example of a minimum tax that is not imposed upon or measured by income.

Example 1: An Oregon S corporation with net income of $5,000 paid California franchise tax of $800, the minimum tax amount for a corporation doing business in California. If the California franchise tax rate were 9.3%, $465 ($5,000 x .093) would qualify as other state income tax for purposes of this credit. The balance of $335 ($800-445) is not an income tax paid to another state, because it is a minimum tax that is imposed without regard to income of the corporation.

(f) The Texas franchise tax to the extent the tax is based on net taxable capital. Credit may be allowed on the portion of the total franchise tax that is considered imposed on net taxable earned surplus.

Example 2: Ivan is a shareholder in Ronco, an Oregon S Corporation. Ronco pays a Texas franchise tax of $3,600. The franchise tax is composed of a tax on net taxable capital of $500 ($200,000 of net taxable capital times 0.25 percent) and a tax on net taxable earned surplus of $3,100 ($80,000 of net taxable earned surplus times 4.5 percent, less the amount of the tax on net taxable capital). Only the $3,100 qualifies as a tax based on income for purposes of figuring the credit for taxes paid to another state.

(6) A minimum tax is not considered imposed on or measured by income solely because income must rise to a certain level for the tax to apply.

Example 3: Assume State X allows a deduction for capital gains equal to 50% of such gains. If a taxpayer's adjusted gross income exceeds $250,000, then State X imposes a minimum tax equal to 3% of the deduction. State X's minimum tax is not considered a tax imposed on or measured by income for purposes of ORS 316.082.

(7) The burden of proving that credit is due must be assumed by the taxpayer.

[Publications: The publication(s) referred to or incorporated by reference in this rule is available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.082
Hist.: 12-31-93; REV 5-2000, f. & cert. ef. 8-3-00

150-316.082(1)-(B)

Credit for Taxes Paid to Another State When Paid by a Pass-Through Entity

(1) An individual who owns an interest in a pass-through entity may claim a credit for tax paid to another state by the entity if:

(a) The individual is an Oregon resident;

(b) The portion of the tax for which credit is claimed is computed upon the proportionate share of the entity's income which is taxable to the individual under ORS 316.048; and

(c) An addition is made on the individual's Oregon return for the individual’s share of any tax paid or accrued, that relates to the credit taken, and that is deducted on the entity’s or individual’s federal income tax return in determining federal taxable income.

(2) The individual must attach a statement to the Oregon return on which the credit is claimed showing:

(a) The amount(s) of mutually taxed income, tax paid, and credit claimed for each state; and

(b) The tax year(s) the taxes were due and the date(s) the entity paid the taxes for those states.

(3) The individual must compute the amount of the credit under the provisions of OAR 150-316.082(2).

(4) "Pass-through entity" means a corporation, partnership, or limited liability company that is characterized for Oregon excise and income tax purposes as an S corporation or as a partnership.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.082
Hist.: 10-5-87, 12-31-87, Renumbered from 150-316.082(1); 12-31-93; RD 5-1997, f. 12-12-97, cert. ef. 12-31-97; REV 7-1998, f. 11-13-98, cert. ef. 12-31-98; REV 5-2000, f. & cert. ef. 8-3-00; REV 19-2008, f. 12-26-08, cert. ef. 1-1-09

150-316.082(2)

Credit for Income Taxes Paid to Another State -- Computation

(1) General: This rule explains the computation of the credit for taxes paid to another state on mutually taxed income.

(a) Residents: An Oregon resident is allowed a credit for taxes paid to another state on mutually taxed income if the other state does not allow the credit. See section (3) of this rule for information on calculating the credit for an Oregon resident.

Example 1: Bob, an Oregon resident, receives partnership income derived from Virginia sources and joins in a multiple nonresident filing with that state. If Virginia does not allow a credit for taxes paid to Oregon on the multiple nonresident tax return, then Bob may claim a credit on the Oregon resident return.

Example 2: Elizabeth, an Oregon resident, receives income from California property. Because California allows Oregon residents to claim a credit for mutually taxed income on the California nonresident return, Elizabeth is not allowed to claim the credit on the Oregon resident return.

(b) Nonresidents: Under ORS 316.131, an Oregon nonresident is allowed the credit if the state of residence allows Oregon residents to claim a credit for mutually taxed income on the nonresident return filed with that state. See section (4) of this rule for information on calculating the credit for an Oregon nonresident.

(c) Part-year residents: A person who is a resident for a part of the taxable year and a nonresident for the rest of the year figures the credit under section (3) of this rule for the portion of the year the individual was a resident and under section (4) of this rule for the nonresident portion of the year.

(2) Definitions. For purposes of this rule, the following definitions apply:

(a) "Adjusted gross income" means federal adjusted gross income as defined in the Internal Revenue Code section 62 and the corresponding regulations.

(b) "Modified adjusted gross income" means adjusted gross income as modified under ORS Chapter 316, but only as to items related to federal adjusted gross income.

(c) "Items related to federal adjusted gross income" means items of income, gain, loss, exclusion or deduction that are used to arrive at federal adjusted gross income. It does not include items that are unrelated to determining federal adjusted gross income, such as the federal income tax subtraction under ORS 316.695 or the additional medical expense deduction provided by ORS 316.695(1)(d)(B).

Example 3: Jon, an Oregon resident, has $40,000 of adjusted gross income, including $10,000 of rental income taxed both by Oregon and another state. Jon also receives a lump-sum distribution of $8,000 from a private pension plan. Because Jon chooses to use the 5-year averaging method to compute federal tax on the distribution, the $8,000 is not included in his adjusted gross income of $40,000. Jon computes modified adjusted gross income as follows:

$40,000 -- Adjusted Gross Income

(5,000) -- Less - U.S. Bond Interest

(2,000) -- Less - Civil Service Retirement (pre 10/1/1991 service)

17,000 -- Add - California Municipal Bond Interest

8,000 -- Add - Pension distribution

$58,000 -- Modified Adjusted Gross Income

(d) "Mutually taxed income" means that portion of modified adjusted gross income that is both reported to and taxed by Oregon and another state.

Example 4: Matt, an Oregon resident, reports adjusted gross income of $21,000, including gain on the sale of Hawaii property of $5,000. For Hawaii tax purposes, the $5,000 gain is increased by a basis adjustment of $250. For Oregon tax purposes, the gain is reduced by a basis adjustment of $1,000. Matt's modified adjusted gross income is $20,000, ($21,000 of adjusted gross income less the $1,000 Oregon basis adjustment.) The mutually taxed income is $4,000 ($5,000 gain on sale of Hawaii property less the $1,000 Oregon basis adjustment), which is the amount of modified adjusted gross income that is taxed by both Hawaii and Oregon.

Example 5: Assume the same facts as Example 4, except that both Hawaii and Oregon require a basis adjustment that increases the gain by $1,000. In this case, the mutually taxed income is $6,000 ($5,000 gain on sale of Hawaii property plus the $1,000 basis adjustment for both Oregon and Hawaii.)

Example 6: Verne, an Oregon resident, sold property that he owned in Colorado for a gain of $128,000. On Verne's Oregon resident return, Oregon allowed $100,000 of losses against the $128,000 of income. Colorado did not allow the losses to be offset or deducted because the losses were not Colorado-sourced losses. Thus, Colorado taxed the entire $128,000 gain. The amount of mutually taxed income is $28,000 because that is the amount of gain upon which tax is actually calculated by both states.

(e) "Total income on the return of the other state" means the other state's taxable income plus any amounts subtracted for itemized deductions, a standard deduction, or exemptions.

(f) "Net tax" means state income tax liability (whether Oregon or the other state) after all credits except the credit for taxes paid to another state.

(g) "Oregon tax based on mutually taxed income" means that portion of Oregon net tax that is attributable to mutually taxed income. It is figured using this formula:

(A ÷ B) x C = D, where

A = mutually taxed income

B = modified adjusted gross income

C = Oregon net tax

D = Oregon tax based on mutually taxed income.

(h) "Other state's tax based on mutually taxed income" means that portion of net tax of the other state that is attributable to mutually taxed income. It is figured using this formula:

(A ÷ E) x F = G, where

A = mutually taxed income

E = total income on the return of the other state

F = other state's net tax

G = other state's tax based on mutually taxed income.

(3) Computing the credit for an Oregon resident. An Oregon resident figures the credit as the lesser of:

(a) The Oregon tax based on mutually taxed income; or

(b) The tax actually paid to the other state.

Example 7: Jim's modified adjusted gross income of $40,000 includes rental income taxed to Idaho and Oregon of $4,000. His Oregon net tax is $2,000 and his Idaho net tax (not including the Idaho Building Fund tax) is $100. Jim figures his allowable credit as follows:

(Mutually taxed income ÷ modified adjusted gross income) x net Oregon tax = Oregon tax based on mutually taxed income.

($4,000 ÷ 40,000) x $2,000 = $200

Jim's allowable credit is $100, which is the lesser of the Oregon tax based on mutually taxed income or the income tax actually paid to Idaho of $100.

(4) Computing the credit for a nonresident. The credit allowed to a nonresident is the lesser of the following amounts:

(a) Oregon tax based on mutually taxed income (as defined under (2)(g));

(b) The other state's tax based on mutually taxed income (as defined under (2)(h));

(c) The tax actually paid to the other state; or

(d) Oregon net tax.

Example 8: Dieter is a California resident with total income of $50,000 sourced to Oregon and Idaho. He files an Oregon nonresident return reporting $20,000 of income and $1,800 of tax; an Idaho nonresident return reporting $30,000 of income and $2,700 of tax; and a California resident return reporting $50,000 of income and $4,000 of tax. Dieter figures his allowable credit as follows:

(a) Oregon tax based on mutually taxed income equals $1,800 [($20,000 ÷ 20,000) x 1,800 = $1,800].

(b) California tax based on mutually taxed income equals $1,600 [($20,000 ÷ 50,000) x 4,000 = $1,600].

(c) Tax actually paid to California equals $4,000.

(d) Oregon net tax equals $1,800.

Dieter's credit on the Oregon nonresident return is $1,600, which is the lesser of these amounts.

(5) Special Filing Status. Filing status may affect the computation of the credit allowed by ORS 316.082. If a husband and wife file separate returns for Oregon and also file separate returns for another state, the credit is limited. Each spouse may claim only his or her portion of the actual taxes he or she paid to the other state (subject to all other limitations provided under this rule) in computing the allowable credit.

(6) If one spouse is a resident of Oregon and the other is a resident of a community property state and files a separate return in that state, the Oregon resident may be entitled to a credit for taxes paid to the other state on mutually taxed income. For purposes of this rule, the mutually taxed income is that which is earned and reported to the other state by the nonresident but included in the income of the Oregon resident by virtue of the laws of the community property state. The amount of the other state's tax paid on mutually taxed income is determined using the following ratio:

(Separate spouse's mutually taxed income ÷ total income on other state's return) x other state's net tax.

Example 9: Bruce is an Oregon resident; his wife, Sue, is an Idaho resident. Each files a separate state tax return for Oregon. If Idaho, as a community property state, finds that each spouse has a one-half interest in the earnings of the other spouse, then Bruce is considered to have earned one-half of Sue's earnings. Under Oregon law, Bruce is taxable by Oregon on all of his individual earnings, plus his one-half interest in Sue's earnings. Because Bruce is being taxed by Idaho and Oregon on the same item of income, he is entitled to claim a credit on the Oregon tax return based on the mutually taxed income.

(7) If a husband and wife file a joint return for Oregon, the entire amount of taxes either or both spouse paid to the other state (subject to all other limitations provided under this rule) may be claimed for purposes of computing the credit allowed under this statute. It does not matter which filing status the taxpayers use for the other state.

(8) If a husband and wife file separate returns for Oregon but file a joint return for another state, the allowable credit is limited as follows. Each spouse may claim a credit for taxes paid to another state (subject to all other limitations provided under this rule) based on the following ratio:

(Separate spouse's mutually taxed income ÷ total income on other state's return) x other state's net tax.

Example 10: Mark and Beth are part-year residents who elect to file separate Oregon returns and a joint Idaho return. Mark has $2,000 income taxed by both Oregon and Idaho and Beth has $8,000 income taxed by both Oregon and Idaho. The total income taxed by Idaho is $40,000 and the total Idaho income tax liability is $2,400. The amount of Idaho taxes Mark may use in computing his credit is $120 ($2,000 ÷ $40,000 x $2,400). The amount of Idaho taxes Beth may use in computing her credit is $480 ($8,000 ÷ $40,000 x $2,400).

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

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.082
Hist.: 12-31-93; REV 5-2000, f. & cert. ef. 8-3-00; REV 12-2000, f. 12-29-00, cert. ef. 12-31-00; REV 3-2006, f. & cert. ef. 7-31-06

150-316.082(3)

Credit for Income Taxes Paid to Other States -- Proof Required and Procedure for Obtaining the Credit

(1) The taxpayer must attach the following items to the Oregon return on which the credit is claimed:

(a) A complete copy of the other state's income tax return; and

(b) Proof of payment of the tax, such as:

(A) A copy of the check written to pay the tax at the time the other state's return is filed;

(B) Copies of W-2 statements verifying withholding paid to the other state;

(C) A copy of a cashier's check or other negotiable instrument;

(D) A copy of a canceled check showing payment of tax or estimated tax payments; or

(E) A receipt of tax payment.

(2) If the taxpayer is required to amend per subsection (5) of this rule, in lieu of the complete copy of the other state's return as prescribed in subsection (1) of this rule, the taxpayer must attach a copy of the other state's amended return or audit report, whichever is applicable.

(3) The credit may be claimed either at the time of filing the original Oregon return or subsequently. The timeliness of a claim for refund is determined by ORS 314.380 and 314.415.

Example 1: Ben, an Oregon resident, files his 1999 tax return and reports a loss from rental property he owns in Idaho. After an audit by Idaho, certain expenses related to the rental are disallowed resulting in taxable income from the rental. Ben files the amended Oregon return more than three years from the date he filed his 1999 tax return. Notwithstanding the limitations of ORS 314.415, Ben will receive the credit if the amended return is received by the department within two years after the date Idaho issues the audit report that disallowed the expenses.

(4) A taxpayer is allowed a credit for taxes paid to another state when the other state's taxes have been paid. If the other state's taxes have not been paid before the credit is claimed on the Oregon tax return, no credit shall be allowed. When the other state's taxes are paid, the taxpayer must file a refund claim in order to receive such credit. Any refund of the credit is subject to the limitations provided by ORS 314.415.

(5) If a subsequent change or correction is made to the taxpayer's liability that also changes the credit allowed under ORS 316.082 or 316.131, the taxpayer must amend the Oregon return for which such credit was originally allowed.

Example 2: In 1999, Gary and Joanne file their 1998 joint income tax return and claim a credit for taxes paid to Montana in 1998 of $500. In 2000, after Montana audits their tax return, they receive a refund of the entire $500 (the amount of credit they originally claimed). Gary and Joanne must amend their 1998 Oregon tax return to show that no credit is available for taxes paid to Montana in 1998.

[Publications: The publication(s) referred to or incorporated by reference in this rule is available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.082
Hist.: 1-69; 12-70; 12-31-81; 12-31-84, Renumbered from 150-316.082; RD 10-1986, f. & cert. ef. 12-31-86; 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 7-1991, f. 12-30-91, cert. ef. 12-31-91; RD 9-1992, f. 12-29-92, cert. ef. 12-31-92; REV 5-2000, f. & cert. ef. 8-3-00

150-316.082(4)

Addition of Taxes Paid to Another State Claimed as an Itemized Deduction

(1) If a taxpayer claims a credit for taxes paid to another state and the tax is also included as an itemized deduction, the taxpayer must restore to Oregon income the lesser of:

(a) The amount of the other state's net tax liability for the year in which the Oregon credit is claimed; or

(b) The amount of the other state's tax for that year that is included in itemized deductions.

Example 1: On his Oregon tax return, Joe claims a credit for taxes paid to Idaho of $100. His tax liability to Idaho for the same year is $150. He also claims an itemized deduction of $200 for taxes that Idaho withheld from his wages. Joe must add $150 to Oregon income, which is the lesser of his Idaho tax liability or the amount claimed as an itemized deduction for that year.

(2) If the credit for taxes paid to another state is based on a tax liability that is paid in two different tax years, the taxpayer may be required to restore the deduction to Oregon income in two different tax years.

Example 2: Jim claims a credit of $250 on his Oregon tax return. His net tax liability to Idaho is $250. Jim deducts $200 tax withheld by Idaho as an itemized deduction on his Oregon return. He must add $200 to Oregon income, which is the lesser of his Idaho liability or the amount claimed as an itemized deduction that year. If Jim claims the $50 balance owing to Idaho as an itemized deduction for Oregon in the year he pays it, he must add that amount to Oregon income in that same year.

Example 3: Lois makes her fourth quarter estimated tax payment of $400 for 1999 to Montana on January 18, 2000. Her 1999 Montana tax liability is $350 and she claims a credit of $350 on her 1999 Oregon return. In 2000, Lois made $700 of estimated payments to Montana for tax year 2000. Her 2000 Montana tax liability is $950 and she claims a credit of $950 on her 2000 Oregon return. For tax year 2000, Lois claims $1,100 in Montana tax as an itemized deduction ($400 plus $700). Lois's addition on the 2000 Oregon return is $1,050: $350 tax liability for 1999 plus $700 of estimated payments for 2000.

Example 4: Same facts as in Example 3, with the following additional facts: Lois makes her 2000 fourth quarter estimated tax payment of $250 on January 16, 2001. During 2001, Lois pays $1,500 in estimated tax. She claims $1,750 as an itemized deduction ($250 plus 1,500). Her 2001 Montana tax liability is $1,400 and she claims a credit of $1,400 on the 2001 Oregon return. Lois's addition to income for 2001 is $1,650: $250 from tax year 2000 and $1,400 from tax year 2001.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.082
Hist.: 12-5-78, 12-31-78; TC 10-1978, f. 12-5-78, cert. ef. 12-31-78; RD 12-1990, f. 12-20-90, cert. ef. 12-31-90; REV 5-2000, f. & cert. ef. 8-3-00

150-316.082(6)

Credit for Duplicative State Taxation Relating to Different Years

(1) If Oregon and another state impose a tax on the same income in different years or the other state's tax is due in a year subsequent to the year or years to which it was originally related, the taxpayer may ask the department to allow a credit that provides relief from taxation of the same income by Oregon and the other state.

(2) The request for a credit under this subsection must be in writing. It must include:

(a) A complete copy of the other state's income tax return(s); and

(b) Proof of payment of the tax, such as:

(A) A copy of the canceled check written to pay the tax at the time the other state's return is filed;

(B) Copies of the W-2 statements verifying the withholding paid to the other state;

(C) A copy of a cashier's check or other negotiable instrument;

(D) A copy of a canceled check showing payment of tax or estimated tax payments; or

(E) A receipt of tax payment.

(c) An explanation of the reason for the duplicative taxation. The following are some examples of explanations:

(A) Idaho law required recapture in 1995 of credits that previously reduced the Oregon credit in 1991 through 1994.

(B) Current federal adjusted gross income includes installment gain that was taxed in full by Maryland in 1998.

(3) The request may be filed:

(a) With the department before the Oregon return for the year of the duplicative taxation is filed; or

(b) With the Oregon return that reports the income that was previously taxed by another state; or

(c) Within the time period to amend the Oregon return designated in (a) or (b) that reports income that was previously taxed by another state.

(4) The department will consider all requests for a credit under this subsection and will allow a credit when necessary to avoid double taxation of income legitimately taxed in another state. The following are some situations where the department may provide a credit under this section.

(a) The other state's tax due is in the current year but was originally related to prior years.

Example 1: Max, an Oregon resident, owns a business in Idaho. For each of four years he claimed the Idaho investment tax credit. For each of these years he also claimed an Oregon credit under ORS 316.082 that was calculated based upon the tax, net of credits, that he paid to Idaho. In the fifth year he sold an asset and was required by Idaho law to recapture, on that year's Idaho return, some of the investment tax credit he had claimed in each of the previous four years.

(b) Oregon and the other state tax the same income in different years.

Example 2: Matt sold rental property in Maryland while he was a resident there for a gain of $100,000 and reported it as an installment sale for federal. He paid Maryland tax on the entire gain. Matt became an Oregon resident in the third year of the installment sale contract. The installment payments are part of his federal income, so will be taxed by Oregon.

(5) The department will make a determination and notify the taxpayer of the amount of the credit and show the calculation of the credit if necessary.

(6) If the taxpayer disagrees with the department's determination, the taxpayer may request a conference or file a written objection within 30 days of the date of the department's letter of determination. The request for conference or filing of a written objection must be filed with the department in the manner prescribed under OAR 150-305.265(5).

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.082
Hist.: REV 8-2001, f. & cert. ef. 12-31-01

150-316.087

Oregon Credit for the Elderly

(1) For tax years beginning on or after January 1, 1987, the Oregon credit is equal to 40 percent of the "allowable federal credit" as determined under Section 22 of the Internal Revenue Code. The "allowable federal credit" is the total credit computed on federal Schedule R or RP which is available to reduce the federal tax liability.

(2) For tax years beginning on or after January 1, 1985, but before January 1, 1987, the Oregon credit is equal to 15 percent of the "allowed federal credit" pursuant to Section 22 of the Internal Revenue Code. The "allowed federal credit" is the amount claimed on the federal return which actually reduces the federal tax liability (but not below zero). The allowed federal credit may be less than the allowable federal credit.

(3) For tax years beginning before January 1, 1985, the Oregon credit is equal to 15 percent of the "allowed federal credit" pursuant to Section 37 of the Internal Revenue Code as amended on December 31, 1984.

(4) For the purpose of subsection (1) and (2) of this rule, "federal tax liability" has the same meaning as defined in Section 26 of the Internal Revenue Code. For the purpose of subsection (3) of this rule, the "federal tax liability" has the same meaning as defined in Chapter 1 of Subtitle A of the Internal Revenue Code as amended on December 31, 1984.

(5) For application of the Oregon credit for the elderly allowed under ORS 316.087 used in conjunction with the Oregon child care credit allowed under ORS 316.078, see OAR 150-316.078.

[Publications: The publication(s) referred to or incorporated by reference in this rule is available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.087
Hist.: Repealed by TC 8-1980, f. 11-28-80, cert. ef. 12-31-80; 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

150-316.095

Sewer Connection Credit

(1) The sewer connection credit can be claimed by taxpayers in eligible jurisdictions if the connection was made or the costs were incurred on or after January 1, 1985.

(2) For tax years beginning on or after January 1, 1992, the allowable credit is equal to the lesser of the costs paid or incurred to connect to the sewage treatment works or $800. The credit claimed in any taxable year shall not exceed one-fifth of the total amount of the credit per qualifying residence or the tax liability of the taxpayer. The balance of the allowable credit not used to reduce the tax liability of the taxpayer can be carried forward for a period not to exceed eight successive years.

(3) "Costs incurred" includes county assessments and other charges necessary to connect to the sewage treatment works. It does not include interest on indebtedness, fines, or penalties. It does not include costs to connect business property, even when located on the same tax lot as the principal residence.

(4) Costs relating to the rental portion of an owner-occupied multiple-family dwelling, or a home business, must be separated out from the total costs. The taxpayer may only claim costs incurred to connect the principal residence. Any charges for separate lines not serving the principal residence are not eligible for the credit.

Additional charges relating to business property must be capitalized. The expenses shall be amortized over the life of the property. "Multiple-family dwelling" includes duplexes, triplexes, and apartment homes.

(5) The credit must be claimed for the year in which the connection is made or the cost incurred, and is only allowed to the taxpayer who expended the funds for that purpose. The residence connected must be the principal residence of the taxpayer. If the taxpayer incurs the cost of connecting a principal residence to the sewer treatment works and then sells or converts the principal residence before the entire credit is claimed, the taxpayer may continue to claim the balance of the credit. If the taxpayer then purchases a new principal residence and incurs the cost of connecting the newly acquired residence to a treatment works, a new sewer connection credit may be claimed.

Example: The taxpayer connects a principal residence to a qualifying sewer treatment works and is entitled to a credit. The taxpayer will claim one-fifth of the total credit. After two years the taxpayer converts the residence to a rental. The taxpayer may continue to claim the three years of tax credits still available. If the taxpayer then buys a principal residence and incurs the cost of connecting a principal residence to a sewer treatment works, the taxpayer may claim a new sewer connection credit. It is possible that the taxpayer could be claiming a credit for a prior principal residence and a credit for a current residence in the same tax year.

The taxpayer's property basis must be reduced by any credit previously received when the principal residence is converted to business property.

(6) For tax years beginning on or after January 1, 1994. The receipt of payment required by this section should not be attached to the tax return, but shall be kept with the taxpayer's records. Upon audit or examination, the information shall be made available to the department to verify any credit claimed under this section.

(7) Retroactive eligibility.

(a) For tax years that begin on or after January 1, 1985, but before January 1, 1991, a taxpayer who is eligible for the credit as a result of the amendments to ORS 316.095 by Oregon Laws 1991, Chapter 781, Section 1 (SB 828), shall file an application for refund(s) on or before April 15, 1993. Taxpayers may either file amended returns for prior years to claim the credits or may claim the credits on the 1991 or 1992 tax returns.

(b) Oregon Laws 1991, Chapter 781, Section 1 (SB 828), amended ORS 316.095 to allow a resident individual a sewer connection credit if the order from the Assistant Director for Health is issued after January 1, 1988, and before July 1, 1995. If the costs are incurred or the connection is made in tax years beginning before January 1, 1992, then the taxpayer is entitled to a $750 sewer credit. If the costs are incurred or the connection is made in tax years beginning on or after January 1, 1992, then the taxpayer is entitled to an $800 sewer credit.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.095
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 3-1995, f. 12-29-95, cert. ef. 12-31-95

150-316.095(6)

Sewer Connection Credit: Substantiation for Bancroft Bonding

(1) General. To qualify for the credit, the connection to the sewer treatment works must be made or the costs must be incurred on or after January 1, 1985.

(2) Bancroft Bonding.

(a) If a taxpayer is incurring the costs of connecting to a sewage treatment works by securing a Bancroft bond instalment agreement and the connection will not be made in the taxable year, the effective date of the agreement will be considered the date the costs are incurred to satisfy the requirements of Section (2)(a) of ORS 316.095. The effective date of the agreement must be on or after January 1, 1985, to qualify for the credit.

(b) The bond agreement will not meet the qualifications for a "receipt of payment" as required in ORS 316.095(6). The receipt must be issued from the installing or constructing entity and be in the form of a letter, notice, or other substantiation but must indicate the constructing entity incurred an obligation to make a sewer connection to the taxpayer's residence. A copy of the receipt shall be attached to the Oregon return on which the credit is claimed.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.095
Hist.: RD 11-1988, f. 12-19-88, cert. ef. 12-31-88; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89

150-316.099

Disabled Child Exemption Credit

(1) For tax years beginning on or after January 1, 2005, an additional personal exemption credit is allowed for dependent children who are disabled on the last day of the tax year.

(2) For tax years beginning before January 1, 2005, an additional personal exemption credit is allowed for dependent children who are age 17 or younger and are disabled on the last day of the tax year.

(3) For all years, the child with a disability must be certified annually by a state department of education to be eligible for early intervention services or an individualized education program (IEP) under the federal program for Individuals with Disabilities Education Act (IDEA).

(4) Upon request of the department, the taxpayer claiming the personal exemption credit for a disabled child must provide the first sheet of the applicable year's IEP or Individualized Family Service plan showing the child's name, disability, and education eligibility for each year the credit is claimed.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.099
Hist.: RD 10-1986, f. & cert. ef. 12-31-86; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89; RD 5-1994, f. 12-15-94, cert. ef. 12-31-94; REV 3-2005, f. 12-30-05, cert. ef. 1-1-06

150-316.102

Credit for Political Contributions

(1) In General: To qualify for the political contribution credit, the contribution must be a voluntary contribution of money made to one of the following:

(a) A major political party or its political committees, or a minor political party or its political committees;

(b) A candidate for federal, state or local office; or

(c) A political committee. Each of these categories is discussed in more detail in the following sections.

(2) Contributions to political parties. For purposes of this rule, a major political party is defined in ORS 248.006. A minor political party is defined in ORS 248.008. Contributions to any of these parties, or their political committees, qualify for the credit.

Example 1: In 2012, Jim contributes $50 to the Republican National Party, $50 to the Republican Committee to Re-elect U.S. Senators, $50 to the Democratic National Party Committee to Re-elect Senator Jones of California and $50 to the Libertarian Party. All contributions qualify for the political contribution credit. Jim will be able to claim a credit of $50 on his 2012 income tax return. If he files a joint return with his wife, they may claim a $100 credit.

(3) Contributions to candidates. Qualifying contributions are those made directly to the candidate or the principal campaign committee of the candidate.

(a) A principal campaign committee (PCC) means a candidate's political committee. The PCC must have met the filing requirements contained in ORS Chapter 260.

(b) Candidates do not have to appear on a ballot in this state in the same year the contribution is made for the credit to be claimed. However, if the candidate is not on a ballot, at least one of the following must have occurred in the same year the contribution is made:

(A) A prospective petition is filed;

(B) A declaration of candidacy is filed;

(C) A certificate of nomination is filed; or

(D) A designation of a principal campaign committee is filed.

Example 2: Amanda filed a declaration of candidacy in November 2011 and appeared on the ballot for the 2012 primary election as a candidate for Oregon state senator. Contributions made in 2011 or 2012 to Amanda, or her principal campaign committee, will qualify for the credit.

(4) Contributions to political committees. Contributions made to a political committee will qualify only if the committee has certified the name of its treasurer to the appropriate filing officerin the manner provided in ORS Chapter 260. As used in this rule, "filing officer" means:

(a) For a political committee whose purpose is to support or oppose a candidate or measure in an election concerning an irrigation district formed under ORS chapter 545, the county clerk or secretary of the irrigation district as provided under ORS 260.005(9)(b).

(b) For all other purposes, the Secretary of State as provided under ORS 260.005(9)(a).

(c) Contributions may qualify under this provision even though:

(A) No measure appears on the ballot in the same year the contribution is made;

(B) The contribution is made to reduce a deficit from a prior year; or

(C) The political committee is formed by a national committee.

Example 3: Royal is a member of the Association of Certified Engineers of America. The association forms a Political Action Committee (PAC) in Oregon, certifies the name of its treasurer to the Secretary of State, and solicits voluntary donations from individual members. The PAC states in its material that it is organized and operated to support or oppose any political candidates or measures the directors of the association determine will impact its members. Contributions made to the PAC will qualify for the credit.

Example 4: Debra belongs to a trade union that engages in political activities. The union informs Debra that a certain percentage of her monthly dues is used for political purposes. No part of her dues payment will qualify for the credit because it is not a voluntary payment of money to a candidate or a political committee.

Example 5: Same facts as Example 4, but the union also solicits voluntary political contributions from its members. These funds are placed directly into a separate PAC, which is not subsidized in any way by the union, and are used for political activities. In January 1999, Debra signs up for a payroll deduction of $5 to be taken from her monthly checks. She may claim a credit of up to $50 on her tax return, or a credit of $60 (12 months x $5) if she files jointly with her husband.

(5) The amount of the contribution must be reduced by the fair market value of any items or services received in exchange for the contributions.

Example 6: A political committee solicits donations and offers T-shirts in return for contributions of $50 or more. Douglas contributes $50 and receives a T-shirt valued at $10. He may claim a political contribution credit of $40.

Example 7: Same facts as Example 6, except that Douglas contributes $100. He is entitled to a credit of $50 on a single return, or $90 on a joint return.

(6) A partnership or S corporation may make political contributions on behalf of its partners or shareholders. The credit may be claimed on the individual tax return, subject to all of the limitations in ORS 316.102 and this rule.

(7) Proof of the credit, such as a canceled check or receipt, should not be attached to the tax return but should be kept with the taxpayer's records. Upon audit or examination, the taxpayer must provide documentation to verify the credit.

Stat. Auth.: ORS 305.100 & 316.102
Stats. Implemented: ORS 316.102
Hist.: 1-69; 12-70; 11-73; 12-19-75; 12-19-77; TC 9-1978, f. 12-5-78, cert. ef. 12-31-78; TC 19-1979, f. 12-20-79, cert. ef. 12-31-79; RD 6-1983(Temp), f. 12-20-83, cert. ef. 12-31-83; RD 2-1984, f. & cert. ef. 2-21-84; 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 5-1994, f. 12-15-94, cert. ef. 12-31-94; RD 3-1995, f. 12-29-95, cert. ef. 12-31-95; REV 9-1999, f. 12-30-99, cert. ef. 12-31-99; REV 10-2013, f. 12-26-13, cert. ef. 1-1-14

150-316.109

Credit for the Gain on the Sale of a Residence Taxed by Another State

A credit will be allowed if the gain on the sale of a taxpayer's personal residence is taxed by both Oregon and another state or country. The credit is the lesser of:

(1) Mutually taxed gain; [Formula not included. See ED. NOTE.]; or

(2) 8 percent of the gain taxed by the other state.

Mutually taxed gain is the total gain reduced by any allowable deductions or exclusions (i.e., capital gains deduction, differences in allowable depreciation due to business use of home, etc.).

Total income on other state's return is the other state's taxable income before subtractions for itemized deductions (or standard deduction) and exemptions.

To claim the credit, the taxpayer must send a copy of the other state or country's return and proof of payment.

A taxpayer may not claim both this credit and a credit under ORS 316.082 or ORS 316.131 for taxes paid on the same gain.

[ED. NOTE: Formulas referenced in this rule are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.109
Hist.: 12-31-79; TC 19-1979, f. 12-20-79, cert. ef. 12-31-79; RD 12-1985, f. 12-16-85, cert. ef. 12-31-85; REV 8-2001, f. & cert. ef. 12-31-01

150-316.116

Credit for Installation of Alternative Energy Devices

(1) As provided by ORS 469B.103, the Oregon Department of Energy administers provisions related to the eligibility, verification and certification of an alternative energy device for purposes of the tax credit under ORS 316.116. Refer to ORS 469B.100 through 469B.118 and Oregon Administrative Rules 330-070-0010 through 330-070-0097 or contact the Department of Energy for additional information.

(2) Each taxpayer that qualifies for the credit may apply the allowable credit to the current year's tax liability. Any unused credit balance may be applied to the following year's tax liability for up to five successive years. If two or more taxpayers qualify for the credit, they must apportion the allowable credit between them based on their investment in the device or ownership in the property.

(3) No adjustment to the basis of property is required as a result of claiming a credit for an alternative energy device.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.116
Hist.: 12-31-77; TC 6-1979(Temp), f. & cert. ef. 3-5-79; TC 12-1979, f. & cert. ef. 5-18-79; RD 12-1985, f. 12-16-85, cert. ef. 12-31-85; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89; RD 5-1994, f. 12-15-94, cert. ef. 12-31-94; RD 3-1995, f. 12-29-95, cert. ef. 12-31-95; REV 12-2000, f. 12-29-00, cert. ef. 12-31-00

Taxation of Nonresidents

150-316.117-(A)

Proration of Income and Deductions for Nonresidents and Part-Year Residents

(1) For tax years beginning on or after January 1, 1983, the numerator of the fraction is the taxpayer's federal adjusted gross income from Oregon sources, with the Oregon modifications to that income, which relate to adjusted gross income.

(2) The denominator of the fraction is the taxpayer's federal adjusted gross income, from all sources, with the Oregon modifications to that income, which relate to adjusted gross income.

(3) For the fiduciary returns of estates and trusts, the numerator of the fraction is the federal taxable income of the fiduciary from Oregon sources, with the Oregon modifications to that income. The denominator of the fraction is the federal taxable income of the fiduciary, from all sources, with Oregon modifications to that income.

(4) Use the following list to help determine which Oregon modifications relate to adjusted gross income. [List not included. See ED. NOTE.]

(5) Under no circumstances may the percentage exceed 100 percent.

(6) If the taxpayer has positive modified Oregon income and negative or zero modified federal adjusted gross income, the allowable percentage is 100 percent. If the taxpayer's modified federal adjusted gross income from Oregon sources and modified federal adjusted gross income are both losses, the allowable percentage will be computed as follows:

(a) If the Oregon loss is smaller than the federal loss, 100 percent.

(b) If the Oregon loss is greater than the federal loss, divide the federal loss by the Oregon loss.

Example 1: A taxpayer has modified federal adjusted gross income from Oregon sources of ($100) and modified federal adjusted gross income of ($1,000). Since the Oregon loss is less than the federal loss, the percentage is 100 percent.

Example 2: A taxpayer has federal adjusted gross income from Oregon sources of ($1,000) and federal adjusted gross income of ($100). The percentage is 10 percent.

(7) If the taxpayer has negative or zero modified Oregon income and positive modified federal adjusted gross income, the allowable percentage is zero.

(8) Nonresident taxpayers shall prorate the following deductions and modifications not relating to adjusted gross income using the fraction provided in this rule:

(a) The greater of:

(A) Net Oregon itemized; or

(B) The standard deduction.

(b) Federal tax liability.

(c) Additional federal tax paid from a prior year.

(d) Gambling losses (itemized).

(e) Federal income tax refunds from amended or audited returns.

(9) Nonresident taxpayers shall not prorate the following deductions and modifications not relating to adjusted gross income.

(a) Art object donation deduction; and

(b) Fiduciary adjustment.

(10) Under no circumstances may the percentage used in computing the allowable portion of the deductions exceed 100 percent.

(11) For part-year residents Oregon source income is:

(a) For the portion of the year the taxpayer is a resident see OAR 150-316.048.

(b) For the portion of the year the taxpayer is a nonresident see ORS 316.127 and the rules pertaining thereto.

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

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.117
Hist.: 12-70; 11-73; 12-19-75; 12-31-78; 12-31-83; 12-31-84; 12-31-85; 12-31-86, Renumbered from 150-316.117; 12-31-87; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89; RD 7-1991, f. 12-30-91, cert. ef. 12-31-91

150-316.117-(B)

Taxable Income of Nonresidents: Deductibility of Alimony Payments

(1) Full-year nonresidents shall follow the rules under ORS 316.130(2)(c) in determining deductibility of alimony payments.

(2) In determining income from Oregon sources, part-year residents shall not deduct any alimony or separate maintenance payments, as defined in IRC 215(b) and 71(b), made to residents during the portion of the year the part-year resident was a nonresident.

[Publications: The publication(s) referred to or incorporated by reference in this rule is available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.117
Hist.: RD 15-1987, f. 12-10-87, cert. ef. 12-31-87

150-316.119

Proration for Pass-through Entity Income of Part Year Oregon Residents

A part-year Oregon resident with an ownership interest in a partnership or S corporation includes in Oregon adjusted gross income the sum of:

(1) All income derived from the ownership interest while the taxpayer was an Oregon resident. The amount included in Oregon income must be determined consistently with Internal Revenue Code sections 1366, 1377, 702, 704 and the corresponding Treasury Regulations and must reasonably reflect the taxpayer's share of income derived from the taxpayer's ownership interest, plus

(2) That portion of income derived from the ownership interest as a nonresident from an entity with business activity in Oregon. The taxpayer's share of the income is subject to the allocation and apportionment provisions of ORS 314.605 to 314.675 during the time that the taxpayer was not an Oregon resident.

Example 1: Ralph was an Oregon resident who moved to Nevada on August 16. During the same year, Ralph was a shareholder of an Idaho S corporation with no business activity in Oregon. From January 1 to March 31, he owned 250 of 500 total issued shares. Additional shares were issued on April 1, giving Ralph 300 of 800 total shares. On July 1, more shares were issued and traded, giving him 450 of 1000 total shares. The S corporation's federal income is $365,000; Ralph's share of federal income is $161,925. Ralph determines his Oregon income of $99,825 as follows:

Step 1. S corporation income assigned to each day:

$365,000 / 365 days = $1,000

Step 2. Figure per share, per day amount (per day amount / outstanding shares):

Jan 1–Mar 31 — $1,000 per day / 500 shares = $2.00 per share, per day

Apr 1–Jun 30 — $1,000 per day /800 shares = $1.25 per share, per day

Jul 1–Dec 31 — $1,000 per day / 1000 shares = $1.00 per share, per day

Step 3. Figure shareholder income (per share, per day):

Jan 1–Mar 31 — 90 days x 250 shares x $2.00 = $45,000

Apr 1–Jun 30 — 91 days x 300 shares x $1.25 = $34,125

Jul 1–Aug 15 — 46 days x 450 shares x $1.00 = $20,700

Aug 16–Dec 31 — Nonresident, no Oregon activity — $0

Oregon income: $99,825

Example 2: Assume the same facts as in Example 1, except that the S corporation also did business in Oregon and computed an Oregon apportionment percentage of 40 percent. Ralph's proportional share of this income reported to Oregon for the entire year is calculated as follows:

Jan 1–Mar 31 — 90 days x 250 shares x $2.00 = $45,000

Apr 1–Jun 30 — 91 days x 300 shares x $1.25 = $34,125

Jul 1–Aug 15 — 46 days x 450 shares x $1.00 = $20,700

Aug 16–Dec 31 — 138 days x 450 shares x $1.00 x 40% = $24,840

Oregon income: $124,665

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

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.119
Hist.: REV 6-2008, f. 8-29-08, cert. ef. 8-31-08

150-316.122

Separate or Joint Federal Returns for Husband and Wife

(1) For tax years beginning on or after January 1, 1987, ORS 316.122 contains exceptions to the general rule that the filing status of the federal return, whether joint or separate, determines the filing status on the Oregon return. If a joint federal income tax return is filed and one or both of the spouses is not a full-year resident, each spouse must file a separate state return unless they elect to file a joint state return.

(2) The income to be included by the spouses in computing their joint Oregon taxable income is determined as follows:

(a) A full-year resident spouse shall include all income received during the year as determined in OAR 150-316.048.

(b) A part-year resident spouse shall include:

(A) For the portion of the year the spouse is a resident all income as determined under OAR 150-316.048.

(B) For the portion of the year the spouse is a nonresident the Oregon source income as determined under ORS 316.127 and the rules thereunder.

(c) A nonresident spouse shall include all Oregon source income as determined under ORS 316.127 and the rules thereunder.

(d) The Oregon source net operating loss of a part-year resident included in the filing of a joint return is determined as follows:

(A) For the portion of the year the spouse is a resident any loss determined under OAR 150-316.028.

(B) For the portion of the year the spouse is a nonresident any loss determined under OAR 150-316.028 as it relates to nonresidents.

(3) This election to file a joint state return may not be revoked after the due date of the return for the tax year. An amended return filed prior to the due date is considered an original return and may contain a change from a joint return to separate returns.

(4) Spouses may change from separate state returns to a joint state return within the time prescribed by law for filing amended returns. The change to a joint return shall not be made if the change would not be allowable under Internal Revenue Code Section 6013(b).

(5) In the event the election to file a joint return for Oregon tax purposes is not made, then each spouse with income subject to Oregon tax must compute an "as if" federal return on the basis of the separate federal adjusted gross income of the taxpayer.

(6) If the taxpayers can clearly segregate their itemized deductions, each taxpayer may claim his or her own deductions instead of apportioning them by income. The burden of proof for substantiating the segregation rests with the taxpayer. See OAR 150-316.695(1) for treatment of itemized deductions on separate returns when one spouse is not required to file in Oregon.

(7) If a joint federal return has been filed, the federal tax deducted in arriving at Oregon taxable income on the separate state return shall be computed by apportioning the total accrued federal tax liability of both spouses. Apportionment shall be made on the basis of the separate federal adjusted gross incomes of both spouses. The result is subject to the $1,500 limitation of the federal tax deduction for each spouse for tax years beginning on or after January 1, 1987. See OAR 150-316.685(1).

[Publications: The publication(s) referred to or incorporated by reference in this rule is available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.122
Hist.: 12-70; 11-73; 12-19-75; TC 9-1978, f. 12-5-78, cert. ef. 12-31-78; RD 12-1984, f. 12-5-84, cert. ef. 12-31-84, Renumbered from 150-316.122(3)?; 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 12-1990, f. 12-20-90, cert. ef. 12-31-90

150-316.124(2)

Nonresident Partners: Guaranteed Payments

(1) Guaranteed payments paid to nonresident partners of a partnership that has business activity in the state of Oregon are treated as a distributive share of partnership income for Oregon tax purposes. In order to determine the income attributable to Oregon sources, each nonresident partner's entire distributive share, including the guaranteed payments, is then subject to the allocation and apportionment provisions of ORS 314.605 to 314.675.

Example 1: Frank is a 25 percent partner in the law firm DC & H, Associates, a calendar year partnership. DC & H's main office is in Washington, but it also has a branch office in Oregon. Frank lives in Seattle and works in the Washington branch of the firm.

For tax year 1992, Frank received $100,000 in guaranteed payments from the partnership. Frank's 25 percent share of partnership profits after the deduction of guaranteed payments was $50,000. DC & H calculated an Oregon apportionment percentage of 20 percent. Frank's 1992 Oregon source income attributable to the law firm is calculated as follows: [Example not included. See ED. NOTE.]

(2) The inclusion of guaranteed payments into a nonresident partner's share of apportionable income is irrespective of that partner's percentage interest in the profit or loss of the partnership.

Example 2: Assume the same facts as in Example 1, except that Frank does not share in the profits or loss of the partnership. Frank's 1992 Oregon source income attributable to the law firm is calculated as follows: [Example not included. See ED. NOTE.]

(3) See ORS 314.610 and the Administrative Rules thereunder for a definition of Oregon business activity.

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

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.124
Hist.: RD 7-1993, f. 12-30-93, cert. ef. 12-31-93

150-316.124(4)

Nonresident Partners: Other Methods of Allocation and Apportionment

(1) ORS 314.605 to 314.670 are designed to allocate and apportion to Oregon, in a fair and equitable manner, a nonresident partner's items of partnership income, gain, loss and deduction attributable to a business, trade, profession or occupation carried on partly within and partly without the state of Oregon. If the methods provided under those sections do not so allocate and apportion these items, the department may permit a nonresident partner to allocate and apportion those items under an alternative method as proposed by the partner. An alternative method will be allowed only in limited and specific cases. ORS 316.124(4) may be invoked only in unusual fact situations (which ordinarily will be unique and nonrecurring). These are situations which will generally violate a nonresident partner's rights under the constitution of Oregon or of the United States.

(2) An application to use an alternative method of allocation and apportionment must be made in writing. The request must a) specify why the standard method does not fairly represent the extent of the partnership's Oregon business activity; b) specify how the standard method of allocation and apportionment violates the nonresident partner's constitutional rights; and c) must include a detailed description of the alternative method.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.124
Hist.: RD 7-1993, f. 12-30-93, cert. ef. 12-31-93

150-316.127-(A)

Gross Income of Nonresidents; Personal Services

(1) Personal service.

(a) Except as provided in section (2) of this rule, the gross income of a nonresident (who is not engaged in the conduct of the nonresident's own trade or business, but receives compensation for services as an employee) includes compensation for personal services only to the extent that the services were performed in this state.

(b) Compensation for personal services performed by a nonresident employee wholly outside this state and in no way connected with the management or conduct of a business in this state is excluded from gross income. This compensation is excluded even if payment is made from a point within this state or the employer is a resident individual, partnership, or corporation.

(c) Compensation for personal services performed by a nonresident wholly within this state is included in gross income although payment is received at a point outside this state or from a nonresident individual, partnership, or corporation.

(2) Exception: Various federal laws affecting certain nonresidents are explained separately. See OAR 150-316.127-(E) or 150-316.127(10).

(3) Allocation of personal services.

(a) Where compensation is received for personal services that are performed partly within and partly without this state, that part of the income allocable to this state is included in gross income. In general, income is allocable to this state to the extent the employee is physically present in this state at the time the service is performed. Physical presence is determined by the actual physical location of the employee performing the services and not by the location of the employer or the location where compensation is paid. Employees who work in Oregon and at an alternate work site located outside of Oregon may allocate their compensation under the provisions of this rule.

Example 1: Dick, a nonresident, works as a medical transcriptionist for an Oregon employer. During the year, Dick spends about 80 percent of his time working from his home in Washington. Dick spends the remainder of his work time in the Portland office. Only the time Dick spends at the Portland office is considered time worked in Oregon.

(A) The gross income from commissions earned by a nonresident for services performed or sales made, (whose compensation is a specified commission on each sale made or services performed), includes the specific commissions earned on sales made or services performed in this state. Allowable deductions must be computed on the same basis.

(B) If nonresident employees work within and without this state, the portion of total compensation for personal services allocable to Oregon is the total number of actual working days employed within the state divided by the total number of working days both within and without the state.

(C) If nonresident employees work part of a day in Oregon and part of a day outside Oregon, the portion of total compensation for personal services allocable to Oregon is the number of hours worked in Oregon divided by the total number of hours worked within and without the state.

Example 2: Rod is a nonresident of Oregon. He works for ACE Cell Tower, Inc and is paid to work 40 hours each week. Some days he works both in Oregon and Idaho. Rod earned $64,000 in 2008. Rod’s employer requires him to keep a detailed log of his travel. At the end of 2008 he had worked a total of 1,850 hours and his log and information from his employer shows that 962 of those hours were worked in Oregon. His compensation taxable to Oregon is computed as follows:

Hours worked in Oregon -- divided by -- Total hours worked x Total compensation = Oregon compensation

0.520 (962 hours divided by 1,850 hours) x $64,000 = $33,280

Rod’s compensation subject to Oregon tax is $33,280.

(D) If the employees are paid on a mileage basis, the gross income from sources within this state includes that portion of the total compensation for personal services which the number of miles traveled in Oregon bears to the total number of miles traveled within and without the state.

(E) If the employees are paid on some other basis, the total compensation for personal services must be apportioned between this state and other states and foreign countries in such a manner as to allocate to Oregon that portion of the total compensation which is reasonably attributable to personal services performed in this state.

(b) The gross income of all other nonresident employees, including corporate officers, includes that portion of the total compensation for services which the total number of actual working days employed within this state bears to the total number of actual working days employed both within and without this state during the taxable period.

Example 3: Jan is a nonresident of Oregon. She works for A Corp. Jan manages offices in Oregon and Washington. A Corp. pays her a salary of $30,000 for the management of both offices. She worked in Oregon 132 days. She would figure her compensation subject to Oregon tax as follows:

Days worked in Oregon -- divided by -- Total days worked x Total compensation = Oregon compensation

0.600 (132 days divided by 220 days) x $30,000 = $18,000

Jan's compensation subject to Oregon tax is $18,000.

An exception to this general rule is made when the compensation is received for performance of services that, by their nature, have an objective or an effect that takes place within this state. In the case of corporate officers and executives who spend only a portion of their time within this state, but whose compensation paid by a corporation operating in Oregon is exclusively for managerial services performed by such officers and executives, the entire amount of compensation so earned is taxable without apportionment.

Example 4: Cade is a nonresident of Oregon. He works for Best Engineering. Cade manages Best Engineering's only office, which is located in Oregon. Best Engineering pays him a salary exclusively for managerial services in the total amount of $58,000. Even though Cade may perform some administrative duties from his home, the compensation he receives is for managing the Oregon office. The entire $58,000 is taxable to Oregon.

(c) Total compensation for personal services includes sick leave pay, holiday pay, and vacation pay. Sick leave days, holidays, and vacation days are not considered actual working days either in or out of this state and are to be excluded from the calculation of the portion of total compensation for personal services taxable to this state.

Example 5: Joan is a nonresident of Oregon. She actually worked a total of 220 days during the year and was paid for 40 non-working days (holidays, sick days and vacation days). She worked 110 days in Oregon. Her compensation (including compensation for holidays, sick leave and vacations) was $26,000. She would figure her compensation subject to Oregon tax as follows:

Days worked in Oregon -- divided by -- Total days worked x Total compensation = Oregon compensation

0.500 (110 days divided by 220 days) x $26,000 = $13,000

Joan’s compensation subject to Oregon tax is $13,000.

(d) Payment in forms other than money. Total compensation for personal services includes amounts paid in a form other than money. To the extent the payments are recognized as compensation income for federal income tax purposes, the payments will be recognized as compensation income for Oregon tax purposes and must be apportioned as provided in section (3) of this rule. Examples include but are not limited to, non-statutory stock options, taxable fringe benefits such as personal use of a business asset, and employer-paid membership fees.

(A) Non-statutory stock options with a readily ascertainable fair market value. Compensation income will be allocated to Oregon in the year an option is required to be reported on the federal return if a nonresident taxpayer performed services in connection with the grant of such option in Oregon during the year in which the option was granted and:

(i) Is required to report under IRC section 83(a) as compensation income the value of a non-statutory stock option granted in connection with the performance of services that has a "readily ascertainable fair market value," as described in Treasury Regulation 1.83-7(b), as of the date the option was granted; or

(ii) Elects under IRC 83(b) to report the value of such an option as of the date the option was granted. If a nonresident taxpayer performed personal services partly within and partly without Oregon in the year in which the option was granted, the taxpayer must use the allocation applied to the taxpayer's other compensation under section (3) of this rule for the tax year in which the option was granted and apply that ratio to the compensation income required to be reported on the federal return. For example, if the taxpayer allocates his income under subsection (3)(a) of this rule and worked 25 percent of his time in Oregon during the year the option was granted, he must include in Oregon income 25 percent of the compensation income related to the option included in federal taxable income. Generally, Oregon will not tax the subsequent gain or loss on the sale of the stock unless the stock has acquired a business situs in Oregon. See OAR 150-316.127-(D).

(B) Non-statutory stock options without a readily ascertainable fair market value that are taxable at exercise, or in a pre-exercise disposition. If a non-statutory stock option granted in connection with performance of services that does not have a readily ascertainable fair market value at the date of the grant is recognized as compensation income for federal tax purposes and the taxpayer worked in Oregon during the year the option was granted, the taxpayer must allocate the compensation related to the option to Oregon in the same year it is taxable for federal purposes. The income that is recognized for federal purposes must be allocated to Oregon if the taxpayer worked in Oregon during the tax year the option was granted. The amount of compensation includable in Oregon source income is computed using the following formula:

Total days worked in Oregon from date of grant to date of federal recognition -- divided by -- Total days worked everywhere from date of grant to date of federal recognition x Compensation related to option exercise = Amount taxable by Oregon

Any further appreciation or depreciation in the value of the stock after the date of exercise represents investment income or loss and is not includable in the Oregon source income of a nonresident unless the stock acquired a business situs in Oregon (see OAR 150-316.127(D)).

(C) Treatment of taxable fringe benefits. Income recognized for federal purposes must be allocated to Oregon if the nonresident worked in Oregon during the tax year the benefit was received. The nonresident must use the same allocation rules applicable to the taxpayer's other compensation under section (3) of this rule to the taxable fringe benefits. For example, if the taxpayer allocates his income under subsection (3)(a) of this rule and worked 55 percent of his time in Oregon, 55 percent of the amount of the taxable fringe benefit that is included in federal taxable income is included in Oregon taxable income.

(e) Unemployment compensation. Total compensation includes unemployment compensation benefits to the extent the benefits pertain to the individual's employment in Oregon. If unemployment compensation benefits are received by a nonresident for employment in Oregon and in one or more other states, the unemployment compensation benefits must be apportioned to Oregon using any method that reasonably reflects the services performed in Oregon.

Example 6: Gary, a nonresident, worked in Oregon and Washington for the last 5 years. On January 1, 2008, he was laid off by his employer and received unemployment compensation of $2,000. Gary may use the Oregon wages as a percentage of total wages reported on his nonresident tax return for the prior year (2007) to determine the percentage of unemployment benefits to be included in Oregon income for 2008. In 2007, Gary earned a total of $40,000 of which $26,000 was earned in Oregon. The unemployment compensation taxable to Oregon is $1,300, computed as follows:

Oregon prior year wages -- divided by -- Total prior year wages x Total current year unemployment compensation = Oregon unemployment compensation

0.650 ($26,000 divided by $40,000) x $2,000 = $1,300

Oregon will tax $1,300 of Gary's unemployment compensation even though he received it in a tax year when he did not work in Oregon because the unemployment compensation is based on Oregon employment. He may not allocate the unemployment based on time worked in Oregon in 2008 because it does not reasonably reflect services performed in Oregon.

(f) Severance pay. Compensation includes severance pay to the extent the pay is attributable to services performed in Oregon. For purposes of this rule, "severance pay" means compensation payable on voluntary termination or involuntary termination of employment based on length of service, a percentage of final salary, a contract between the employer and the employee, or some other method but does not include "retirement income" as defined in ORS 316.127(9). If severance pay is received for employment within and without Oregon, the severance pay is allocated to Oregon using any method that reasonably reflects the services performed in Oregon. Severance pay is taxable to Oregon even though a taxpayer received it in a tax year when the taxpayer did not work in Oregon if the severance pay is based on Oregon employment.

Example 7: JT, a nonresident, worked for Plumbing Inc. for twenty years: eight years in Idaho and twelve years in Oregon. At the end of his 20th year, Plumbing Inc. reorganized and eliminated JT’s position. Because of JT’s loyalty to the company for his twenty years of service, the company gave JT a lump-sum payment of $36,000. This lump-sum was based on 3 percent of his final annual salary ($60,000 x 3% = $1,800) multiplied by his number of years of service (20). The lump-sum payment was made because of prior services, thus it is allocable to Oregon to the extent the services were performed in Oregon. JT will include $36,000 in federal taxable income and $21,600 in Oregon taxable income, computed as follows:

Years worked in Oregon for company -- divided by -- Total years worked for company x Total compensation = Oregon compensation

0.600 (12 years divided by 20 years) x $36,000 = $21,600

Example 8: Shawn, a nonresident, worked in Oregon for XYZ Foods, Inc. for six years before resigning from the company. XYZ Foods, Inc. and Shawn entered into a termination agreement that provided $25,000 for Shawn to release a specific claim he may have against the company for wrongful termination or other potential claims. The termination agreement also provided $10,000 to require that Shawn not work for any other food chain within a 100 mile radius of XYZ Foods, Inc. for a period of 36 months. No employment agreement, benefit plan, or any facts or circumstances indicate that Shawn is entitled to a payment for services he performed prior to resigning from the company. The payment that Shawn receives pursuant to the termination agreement is in exchange for the release of the wrongful termination claim and the covenant not to compete and is not allocable to Oregon because it is not based on services performed in Oregon.

Example 9: Assume the same facts in Example 8 except that the termination agreement also provided for a lump-sum payment of one month's salary per year worked ($30,000) in addition to a $25,000 payment for release of a wrongful termination claim and $10,000 payment for the covenant not to compete. No employment agreement, benefit plan, or other agreement indicates that Shawn is entitled to a payment for services he performed prior to resigning from the company. The $25,000 payment for the release of the wrongful termination claim and the $10,000 payment for the covenant not to compete are not allocable to Oregon because neither is based on services performed in Oregon. The $30,000 lump-sum cash payment based on Shawn's salary and years of service associates the payment with the employer-employee relationship. It is 100 percent allocable to Oregon because Shawn worked in Oregon and the facts and circumstances indicate that it is paid because of prior performance of services and no other reason.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.127
Hist.: 1-69; 11-73; 12-19-75; 1-1-77; 12-31-81; 12-31-84, Renumbered from 150-316.127(1) to 150-316.127; 12-31-85; 12-31-87, Renumbered from 150-316.127 to 150-316.127-(A); 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 7-1991, f. 12-30-91, cert. ef. 12-31-91; RD 9-1992, f. 12-29-92, cert. ef. 12-31-92; RD 5-1994, f. 12-15-94, cert. ef. 12-31-94; RD 3-1995, f. 12-29-95, cert. ef. 12-31-95; REV 7-1998, f. 11-13-98 cert. ef. 12-31-98; REV 12-2000, f. 12-29-00, cert. ef. 12-31-00; REV 1-2006, f. & cert. ef. 1-20-06; REV 4-2009, f. & cert. ef. 7-31-09

150-316.127-(B)

Gross Income of Nonresidents; Pensions and Retirement Income Received by Oregon Domiciliaries

The provisions of this rule apply to pension and retirement income received after December 31, 1999, by persons who are domiciled in Oregon but who are taxed as nonresidents under Oregon law.

(1) Definitions.

(a) Qualified Employer Retirement Benefit Plan. "Qualified employer retirement benefit plan" means any employer-related plan that is defined and administered pursuant to part I of subchapter D of chapter 1 of subtitle A of the Internal Revenue Code. This includes, but is not limited to, the following employer administered plans: qualifying pension and profit sharing plans, annuity plans, cash or deferred compensation arrangements, or tax-shelter annuity plans.

(b) Qualified Employee Retirement Benefit Plan. "Qualified employee retirement benefit plan" means any plan established and maintained solely by an employee or on the employee's behalf that is defined and administered pursuant to part I of subchapter D of chapter 1 of subtitle A of the Internal Revenue Code. This includes, but is not limited to, the following employee-related plans: individual retirement accounts, individual retirement annuities, simplified employee pension plans, or self-employed retirement plans.

(2)(a) General provisions. In general, Oregon nonresident taxpayers who have not given up their Oregon domicile must include in Oregon taxable income distributions received from qualified employer and employee retirement benefit plans that are derived from or connected with services performed in Oregon. Only contributions made to a retirement plan while the employee was performing services in Oregon are considered Oregon source income when received by the nonresident taxpayer. Resident taxpayers include in Oregon taxable income the same amount of the distribution as included for federal purposes regardless of where the services were performed or when the contributions were made to the plan.

Example 1: Joanne lived in Oregon and worked in Washington during her employment years. Upon her retirement, she moved her domicile to Florida. Her retirement income is not Oregon source income and is not subject to Oregon tax, because the job services were not performed in Oregon. Any retirement income actually or constructively received while an Oregon resident is subject to Oregon tax under ORS 316.048.

Example 2: Doug always lived and worked in Colorado. Subsequent to his retirement, he moved to Oregon and became an Oregon resident. While he remains an Oregon resident, all of his retirement distributions are subject to Oregon tax under ORS 316.048. If he later moves out of Oregon, none of the distributions received after his change of residence are subject to Oregon tax.

(b) Exception. If the compensation is not taxable by Oregon due to federal Public Law (P.L.) 101-322, then the related retirement benefits are not taxable. See OAR 150-316.127-(E) regarding P.L. 101-322.

(3) Qualified Employer Retirement Benefit Plans.

(a) General. Contributions or compensation paid by an employer pursuant to any qualified employer's retirement benefit plan must be included in Oregon taxable income when received by a nonresident taxpayer who is domiciled in Oregon if such contribution or compensation is derived from or attributable to Oregon sources. For purposes of this subsection, "taxpayer" means the employee or any other beneficiary of the employee's interest in the plan. This income is from Oregon sources if it relates to services performed in Oregon.

(b) If the employee is receiving a single-life annuity, the employee must first compute the expected return using the tables set forth in Treas. Reg. Section 1.72-9, and then make the applicable allocations set forth below to determine the Oregon source amount. Once the Oregon source amount is determined, use Example 4 under subsection (3)(d) of this rule to determine the amount of income to be reported to Oregon each year. If the retirement account also contained employee contributions, the employee must compute and apply the Oregon exclusion ratio defined in subsection (3)(d)(B) of this rule.

(c) The next two examples are intended to help define Oregon source income and are based on the assumption that the employee is receiving distributions from a profit sharing account that contains only the employer's contributions, plus interest earnings. Because profit sharing distributions may be irregular in both the timing and amount of the distribution, at the employee's election, expected return cannot be computed for these accounts.

Example 3: Sam lived and worked in Oregon until retirement in January 2000. At retirement he kept his Oregon domicile and moved to Arizona on a temporary basis, intending to return to Oregon in a few years. Sam is taxed as a nonresident under the provisions of ORS 316.027. His retirement account balance at retirement was $100,000. This included $30,000 in employer contributions and $70,000 in earnings. Of this amount, $30,000 is Oregon source income and is subject to Oregon tax as long as he remains domiciled in Oregon. Earnings on the account are not subject to Oregon tax if they were not actually or constructively received until after he left Oregon. Sam files an Oregon nonresident return and reports 30 percent of each distribution each year until $30,000 has been reported to Oregon.

(d) If an employee, while performing services within Oregon, makes contributions to a qualified employer retirement benefit plan, those contributions are considered part of the taxpayer's basis to the extent the employee has received no tax benefit with respect to such contributions. For purposes of the following examples, the following phrases are defined.

(A) Employee contributions. "Employee contributions" means those contributions made to a qualified employer retirement benefit plan by an employee while the employee was performing services in Oregon.

(B) Oregon exclusion ratio. "Oregon exclusion ratio" means the ratio of the total employee contributions plus total earnings to the total expected return. Total expected return is to be calculated using the tables set forth in Treas. Reg. Section 1.72-9.

(C) Oregon annual exclusion amount. "Oregon annual exclusion amount" means the product of the total distributions received during a taxable period and the Oregon exclusion ratio.

(D) Oregon receipts. "Oregon receipts" mean the excess of the total distributions received during a taxable period over the Oregon annual exclusion amount.

(E) Oregon taxable percentage. "Oregon taxable percentage" means the ratio of the total Oregon source distributions to the total expected return net of the employee's contributions. The total Oregon source distributions means the amount subject to Oregon tax. This includes the employer contributions or compensation amounts relating to services performed within Oregon.

(F) Amount currently taxable for Oregon purposes. "Amount currently taxable for Oregon purposes" means the product of the Oregon receipts and the Oregon taxable percentage.

Example 4: Assume the same facts as in Example 3, except that Sam receives his benefits in the form of a single-life annuity to be paid at $1,200 per month for the rest of his life. His expected return using the annuity tables pursuant to Treas. Reg. Section 1.72-9 is $216,000 ($1,200/mo. x 12 months x 15.0 (from Table I)). The amount of income he reports to Oregon for each payment is $167 ($1,200/mo. x ($30,000 ÷ $216,000)) or $2,000 annually until the entire $30,000 has been reported to Oregon.

(4) Qualified Employee Retirement Benefit Plans. Distributions from qualified employee retirement benefit plans must be included in Oregon taxable income to the extent a tax benefit was received for Oregon purposes with respect to the contributions made by the taxpayer. Interest or other income earned on such contributions is taxable by Oregon only to the extent distributed while the taxpayer was an Oregon resident. Oregon taxable income includes all distributions until the taxpayer has recovered the total amount of distribution subject to Oregon tax.

Example 5: Assume the same facts as Example 3, except that Sam also invested in an individual retirement arrangement (IRA) while living and working in Oregon His balance in the IRA at retirement is $63,000 ($20,000 of his tax deductible contributions and $43,000 of earnings). Any IRA distribution included in federal taxable income will also be taxable to Oregon until Sam has reported a total of $20,000 to Oregon.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.127
Hist.: 1-69; 11-73; 12-19-75; 1-1-77; 12-31-81; 12-31-84, Renumbered from 150-316.127(1) to 150-316.127; 12-31-85; 12-31-87; 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 6-1996, f. 12-23-96, cert. ef. 12-31-96; REV 5-2000, f. & cert. ef. 8-3-00

150-316.127-(C)

Gross Income of Nonresidents; Business Income

(1)(a) General. The gross income of a nonresident (other than one who is employed by another, as distinguished from doing business on the nonresident's own account) from a business, trade, profession or occupation (including independent contractor) is determined in the same manner as is the gross income of a resident from a similar activity, but includes only income from the business, trade, profession or occupation carried on in this state. Net income from Oregon sources shall be determined by apportionment in a manner consistent with ORS 314.605 through 314.670 and the rules adopted thereunder.

(b) Exception: Various federal laws affect the application of Oregon tax laws to income received by nonresidents from rail, motor, air and water carriers. See OAR 150-316.127-(E).

(2) Rents. The gross income of a nonresident from rents includes all rents received from property, whether real or personal, located within this state.

(3) S Corporations. The taxable income of an S corporation that elects to be taxed under the provisions of IRC Section 1362 which is derived from or connected with sources from this state is taxable income to nonresident shareholders for tax years beginning after December 31, 1972. Net operating losses of an S corporation derived from or connected with sources from this state are deductible by nonresident shareholders. Net operating losses shall be determined under IRC Section 1366. If an S corporation of Oregon commercial domicile is liquidated any gain or loss from liquidation is Oregon source income. Nonresident shareholders shall report their proportionate share of the gain or loss on their individual Oregon income tax returns as income from Oregon sources.

(4) Fiduciary fees. Oregon source income of a nonresident includes compensation received for services performed as a fiduciary of an Oregon estate or trust.

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

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.127
Hist.: 1-69; 11-73; 12-19-75; 1-1-77; 12-31-81; 12-31-84, Renumbered from 150-316.127(1) to 150-316.127; 12-31-85; 12-31-87; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89; RD 7-1991, f. 12-30-91, cert. ef. 12-31-91; REV 7-1998, f. 11-13-98 cert. ef. 12-31-98

150-316.127-(D)

Gross Income of Nonresidents; Other Income and Sale of Property

(1) Income from intangible personal property.

(a) Business situs. Intangible personal property, including money or credits, of a nonresident has a situs for taxation in Oregon when used in the conduct of the taxpayer's business, trade, or profession in Oregon. Income from the use of such property, including dividends, interest, royalties, and other income from money or credits, constitutes a part of the income from a business, trade, or profession carried on in Oregon when such property is acquired or used in the course of such business, trade, or profession as a capital or current asset and is held in that capacity at the time the income arises.

(b) If a nonresident pledges stocks, bonds, or other intangible personal property in Oregon as security for the payment of indebtedness, taxes, etc., incurred in connection with a business in this state, the property has a business situs here. Thus, if a nonresident maintains a branch office here and a bank account on which the agent in charge of the branch office may draw for the payment of expenses in connection with the activities in this state, the bank account has a business situs here. If intangible personal property of a nonresident has acquired a business situs here, the entire income from the property, including gains from the sales of the property, regardless of where the sale is consummated, is income from sources within this state and is taxable to the nonresident.

(2) Sales of property.

(a) Tangible property. The gain from any sale, exchange, or other disposition by a nonresident of real or tangible personal property located in Oregon is taxable, even though it is not connected with a business carried on in this state. The loss from such a transaction is deductible if it is a business loss or a transaction entered into for profit. The gain or loss from the sale, exchange, or other disposition of real property or tangible personal property located in Oregon is determined in the same manner and recognized to the same extent as the gain or loss from a similar transaction by a resident.

(b) Intangible property. The gain from the sale, exchange, or other disposition of intangible personal property, including stocks, bonds, and other securities is not taxable unless the intangible personal property has acquired a business situs in Oregon. See section (1) of this rule. Likewise, losses from the sale, exchange, or other disposition of such property are not deductible, unless they are losses incurred in a business carried on within Oregon by the nonresident taxpayer.

(c) S corporation stock. In general, a nonresident's gain or loss from the sale, exchange, or disposition of S corporation stock is not attributable to a business carried on in this state and is not Oregon source income. The gain or loss from the S corporation stock may not be used in the determination of Oregon taxable income unless the stock has acquired a business situs in this state. See section (1) of this rule.

(d) General Partnership Interests. A nonresident's gain or loss from the sale, exchange, or disposition of a general partnership interest in an Oregon partnership is attributable to a business carried on in Oregon and is Oregon source income. The gain or loss is allocated as provided in ORS 314.635.

(e) Limited Partnership Interests. In general, a nonresident's gain or loss from the sale, exchange, or disposition of a limited partnership interest is not attributable to a business carried on in Oregon and is not Oregon source income. The gain or loss from the sale of the interest will not be used in the determination of Oregon taxable income unless the limited partnership interest has acquired a business situs in this state (see section (1) of this rule.).

(f) Limited Liability Company Interests. The taxation of a nonresident's gain or loss from the sale, exchange, or disposition of an interest in a limited liability company (LLC) operating in Oregon is Oregon source income and is taxed in the same manner as:

(A) The sale of a general partnership interest under subsection (2)(d) of this rule if the selling member is a member-manager of the LLC; or

(B) The sale of a limited partnership interest under subsection (2)(e) of this rule if the selling member is not a member-manager of the LLC.

(C) For purposes of this rule, a person is a "member-manager" of an LLC if that member has the right to participate in the management and conduct of the LLC's business. For an LLC that is designated as a member-managed LLC in its articles of organization, all members of the LLC will be member-managers. For an LLC that is designated as a manager-managed LLC in its articles of organization, only those persons who are both members of the LLC and are designated as a manager in the LLC's operating agreement (or elected as managers by the LLC members pursuant to the operating agreement) will be member-managers.

(g) Limited Liability Partnership Interests. A nonresident's gain or loss from the sale, exchange, or disposition of an interest in a limited liability partnership is taxed in the same manner as if it were a general partnership interest under subsection (2)(d) of this rule.

(3) Interest income received on contract sale of property. Interest income received by a nonresident from the sale of Oregon property is not Oregon source income. The source of the income is not from the sale of the property but rather from the use of the money permitted the buyer in an installment contract.

(4) Distribution of a trust's income accumulation to a nonresident. See ORS 316.737 and OAR 150-316.737 for the treatment of trust income accumulation distributions.

(5) Net operating losses. See OAR 150-316.007 and 150-316.028 for the treatment of net operating losses.

(6) Passive activity losses. See OAR 150-314.300 for the treatment of passive activity losses.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.127
Hist.: 1-69; 11-73; 12-19-75; 1-1-77; 12-31-81; 12-31-84, Renumbered from 150-316.127(1) to 150-316.127; 12-31-85; 12-31-87; 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; REV 1-2001, f. 7-31-01, cert. ef. 8-1-01; REV 4-2003, f. & cert. ef. 12-31-03; REV 1-2006, f. & cert. ef. 1-20-06

150-316.127-(E)

Gross Income of Nonresidents; Federal Laws Affecting Nonresident Employees of Motor, Rail, Air and Water Carriers

(1) General: Various federal laws affect the application of Oregon tax laws to nonresident employees of motor carriers, rail carriers, and air carriers. Specific requirements for motor carriers, rail carriers, and air carriers are discussed separately below. For purposes of this rule the following definitions apply to motor carriers, rail carriers, and air carriers:

(a) "Person" means a corporation, company, association, firm, partnership, or individual.

(b) "Common carrier" means:

(A) Any person who transports persons or property for hire or who publicly purports to be willing to transport persons or property for hire; or

(B) Any person who leases, rents or otherwise provides a motor vehicle to the public and who in connection therewith in the regular course of business provides, procures or arranges for, directly, indirectly or by course of dealing, a driver or operator therefor.

(c) "Regularly assigned duties in more than one state" means duties that are performed on a regular basis in more than one state, e.g., daily, weekly, or monthly assignment. Duties that are performed on an "on-call" or "as-needed" basis, or duties that are performed on a sporadic or intermittent basis during the year, are not considered to be "regularly assigned duties."

(d) "Property" means the cargo or load being transported.

(e) "Exempt" means that the Amtrak Act prohibits the imposition of Oregon income tax.

(2) Motor carrier employees. Federal Public Law (P.L.) 101-322, the Amtrak Reauthorization and Improvement Act of 1990, and Public Law 104-88, the ICC Termination Act of 1995, provide that no part of the compensation paid by a motor carrier or a motor private carrier to a nonresident employee who performs regularly assigned duties in more than one state is subject to Oregon tax (49 USC ¦14503). For purposes of this subsection, the following definitions apply:

(a) "Employee" means an individual who:

(A) Directly affects commercial motor vehicle safety in the course of employment; and

(B) Is not an employee of the United States Government, a State, or a political subdivision of a State acting in the course of the employment by the Government, State, or political subdivision of a State; and

(C) Is subject to the jurisdiction of the U.S. Secretary of Transportation; and

(D) Is not covered under the overtime requirements of the Fair Labor Standards Act (if the employee is properly listed as "non-exempt" in personnel and payroll records. This means that the employee is covered under the rules of the Fair Labor Standards Act and thus is not subject to the jurisdiction of the Secretary of Transportation); and

(E) Is one of the following:

(i) An operator of a commercial motor vehicle (including an independent contractor) who, if working for a motor carrier, transports property or passengers, and if working for a motor private carrier, transports property; or

(ii) A mechanic; or

(iii) A freight handler; or

(iv) An individual not an employer.

(b) "Employer" means a person engaged in a business affecting interstate commerce that owns or leases a commercial motor vehicle in connection with that business, or assigns an employee to operate it.

(c) "Motor carrier" means a person providing motor vehicle transportation of passengers or property for another for compensation. Motor carriers are required to be licensed as such with the Secretary of Transportation.

(d) "Motor private carrier" means a person, other than a motor carrier, transporting property by commercial motor vehicle when:

(A) The transportation is between two states;

(B) The person is the owner, lessee, or bailee of the property being transported; and

(C) The property is being transported for sale, lease, rent, or bailment, or to further a commercial enterprise, and

(D) The person is required to be licensed as such with the Secretary of Transportation.

(e) "Commercial motor vehicle" means a self-propelled or towed vehicle used on the highways in interstate commerce to transport passengers or property if the vehicle:

(A) Has a gross vehicle weight rating of 10,001 or more pounds;

(B) Is designed or used to transport passengers for compensation, but excluding vehicles providing taxicab service that:

(i) Have a capacity of not more than 8 passengers; and

(ii) Are not operated on a regular route or between specified places;

(C) Is designed or used to transport more than 15 passengers, including the driver, and is not used to transport passengers for compensation; or

(D) Is used in transporting material found to be hazardous under Title 49 USC 5103 in a quantity requiring placarding under regulations prescribed under Title 49 USC 5103.

(f) "Directly affects" means that the employee is required by his or her regularly assigned routine and duties to work directly with a commercial motor vehicle or its contents. The duties must be of a direct, hands-on nature that requires the employee to physically move, touch or affect the vehicle or its contents. Supervisory, managerial, consulting, or other duties, which indirectly affect the safety of a motor vehicle, do not meet the definition of "directly affects."

(g) "Driver leasing company" means an employer that employs drivers and leases them to motor carriers or motor private carriers. A driver leasing company is not an employer subject to the jurisdiction of the Secretary of Transportation.

(3) The following examples illustrate the application of sections (1) and (2) of this rule.

Example 1 Subsection 1(c), Regularly Assigned Duties: Adam, a nonresident, works for an Oregon based interstate trucking carrier as a driver. He has a regular route from Idaho to Oregon and picks up or delivers products in Oregon. Adam's compensation is exempt from Oregon taxation.

Example 2 Subsection 1(c), Regularly Assigned Duties: Brenda, a nonresident, works for an interstate trucking carrier as a driver. She has a regular route from Portland to Vancouver, Washington. It is a daily or weekly route. However, the Portland-Vancouver route only takes about 2 to 3 hours. Brenda has a regular route from Portland to Salem for the remaining time. Brenda is considered to be performing "regularly assigned duties in more than one state" since the Portland-Vancouver assignment is on a regular basis. Therefore, her compensation is exempt from Oregon taxation.

Example 3 Subsection 1(c), Regularly Assigned Duties: Carl, a nonresident, works for an Oregon based interstate trucking carrier as a driver. The company's customers are mostly lumber mills located in Oregon and Washington. Carl picks up his truck every morning in Washington and receives delivery assignments for the day. Depending on where the lumber needs to be delivered, Carl may not have to come to Oregon on a daily basis. He may pick up and deliver lumber products all within Washington or may do so all within Oregon. However, Carl does drive to Oregon at least once a month due to the company's customer base. Due to the nature of the business, the company may not be able to assign regular duties to Carl. The company itself does not even know what the delivery route will be until the customers notify the trucking company. Although Carl may not have a regular route in Washington and Oregon, he does drive to Oregon at least once a month. Carl is considered to have "regularly assigned duties in more than one state" as long as all the routes (including interstate routes) are assigned indiscriminately among all drivers on a regular basis. Carl's compensation is exempt from Oregon taxation.

Example 4 Subsection 1(c), Regularly Assigned Duties: Dave, a nonresident, works for an interstate trucking carrier as a driver. All of his routes are within Oregon, mainly from Portland to Pendleton. However, the company requires that Dave drive to Washington before reaching the destination in Oregon (Pendleton in this case). The company has no business reason for this requirement. There is no product waiting for pick-up or delivery in Washington. Dave's compensation is taxable by Oregon. He does not have "regularly assigned duties in more than one state." Dave may drive to Washington every day, but there is no business reason to drive to Washington.

Example 5 Subsection 1(c), Regularly Assigned Duties: Frieda, a nonresident, works for an Oregon retail store as a freight handler. Her regularly assigned duties are to load and unload freight. Occasionally, Frieda is asked to fill in as a driver and, over the course of a year, may drive several routes in and out of Oregon. Frieda does not have "regularly assigned duties in more than one state" and her Oregon-sourced compensation is taxable by Oregon.

Example 6 Subsection 1(c), Regularly Assigned Duties: George, a nonresident, works as a mechanic for an interstate trucking firm. He is assigned to the Portland terminal and performs the majority of his work there. His job duties require that he be available to perform minor repair work away from the terminal on an "as-needed" basis. Several times during a given year, he may be required to travel to Washington to repair a flat tire, do minor engine work, etc. George does not have "regularly assigned duties in more than one state" and his Oregon-sourced compensation is taxable by Oregon.

Example 7 Subsection 2(a), Driver, Mechanic, Freight Handler: Edward, a nonresident, works for an Oregon trucking carrier as a clerk. The company has one terminal in Oregon and one terminal in Washington. Edward regularly works in both terminals, i.e. works in two states. Edward is not considered an employee for purposes of P.L. 101-322. He is not a driver, a mechanic, or a freight handler. His duties do not directly affect the safety of the vehicle. Therefore, the Oregon source income is taxable by Oregon.

Example 8 Subsections 2(a) and 2(b), Employer: Mary Lou, a nonresident, is a supervisor who regularly assigns drivers as an interstate trucking firm's Portland and Vancouver terminals. She tracks the hours each driver works to ensure compliance with the Secretary of Transportation's safety regulations regarding maximum hours worked. Though Mary Lou works in two different states and does have an impact on safety, she is considered an employer, not an employee, and must pay Oregon tax on that portion of work performed at the Portland terminal.

Example 9 Subsections 2(a)(A) and 2(f), Directly Affects Safety: Harold, a nonresident, is employed by an interstate trucking firm. Harold's duties include: authorizing and ordering drug testing for employees; road testing a driver's abilities; investigating accidents involving company vehicles; ordering repairs to motor vehicles; removing vehicles from service; and approving and implementing safety programs and policies. While Harold may be responsible for vehicles, and his work may have a significant impact upon safety, that impact is not direct, but is implemented through others. He does not meet the requirement that he "directly affect" the safety of a commercial motor vehicle and his Oregon-sourced compensation is taxable by Oregon.

Example 10 Subsections 2(a)(A) and 2(f), Directly Affects Safety: Garrett, a nonresident, works as a freight handler in the Portland terminal of a trucking company. His duties also require him to attend daylong staff meetings at the company's headquarters in Vancouver, Washington each month. Although Garrett has "regularly assigned duties in more than one state," only the duties he performs at the Portland terminal directly affect the safety of a commercial motor vehicle. Garrett does not have "regularly assigned duties in more than one state" that "directly affect" the safety of a commercial motor vehicle. His compensation related to services performed in Oregon is taxable by Oregon.

Example 11 Subsections 1(d) and 2(d), Property and Motor Private Carrier: Roberto, a nonresident, works for a small furniture manufacturing company located in Oregon. Roberto drives a commercial motor vehicle, and his employer is licensed with the Secretary of Transportation. His job requires him to drive to various states to buy hardwood for use in building the furniture. Roberto is exempt from Oregon taxation on his wages because he transports a product between states to further a commercial business, and his employer meets the other requirements of a motor private carrier.

Example 12: Subsections 1(d) and 2(d), Property and Motor Private Carrier: Barbara, a nonresident, works as a refrigeration mechanic for a dairy. She drives a large repair vehicle to service her employer's refrigerators at all company locations, including those out of state. Even though Barbara drives outside Oregon to repair equipment, she does not transport property to further a commercial business, and is therefore not exempt from Oregon taxation.

Example 13 Subsection 2(e), Commercial Motor Vehicle: Ken, a nonresident, works as a line repairman for a utility company. He uses a company truck with a gross vehicle weight rating in excess of 10,000 pounds when making service calls in both Oregon and Washington. Ken is not exempt from Oregon taxation because he does not drive a "commercial motor vehicle" (i.e., a motor vehicle used to transport passengers or property).

Example 14 Subsection (2)(e), Commercial Motor Vehicle: Julie, a nonresident, works as a truck driver for a furniture store. She drives a truck with a gross vehicle weight rating in excess of 10,000 pounds to deliver furniture on a regular basis to residents and nonresident customers who make purchases at her employer's stores. Julie is exempt from Oregon taxation because she directly affects the safety of a commercial motor vehicle and works for a motor private carrier transporting property in interstate commerce.

Example 15 Subsections 2(a)(C) and 2(a)(D), Subject to Jurisdiction of the Secretary of Transportation: Connie Sue, a nonresident, works for an interstate motor carrier on a regular basis at her company's Oregon and Washington yards. She has a variety of duties, including helping with the loading of trucks. Her employer pays her overtime because she is properly listed as "non-exempt" (covered) under the provisions of the Fair Labor Standards Act and thus subject to its requirements. Because she is covered under the Fair Labor Standards Act rather than being subject to the jurisdiction of the Secretary of Transportation, Connie Sue does not meet the requirements for the Amtrak exclusion.

Example 16 Subsection 2(g), Driver Leasing Companies: Larry, a nonresident, is employed by JobProviders, a temporary employment agency. Larry has a commercial driver's license, drives a commercial motor vehicle between states on a regular basis, and is leased by his company exclusively to WeMoveU, a motor carrier properly licensed with the Secretary of Transportation. Larry is under the direction and control of WeMoveU at all times, though he receives his paycheck from JobProviders. Larry is exempt from Oregon taxation. Though he may be considered an employee of JobProviders for other federal tax purposes, he is considered an employee of WeMoveU, a motor carrier, for Amtrak Act purposes.

Example 17 Subsection 2(g), Driver Leasing Companies: Randy, a nonresident, is employed by MechanicalGenius, an Oregon employer, as a truck mechanic. MechanicalGenius leases his services exclusively to OnTheRoad, an interstate motor carrier. Twice per month, Randy must travel to Washington to perform inspections and repairs of OnTheRoad's trucks. Randy is under the direction and control of his supervisor at MechanicalGenius. Even though Randy travels on a regular basis between two states, only repairs on OnTheRoad's trucks, and has a direct effect on the safety of OnTheRoad's commercial motor vehicles, he is subject to Oregon taxation. Randy is considered an employee of MechanicalGenius, which is not a motor carrier, motor private carrier, or other employer subject to the jurisdiction of the Secretary of Transportation.

(4) Changes in exempt status. The determination of whether an employee is exempt under these provisions is generally made for each portion of the year an employee performs a given set of specific job duties.

(a) If an employee does not change job duties during the year and meets the requirements of this section for the taxable year, the individual's compensation is exempt from Oregon taxation for the entire tax year.

(b) If an employee changes job duties during the taxable year, each change in job duties must be considered separately to determine whether the compensation received for that particular set of job duties is exempt from Oregon taxation.

Example 18: Rob, a nonresident, worked through June 30, as a mechanic for an Oregon trucking firm. All of his job duties were performed at the company's Portland terminal. On July 1, Rob began a new job for the same company as a commercial interstate truck driver. Rob's compensation as a mechanic is not exempt from Oregon taxation, because he did not have regularly assigned duties in two states. For that portion of the year when Rob's duties were performed as a commercial interstate truck driver, his compensation as a truck driver is exempt from Oregon taxation if he meets all other requirements.

Example 19: Ivan, a nonresident, works as a driver for an interstate trucking company. From January 1 through June 30, his regular route is entirely within Oregon. On July 1, Ivan is assigned to a route from Seattle to Spokane that will last for two years. Neither his job duties during the first part of the year nor the last part of the year required him to drive between states. Because Ivan drove only intra-state during each portion of the year, his compensation earned on the Oregon route is not exempt from Oregon taxation. His compensation earned on the Washington route is not taxable by Oregon because it was earned by a nonresident employee for services provided outside Oregon.

(5) Rail carrier employees. Federal Public Law (P.L.) 101-322, the Amtrak Reauthorization and Improvement Act of 1990, and Public Law 104-88, the ICC Termination Act of 1995, provide that no part of the compensation paid by a rail carrier to a nonresident who performs regularly assigned duties on a railroad in more than one state is subject to Oregon income tax (see 49 USC ¦11502). For purposes of this subsection, the following definitions apply:

(a) "Rail carrier" means a person providing a common carrier railroad transportation for compensation.

(b) "Railroad" includes:

(A) A bridge, car float, lighter, and ferry used by or in connection with a railroad;

(B) The road used by a rail carrier and owned by it or operated under an agreement; and

(C) A switch, spur, track, terminal, terminal facility, and a freight depot, yard, and ground, used or necessary for transportation.

(6) Air carrier employees: Federal law provides that the pay of a nonresident employee of an air carrier having regularly assigned duties on aircraft in more than one state is subject to Oregon income tax only if the employee earns more than 50 percent of that pay in Oregon (see 49 USC ¦40116). The employee is deemed to earn 50 percent or more of the pay in Oregon if, for the calendar year, the employee's scheduled flight time in Oregon is more than 50 percent of the employee's total scheduled flight time. For purposes of this subsection, the following definitions apply:

(a) "Air carrier" means a citizen of the United States, as defined in 49 USC ¦40102, undertaking by any means, directly or indirectly, to provide air transportation.

(b) "Air transportation" means the interstate or foreign transportation of passengers or property by aircraft as a common carrier for compensation, or the interstate or foreign transportation of mail by aircraft.

Example 20: Jean, a nonresident, works as a pilot for an Oregon-based corporation. Jean transports the corporation's executives to various job locations in the United States. Jean is not exempt from Oregon tax, as she is not employed by an "air carrier" that provides "air transportation." Her wages are subject to Oregon tax to the extent services are performed in Oregon.

Example 21: James, a nonresident, is employed by an air carrier as an office manager. Each calendar year, he works as a substitute pilot outside of Oregon in order to log the minimum amount of flight time required to retain his license. James does not qualify as exempt from Oregon income tax because his "regularly assigned duties" are not on an aircraft, but as a manager in an office.

(7) Substantiation. To claim exemption from income under Federal Public Law (P.L.) 101-322, the Amtrak Reauthorization and Improvement Act of 1990, or Public Law 104-88, the ICC Termination Act of 1995, (49 USC ¦14503), a taxpayer must maintain records that adequately establish that the taxpayer qualifies for the income exemption.

Example 22: Jason, a nonresident, works for a motor carrier as a Vice President. His typical duties are to travel behind the company's truck drivers to ensure that the drivers follow Department of Transportation (DOT) laws, federal and state safety laws, and company policy. He does random checks of the trucks as the drivers take breaks to ensure the trucks are safe and the drivers are following all applicable federal and state laws. Occasionally, he is required to deliver a truckload himself when the company is short of drivers. He claims the Amtrak deduction on his Oregon nonresident return. He kept no record of his duties that show he has regularly assigned duties in more than one state or that his duties directly affect the safety of a motor vehicle. Because he cannot provide any documentation that he qualifies for the income exemption, his deduction is not allowed.

Example 23: Assume the same facts as in Example 22 except that Jason provides a copy of his Commercial Driver's license, his Department of Transportation (DOT) log books, and verification from the destination that he is in more than one state performing duties. He provides his job description that shows he is required to spot-check whether trucks are safely on the road. He also provides copies of reports that show he has written up employees for failure to comply with safety standards. He has adequately established that he directly affects the safety of commercial motor vehicles. Thus, the exemption from income is allowed.

Example 24: Peter, a nonresident, works for a motor private carrier as a long-haul truck driver. He claims the Amtrak deduction on his Oregon nonresident return. He does not provide any driving logs or documentation to establish that he drives a commercial vehicle in more than one state. Because he does not provide any documentation to establish that he qualifies for the Amtrak deduction, the deduction he claimed is not allowed.

Example 25: Same facts as Example 24 except that Peter provides copies of his Department of Transportation log books, a copy of his bid shift from his employer, as well as receipts that show he is in more than one state at various truck stops while he is on the road. Peter provides enough information to establish he qualifies for income exemption, thus the exemption from income is allowed.

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

Stat. Auth.: ORS 305.100, 314.815
Stats. Implemented: ORS 316.127
Hist.: 12-31-93; RD 6-1996, f. 12-23-96, cert. ef. 12-31-96; REV 7-1998, f. 11-13-98 cert. ef. 12-31-98; REV 5-2000, f. & cert. ef. 8-3-00; REV 8-2001, f. & cert. ef. 12-31-01; REV 11-2007, f. 12-28-07, cert. ef. 1-1-08

150-316.127-(F)

Gross Income of Nonresidents; Compensation Received by Nonresident Professional Athletes

(1)(a) General. Oregon source income of a nonresident individual who is a member of a professional athletic team includes that portion of such individual's total compensation for services rendered as a member of a professional athletic team during the taxable year which, the number of duty days spent within Oregon rendering services for the team in any manner during the taxable year, bears to the total number of duty days spent both within and without Oregon during the taxable year.

(b) Special rule. Travel days that do not involve either a game, practice, team meeting, promotional caravan or other similar team event are not considered duty days spent in Oregon. However, such travel days shall be considered duty days spent within and without Oregon.

(2) Definitions. For purposes of this rule:

(a) The term "professional athletic team" includes, but is not limited to, any professional baseball, basketball, football, soccer or hockey team.

(b) The term "member of a professional athletic team" shall include those employees who are active players, players on the disabled list and any other persons required to travel and who do travel with and perform services on behalf of a professional athletic team on a regular basis. This includes but is not limited to coaches, managers and trainers.

(c)(A) The term "duty days" shall mean all days during the taxable year from the beginning of the professional athletic team's official pre-season training period through the last game in which the team competes or is scheduled to compete.

(B) Duty days shall also include days on which a member of a professional athletic team renders a service for a team on a date which does not fall within the aforementioned period (e.g., participation in instructional leagues, the "Pro Bowl" or promotional "caravans"). Rendering a service includes conducting training and rehabilitation activities, but only if conducted at the facilities of the team.

(C) Included within duty days, shall be game days, practice days, days spent at team meetings, promotional caravans and pre-season training camps, and days served with the team through all post-season games in which the team competes or is scheduled to compete.

(D) Duty days for any person who joins a team during the season shall begin on the day such person joins the team, and for any person who leaves a team shall end on the day such person leaves the team. Where a person switches teams during the taxable year, a separate duty day calculation shall be made for the period such person was with each team.

(E) Days for which a member of a professional athletic team is not compensated and is not rendering services for the team in any manner, including days when such member of a professional athletic team has been suspended without pay and prohibited from performing any services for the team, shall not be treated as duty days.

(F) Days for which a member of a professional athletic team is on the disabled list shall be presumed not to be included in total duty days spent within and without the state.

(G) The provisions of this paragraph can be illustrated by the following examples:

Example 1: Kelly, a member of a professional athletic team, is a nonresident of Oregon. Kelly's contract for such team requires Kelly to report to the team's training camp and to participate in all exhibition, regular season, and playoff games. Kelly has a contract which covers seasons that occur during year 1/year 2 and year 2/year 3. Kelly's contract provides that he will receive $500,000 for the year 1/year 2 season and $600,000 for the year 2/year 3 season. Assuming Kelly receives $550,000 from such contract during taxable year 2 ($250,000 for one-half the year 1/year 2 season and $300,000 for one-half the year 2/year 3 season), the portion of such compensation received by Kelly for taxable year 2, attributable to Oregon, is determined by multiplying the compensation Kelly receives during the taxable year ($550,000) by a fraction. The numerator of such fraction is the total number of duty days Kelly spends rendering services for the team in Oregon during taxable year 2 (attributable to both the year 1/year 2 season and the year 2/year 3 season). The denominator of such fraction is the total number of Kelly's duty days spent both within and without Oregon for the entire taxable year.

Example 2: Sam, a member of a professional athletic team, is a nonresident of Oregon. During the season, Sam is injured and is unable to render services for Sam's team. While Sam is undergoing medical treatment at a clinic in Oregon, Sam's team travels to Oregon for a game. The number of days Sam's team spends in Oregon for practice, games, meetings, etc. while Sam is present at such clinic in Oregon shall not be considered duty days spent in Oregon for Sam for that tax year for purposes of this section, but such days are considered to be included within total duty days spent within and without Oregon.

Example 3: Jean, a member of a professional athletic team, is a nonresident of Oregon. During the season, Jean is injured and is unable to render services for Jean's team. Jean performs rehabilitation exercises at the facilities of Jean's team in Oregon as well as at personal facilities in Oregon. Days Jean performs rehabilitation exercises in the facilities of Jean's team are considered duty days spent in Oregon for Jean for that tax year for purposes of this section. However, days Jean spends in private facilities in Oregon shall not be considered duty days spent in Oregon for Jean for that tax year for purposes of this section, but such days are considered to be included within total duty days spent within and without Oregon.

Example 4: Terry, a member of a professional athletic team, is a nonresident of Oregon. During the season, Terry travels to Oregon to participate in the annual all-star game as a representative of Terry's team. The number of days Terry spends in Oregon for practice, the game, meetings, etc., shall be considered duty days spent in Oregon for Terry for that tax year for purposes of this section, as well as included within total duty days spent within and without Oregon.

Example 5: Assume the same facts as given in example 4, except that Terry is not participating in the all-star game and is not rendering services for Terry's team in any manner. Terry is traveling to and attending such game solely as a spectator. The number of days Terry spends in Oregon for such game shall not be considered duty days spent in Oregon for purposes of this section.

(d)(A) The term "total compensation for services rendered as a member of a professional athletic team" means the total compensation received during the taxable year for services rendered: (i) from the beginning of the official pre-season training period through the last game in which the team competes or is scheduled to compete during that taxable year; and (ii) during the taxable year on a date which does not fall within the aforementioned period (e.g., participation in instructional leagues, the "Pro Bowl" or promotional "caravans"). Such compensation shall include, but is not limited to, salaries, wages, bonuses as described in subparagraph (B) of this paragraph and any other type of compensation paid during the taxable year to a member of a professional athletic team for services performed in that year. Such compensation shall not include strike benefits, severance pay, termination pay, contract or option year buy-out payments, expansion or relocation payments, or any other payments not related to services rendered to the team.

(B) For purposes of this paragraph, "bonuses" included in "total compensation for services rendered as a member of a professional athletic team" subject to the allocation described in subdivision (1)(a) of this section are:

(i) Bonuses earned as a result of play (i.e., performance bonuses) during the season, including bonuses paid for championship, playoff or "bowl" games played by a team, or for selection to all-star league or other honorary positions; and

(ii) Bonuses paid for signing a contract, unless all of the following conditions are met:

(I) The payment of the signing bonus is not conditional upon the signee playing any games for the team, or performing any subsequent services for the team, or even making the team;

(II) The signing bonus is payable separately from the salary and any other compensation; and

(III) The signing bonus is nonrefundable.

(iii) This section is designed to apportion to Oregon, in a fair and equitable manner, a nonresident member of a professional athletic team's total compensation for services rendered as a member of a professional athletic team. It is presumed that application of the foregoing provisions of this section will result in a fair and equitable apportionment of such compensation. Where it is demonstrated that the method provided under this section does not fairly and equitably apportion such compensation, the Department of Revenue may require such member of a professional athletic team to apportion such compensation under such method as the department prescribes, as long as the prescribed method results in a fair and equitable apportionment. A nonresident member of a professional athletic team may submit a proposal for an alternative method to apportion such compensation, where they demonstrate that the method provided under this section does not fairly and equitably apportion such compensation. If approved, the proposed method must be fully explained in the nonresident member of a professional athletic team's nonresident personal income tax return for Oregon.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.127
Hist.: RD 3-1995, f. 12-29-95, cert. ef. 12-31-95

150-316.127(1)(a)

Alimony Deduction for Tax Years Before 1987

(1) A full-year nonresident shall be allowed a deduction for the amount of any alimony or separate maintenance paid in the proportion provided in ORS 316.117. In determining the proportion in ORS 316.117, the taxpayer's adjusted gross income will not include a deduction for alimony. "Alimony or separate maintenance payments" has the same meaning given the phrase in section 215 of the Internal Revenue Code.

(2) Taxpayers may claim the deduction by amending their Oregon returns as provided by ORS 305.270 to claim the alimony deduction. This rule is applicable for all years open to examination for tax years beginning before January 1, 1987.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.127
Hist.: TC 9-1981, f. 12-7-81, cert. ef. 12-31-81; Repealed by RD 15-1987, f. 12-10-87, cert. ef. 12-31-87; RD 11-1988, f. 12-19-88, cert. ef. 12-31-88

150-316.127(1)(a)-(A)

Student Loan Interest Deduction -- for Part-Year and Nonresidents

Individuals who are allowed a deduction for student loan interest for federal purposes shall be allowed a deduction for Oregon purposes. The allowable Oregon deduction is limited to a percentage of the federal deduction (not to exceed 100 percent). The qualifying interest paid while a nonresident of Oregon must be prorated based on the ratio of total Oregon source income while a nonresident to total income while a nonresident, determined without deduction for student loan interest. The qualifying interest paid while a resident is deductible in full. See the example for the alimony adjustment under OAR150-316.130(2)(c)(A). The total Oregon deduction cannot exceed the amount allowed under federal law.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.127
Hist.: REV 9-1999, f. 12-30-99, cert. ef. 12-31-99

150-316.127(3)(a)

Moving Expense Deduction -- for Part-year and Nonresidents

To be deductible from the Oregon portion of federal adjusted gross income, moving expenses must be connected with employment within Oregon. Thus, for a part-year or nonresident taxpayer, the moving expenses incurred are deductible only if the taxpayer's new principal place of work is within Oregon. Moving expenses incurred by a part-year or nonresident taxpayer for the purpose of beginning work at a new principal place of employment outside of Oregon are not deductible.

Example 1: Matt moves from Oregon to California to begin work there. The moving expenses are not deductible.

Example 2: Paul moves from Utah to Oregon to begin work in Oregon. The moving expenses are deductible.

Example 3: Sally moves from Oregon to Washington to begin work in Oregon. The moving expenses are deductible.

Example 4: Greg moves from Nevada to Washington to begin work in Oregon. The moving expenses are deductible.

Example 5: Anne moves from Montana to Oregon to begin work in Washington, lives in Oregon temporarily and then settles in Washington. The moving expenses are not deductible.

Example 6: Sue moves from Florida to Oregon to begin work in Idaho. While the expenses are not related to Oregon employment, they are deductible if they were paid after Sue became a full year resident of Oregon. Reimbursement of moving expenses shall be included in the Oregon portion of federal adjusted gross income if the moving expenses are connected to Oregon employment.

Example 7: John moves from California to Oregon to begin work in Oregon. His employer reimburses him $10,000, which includes $4,000 of qualified moving expenses under IRC 132. John includes $6,000 of income in the Oregon portion of federal adjusted gross income. The reimbursement of $4,000 is not included in income and is not claimed as a deduction.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.127
Hist.: RD 3-1995, f. 12-29-95, cert. ef. 12-31-95

150-316.127-(9)

Gross Income of Nonresidents; Retirement Income Derived from Oregon Sources

(1) Federal law (PL 104-95) prohibits states from taxing retirement income received after December 31, 1995, by individuals who are not residents of this state or who are not domiciled in this state.

(a) Individuals who have Oregon as their domicile are taxed on all their retirement income, unless they meet the requirements to be taxed as nonresidents, as provided in ORS 316.027(1)(a)(A).

(b) Under Oregon law, Oregon source retirement income received after December 31, 1995, and before January 1, 2000, is exempt from tax if the person receiving the income is taxed as a nonresident under ORS 316.027(1)(a)(A), regardless of where the person's domicile is located.

(c) Beginning January 1, 2000, Oregon source retirement income is taxable if received by a person who is taxed as a nonresident but who is domiciled in Oregon. See OAR 150-316.127-(B) for information on calculating the amount of the Oregon source retirement income that is subject to tax.

Example 1: Sam lived and worked in Oregon until his retirement in 1997. At retirement he gave up his Oregon domicile and moved to Arizona. Following Sam's change of domicile to Arizona, none of Sam's pension income is taxable by Oregon.

Example 2: Douglas has lived and worked in Oregon all his life. On January 1, 1999, he retired, sold his personal residence, and took a temporary job working in Alaska. He plans to work for several years and then return to Oregon to live. He has not established a new domicile outside of Oregon, nor does he intend to give up his Oregon domicile. Douglas meets the requirements to be taxed as a nonresident under ORS 316.027(1)(a)(A). However, beginning January 1, 2000, his Oregon source pension will be taxable by Oregon because he has retained Oregon as his domicile. Douglas will follow the provisions of OAR 150-316.127-(B) to determine the amount taxable to Oregon.

(2) Definitions.

(a) "Domicile" means the place an individual considers to be the individual's true, fixed, permanent home. Domicile is the place a person intends to return to after an absence. A person can only have one domicile. It continues as the domicile until the person demonstrates an intent to abandon it, to acquire a new domicile, and actually resides in the new domicile. Factors that contribute to determining domicile include family, business activities and social connections.

(b) "Retirement income" has the same meaning as in 4 USC 114 and means income from:

(A) Qualifying employer pension and profit sharing plans exempt from tax under Internal Revenue Code (IRC) Section 401(a), such as corporate retirement plans and "Keogh" plans;

(B) Annuity plans (IRC 403(a) and IRC 403(b));

(C) Cash or deferred compensation arrangements (IRC 401(k) plans and 457 plans);

(D) Simplified employee pension plans ("SEPs") under IRC 408(k);

(E) Individual retirement arrangements ("IRAs") and Roth IRAs under IRC 408(a), 408(b), and 408A;

(F) Plans established and maintained by federal, state or local government for the benefit of employees (IRC 414(d));

(G) Any retired or retainer pay of a member or former member of a uniform service computed under chapter 71 of Title 10 of the United States Code;

(H) Trusts, as described in IRC 501(c)(18), that were created before June 25, 1959, that meet the specific requirements of that IRC section;

(I) Simple retirement account under IRC 408(p);

(J) Payments received from nonqualified deferred compensation plans (as described in IRC 3121(v)(2)(C)) if the payments:

(i) Are part of a series of substantially equal periodic payments that are made for the life or life expectancy of the recipient (or the joint lives or joint life expectancies of the recipient and the designated beneficiary of the recipient), or for a period of at least 10 years; or

(ii) Are received after termination of employment and are paid under a plan, program, or arrangement maintained solely for the purpose of providing retirement benefits that exceed the amounts allowed under the qualified retirement plans described in paragraph 1 of this rule.

(c) Retirement income does not include income received from stock options, restructured stock plans, severance plans, or unemployment benefits.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.127
Hist.: REV 5-2000, f. & cert. ef. 8-3-00; REV 19-2008, f. 12-26-08, cert. ef. 1-1-09

150-316.127(10)

Gross Income of Nonresidents: Waterway Workers

(1) General Policy. The State of Oregon imposes taxes on Oregon source income of nonresidents to the extent allowed under Oregon and federal law and exempts Oregon source income of nonresidents to the extent provided under federal law: 46 USCA 11108. Under both federal and state law, compensation of a nonresident waterway worker is exempt from Oregon taxation to the extent the compensation is paid to an individual engaged on a vessel and performing assigned duties as a licensed pilot in more than one State or to an individual performing regularly assigned duties while engaged as a master, officer, or crewman on a vessel operating on the navigable waters in two or more states.

(2) For purposes of ORS 316.127(10) and this rule:

(a) "Master" is the commander of a merchant vessel, who is in charge of the vessel, its crew, its passengers, and the care and control of the vessel and cargo.

(b) "Member of a crew" or "crew member" is an individual carried on board a vessel who is not required to obtain a license (though they may be required to obtain certification) who provides services such as navigation and maintenance of the vessel, its machinery, systems, or services essential for propulsion and safe navigation or to provide services for passengers on board.

(c) "Navigable waters" are waters that are subject to the ebb and flow of the tide and waters that are presently used, or were used in the past, to transport interstate or foreign commerce.

(d) "Officer" is an individual carried on board the vessel who must obtain a specialized license and who provides navigation and maintenance of the vessel, its machinery, systems, and arrangements essential for propulsion and safe navigation.

(e) "Passenger" is a person on board a vessel other than:

(A) The master, a member of the crew, or other person employed or engaged in any capacity in the business of the vessel; or

(B) A child under one year of age.

(f) "Regularly assigned duties" are those duties performed on a regular basis (i.e. daily, weekly, or monthly). Duties that are performed on sporadically or intermittently as occurs when serving on an "on-call" or "as-needed" basis are not "regularly assigned duties."

(g) "Vessel" is watercraft used, or capable of being used, as a means of transportation on navigable waters in 2 or more states for business purposes.

(h) "Waterway worker" is a nonresident who is:

(A) Engaged on a vessel to perform assigned duties in more than one State as a pilot licensed under section 7101 of Title 46 of the United States Code or licensed or authorized under the laws of a State, or

(B) An individual who performs regularly assigned duties while engaged as a master, officer, or member of a crew on a vessel operating on the navigable waters in two or more states.

Example 1: Ben, a resident of Washington, is a crew member and works on a dredging vessel on the Willamette River in Oregon and the Cowlitz River in Washington six months of the year. The other six months of the year Ben works in the company’s office in Portland, Oregon. Only six months of compensation from his employer is exempt because it’s for services Ben performed on the dredging vessel and is not taxable by Oregon. The remaining six months of compensation is taxable by Oregon.

Example 2: Kirk, a nonresident, works for a log mill located on the Oregon shore of the Columbia River. He spends 6 hours a day piloting a tugboat on the river carrying logs to the mill. For the remaining 2 hours of his shift, he works in the mill doing maintenance on mill equipment as well as other tasks. Kirk’s compensation for his time working on the tugboat is not subject to Oregon tax. However, the time he spent working in the mill in Oregon is Oregon-source income and subject to Oregon tax. Kirk may exclude 75 percent (6 divided by 8) of his total compensation from this employer from Oregon taxation. He will only report 25 percent of his wages in the Oregon column of his nonresident return.

Example 3: Remy, a nonresident, is a crew member and works on a vessel plying the Columbia and Willamette rivers. Remy makes weekly trips from Hood River to Tualatin and back, hauling cargo on the vessel. Each trip entails three days on the Columbia River and two days on the Willamette River. All of Remy’s income is exempt and is not taxable to Oregon.

Example 4: Jim, a nonresident, works in Oregon for a water transportation company that plies the waters of the Columbia River. On occasion, he is called upon to work as a member of a crew for a full day on one of the company's vessels when they are short-handed. His income is taxable by Oregon, even for the days he works on the vessel, because his work on the vessel is on an as-needed, sporadic, or intermittent basis.

Example 5: Ken, a Washington resident, works in Oregon as a manager for a water transportation company whose two vessels traverse the Columbia River. Once every quarter, Ken boards the company's vessels to check on the employees working on the vessel. Ken's income is taxable by Oregon, even for the days that he spends on board a vessel because he is not a pilot, master, officer, or crew member of the vessel.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.127
Hist.: REV 11-2007, f. 12-28-07, cert. ef. 1-1-08; REV 10-2013, f. 12-26-13, cert. ef. 1-1-14

150-316.130(2)(c)-(A)

Alimony Deduction -- for Part-Year and Nonresidents

A nonresidents alimony deduction must be prorated for the portion of the year that they are a nonresident of Oregon if they have income from other than Oregon sources. The alimony paid while a nonresident is to be prorated based on the ratio of their Oregon source income while a nonresident to their total income while a nonresident without deduction for alimony. Alimony paid is deductible in full once residency is established.

Example: Douglas lives in Washington. From January 1 to May 1 he earns $28,000 in Washington wages and pays $12,000 in alimony. From May 1 to June 1 he earns $7,000 in Oregon wages and pays $3,000 in alimony.

On June 1 Douglas moves to Oregon and establishes residency. Between June 1 and November 1 he earns $50,000 in Oregon wages and pays $15,000 in alimony.

In November, Douglas goes back to work for his former Washington-based employer but continues to live in Oregon. From November 1 through December 31 he earns $24,000 in Washington wages and pays $6,000 in alimony.

Summary: During the time he was a nonresident, and without regard to his alimony deductions, Douglas earned $7,000 in Oregon source income and $35,000 in total income.

Douglas made $15,000 in alimony payments while a nonresident and $21,000 in alimony payments after establishing Oregon residency.

Douglas' Oregon alimony deduction is $24,000, consisting of $3,000 for the nonresident period and $21,000 for the resident period. The $3,000 is computed as follows: [Table not included. See ED. NOTE.]

[ED NOTE: Tables referenced in this rule are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.130
Hist.: RD 15-1987, f. 12-10-87, cert. ef. 12-31-87; Repealed by RD 7-1989, f. 12-18-89, cert. ef. 12-31-89; RD 12-1990, f. 12-20-90, cert. ef. 12-31-90

150-316.130(3)

Nonresident Deduction for Contributions to IRA, Keogh, or Qualified Medical Savings Accounts

(1) Nonresident individuals who are allowed a deduction for contributions made to Keoghs, SEPs, individual retirement accounts (IRAs), and qualified savings accounts (MSA) for federal purposes shall also be allowed a deduction for Oregon purposes. The deduction for Oregon is limited to a percentage of the federal deduction (not to exceed 100 percent).

(2) For contributions made to a qualified Keogh or SEP plan under section 401 of the Internal Revenue Code, the deduction for Oregon is equal to the federal deduction times the ratio of Oregon earned income over earned income from all source. In general, "earned income" is the net earnings from self-employment in a trade, business, or profession in which the taxpayer performs personal service.

(3) For contributions made to an IRA account under section 219 of the Internal Revenue Code, the deduction for Oregon is equal to the federal deduction times the ratio of Oregon compensation over compensation from all sources. In general, "compensation" includes alimony, wages, professional fees, or other amounts derived from or received from personal services rendered and included in gross income for the tax year. It does not include pensions, annuities, or other forms of deferred compensation.

Example: Assume a nonresident taxpayer had a $2,000 IRA deduction for federal purposes. His federal and Oregon wages were $40,000 and $20,000, respectively. His Oregon deduction would be equal to $1,000 or ($2,000 x (20,000/40,000)).

(4) For contributions made to a MSA under section 220 of the Internal Revenue Code, the deduction for Oregon is equal to the federal deduction times the ratio of Oregon compensation over compensation from all sources.

[Publications: The publication(s) referred to or incorporated by reference in this rule is available from the agency pursuant to ORS 183.360(2) and ORS 183.355(6).]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.130
Hist.: 9-22-86, 12-31-86, Renumbered from 150-316.127(1)(a)-(C); RD 7-1989, f. 12-18-89, cert. ef. 12-31-89; RD 5-1997, f. 12-12-97, cert. ef. 12-31-97

150-316.131(1)

Credit for Taxes Paid to State of Residence

(1) General: An Oregon nonresident is allowed a credit for taxes paid to the state of residence if the taxpayer's state of residence allows residents of Oregon to claim a credit for mutually taxed income on the nonresident return filed with that state.

Example: Elizabeth, a California resident, receives income from Oregon property. Because California allows Oregon residents to claim a credit for mutually taxed income on the California nonresident return, Elizabeth is allowed to claim the credit on the Oregon nonresident return.

(2) Computation. OAR 150-316.082(2) subsection (4) shall be followed.

(3) Proof required and procedure for obtaining credit. OAR 150-316.082(3) and 150-316.082(1)-(A) shall be followed.

(4) Special filing status. OAR 150-316.082(2) subsections (5), (6), (7), and (8) shall be followed.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.131
Hist.: 10-15-93, 12-31-93; REV 5-2000, f. & cert. ef. 8-3-00

Costs In Lieu of Nursing Home Care

150-316.148

Credit for Elderly Care

The eligible taxpayer either may make payments directly to the qualified individual or may provide that individual with food, medical care, clothing and transportation.

Receipts or other substantiation of these expenses may be required upon audit of the return.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.131
Hist.: RD 7-1993, f. 12-30-93, cert. ef. 12-31-93

150-316.149

Evidence of Eligibility for Credit

Upon request of the department, the taxpayer must provide a "Credit for Home Care of an Elderly Person" certification form. Part I and II must be completed. Part I of the form must be certified by the Department of Human Resources for the year in which the credit is taken.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.149
Hist.: TC 8-1980, f. 11-28-80, cert. ef. 12-31-80; RD 5-1994, f. 12-15-94, cert. ef. 12-31-94

150-316.153

Credit for Involuntary Move of a Mobile Home

(1) Definitions. For purposes of this rule: "MH" means "mobile home," "manufactured home," or "manufactured dwelling."

(2) "Actual costs of moving and setting up a mobile home" are reasonable and prudent expenses incurred by a qualified individual that include, but are not limited to:

(a) Costs to disassemble the MH and prepare it for moving;

(b) Costs of removing and reinstalling foundations, tiedowns, stairs, decks, awnings, skirting, carports or garages, storage units;

(c) Costs for disconnecting and reconnecting utilities, including related fees;

(d) Municipal fees or charges such as trip permit fees, public inspection fees, system development charges at the new site, building inspection fees, or installation permit fees;

(e) Costs to transport the MH including any wheels needed to go beneath the MH to make it movable on the road;

(f) Costs of storing the MH while preparing a space for the relocation of the MH;

(g) Costs for MH improvements required to meet destination space standards such as the foundation, drains, driveways, decks, landscaping, carports or garages, stairways, or to existing siding or skirting;

(h) Costs to reassemble the MH at the destination space including repairing carpet, drywall or walls, ceilings, touch-up paint, floors and roofs, and sealing the sections; or

(i) Costs to clean up the old site as required by the closing landlord.

(3) "Actual costs of moving and setting up a mobile home" do not include:

(a) The purchase of land or the fees associated with the purchase of land;

(b) Costs for capital improvements to the property other than those listed in section (2) of this rule; or

(c) Amounts that are otherwise deductible under the Internal Revenue Code, such as interest expense, personal property taxes, or real property taxes.

(d) Costs for packing, transporting, storing, and unpacking contents of the mobile home and other personal belongings.

(e) Costs for temporary housing and meals.

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

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.153
Hist.: REV 6-2006(Temp), f. & cert. ef. 9-29-06 thru 12-31-06; REV 10-2006, f. 12-27-06, cert. ef. 1-1-07

Retirement Income

150-316.157

Retirement Income Credit

(1) Definitions.

(a) Retirement Income. Retirement income includes distributions from any:

(A) U.S. Government pension;

(B) State public pension;

(C) Employee pension benefit plan;

(D) IRA or KEOGH;

(E) Deferred compensation plan;

(F) Employee annuity plan which is included in federal taxable income.

(b) Age. In order to claim the credit, the taxpayer must meet the following age requirement before the end of the tax year:

(A) The individual must be 58 years old for tax years beginning on or after January 1, 1991, and prior to January 1, 1993.

(B) The individual must be 59 years old for tax years beginning on or after January 1, 1993, and prior to January 1, 1995.

(C) The individual must be 60 years old for tax years beginning on or after January 1, 1995, and prior to January 1, 1997.

(D) The individual must be 61 years old for tax years beginning on or after January 1, 1997, and prior to January 1, 1999.

(E) The individual must be 62 years old for tax years beginning on or after January 1, 1999.

If taxpayers are married filing a joint return, the spouse receiving the pension income must meet the age requirement in order to claim the tax credit.

(c) Base. The base is equal to $7,500 if the taxpayer files as single, head of household, qualifying widower, or married filing a separate return. The base is equal to $15,000 if the taxpayer is married filing a joint return.

(d) Social Security. Social security is the taxable and nontaxable benefits received by the individual who is receiving retirement income. In the case of a married filing joint return, social security is the taxable and nontaxable benefits received by both spouses.

For purposes of this credit, household income is the total income of the taxpayer and the taxpayer's spouse, regardless of which spouse received the income or of the source. Household income does not include any taxable or nontaxable Social Security benefits received by either the taxpayer or the taxpayer's spouse.

(2) Credit. Eligible individuals receiving retirement pay are allowed a credit for tax years beginning on or after January 1, 1991. The credit is equal to 9 percent of the lesser of:

(a) Retirement income or;

(b) The base, reduced by any social security received and by the household income limitation.

(3) Household Income Limitation. If a taxpayer filing a joint return has more than $30,000 of household income (as defined by ORS 310.630), the base is reduced dollar for dollar by the amount that household income of the taxpayer exceeds $30,000. If a taxpayer files as single, head of household, qualifying widower, or married filing a separate return and has more than $15,000 in household income, the base will be reduced by household income in excess of the $15,000. For purposes of this credit, benefits received from Social Security or Railroad Retirement are not included in computing the household income limitation.

Example 1: John's retirement income totals $6,000. John's wife, Mary, has retirement income totaling $2,000. John and Mary file a joint return. John and Mary's total retirement income is $8,000 ($2,000 + 6,000) and is all taxable on their Oregon return. They receive social security benefits which total $4,000 for the year. Their household income equals $31,000 not including social security. The base of $15,000 is reduced by $4,000 (social security benefits) and by $1,000 (the excess household income over $30,000). This equals $10,000 (15,000 – 4,000 – 1,000). The credit is equal to 9 percent of the lesser of $10,000 or $8,000 (the total of their retirement income). John and Mary's retirement credit is $720 (.09 x $8,000).

(4) Part-year Resident. The credit is calculated in the same manner as the credit allowed a resident in section (2) but is based only on retirement income that is taxable by Oregon.

Example 2: Use the facts in Example 1 except assume that John and Mary are filing as part-year residents. Assume that of John's $6,000 of retirement income, $1,500 is retirement from services performed in California and is all received before they move to Oregon. Also assume that $2,000 is compensation sourced to Oregon but received before they move to Oregon. The balance, $2,500 ($6,000 – ($1,500 + 2,000)) is compensation received after they moved to Oregon. Mary's $2,000 of retirement income is all received after they move to Oregon and is all taxable by Oregon. The base of $15,000 is reduced by $4,000 (social security benefits) and by $1,000 (the excess household income over $30,000). The product of the formula is $10,000 ($15,000 – 4,000 – 1,000). The credit is equal to 9 percent of the lesser of $10,000 or $4,500 (retirement income taxable by Oregon). John and Mary's retirement credit is $405 (.09 x $4,500).

(5) Nonresident. Retirement income received after December 31, 1995 by a nonresident is not includible in Oregon taxable income and may not be used to claim the retirement income credit.

(6) In no event will a taxpayer be allowed the credit in excess of the taxpayer's tax liability or be allowed to carry any excess over to the following tax year.

(7) The taxpayer shall claim either this credit or the credit for the elderly and the permanently and totally disabled, but not both.

(8) The provisions of this rule apply to retirement income received after December 31, 1995. Prior to January 1, 1996, the retirement income credit was based on retirement income included in federal taxable income.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.157
Hist.: RD 7-1991, f. 12-30-91, cert. ef. 12-31-91; RD 5-1997, f. 12-12-97, cert. ef. 12-31-97

150-316.159

Subtraction for Previously Taxed Contributions

(1)(a) For tax years beginning on or after January 1, 1991, Oregon will allow resident taxpayers a subtraction for distributions from an individual retirement account, Keogh plan or Simplified Employee Pension plan for the contributions to the plan that have already been taxed by another state. The subtraction is allowed only if all of the following conditions are met:

(A) The distributions consist of contributions made during a period in which the taxpayer was a nonresident of Oregon;

(B) The distributions consist of contributions made during a period in which the taxpayer was a resident of a state that imposes an income tax;

(C) The distributions consist of contributions for which no deduction, exclusion or exemption for the contributions was allowed or allowable in the state in which the taxpayer was a resident prior to becoming an Oregon resident; and

(D) No deduction, exclusion, subtraction or other tax benefit has been allowed for the distributions by another state before the taxpayer becomes a resident of Oregon.

Example 1: In 1997 Sam was a resident of a state that imposes no income tax. He made a deductible IRA contribution in 1997. In 1998 Sam converted his regular IRA of $2,000 to a Roth IRA. The distribution will be reported over a 4-year period. Sam became a permanent Oregon resident on April 1, 1998. Sam is not entitled to a subtraction because the contributions were not previously taxed. Sam will be taxed on $375 (3/4 of $500 for the period April through December 1998) on his 1998 part year Oregon return. If Sam remains an Oregon resident he will be taxed on $500 in 1999, 2000 and 2001.

(b) If any portion of the distributions received by a resident of Oregon qualify for the subtraction, those distributions first received by the taxpayer are allowed to be subtracted. The subtraction continues until the distributions that qualify for the subtraction are recovered. Any distributions received after that are fully taxable to the Oregon resident.

(c) The following contributions do not qualify for the subtraction:

(A) Contributions made during a period when the taxpayer was a nonresident required to file an Oregon return to the extent that a deduction or exclusion was allowable for those contributions; or

(B) Contributions made during a period when the taxpayer was a resident of a state that does not impose an income tax; or

(C) Contributions for which the taxpayer was allowed a credit for taxes paid to another state.

Example 2: Taxpayer is a resident of California from 1980 to 1990 and qualifies to make contributions to an individual retirement account for both federal and California. Taxpayer contributes $1,500 in 1980 and 1981 and from 1982 to 1990 contributes $2,000 per year. Both California and federal allowed a maximum $1,500 deduction for 1980 and 1981. For 1982 through 1986, federal allowed a maximum $2,000 deduction while California only allowed a maximum deduction of $1,500. For 1987 through 1990, both federal and California allowed a maximum deduction of $2,000. Taxpayer made contributions of $2,500 ($500 ¥ 5 years) while a California resident for which no deduction was allowed on the California return.

Taxpayer retires and moves to Oregon in June 1991 and begins to receive payments from the IRA account established in California. Oregon taxes all of the IRA distributions received after June 1991 but will allow the taxpayer a subtraction on the Oregon return for the $2,500 of contributions which were not deductible.

Taxpayer receives 7 payments of $350 in 1991 for a total of $2,450 ($350 ¥ 7). Taxpayer would claim a subtraction of $2,450 for 1991. In 1992, the taxpayer received 12 payments of $350 for a total of $4,200 ($350 ¥ 12). The taxpayer would be able to subtract the balance of $50 ($2,500 – $2,450). From that point on, no subtraction is allowed on the Oregon return for recovery of contributions.

(2) If the taxpayer has already received distributions from an IRA, Keogh or SEP that is a recovery of contributions that meet the provisions of Section (1), then the taxpayer will be allowed a subtraction in 1991 for those contributions. Taxpayer will then be allowed a subtraction each year until all qualifying contributions are recovered. From that point on, no subtraction is allowed on the Oregon return for recovery of contributions.

Example 3: Use the same facts as Example 2, except that the taxpayer retires and moves to Oregon in June 1989. Taxpayer made contributions while a California resident for which no deduction was allowed of $2,500 ($500 ¥ 5 years). The taxpayer has already received $2,450 ($350 ¥ 7 months) of IRA distributions in 1989 and $4,200 ($350 ¥ 12) of IRA distributions in 1990. For tax year 1991, taxpayer may claim a subtraction of $2,500, the full amount of contributions for which no deduction was allowed on the California return. The $2,500 subtraction consists of recovery of contributions of $2,450 in 1989 and $50 of recovery of contributions in 1990. After that, no subtraction is allowed on the Oregon return for recovery of contributions since the taxpayer has recovered all $2,500 of qualifying contributions.

Example 4: Use the same facts as Example 3. The taxpayer retires and moves to Oregon in June 1989 but instead of receiving periodic payments, the taxpayer withdraws the entire balance of the IRA from California as a lump-sum distribution. The lump-sum distribution is taxable by both Oregon and California. Taxpayer made contributions while a California resident for which no deduction was allowed of $2,500 ($500 ¥ 5 years). For tax year 1991, the taxpayer will claim a one time subtraction for all contributions for which no deduction was allowed on the California return. The subtraction is limited to federal adjusted gross income and cannot create a net operating loss. If the taxpayer does not claim a subtraction for all of the contributions for which no deduction was allowed due to the federal adjusted gross income limitation, no subtraction may be claimed in subsequent years for the balance of the contributions. Taxpayer has adjusted gross income of $18,000 so may claim the full subtraction of $2,500 in 1991.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.159
Hist.: RD 7-1991, f. 12-30-91, cert. ef. 12-31-91; REV 7-1998, f. 11-13-98 cert. ef. 12-31-98

Collection of Tax Source on Wages

150-316.162(2)-(A)

Withholding: Basis of Amount Withheld

(1) Remuneration includes merchandise, stocks, bonds, room, board, or other consideration passing to the employee in payment for services.

(2) The cash value must be based upon sound principles and the Department reserves the right to determine standard valuations for such items as meals, lodging, etc. If room is furnished in addition to board, no additional value will ordinarily be placed upon the room. If room and board are furnished at hotels, resorts or lodges, or if a room only, an apartment, a house or any other consideration is provided, the value, for withholding tax purposes, will be the actual value of this remuneration. (Living quarters or meals furnished to the employee for the convenience of the employer are excluded from income pursuant to section 119 of the IRC and the regulations pertaining thereto.)

(3) Amounts paid as reimbursable expenses to an employee are not subject to withholding; however, such payments must be identified either by making a separate payment or by specifically indicating the separate amount where both wages and reimbursement of expenses are made in a single payment. If an employee receives a definite weekly, monthly, or annual salary, withholding is required upon the entire amount even though the amount may be fixed by including an estimate of expenses which will necessarily be incurred by the employee on behalf of the employer. Only reimbursement based upon actual expenses is exempted from withholding. Sickness disability benefits and other disability pensions paid by an employer to an employee are emoluments unless they fall within exemptions of sections 104 to 106 of the IRC.

(4) Where an employer-employee relationship exists between a husband and wife, the employing spouse must withhold. Sums received by unemancipated minors which are not gifts, but compensation for bona fide personal services rendered to parents, require withholding.

(5) Withholding is required from distributions from a deferred compensation plan as defined in IRC 457 or a nonqualified plan under IRC 403 if the contributions to the plan or payments from the plan are wages.

(6) Wages due but not yet paid at the date an employee dies are not considered wages and are not subject to withholding.

(7) Withholding is required from accrued vacation pay, even though disbursed after termination of employment.

[Publications: The publication(s) referred to or incorporated by reference in this rule is available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.162
Hist.: 1-69; 11-71; RD 15-1987, f. 12-10-87, cert. ef. 12-31-87; RD 4-1991, f. 12-30-91, cert. ef. 12-31-91; RD 7-1992, f. & cert. ef. 12-29-92; RD 5-1993, f. 12-30-93, cert. ef. 12-31-93; REV 6-1998, f. 11-13-98, cert. ef. 12-31-98

150-316.162(2)-(B)

Employees Exempt from Withholding

(1) Active service in Armed Forces. See OAR 150-316.680(1)(c)-(B).

(2) Carrier employees. Public Law 101-322 and ORS 316.162(2)(b) exempt from state withholding railroad and trucking employees unless they are Oregon residents. OAR 150-316.127-(E) contains definitions and examples of trucking employees. Public Law 91-569 and ORS 316.162(2)(b) exempt from state withholding nonresident air carrier employees unless they earn 50 percent or more of their compensation in Oregon. Employees whose scheduled flight time in Oregon is more than half of their total flight time for the year are considered to have earned more than half of their compensation in Oregon. The employees covered are those actually involved in transportation activities in more than one state.

(3) Domestic service. The exemption in ORS 316.162(2)(c) does not apply to wages paid to an employee who performs both domestic and business services, such as the chauffeur who also transports his employer's business clients, the domestic cook who also prepares meals for other employees or the paying public, etc.

(4) Casual labor. Withholding is not required from wages paid for casual labor not in the course of the employer's trade or business. Withholding is required from wages for substantial labor not in the regular course of the employer's trade or business, such as the construction of a private home where the owner is the employer. Labor which is both casual and not in the course of the business or trade of the employer is exempt from withholding requirements. "Business," as used in this section, is given a broader interpretation than "activity for profit" and includes governmental as well as proprietary functions of the state government or any of its political subdivisions.

(5) Agricultural services. Labor rendered solely in connection with the planting, cultivating, or harvesting of "seasonal agricultural crops" is exempt from withholding if the total annual wages paid the employee are less than $300. If at least $300 is received by the employee during the calendar year, the withholding and payments must have been timely made.

(a) A "seasonal agricultural crop" is a crop dependent upon an annual or less season for its fruition, and which is harvested at the termination of its season or shortly thereafter.

(b) Seasonal agricultural crops include:

(A) Field and forage crops.

(B) The seeds of grasses, cereal grains, vegetable crops and flowers.

(C) The bulbs and tubers of vegetable crops.

(D) Any vegetable or fruit used for food or feed.

(E) Holly cuttings harvested annually for Christmas sales.

(c) Labor performed in connection with the following are not exempt from withholding:

(A) Forest products.

(B) Landscaping.

(C) Nursery stock as defined in ORS 571.005(5) unless planted, cultivated, and harvested within an annual period.

(D) Raising, shearing, feeding, caring for, training or management of livestock, bees, poultry, fur-bearing animals or wildlife.

(d) Withholding is required as to the entire wages of "regular" farm employees even though, as a part of their duties, they engage in planting, cultivating, or harvesting. Withholding is required as to all wages paid in such seasonal activities as canning, or other food processing, logging, and sheep shearing, because they are not solely in connection with the planting, cultivating, or harvesting of seasonal agricultural crops. Withholding is required as to all wages paid in such agricultural activities as the care of poultry or livestock, and dairy farming, because they are not in connection with the planting, cultivating or harvesting of seasonal agricultural crops.

(6) Withholding is not required from wages paid to a duly ordained, commissioned, or licensed minister of a church when performing the duties of the minister's ministry, or from wages of a member of a religious order in performance of the religious duties required by the order, when the duties are not commercial in nature. Any amounts received from services performed outside of the order, and where a legal relationship of employer and employee exists between a member of a religious order or a minister and a third party, are considered income and are subject to withholding. For example, a member of a religious order has been hired by a school to teach a class for a fee. That member becomes an employee of the school and the wages are subject to withholding. Pursuant to IRS publication 525.

(7) Real Estate Salespeople. Withholding is not required from services provided to real estate brokers by real estate salespeople if there is a written contract providing the salesperson will not be treated as an employee by the real estate broker with respect to the services provided for Oregon tax purposes. Their income from commissions is not subject to state withholding taxes.

[Publications: The publication(s) referred to or incorporated by reference in this rule is available from the agency

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.162
Hist.: 1-69; 11-71; 11-73; 9-74; 12-19-75; 12-31-77; TC 19-1979, f. 12-20-79, cert. ef. 12-31-79; RD 10-1983, f. 12-20-83, cert. ef. 12-31-83; RD 11-1985, f. 12-26-85, cert. ef. 12-31-85; RD 13-1987, f. 12-18-87, cert. ef. 12-31-87; RD 7-1992, f. & cert. ef. 12-29-92; RD 5-1995, f. 12-29-95, cert. ef. 12-31-95; REV 6-1998, f. 11-13-98 cert. ef. 12-31-98; REV 7-1999, f. 12-1-99, cert. ef. 12-31-99

150-316.162(2)-(C)

Withholding on Fringe Benefits

(1) A fringe benefit is not subject to withholding for Oregon purposes if it is not subject to Oregon income tax.

(2) When a fringe benefit is subject to withholding, the rate of withholding is determined by Oregon withholding tax tables considering total income for the payroll period.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.162
Hist.: RD 7-1988, f. 12-19-88, cert. ef. 12-31-88

150-316.162(2)(j)

Independent Contractor Definition

(1) As used in the various provisions of ORS Chapters 316, 656, 657, 671 and 701, an individual or business entity that performs labor or services for remuneration shall be considered to perform the labor or services as an "independent contractor" if the standards of ORS 670.600 are met. See OAR 150-670.600 for definitions related to independent contractors.

(2) The Construction Contractors Board, Employment Department, Landscape Contractors Board, Department of Consumer and Business Services, and Department of Revenue of the State of Oregon, under the authority of ORS 670.605, will cooperate as necessary in their compliance and enforcement activities to ensure among the agencies the consistent interpretation and application of ORS 670.600.

Stat. Auth.: ORS 305.100, 670.605
Stats. Implemented: ORS 670.600
Hist.: RD 7-1992, f. & cert. ef. 12-29-92; REV 12-2000, f. 12-29-00, cert. ef. 12-31-00; REV 6-2005, f. 12-30-05, cert. ef. 1-1-06; REV 1-2007, f. & cert. ef. 2-1-07

150-316.162(3)

Personal Liability of Responsible Officers, Members, or Employees for Taxes Withheld

(1) To be held personally liable for unpaid withholdings under ORS 316.162, a person must have been considered to have been an "employer." In addition, the person must have been in a position to pay the withholdings or direct the payment of the withholdings at the time the duty arose to withhold or pay over the taxes. Additionally, the person must have been aware, or have been in a position that should have been aware, that the withholdings were not paid to the department. An employer cannot avoid personal liability by delegating their responsibilities to another.

(2) "Employer" includes, but is not limited to an officer, member or employee of a corporation, partnership or other business entity, if, among other duties, that individual has:

(a) The power or authority to see that the withholding taxes are paid when due;

(b) Authority to prefer one creditor over another;

(c) Authority to hire and dismiss employees;

(d) Authority to set employees' working conditions and schedules;

(e) Authority to sign or co sign checks;

(f) Authority to compute and sign payroll tax reports;

(g) Authority to make fiscal decisions for the business;

(h) Authority to incur debt on behalf of the business; or

(i) Performed duties other than those outlined by the corporate bylaws or partnership agreement.

(3) The following factors do not preclude a finding that the individual is liable for the payment of taxes which were required to be withheld:

(a) Whether the failure to pay over the required withholding was willful;

(b) Whether the individual received remuneration;

(c) Maintenance of full-time employment elsewhere;

(d) The department considers another individual liable for the same withholding taxes;

(e) A corporate bylaw or partnership agreement position description to the contrary;

(f) Absence of signatory authority on a business bank account;

(g) Absence of bookkeeping or recordkeeping duties;

(h) Absence of authority to hire, fire, and to set working conditions and schedules; or

(i) Whether any functions indicating liability have been delegated to another.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.162
Hist.: RD 11-1985, f. 12-26-85, cert. ef. 12-31-85; REV 8-2001, f. & cert. ef. 12-31-01, Renumbered from 150-316.162(3); REV 1-2005, f. 6-27-05, cert. ef. 6-30-05, Renumbered from 150-316.162(4)

150-316.164

Bonding Requirements for Delinquent Withholding Employers

(1) As used in this section, a surety bond means a bond that guarantees payment of future withholding taxes of employers. In order for a surety bond to be acceptable, it must be issued by a company authorized to do business in Oregon by the Oregon Department of Insurance and Finance.

(2) As used in this section, an irrevocable letter of credit means an irrevocable letter of credit issued by a commercial bank. "Commercial bank" is defined as a bank, a savings bank, a stock savings bank, a national bank, a foreign institution or an extranational institution.

(3) The department may require an employer to post a bond or irrevocable letter of credit if the employer becomes delinquent for three calendar quarters and the tax amount exceeds $2,500.00. The amount of the bond or irrevocable letter of credit shall be at least equal to the amount that should have been withheld from wages for four calendar quarters.

(4) If an employer elects to pay over withholding taxes within three banking days of each payday, the employer shall not be required to post a bond or irrevocable letter of credit. Employers electing this option, shall continue making payments in this manner until all delinquent amounts are paid in full and they have had no further delinquent returns or payments for four consecutive calendar quarters.

(5) As used in ORS 316.164(4), "other methods of collection" means billing notices, collection letters, and telephone calls.

(6) All bonds or irrevocable letters of credit become the property of the department and shall be used solely to guarantee payment of withholding taxes. The department may, at any time, apply any part or all of the bond or irrevocable letter of credit to any delinquency accrued after the bond or irrevocable letter of credit was posted. However, the employer shall maintain the original amount of the bond or irrevocable letter of credit at all times.

(7) The bond or irrevocable letter of credit, or unused portion shall be returned to an employer when:

(a) The employer stops doing business as an employer and all delinquent amounts are paid in full; or

(b) The employer pays all delinquent amounts in full and has no further delinquent returns or payments for four consecutive calendar quarters.

(8) The department may proceed with action through the Oregon Tax Court to require compliance from any employer who fails to comply with this section.

(9) Any appeal by an employer shall not relieve an employer of posting a bond or irrevocable letter of credit or making accelerated payments, if required to do so by the department.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.164
Hist.: RD 11-1985, f. 12-26-85, cert. ef. 12-31-85; 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 4-1991, f. 12-30-91, cert. ef. 12-31-91

150-316.167(1)

Withholding by Employers

(1) The term "employer" includes any person or organization for whom an individual performs any service as an employee. An employer may be an individual, corporation, partnership, estate, trust, association, joint venture, or other unincorporated organization. The term also includes religious, educational, charitable, and social organizations or societies even though such organizations are themselves exempted from payment of taxes. It includes governmental agencies, including federal, state, and local subdivisions, such as towns and counties. The federal government agencies withhold under an agreement sanctioned by the Act of Congress of July 17, 1952, and Executive Order 10407, dated December 6, 1952. It includes employers who engage only in interstate commerce.

(2) No statutory distinction is made as to the location of the employer. The withholding provision applies generally to any employer within the jurisdiction of the State of Oregon. Withholding is required of employers situated outside the state upon wages, commissions, or other emoluments paid to an employee or agent for services performed within the state, even though the employee or agent may be a nonresident and their Oregon employment may be of short duration. The department may, upon the written petition of an out-of-state employer, relieve such employer of the duty to withhold where it can be shown to the satisfaction of the department that the nonresident employee or agent temporarily serving within Oregon is not acting in the regular course of the employer's business or their stay within Oregon will be extremely short and income resulting therefrom will not create a potential Oregon individual income tax liability as to the employee. Both in-state and out-of-state employers may be relieved of the duty to withhold where it can be shown to the satisfaction of the department that each individual employee serving within Oregon will receive $300 or less in wages from that employer within a calendar year.

(3) Withholding is required as to all wages paid by resident and nonresident employers doing business in Oregon for services performed by any employee within the state. For services performed by a resident partly or entirely outside of Oregon the Department of Revenue may authorize special withholding arrangements in hardship cases where it can be shown that withholding tax is being paid to another state on such employee. An employer who is located outside of the state and has no Oregon business activity cannot be required to withhold Oregon tax from the wages of an Oregon resident working outside the state. However, such employer may register and withhold as a convenience to the employee. All wages paid to nonresidents (persons domiciled outside Oregon) for services performed in Oregon are subject to withholding. If the nonresident earns wages both in and outside of Oregon, such as a salesperson, only that part of the wages earned in Oregon is subject to withholding.

(4) If the employer, in violation of the provisions of ORS 316.167, fails to deduct and withhold the tax, the employer nevertheless is liable to remit to the department the amount which should have been withheld. The employer shall be relieved of such liability if and when the employer can show by proper evidence and proof satisfactory to the department that the employee's income tax against which such sum would have been credited has been paid without reduction through failure to withhold. Such waiver shall not operate to relieve the employer from liability for penalties, additions, or interest provided in the Act. The moneys withheld by employers from the wages of employees must be remitted promptly on the due date and no extension of time for such remittance is provided by statute or can be granted by the department. The funds involved are held by the employer in trust for the State of Oregon, and any use thereof by the employer amounts to an illegal conversion. The employer may not regard such funds as being in the same category as their own personal income tax indebtedness.

(5) An "employee" is any individual who performs services for another individual or organization having the right to control the employee as to the services to be performed and as to the manner of performance. Designation of an individual as an employee for purposes of industrial accident insurance, unemployment compensation, federal social security, or federal withholding will establish that individual as an employee for purposes of the Oregon withholding tax unless facts can be shown to the contrary.

(6) If the relationship of employer and employee actually exists, a different description of the relationship by the parties is immaterial; thus, it is of no consequence that the employee may be designated as a partner or independent contractor, contrary to fact. Family relationships or the fact that compensation may be based upon an agreed percentage of profits or other indeterminate measure, are of no consequence in determining the relationship of employer to employee. No distinction is made between classes or grades of employees; administrative and executive personnel and corporate officers are employees. Persons who are in business solely for themselves are not employees. However, professional people organized under Oregon's Professional Corporation Act, ORS Chapter 58, will be treated as employees of the corporation. By incorporating and rendering services, the professional person generally creates an employment relationship with the corporation.

(7) As used in this rule, the definition of worker leasing company is identical to the definition found in ORS Chapter 656.

The relationship of employer to employee exists between worker leasing companies and the workers for which they act as lessor. The relationship of employer to employee does not exist between leased workers and the lessee if the following conditions are met:

(a) The worker leasing company has a valid license under ORS chapter 656 and;

(b) There is a valid written worker leasing contract between the worker leasing company and the lessee.

If these conditions are not met, the department may determine that the lessee is the employer of the leased workers.

Statements in contractual agreements concerning employer tax liabilities are not sufficient to transfer liabilities between worker leasing companies and lessors.

[Publications: The publication(s) referred to or incorporated by reference in this rule is available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.167
Hist.: 1-69 as 150-316.167-(A), 150-316.167-(B), 150-316.167-(C), 150-316.197-(A); 12-1-9-75, Renumbered to 150-316.167(1); 12-31-82; RD 10-1983, f. 12-20-83, cert. ef. 12-31-83; RD 5-1993, f. 12-30-93, cert. ef. 12-31-93

150-316.167(2)

Employer's Election of Method of Computing Withholding

Employers have the option of using either the tax tables or the formulas developed and furnished by the Department in computing the amount to be withheld from regular wage payments. The tax tables and formulas are published by the Department. Employers may not modify the published tables or formulas except to update the exemption credit allowance as modified by state law.

Example: The version of the published formula for an annual wage, effective January 1, 1988, contains a subtraction of $90 x allowances, this may be modified to $128 x allowances because under 1997 state law the exemption credit is $128.

If a supplemental wage payment is made the employer may compute the amount to be withheld by using the tax tables or formulas, or may withhold at a flat rate which shall be 9 percent. Supplemental wage payments include bonuses, premiums, awards, gifts and other payments made to an employee, on the condition of their employment, occurring no more than twice a year.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.167
Hist.: 1969 as 150-316.167-(D); 12-19-75, Renumbered; RD 10-1983, f. 12-20-83, cert. ef. 12-31-83; RD 10-1984, f. 12-5-84, cert. ef. 12-31-84; RD 4-1991, f. 12-30-91, cert. ef. 12-31-91; RD 5-1993, f. 12-30-93, cert. ef. 12-31-93; REV 6-1998, f. 11-13-98, cert. ef. 12-31-98

150-316.168(1)-(A)

Withholding Payments: Cash Basis

All withholding is on a cash basis and must be reported on a cash basis.

Example: If services are performed in January but not compensated until April, withholding on the wages for those services is reported on the report for the quarter ending June 30.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.168
Hist.: RD 4-1991, f. 12-30-91, cert. ef. 12-31-91

150-316.168(2)

Additional Time to File Reports

Oregon does not allow additional 10 day federal extension to file the quarterly tax report when all payments are paid when due. Information provided by the taxpayer on the tax report is essential to providing timely payment of Unemployment Insurance benefits.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.168
Hist.: RD 4-1991, f. 12-30-91, cert. ef. 12-31-91; REV 6-1998, f. 11-13-98, cert. ef. 12-31-98

150-316.171

Treatment of Payroll Based Program Overpayments

(1) If an employer has overpaid their withholdings or transit district payroll taxes due for a quarter and files an original or amended combined quarterly tax return, the department will refund the overpayment or apply the overpayment (rollover) toward the employer's liability for the current or prior quarter as instructed by the employer. However, the following rules apply if the employer does not instruct the department:

(2) If an employer has overpaid their withholdings or transit district payroll taxes due for a quarter, the overpayment will be rolled over as a payment toward the employer's liability for that program for the current quarter.

(3) If the department records show that the employer is no longer in business, and all returns have been filed, the overpayment will be refunded.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.171
Hist.: RD 7-1994, f. 12-15-94, cert. ef. 12-30-94; REV 6-1998, f. 11-13-98, cert. ef. 12-31-98

150-316.177(1)-(A)

Exemption Status of Employees

Effective January 1, 1982 Internal Revenue Service's Form W-4, Employee's Withholding Allowance Certificate, may be used by an employer in the same manner for Oregon withholding as it is used for federal withholding. For the exemption claimed on line 7 of the W-4 to be effective for Oregon, all of the following conditions must be met. The employee:

(1) Did not owe any Oregon income tax last year.

(2) Does not expect to owe any Oregon income tax for the current tax year.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.177
Hist.: RD 10-1983, f. 12-20-83, cert. ef. 12-31-83; RD 4-1991, f. 12-30-91, cert. ef. 12-31-91, Renumbered from 150-316.177(A); RD 7-1991, f. 12-30-91, cert. ef. 12-31-91, Renumbered from 150-316.177-(A)

150-316.177(1)-(B)

Exemptions for Military Personnel

In addition to the withholding exemptions that a member of the Armed Forces may claim for federal income tax withholding purposes, such person who is a resident of the State of Oregon shall be allowed to claim a sufficient number of personal exemptions to equal the amount of active duty military pay that is permitted to be subtracted from gross income on the member's Oregon personal income tax return.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.177
Hist.: 12-31-77, Renumbered from 150-316.177; 12-31-83; RD 4-1991, f. 12-30-91, cert. ef. 12-31-91, Renumbered from 150-316.177-(B); RD 7-1991, f. 12-30-91, cert. ef. 12-31-91, Renumbered from 150-316.177-(B)

150-316.177(2)

Penalty

(1) A penalty is assessable against an employe who files an erroneous withholding statement claiming:

(a) More than 10 withholding exemptions for federal or state income tax withholding; or

(b) Exemption from withholding and the employe's income is expected to exceed $200 per week for both federal and state purposes; or

(c) Exemption from withholding for state purposes but not for federal purposes; and

(d) As of the time the statement was made there was no reasonable basis for the statement.

(2) The penalty shall not be assessed against employes who have a reasonable basis for the erroneous statement. "Reasonable basis" includes but is not limited to the following situations:

(a) An employe in good faith files an erroneous W-4 for the first time.

(b) The employe computed the number of withholding allowances in accordance with the instructions on the Form W-4, but due to unforseen events, the number of allowances claimed is incorrect.

(c) The erroneous W-4 was filed because the employe relied upon the advice of an individual who is qualified to practice law or public accounting in this state or an individual who is licensed by the State Board of Tax Service Examiners and the employe supplied the individual with complete information connected with the advice given.

(3) The penalty shall be assessed against an employe filing an erroneous W-4 for the first time in reliance on a frivolous position or with the apparent intent to delay or impede the administration of the income tax laws of this state (or the federal government).

(4) As used in this section, a "frivolous position" includes, but is not limited to:

(a) Reference to a spurious constitutional argument;

(b) Reliance on a "gold standard" or "war tax" deduction;

(c) An argument that wages or salaries are not includable in taxable income;

(d) An argument that the Sixteenth Amendment to the United States Constitution was not properly adopted; or

(e) An argument that "unenfranchised, sovereign, free men or natural persons" are not subject to the tax laws.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.177
Hist.: RD 4-1988, f. 5-25-88, cert. ef. 6-1-88; RD 4-1991, f. 12-30-91, cert. ef. 12-31-91, Renumbered from 150-316.177(4); RD 7-1991, f. 12-30-91, cert. ef. 12-31-91, Renumbered from 150-316.177(4)

150-316.182

Procedure for Correcting the Filing of Withholding Certificates

(1) Except as provided by paragraph (2) an employer shall not use a withholding exemption certificate for state income tax withholding purposes if:

(a) The certificate claims an exempt status for state withholding purposes but not federal purposes; or

(b) The certificate is filed with the employer for use in determining both state and federal withholding, and the Internal Revenue Service has notified the employer that the certificate is materially defective.

(2) An employer may use a withholding exemption certificate that claims an exempt status for state purposes when the employee's compensation is exempt from Oregon tax under a provision of federal or state law. Examples of exempt compensation include those described in:

(a) Public Law 101-322, the Amtrak Reauthorization and Improvement Act of 1990, relating to certain rail carrier and motor carrier employees (Title 49 USC 11502 and Title 49 USC 14503, respectively);

(b) ORS 316.127(8), relating to federal employees of hydroelectric facilities on the Columbia River;

(c) Public Law 96-193, the Aviation Safety and Noise Abatement Act of 1979, relating to certain aircraft employees (Title 49 USC 40116);

(d) ORS 316.777 (relating to earnings of enrolled tribal members).

(3) If subsection (1) of this rule applies, the employer shall withhold as if the employee was single claiming zero exemptions, until such time as the employee files a new certificate. The employer shall give prompt notice to the employee of the employer's action. The employer shall give prompt notice to the employee that a certificate claiming an exempt status for state purposes only is not acceptable because there is no applicable provision under state or federal law for such exempt status.

(4) The employer shall submit to the department a copy of any withholding certificates which are:

(a) Certificates which claim more than 10 withholding exemptions for state purposes; or

(b) Certificates which claim exemption from withholding and the employee's income is expected to exceed $200 per week for both federal and state purposes; or

(c) Certificates which claim exemption from withholding for state purposes but not federal purposes.

The copy shall be submitted within 20 days of the employer's receipt of the certificate.

(5) If, after receipt of a copy of the certificate, the department makes a written request to the employee for verification of the statements in the certificate, and after 20 days does not receive such verification, the department shall notify the employer in writing of the lack of verification. If the department makes a determination to change the withholding certificate based on available information, the department shall notify the employer and employee in writing of the change. Upon receipt of the notice, the employer shall withhold according to the department's determination.

(a) If the employee files a new certificate with the employer claiming more exemptions than the determination made by the department, or exemption from state withholding, the employee shall also submit a copy of the newly filed certificate to the department requesting a redetermination. The certificate should have the word "Redetermination" written on the top of the newly filed certificate. The employer shall continue to withhold according to the department's most recent determination until the department authorizes a subsequent change.

(b) If the employee files a new certificate with the employer claiming fewer exemptions than the determination made by the department, the employer may withhold according to the newly filed certificate.

The employee may appeal the action of the department as otherwise provided by law.

[Publications: The publication(s) referred to or incorporated by reference in this rule are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.182
Hist.: TC 15-1979(Temp), f. & cert. ef. 12-18-79; TC 2-1980, f. & cert. ef. 5-20-80; RD 3-1982(Temp), f. & cert. ef. 2-11-82; RD 6-1982, f. & cert. ef. 5-5-82; RD 12-1984, f. 12-5-84, cert. ef. 12-31-84; 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 7-1992, f. & cert. ef. 12-29-92; REV 7-1998, f. 11-13-98, cert. ef. 12-31-98

150-316.187-(A)

Credit for Tax Withheld

If the tax has actually been withheld at the source and reported to the Department of Revenue, credit or refund shall be made to the recipient of the income even though such tax has not been paid to the Department by the employer. Where the employer has neither reported nor paid the tax required to be withheld from an employe's wages but the employe submits evidence proving to the satisfaction of the Department that the employer actually did withhold such a tax, the Department shall allow the employe credit or refund for the amount so proved. Ordinarily, minimum satisfactory evidence shall consist of a statement from the employer showing the amount of tax withheld and an affidavit of the employe as to the facts upon which the claim for credit or refund is based.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.187
Hist.: 1-69; 12-70

150-316.187-(B)

Where Taxpayer Reports on Fiscal Year Basis

Taxes withheld during any calendar year shall be allowed as a credit for the taxable year of the taxpayer which begins in that calendar year. For example, where an employe is on a fiscal year ending June 30, 1969, he would credit the tax withheld on his wages for the calendar year 1968.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.187
Hist.: 1-69

150-316.189

Withholding on IRAs, Annuities and Compensation Plans

(1) The withholding of taxes from commercial annuities, employers deferred compensation plans, and individual retirement plans is mandatory. However, an individual may elect, under certain circumstances, to have no withholding. Such an election will remain in effect until revoked by the individual.

(2) An individual may not make an election to have no withholding from the amount of a payment from a plan which is wages as defined in ORS 316.162. Therefore, an individual may not make an election if the individual is receiving payments from an employer deferred compensation plan as defined in IRC 457 or a nonqualified plan under IRC 403 if the contributions to the plan or payments from the plan are wages.

(3) The payor of any periodic distribution shall withhold as if the payment were wages using the withholding tables prepared and furnished by the department. The exemptions for state withholding purposes will be the same as listed on federal form W-4P. If no withholding election form has been filed by the payee, the withholding status is single and the number of exemptions is zero.

(4) The payor of any nonperiodic distribution shall withhold from such a payment at a rate of 8 percent of the amount of money or the fair market value of other property received in the distribution.

(5) The minimum amount of withholding per payee shall be no less than 10 dollars per distribution. The payor is not required to determine benefits subject to Oregon tax when figuring withholding.

(6) If an individual has elected to have no federal withholding from payments or distributions there shall be no state withholding unless the individual notifies the payor, in writing, otherwise.

(7) The payor shall provide a form to each payee, prior to the first periodic distribution, which shall explain the payee's right to elect to have no tax withheld. A completed form shall be returned to the payor no later than 30 days after the mailing date. If the payee does not elect out of withholding, it is the payee's responsibility to provide the payor with a completed Form W-4P which properly reflects the withholding needed for Oregon purposes. If a completed form W-4P is not provided, the payor shall withhold as directed in sections (3) to (5) of this rule. A separate election form shall be provided to the payee prior to each nonperiodic distribution. The election form must be returned to the payor no later than 30 days but can be returned as early as necessary to meet the date of distribution. If a completed form is not returned the payor shall withhold tax at the established rate. The payor may use federal form W-4P or a form that includes the same information as form W-4P.

(8) The payee may revoke the election to have withholding or may change the amount of withholding. The payee shall send a written request to the payor using federal form W-4P or an appropriate form furnished by the payor. The revocation or change shall be effective within 45 days after receipt by the payor.

(9) The payor shall be considered an employer and subject to the same withholding rules as are imposed under ORS 316.162 to 316.212 for withholding of income taxes from wages. The department shall provide appropriate forms, instructions and an account identification number necessary for reporting and remitting payments.

[Publications: The publication(s) referred to or incorporated by reference in this rule is available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.189
Hist.: RD 11-1985, f. 12-26-85, cert. ef. 12-31-85; RD 13-1987, f. 12-18-87, cert. ef. 12-31-87; RD 7-1992, f. & cert. ef. 12-29-92; RD 5-1993, f. 12-30-93, cert. ef. 12-31-93

150-316.189(6)

Withholding on IRA's, Annuities and Compensation Plans

Oregon's requirements to withhold taxes from IRAs, Annuities and Deferred Compensation plans will be consistent with the provisions of Internal Revenue Code Section 3405 except that mandatory backup withholding will not be required for a rollover from one qualifying plan to another qualifying plan under circumstances that would require such withholding for federal purposes.

Example: On July 1, 1992, Fred Smith removed his IRA account from Bank A and two days later placed it with Bank B. Since Fred didn't have Bank A do a direct transfer of funds to a new IRA account in Bank B, IRC 3405 requires Bank A to withhold 20 percent in payment of any taxes that may be due if Fred failed to roll the funds into a new qualifying plan (which would cause the funds to be includible in taxable income). For Oregon, Bank A is not required to withhold.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.189
Hist.: RD 5-1993, f. 12-30-93, cert. ef. 12-31-93

150-316.191

Alternative Withholding Payment Method for Employers to Avoid Undue Burden

(1) ORS 316.191 allows alternate methods for making withholding payments when an undue burden is caused by the present withholding method. The following are two examples of "undue burden:"

(a) The employer is required to make Oregon tax withholding payments to the state of Oregon based on its nationwide payroll more often than it would based on payroll for its employees working in the state of Oregon.

(b) Oregon resident performs services outside the state and the employer is asked to register and withhold, voluntarily, as a convenience to the employee and the state of Oregon.

(2) Employers who believe that federal withholding methods create an undue burden for them which is not shared by most other similar employers, may request a different method of withholding tax payments by writing to the Payroll Tax Program, Department of Revenue, 955 Center Street, NE, Salem, OR 97310. The request shall contain the following information: Business name of employer; Oregon Business Identification Number (BIN), nature of burden; remedy requested; and proposed effective date of modified withholding method.

(3) An example for an alternate method indicated in (a) above would be to base the out-of-state employer's withholding method on their Oregon payroll only.

(4) Only those employers whose withholding accounts are current may request an alternative withholding method. No alternative withholding method shall be used before the Department of Revenue has approved the request in writing and has designated the effective date of the change.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.191
Hist.: RD 11-1985, f. 12-26-85, cert. ef. 12-31-85; REV 7-1999, f. 12-1-99, cert. ef. 12-31-99

150-316.193

Voluntary Withholding for Retired Members of the Uniformed Services

(1) Upon written request to the appropriate retired pay office of uniformed service, a member may request voluntary state withholding tax. This request shall include the following information:

(a) Member's full name;

(b) Social Security number;

(c) Amount of monthly withholding being requested;

(d) The state to receive withheld monies;

(e) Member's current address;

(f) Signature of member, or in the case of incompetence, the signature of his or her guardian or trustee.

(2) Retired members of uniformed service should send their requests for with-holding to the appropriate retired pay office. Their addresses can be obtained from the Department of Revenue.

(3) The minimum amount of monthly withholding per retiree shall be no less than $10 and the amount of the request for state tax withholding shall be an even dollar amount.

(4) A permanent withholding tax account shall be established in the name of each branch of the uniformed service for deposit of monies withheld by the request of the retirees. An account number and appropriate reporting forms shall be issued to each branch at the inception of its account.

(5) Reporting shall be done in a medium that complies with state reporting standards applicable to employers in general. For Oregon Department of Revenue purposes, reporting shall be required on the withholding portions of the Oregon Quarterly Combined Tax Report. This return shall be filed by the appropriate branch of service within 30 days after the end of each quarterly payroll period.

(6) Payment of withholding trust funds shall be made at the same time the quarterly return is filed. Payment shall be accompanied by appropriate identifying documentation, i.e., Form OTC (Oregon Tax Coupon).

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.193
Hist.: RD 11-1985, f. 12-26-85, cert. ef. 12-31-85; RD 4-1991, f. 12-30-91, cert. ef. 12-31-91

150-316.196

Voluntary Withholding for Civil Service Annuitants

(1) Upon written or telephone request to the U.S. Office of Personnel Management, a civil service annuitant may request voluntary state tax withholding.

(2) A permanent withholding tax account shall be established in the name of the U. S. Office of Personnel Management for deposit of monies withheld by the request of civil service annuitants. An account number and appropriate reporting forms shall be supplied at the inception of said account.

(3) Reporting shall be done in a medium that complies with state reporting standards applicable to employers in general. For Oregon Department of Revenue purposes, reporting shall be required on the withholding portions of the Oregon Quarterly Combined Tax Report. This return shall be filed by the U.S. Office of Personnel Management within 30 days after the end of each quarterly payroll period.

(4) Payment of withholding trust funds shall be made at the same time the quarterly return is filed.

(5) Reporting shall be done in a medium that complies with state reporting standards applicable to employers in general. For Oregon Department of Revenue purposes, reporting shall be required on the withholding portions of the Oregon Quarterly Combined Tax Report. This return shall be filed by the U. S. Office of Personnel Management within 30 days after the end of each quarterly payroll period.

(6) Payment of withholding trust funds shall be made at the same time the quarterly return is filed. Payment shall be accompanied by appropriate identifying documentation, i.e., Form OTC (Oregon Tax Coupon).

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.196
Hist.: RD 11-1985, f. 12-26-85, cert. ef. 12-31-85; RD 4-1991, f. 12-30-91, cert. ef. 12-31-91; RD 5-1997, f. 12-12-97, cert. ef. 12-31-97

150-316.197(1)(a)-(A)

Semiannual Reports and Payments

Purposes of semiannual reporting the calendar year will be divided into two six-month periods; the first period being January through June with the return and any payment due on or before July 31; the second period being July through December with the return and any payment due on or before January 31 of the following year. No other semiannual reporting periods will be permitted. Employers reporting on the semiannual method must file an annual report before February 16 as required of all employers under ORS 316.202(2). No semiannual returns will be allowed for periods after December 31, 1989. All returns due on, and subsequent to, January 1, 1990, shall be reported on the Oregon Quarterly Combined Tax Report form.

For rules governing annual agricultural filing, see OAR 150-316.202(4).

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.197
Hist.: 12-19-75; 12-31-82; RD 10-1983, f. 12-20-83, cert. ef. 12-31-83, Renumbered from 150-316.197(1)-(A)?; RD 4-1991, f. 12-30-91, cert. ef. 12-31-91

150-316.197(1)(a)-(B)

Withholding: Payment Due Dates

(1) Oregon withholding tax payment due dates are determined by corresponding federal due dates as outlined in the following rules:

Rule 1: If the federal tax due is less than $1,000 at the end of any calendar quarter the Oregon tax due must be paid by the end of the month following the end of the quarter.

Rule 2: If the federal tax liability is $50,000 or less in the lookback period, the Oregon tax due must be paid by the 15th of the month following, unless the employer meets the conditions under Rule 1 or Rule 4.

Rule 3: If the federal tax liability is more than $50,000 in the lookback period, the Oregon tax due must be paid on the following semi-weekly schedule, unless the employer meets the conditions under Rule 1 or Rule 4: If the payday is on Wednesday, Thursday or Friday, the Oregon tax must be paid by the following Wednesday. If the payday is on Saturday, Sunday, Monday or Tuesday, the Oregon tax must be paid by the following Friday.

Rule 4: If the federal tax due is $100,000 or more at the end of any pay period, the Oregon tax must be paid by the close of the next banking day.

NOTE: If at any time an employer becomes subject to Rule 4, they immediately become a semi-weekly payer for the remainder of the calendar year and for the following calendar year, except for payments due within one banking day.

(2) Lookback period is the twelve-month period ended the preceding June 30 for nonagricultural employers. For agricultural employers the lookback period is the calendar year preceding the calendar year just ended.

(3) A legal holiday that falls between the end of the pay period and the payment due date extends the due date by one banking day.

(4) A banking day is any day that is not a Saturday, Sunday or a legal holiday. A legal holiday is a holiday in the District of Columbia.

(5) Federal tax is the sum of the federal withholding plus FICA plus Medicare taxes.

(6) ORS 316.197 establishes payment due dates only and does not incorporate the federal "safe harbor" rule for deposit shortfalls. If the full amount of the state tax withheld is not paid when the federal deposit is due the unpaid balance is delinquent.

(7) Payment due date examples:

(a) MONTHLY DEPOSITS: For employers whose total federal liability during the lookback period did not exceed $50,000. Lookback period is defined for 1998 as July 1, 1996 to June 30, 1997 (January 1, 1996 to December 31, 1996 for agricultural employers). [Table not included. See ED. NOTE.]

NOTE: If the federal tax liability for a payroll period exceeds $100,000, the federal and Oregon deposits are due the next banking day. Once an employer reaches $100,000 in federal tax during a payroll period, they are no longer considered to be a monthly depositor. For the rest of the calendar year and all of the following calendar years, all deposits are due semi-weekly, or within one banking day, if the federal tax is over $100,000.

(b) SEMI-WEEKLY DEPOSITS: For employers whose total federal liability during the lookback period exceeds $50,000. Lookback period is defined for 1998 as July 1, 1996 to June 30, 1997 (January 1, 1996 to December 31, 1996 for agricultural employers). [Table not included. See ED. NOTE.]

NOTE: If any federal tax liability for a payroll period exceeds $100,000, the federal and Oregon deposits are due the next banking day. An extra day is allowed due to a holiday during the period following the payroll date.

[ED NOTE: Tables referenced in this rule are available from the agency.]
Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.197
Hist.: 10-5-83, 12-31-83; 12-31-84, Renumbered from 150-316.197(2); RD 4-1991, f. 12-30-91, cert. ef. 12-31-91; RD 5-1993, f. 12-30-93, cert. ef. 12-31-93; REV 6-1998, f. 11-13-98 cert. ef. 12-31-98

150-316.197(1)(b)

Withholding Tax Payment Requirements for Agricultural Employers

An employer of agricultural employees is required to pay Oregon taxes withheld at the same time as federal tax is deposited. Federal tax is the sum of withholding, FICA (social security) and Medicare taxes.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.197
Hist.: RD 10-1984, f. 12-5-84, cert. ef. 12-31-84, Renumbered from 316.197(1)-(B)?; RD 4-1991, f. 12-30-91, cert. ef. 12-31-91; REV 7-1999, f. 12-1-99, cert. ef. 12-31-99

150-316.197(2)

Employe's Rights

Recourse against an employer in regard to taxes on wages withheld and reported, but not paid to the Department of Revenue, is exclusively that of the state. An employe's rights as to any such tax withheld, reported and unpaid are those of a tax credit or refund as provided in ORS 316.187 and OAR 150-316.187-(A).

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.197
Hist.: 1-69 as 150-316.197-(B); 12-31-75; RD 10-1983, f. 12-20-83, cert. ef. 12-31-83; RD 10-1984, f. 12-5-84, cert. ef. 12-31-84; RD 4-1991, f. 12-30-91, cert. ef. 12-31-91, Renumbered from 150-316.197(3); RD 7-1991, f. 12-30-91, cert. ef. 12-31-91, Renumbered from 150-316.197(3)

150-316.198

Requirement to use Electronic Funds Transfer

(1) An employer required to make payment of Oregon combined payroll taxes and assessments under ORS 316.162 through 316.216 shall do so by electronic funds transfer (EFT) if the employer is required to make federal payroll tax payments electronically.

(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 circumstances where the requirement is 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) An exception to paying by electronic funds transfer is explained in Oregon Administrative Rule 150-316.191. The exception is available if this payment method will cause an undue burden to the employer. Additionally, an employer with limited activity in Oregon that is required to pay federal payroll taxes by electronic funds transfer need not do so for Oregon tax if the total of the annual payments to Oregon will not exceed $1,000.

(4) Employers not meeting the requirement to pay by EFT may voluntarily do so by completing and submitting to the department an application for either ACH Debit or ACH Credit EFT. Applications can be requested from the department.

(5) After beginning to make payments electronically, a volunteer may discontinue electronic payments by sending a written request to stop paying by 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 316.198
Hist.: REV 6-1998, f. 11-13-98 cert. ef. 12-31-98; REV 8-2001, f. & cert. ef. 12-31-01

150-316.198-(A)

Electronic Funds Transfer. Payroll taxes and corporation estimated income and excise taxes not combined in determining mandate. Payments to be included

(1) For the purpose of determining whether payment of combined quarterly payroll taxes and assessments is required to be made by electronic funds transfer (EFT), only the payments for related business activities shall be combined. The employer will not add combined payroll taxes paid with corporate income or excise taxes when making the determination. The employer will include combined payroll tax billing payments and amended payroll payments when making the determination.

(2) For the following examples, assume the current mandate threshold above which employers are required to pay by EFT is $1 million of annual payments.

Example 1: Business A is an insurance company. The business has registered twice with the department to pay by EFT, once for their employees' payroll tax payments and once for their withholdings on insurance payments to claimants. Each registration is under its own department Business Identification Number. Business A has annual deposits of combined quarterly payroll taxes and assessments under ORS 316.197 totaling $900,000 based on their status as an employer. Business A also pays withholding totaling $150,000 annually based on payments to their insurance claimants. Business A would not be mandated to pay by EFT.

Example 2: Business B is a retail chain. Business B has registered with the department three times. Each registration is under its own department Business Identification Number. Business B has registered once for their auto parts stores, once for their apparel stores and once for their restaurants. Payments of combined taxes and assessments are $280,000, $450,000 and $600,000 respectively. Business B would be mandated to pay by EFT because the payments made separately for each of their registrations are for payment of taxes and assessments based on their employee payroll.

Example 3: Business C is an incorporated grocery retailer. Annually, the business pays combined payroll taxes and assessments based on wages of its employees totaling $900,000 Additionally, Business C annually pays $400,000 in corporate excise taxes. Business C is not mandated to pay by EFT because payment of corporate excise taxes and payment of combined employer payroll taxes are unrelated, even though the taxes are paid under the same business identification number.

[ED NOTE: Formulas referenced in this rule are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.202
Hist.: REV 6-1998, f. 11-13-98 cert. ef. 12-31-98

150-316.202(1)

Withholding: Payment and Reports

It is the responsibility of a new employer to register with the department. A registration number shall be assigned by the department for use in it's administration of the withholding and transit excise tax laws. Employers shall use the registration number on all reports and payments filed with the department which are for tax programs on the Oregon Quarterly Combined Tax Report.

A registered employer shall submit a report for each reporting period, even though the employer may not have had any payroll during that period.

Failure by an employer to obtain remittance forms shall not constitute an excuse for failure to report total compensation paid and to remit the tax withheld within the time required by law. This responsibility ceases only after the employer notifies the department that the employer no longer has employes subject to withholding or transit excise taxes.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.202
Hist.: 1-69; 12-19-75; RD 10-1983, f. 12-20-83, cert. ef. 12-31-83, Renumbered from 150-316.202(1)-(A)?; RD 4-1991, f. 12-30-91, cert. ef. 12-31-91

150-316.202(2)

Waiver of Termination Reports

For the purposes of waiver of termination reports, the Department of Revenue adopts the successor-in-interest definition as found in Employment Division OAR 471-031-0140, Filed 12-23-77 and Effective 1-1-78.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.202
Hist.: 1-69 as 150-316.202(1)-(B); 12-19-75; RD 10-1983, f. 12-20-83, cert. ef. 12-31-83, Renumbered from 150-316.202(2)-(A)?; RD 4-1991, f. 12-30-91, cert. ef. 12-31-91

150-316.202(3)

Withholding: Annual Report by Employer

(1) Definitions.

(a) “Employer” has the meaning given that term in ORS 316.162.

(b) “Payroll service provider” is any person that prepares payroll tax returns on behalf of another person for remuneration.

(2) Withholding Statements.

(a) Every employer must complete an individual withholding statement for each employee. The Oregon withholding statement must contain the same information as is required to be reported on a federal withholding statement including:

(A) Total state and local wages;

(B) State and local tax withheld during the calendar year; and

(C) The Oregon business identification number of the emploer.

(b) The employer must use a federal withholding statement (Form W-2) for purposes of section (2) of this rule. If the employer is withholding from certain periodic payments as described in ORS 316.189, the employer must use federal Form 1099-R for purposes of section (2) of this rule.

(c) The employer must provide a copy of the withholding statement to the employee within thirty-one days of the close of the calendar year. If an employee is terminated and requests a copy of the withholding statement, the employer must provide the form to the employee within 30 days of either the request or the final wage payment, whichever is later.

(d) The information in the withholding statement (Form W2) must be filed electronically with the department as follows:

(A) If the employer has 250 or more employees, electronic filing of W2s is required beginning with calendar year 2009 information returns;

(B) If the employer has less than 250 employees and uses a payroll service provider, electronic filing of W2s is required beginning with calendar year 2009 information returns;

(C) If the employer does not use a payroll service provider and has:

(i) Less than 250 employees, electronic filing of W2s is required beginning with calendar year 2010 information returns.

(ii) Less than 50 employees, electronic filing of W2s is required beginning with calendar year 2011 information returns.

(e) Under ORS 314.385, the due date for electronic filing of W2s for Oregon purposes is the same as the federal due date for electronically filed W2s; March 31 following the close of the calendar year.

(3) Reconciliation Reports (Form WR).

(a) Every employer must file a summary of total compensation paid and Oregon tax withheld for each employee. This report must include a reconciliation of tax remitted to the department by the employer for the calendar year to the total of tax withheld from employees’ pay for the calendar year.

(b) If the reconciliation report is not filed within 30 days of the department’s notice to the employer of a failure to file, a $100 failure-to-file penalty applies.

(c) If there is a difference between the amount paid to the department by the employer and the amount withheld by the employer from the employees' wages, the employer must explain the difference on the report.

(d) The report due date is the same as the due date of the corresponding federal report. If the employer ceases doing business, the report is due within 30 days of termination of business.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.202
Hist.: 1-69 as 150-316.202(2); 11-73; 12-74; 12-19-75, Renumbered; RD 10-1983, f. 12-20-83, cert. ef. 12-31-83; RD 10-1984, f. 12-5-84, cert. ef. 12-31-84; RD 13-1987, f. 12-18-87, cert. ef. 12-31-87; RD 7-1992, f. & cert. ef. 12-29-92; RD 5-1993, f. 12-30-93, cert. ef. 12-31-93, Renumbered from 150-316.202(2)-(B); RD 7-1994, f. 12-15-94, cert. ef. 12-30-94; REV 7-1999, f. 12-1-99, cert. ef. 12-31-99; REV 16-2008, f. 12-26-08, cert. ef. 1-1-09

150-316.202(4)

Combined Reports: Agricultural Employers

If an agricultural employer is subject to a tax program (in addition to withholding tax) for example, Tri-Met or Lane Transit tax, the employer is required to file the Oregon Combined Payroll Tax Report quarterly. The withholding portions of the Oregon Combined Payroll Tax Report may still be filed annually on Form WA. The annual agricultural return is due by January 31 of the following year.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.202
Hist.: RD 4-1991, f. 12-30-91, cert. ef. 12-31-91

150-316.207

Liability for Unpaid Withholdings; Warrant for Collection

(1) It is the employer's duty to hold in trust any amount of tax withheld from the wages of employees and to assume custodial liability for amounts to be paid to the Department of Revenue. Any employer who fails to pay the tax when due is subject to penalties as provided in ORS Chapter 314 the same as any other taxpayer who fails to file a return or pay a tax when due. Any employer who fails to pay the tax withheld to the department violates ORS 314.075 and is subject to the penalty provisions of subsection (1) of ORS 314.991.

(2) If a corporation or partnership is absorbed by another corporation or partnership in a statutory merger or consolidation, the resulting entity is regarded as the same employer as the absorbed entity. The new entity is liable for payment of withholdings.

(3) If a corporation or partnership fails to file returns or to pay the tax withheld when due, any or all officers, members and employees who are responsible for exercising the duties of an employer may be held personally responsible for the returns and payments together with any interest and penalties due. Whether the person has actually exercised the duties or not is immaterial.

(4) If the department issues a notice of liability or notice of determination and assessment naming any officer, member or employee as liable for unpaid withholdings, the department may issue a warrant against the person to enforce collection of any amount of delinquent withholdings, including interest and penalties. A notice of determination and assessment issued only in the name of the corporation or partnership does not authorize the department to issue a warrant against any officer, member or employee for collection of delinquent withholdings.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.207
Hist.: 11-71; 12-19-75; RD 4-1991, f. 12-30-91, cert. ef. 12-31-91; REV 1-2005, f. 6-27-05, cert. ef. 6-30-05

150-316.207(3)(a)

Officer Liability: Joint Determination of Liability Conference

(1) If one or more of the persons who may be held liable under ORS 316.162 to 316.212 appeals an assessment of unpaid withholding taxes, a joint conference may be required by the department. It is the policy of the department to notify all persons against whom liability may be asserted to attend the joint conference.

(2) If any of the persons notified fail to appear at the conference, the department may proceed with the conference.

(3) Notification of the conference may be mailed to each person against whom the department may assert liability. Mailing may be made by regular mail unless the person notified has requested receiving certified mail.

(4) A finding at the conference that a person or persons are liable does not preclude a later finding that other persons are also liable.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.207
Hist.: RD 11-1985, f. 12-26-85, cert. ef. 12-31-85; 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; REV 2-2003, f. & cert. ef. 7-31-03

150-316.212

Withholding Penalties

See ORS 305.228, 305.990, 305.992, 314.400, 314.410, 314.440, 314.991, 316.992 and the corresponding rules for provisions regarding penalties, misdemeanors and jeopardy assessments applicable to withholding taxes and reports.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.212
Hist.: 1-69; RD 7-1992, f. & cert. ef. 12-29-92; REV 11-2006, f. 12-27-06, cert. ef. 1-1-07

150-316.223

Nonresident Alternate Filing

(1) Out-of-state employers may elect an alternate method of filing, reporting or calculating tax liability for payroll earned in Oregon by nonresident employees for a payroll period not to exceed 200 days in one calendar year.

(2) Notice of election of alternative method shall be given on Oregon Department of Revenue form, Application for Alternative Filing Method for Temporary Employers, available from Oregon Department of Revenue, 955 Center Street, NE, Salem OR 97310.

(3) The Oregon Department of Revenue shall furnish the employer with Oregon Withholding Tax forms and instructions for filing and paying tax. The employer shall remit payment(s) and file completed Oregon quarterly combined tax reports as required by ORS 316.168 and 316.197.

(4) An employer electing the alternative method of withholding shall notify its employees of such election at the time withholding is made.

(5) If a qualifying nonresident employee files a personal income tax return under the allowed alternative method, the return also serves as a closing agreement. The amount of withholding is con?sidered to be the amount of income tax owing for the tax year and is not subject to change by the taxpayer or the department unless it is determined that the taxpayer was not a “qualifying non?resident employee” while working for the nonresident employer.

(6) A nonresident employee who is working for an out-of-state employer which elects the alternative method under this rule, may elect to report and pay personal income tax on income earned by the employee in connection with the employee’s performance of temporary services within this state in the same manner as any other nonresident.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.216
Hist.: RD 11-1985, f. 12-26-85, cert. ef. 12-31-85; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89, Renumbered from 150-316.857; RD 7-1991, f. 12-30-91, cert. ef. 12-31-91; RD 5-1993, f. 12-30-93, cert. ef. 12-31-93; Renumbered from 150-316.216, REV 8-2010, f. 7-23-10, cert. ef. 7-31-10

Resident Estates and Trusts

150-316.272

Deductions Allowed on Either the Inheritance Tax Return or the Fiduciary Income Tax Return

Certain deductions may not be taken on both the Oregon inheritance tax return (Form IT-1) and the Oregon fiduciary income tax return (Form 41). See OAR 150-118.010(2) for details.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.272
Hist.: REV 2-2004(Temp), f. 4-30-04 cert. ef. 5-1-04 thru 9-30-04; REV 6-2004, f. 7-30-04, cert. ef. 7-31-04  

150-316.277

Tax Treatment of Unincorporated Organization

Except as otherwise provided by statute, regulations under Internal Revenue Code Section 7701 that allow unincorporated entities to elect to be classified as corporations or partnerships for federal tax purposes shall also be effective for Oregon tax purposes.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.277
Hist.: RD 5-1997, f. 12-12-97, cert. ef. 12-31-97

150-316.282

Resident and Nonresident Estates and Trusts

(1) For the purposes of the taxes imposed upon the income of estates and trusts and paid by the fiduciary thereof, estates and trusts are classified as either resident or nonresident.

(2) An estate is a resident if the fiduciary was appointed by an Oregon court or, where there is no appointment by an Oregon court, if the administration is carried on in Oregon. An estate of a decedent is but one taxable entity although there may be two or more fiduciaries appointed by courts of two or more states or countries. In such a case, the fiduciary appointed by the Oregon court (or administering the estate in Oregon) is required to file an Oregon state income tax return and is liable for any Oregon state income tax of the estate. The Oregon state income tax is determined by the status of the principal administration as to its resident or nonresident character, and shall be computed on an Oregon return required to be filed by the fiduciary of the principal administration. If the principal administration, considered without regard to other administrations, is an Oregon resident estate, all income of the estate, including that of nonresident fiduciaries, is taxable as that of an Oregon resident. If the principal administration, considered without regard to other administrations, is a nonresident of Oregon, the Oregon state income tax liability is to be computed as that of a nonresident.

(3) A trust is a resident if the fiduciary is a resident of Oregon or if it is administered in Oregon.

(4) A trust is a nonresident only if there is no Oregon resident trustee and the administration is not carried on in Oregon. See ORS 316.307 and the rules thereunder regarding treatment of nonresident trusts.

(5) If the trustee is a corporate fiduciary engaged in interstate trust administration, the trust is considered to be a resident of Oregon and the place of administration for that trust is considered to be Oregon if the trustee conducts the major part of its administration of the trust in Oregon. In this context, "administration" relates to fiduciary decision making of the trust and not to the incidental execution of such decisions. Incidental functions include, but are not limited to, preparing tax returns, executing investment trades as directed by account officers and portfolio managers, preparing and mailing trust accountings, and issuing disbursements from trust accounts as directed by account officers.

Example (1): X Trust Company, with its headquarters in Oregon, serves as trustee for trusts in Oregon and Washington. For its Washington trusts, account officers with offices in Washington: (a) serve as X's primary contact with beneficiaries, (b) hire lawyers, accountants, and other professionals for the trust, and (c) make the majority of fiduciary decisions, which include when to make distributions and where to invest trust assets. Assets are invested in common trust funds or in mutual funds on the advice of either an affiliate of X located in Oregon or by unaffiliated investment companies located in Oregon or other states. A committee of X's senior managers, including some stationed in Oregon, oversees the account officer's activities. Various incidental functions for the Washington trusts are performed by X's personnel in Oregon. Because the majority of the fiduciary decisions for the Washington trusts are made in Washington, those trusts are not administered in Oregon.

Example (2): Same facts as Example (1), except that the majority of fiduciary decisions for Washington trusts are made by account officers of X stationed in Oregon. Because the majority of fiduciary decisions are made in Oregon, the Washington trusts are administered in Oregon, and therefore are Oregon resident trusts.

Example (3): Same facts as Example (1), except that X and an Oregon resident serve as co-trustees of a Washington trust. Because the Washington trust has an Oregon resident trustee, that trust is an Oregon resident trust.

(6) The tax liability of a resident estate or trust is computed generally by utilizing the same principles as those governing individuals, except that in lieu of the modifications allowed to individuals by ORS 316.680 and 316.697 the estate or trust may be allowed a "fiduciary adjustment" as set forth in 316.287.

(7) For the purpose of determining whether income of an estate or trust which is deductible as a distribution deduction on its return is taxable on the Oregon return of a beneficiary, it is immaterial whether the estate or trust is a resident or nonresident. The income deductible as a distribution deduction on the return of an estate or trust is included in the net income of the beneficiary and is taxed in the same manner as if it had been received directly by the beneficiary without the intervention of the estate or trust. Its character is determined by the provisions of the Internal Revenue Code and not necessarily by the character or source of the money or property distributed.

(8) The amount of income to be reported by a beneficiary, including the allocation in case there is more than one beneficiary, is determined by:

(a) Residency status of the beneficiary;

(b) Allocation of the "fiduciary adjustment" as provided in ORS 3l6.287;

(c) Various provisions of local law; and

(d) The provisions of Subchapter J of Subtitle A of the Internal Revenue Code.

(9) For rules on accumulated income distributions from a trust to a resident or nonresident beneficiary, see OAR 150-316.737 and 150-316.298.

[Publications: The publication(s) referred to or incorporated by reference in this rule is available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.282
Hist.: 11-71; 12-19-75; 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 4-1997, f. 9-12-97, cert. ef. 12-31-97

150-316.282(4)

Oregon Qualified Trust Tax Return

(1) General Rule. A trustee who has met certain conditions set forth in IRC Section 685, and has elected to file returns as a qualified funeral trust for federal purposes, must file an Oregon Form 41 (Oregon Fiduciary Income Tax Return) as a resident funeral trust.

(2) Filing requirements. The trustee may file a single, composite Oregon resident funeral trust return for some or all trusts for which the trustee has filing responsibility, including trusts that had a short tax year.

(3) Computation of Tax. When filing a composite return, the trustee must compute the tax separately for each trust and enter the total on the form. If an individual trust would require a tax rate above the minimum tax rate, the trustee must attach a schedule showing how the Oregon tax is computed for each trust.

(4) Due Date. The Oregon resident funeral trust return is due the 15th day of the fourth month after the close of the tax year.

(5) Effective Date. The provisions of this rule apply to tax years beginning on or after January 1, 2004.

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

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.282
Hist: REV 6-2004, f. 7-30-04, cert. ef. 7-31-04

150-316.287

Fiduciary Adjustment

The modifications applicable to individuals described in ORS Chapter 316 may or may not be applied in computing the income tax liability of an estate or trust, depending on the treatment of distributable net income of the estate or trust in the Internal Revenue Code. No modification may be added or deducted separately. Neither may trust principles of accounting or statutory provisions governing allocations of receipts and disbursements by the fiduciary be applied in allocating the tax burdens or benefits arising from modifications. The net amount of all modifications constitutes the "fiduciary adjustment," which must be allocated between the fiduciary and any beneficiaries as required in ORS 316.287(2). However, the share of a fiduciary adjustment allowable in reduction of the taxable income of a beneficiary shall be limited to the amount of the distribution deduction taxable on his individual federal return. The share of a fiduciary adjustment increasing taxable income of a beneficiary shall be limited to an amount computed by deducting the amount of income of the estate or trust taxable on his individual 0regon return from the total amount of money and the value of property distributed or required to be distributed to him during its current taxable year by the estate or trust. Any amounts not allocated to a beneficiary solely by reason of these limitations shall be added to the share of the estate or trust. A computation of the federal distributable net income must be shown on a copy of the federal Form 1041 attached to the Oregon fiduciary Form 41, unless it is clearly evident from the character of the estate or trust and the income that either

(1) There is no distributable net income as defined in the Internal Revenue Code;

(2) All distributable net income is taxable to the beneficiary; or

(3) No distributable net income is deductible on the federal fiduciary return as a distribution deduction.

Example: An estate had ordinary income and capital gains. A property worth in excess of the ordinary income was distributed to a residuary beneficiary in the taxable year. The total net fiduciary adjustment, including federal income tax paid on capital gains, is allocated to the distributee, although the personal representative must charge the federal income tax against principal. Thus, the tax benefit is granted to the beneficiary receiving current distribution while the eventual economic burden of payment falls on the residuary beneficiaries ratably. On the other hand, the beneficiary receiving a current distribution has been burdened with both federal and Oregon tax liability arising from ordinary income. Had he received no distribution the liability for tax would have fallen on the estate and the eventual economic burden on the residuary beneficiaries ratably. However, if the estate has federal taxable income which is not subject to Oregon income taxation, such as interest from the United States bonds, to include in the fiduciary adjustment to bring the total fiduciary adjustment up to an amount in excess of the value of the property distributed, the beneficiary may deduct on his individual return only the amount of fiduciary adjustment necessary to offset the income of the estate included in his taxable income. Similarly, if a U.S. income tax refund was claimed by and allowed to the estate in an amount to bring the total fiduciary adjustment up to an addition to income in excess of the value of the property distributed, the beneficiary need include only the amount of the fiduciary adjustment that, when added to the income of the estate included in his taxable income, equals the value of the property distributed.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.287
Hist.: 11-71; 12-19-75

150-316.298

Accumulation Distribution Credit for Oregon Taxes Paid by Trust During Income Accumulation Years

(1) The accumulation distribution credit is determined by calculating the amount of tax that would have been paid by the trust if the distribution had been made in the year the income was earned, and then subtracting that amount from the tax that the trust actually paid in that year. The total available credit is distributed to the beneficiaries pro rata.

(2) Trusts, whose Oregon taxable income in the year of income accumulation included capital gains that were not part of its distributable net income (DNI), must determine the amount of Oregon tax paid on ordinary income to arrive at the maximum Oregon tax credit available to the beneficiary. For purposes of this computation, the percentage of Oregon taxable income representing capital gains not included in DNI must be determined.

Example 1: This example is a continuation of the first example in OAR 150-316.737. A review of the facts in that example would be helpful. Based on the facts in the example in OAR 150-316.737, the maximum credit available to the beneficiary for the Oregon tax paid by the trust is calculated as follows: [Example not included. See ED. NOTE.]

Example 2: The beneficiary's total 1993 tax is $150. The total tax calculated without inclusion of the accumulation distribution in taxable income is $100. Although the maximum calculated credit is $71, the beneficiary can only claim a credit of $50 (the difference between $150 and $100).

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

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.298
Hist.: RD 9-1992, f. 12-29-92, cert. ef. 12-31-92; RD 5-1994, f. 12-15-94, cert. ef. 12-31-94; RD 6-1996, f. 12-23-96, cert. ef. 12-31-96

Nonresident Estates and Trusts

150-316.307

Taxable Income of Nonresident Estate or Trust

The determination of the taxable income of a nonresident estate or trust differs from that of a nonresident individual in that there is no provision for proration of items of income, deductions or exemptions. Taxable income must be determined by first recomputing the fiduciary's net taxable income under the Internal Revenue Code using only those items of income, gain, loss and deductions derived from or connected with sources in Oregon, including the full amount of the personal exemption allowable in determining federal taxable income. This computation may be made on a federal Form 1041 and accompanying schedules if they are clearly marked as state schedules. Regardless of the form of the computation, a copy of the federal Form 1041, and all accompanying schedules, as filed with the Internal Revenue Service must be attached to the Oregon Fiduciary Form 41.

To arrive at the fiduciary's Oregon taxable income, the recomputed federal net taxable income, limited to items derived from or connected with sources in Oregon, is increased or decreased by the "fiduciary adjustment" provided in ORS 316.287 and the transitional adjustment, if any, provided for in ORS 316.047. The "fiduciary adjustment" is computed in the same manner as that used for resident estates or trusts except that only items of income, gain, loss and deductions that are derived from or connected with sources in Oregon and a portion of any accrued federal income tax liability or refund are included in the computation. The amount of each federal income tax item of the fiduciary adjustment is computed by multiplying the accrued liability or refund by the percentage that the recomputed federal net income from Oregon sources bears to the federal net taxable income from all sources. Both factors in this computation must include only those items taken into account in determining net taxable income of the tax year to which the liability or refund applies.

[Publications: The publication(s) referred to or incorporated by reference in this rule is available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.307
Hist.: 11-71

Returns; Payment

150-316.362(1)(c)

Oregon Multiple Funeral Trust Tax Return

(1) General Rule. A trust established as a "funeral trust" and filing a fiduciary return under federal law as a grantor trust may join in filing an Oregon multiple funeral trust tax return.

(2) Election. The election provided in this rule is made each tax year. It is deemed to be made by the trustee of the funeral trust as of the date the multiple trust tax return is filed. The trustee of an individual funeral trust may elect not to join in filing an Oregon multiple funeral trust tax return by filing a separate Oregon fiduciary tax return under the trust name used for federal filing purposes.

(3) Filing Requirements:

(a) The Oregon multiple funeral trust return shall be made and filed on Oregon Form 41 (Oregon Fiduciary Income Tax Return) by the authorized fiduciary. If two or more fiduciaries are acting jointly, the return may be made by any one of them. If an Oregon multiple funeral trust tax return is not filed, the trustee of each individual funeral trust must file an Oregon fiduciary return for such trust under the usual filing requirements of ORS 316.362.

(b) The Form 41 (Oregon Fiduciary Income Tax Return) filed for the Oregon multiple funeral trust shall include the trustee's name in the name of the trust. [Example not included. See ED. NOTE.]

(c) The Form 41 for the Oregon multiple funeral trust tax return shall include a statement on the face of the return to the effect that under the terms of the trust instruments, the trusts included in the multiple filing are grantor trusts and all income is taxable to the grantors under the Internal Revenue Code.

(d) The Oregon multiple funeral trust tax return will not require a Federal Identification Number. The Department of Revenue will assign a Business Identification Number (BIN) to the multiple return. The BIN will be made available to the fiduciary of the multiple funeral trust return on request for identification purposes.

(e) In addition to the Form 41 required to be filed by the multiple funeral trust, a schedule shall be attached to the return. The schedule shall report the following information for each trust included in the multiple funeral trust tax return: The name, address and social security number of the grantor, the name and address of the trustee, the name and address of the funeral home, the trust federal identification number, the trust taxable year, the beneficiary's social security number, and the amount and description of income earned by the trust during the taxable year.

(4) Due Date: The Oregon multiple funeral trust tax return is due the 15th day of the fourth month after the close of the tax year.

(5) Estimated Payments: Under ORS 316.559, trusts are not required to make estimated payments.

(6) Effective Date: The provisions of this rule shall apply to qualifying grantor funeral trusts that join in filing Oregon multiple funeral trust tax returns for tax years beginning on or after January 1, 1994.

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

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.362
Hist.: RD 5-1994, f. 12-15-94, cert. ef. 12-31-94

150-316.362(2)

Persons Required to Make Returns

A person having income taxable by this state which is not included in federal taxable income is required to file a return. For example, a return must be filed reporting interest on obligations of any foreign state or territorial possession of the United States which by the laws of the United States is exempt from federal income taxation but not from state income taxation.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.362
Hist.: 12-70; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89, Renumbered from 150-316.362(6)

150-316.368

Petitioning Department to Equally Split Joint Liability

(1) A tax liability incurred by spouses filing a joint tax return is joint and several. Each spouse is responsible for the entire liability. However, the department may split a joint tax liability equally between two separated or divorced spouses. Either spouse may file a petition to split the joint liability equally between the spouses. In order to split the liability, the department must be satisfied that payment of the entire liability by the petitioning spouse will cause undue hardship on the petitioner and petitioner's household. Mere inconvenience is insufficient to establish hardship. A statement in the divorce decree is also insufficient to relieve either spouse of the liability.

(2) The conditions listed below may constitute hardship. The examples given are not intended to be all-inclusive.

(a) Annual household income of the petitioning spouse, number of dependents and limited assets within the household are such that petitioner could not, in the department's opinion, pay the entire liability within five years.

Example 1: The petitioning spouse receives social security income with no other income and only minimal assets.

Example 2: The petitioning spouse earns $20,000 annually, is not receiving child or spousal support, and is the sole support of three adolescent dependents. Household assets are minimal. The liability owed jointly with the petitioner's ex-spouse is $4,000.

(b) Major medical problems or a prolonged illness of either the petitioning spouse or a family member that either severely limits petitioning spouse's earning ability or creates an extreme financial burden on household resources.

Example 3: Petitioning spouse or family member has a major illness and has been forced to retire. The only household income is from social security.

Example 4: The petitioning spouse has a major illness and family is living on disability and attempting to meet high medical costs.

(3) Included within the petition must be:

(a) An explanation of how payment of the entire liability will cause undue hardship on the petitioner and petitioner's household;

(b) The current address of the non-petitioning spouse (if known);

(c) A completed Statement of Financial Condition for Individuals (form number 150-860-009);

(d) A copy of the legal separation or divorce decree; and

(e) An explanation of how the petitioner will pay the remaining liability.

(4) Following review of the petition, the department will either:

(a) Accept the petition, cause the liability to be split equally between spouses and notify both spouses of the action; or

(b) Notify the petitioning spouse the petition has not been accepted.

(5) Acceptance by the department of the petition is discretionary. If the department denies a petition to split a joint liability, the petitioner may appeal that denial to the Magistrate Division of the Oregon Tax Court.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.368
Hist.: RD 5-1993, f. 12-30-93, cert. ef. 12-31-93; RD 7-1994, f. 12-15-94, cert. ef. 12-30-94; REV 10-2013, f. 12-26-13, cert. ef. 1-1-14

150-316.369

Innocent Spouse, Separation of Liability, and Equitable Relief Provisions

(1) Internal Revenue Service (IRS) Determination Made to Grant Relief. The department will grant relief from liability for tax under ORS 316.369 if the person seeking relief provides proof that the IRS has made a determination under IRC ¦6015 that relieved the person of liability for federal taxes for the same tax year. As soon as the determination is made regarding the request for relief, the department will send a letter to each spouse informing them of the department's determination.

(2) No IRS Determination Made or IRS Denied Relief. A taxpayer who has filed an Oregon joint return may seek relief from liability by applying to the Department of Revenue even if the taxpayer has not applied for relief to the IRS. Or, if the IRS has denied relief, the taxpayer may ask the department to make a separate determination for relief from state liability. To request innocent spouse relief under the provisions of section (4), allocation of liability under the provisions of section (5), or equitable relief under the provisions of section (6), the taxpayer must write a letter to the department that includes the taxpayer's name, address, Social Security number, the taxpayer's spouse's (or former spouse's) name and Social Security number, the tax years for which the taxpayer is requesting relief for, and the type of relief the taxpayer is requesting. The department will treat the request for relief from liability as also constituting a request for any applicable refund. A taxpayer may file a request for innocent spouse relief, allocation of liability, or equitable relief with the department at any time. There is no statute of limitation on requesting relief under these provisions.

The department will send a letter to the nonrequesting spouse if relief is requested from joint and several liability on a joint return and will allow the nonrequesting spouse to submit information related to the determination of the request for relief from liability. As soon as the determination is made regarding the request for relief, the department will send a letter to each spouse informing them of the department's determination.

(3) Definitions. For purposes of this rule:

(a) Understatement of Tax. An understatement of tax generally is the difference between the total amount of tax that should have been shown on the taxpayer's Oregon return and the amount of tax that actually was shown on the Oregon return. This includes a deficiency that arises in the original processing of the return and a deficiency due to an audit.

(b) Erroneous Items. Erroneous items include unreported income and an incorrectly reported deduction, credit, or basis. Unreported income is any gross income item the spouse of the requesting taxpayer received but did not report. An incorrectly reported deduction, credit, or basis is any improper deduction, credit, or property basis the spouse of the requesting taxpayer claims.

(c) Spouse. All references to spouse mean the spouse on the joint return for which relief is requested.

(4) Innocent Spouse. Innocent spouse relief is available only for deficiencies or assessed deficiencies. This provision does not authorize relief from liabilities that taxpayers reported properly on the joint return but did not pay. If the following four conditions are met, the individual will qualify for innocent spouse relief. The department will relieve the individual of state liability for tax in whole or in part (including interest, penalties, and other amounts) for the taxable year.

(a) Conditions:

(A) The requesting spouse filed a joint return for the taxable year for which relief is sought;

(B) On such return there is an understatement of tax attributable to erroneous items of the spouse with whom the requesting spouse filed the return;

(C) The requesting spouse establishes that he or she did not know, and had no reason to know, of the understatement when signing the return;

(D) Taking into account all of the facts and circumstances, it is unreasonable in the department's judgment to hold the requesting spouse liable for the deficiency attributable to the understatement.

(b) If the taxpayer seeking relief asks for a refund of state tax payments, the taxpayer also must provide proof that he or she made the payments to the Oregon Department of Revenue. If the department grants relief, it will refund payments made by the requesting spouse according to the procedures and refund limitations of ORS 305.270 and 314.415. This applies to any requests for relief received by the department on or after August 1, 2004.

(5) Allocation of liabilities for taxpayers no longer married, legally separated, or no longer living together. Relief is available only for deficiencies or assessed deficiencies. This provision does not authorize relief from liabilities that taxpayers reported properly on the joint return but did not pay.

(a) An individual may apply to allocate a deficiency if the following two conditions are met:

(A) The requesting spouse filed a joint return for the taxable year for which relief is sought; and

(B) At the time of the request, the requesting spouse is no longer married to, is legally separated from, or has not been a member of the same household as the other spouse at any time during the 12-month period ending on the filing date of the request.

(b) Relief under allocation of liability is subject to several limitations:

(A) A request will be denied if assets were transferred between the requesting spouse and the other spouse as part of a fraudulent scheme.

(B) Relief is not available if the department can demonstrate that the requesting spouse had actual knowledge when he or she signed the return of an item that gave rise to a deficiency.

(C) Relief will only be available if the liability exceeds the value of any disqualified assets (as defined in Internal Revenue Code ¦6015(c)(4)(B)) transferred to the requesting spouse by the nonrequesting spouse.

(D) The department will not refund payments made by the requesting spouse on the liability for which relief was granted if those payments were made before relief was granted. This applies to any requests for relief the department receives on or after August 1, 2004.

(6) Equitable relief. Equitable relief is available for unpaid liabilities that were reported properly on the joint return and for understatements of tax.

(a) To be eligible for equitable relief, all of the following conditions must be satisfied:

(A) The requesting spouse filed a joint return for the taxable year for which relief is sought;

(B) Relief is not available under either the innocent spouse or allocation of liability provisions;

(C) No assets were transferred between the spouses filing the joint return as part of a fraudulent scheme by the spouses;

(D) There were no disqualified assets transferred to the requesting spouse by the other spouse; and

(E) The requesting spouse did not file the return with fraudulent intent.

(b) The department will grant equitable relief generally in cases where all of the following elements are satisfied:

(A) At the time relief is requested, the requesting spouse is no longer married to the other spouse, or is legally separated from the other spouse, or has not been a member of the same household as the other spouse at any time during the 12-month period ending on the date relief was requested;

(B) When the requesting spouse signed the return, the requesting spouse had no knowledge or reason to know that the tax would not be paid; and

(C) The requesting spouse will suffer economic hardship if relief is not granted. The department will determine economic hardship by taking into account all of the facts and circumstances concerning the requesting spouse's financial situation, including but not limited to:

(i) Ability to pay now and in the future;

(ii) Personal assets such as stocks, bonds, dividends, retirement accounts, automobiles, equipment, etc.;

(iii) Ability to borrow funds;

(iv) Financial statements provided by the taxpayer; and

(v) Any other financial information that the department requests.

(c) The following is a partial list of the positive and negative factors that the department will take into account in determining whether to grant relief. No single factor will be determinative of whether equitable relief will or will not be granted in any particular case. All factors will be considered and weighed appropriately. The list includes but is not limited to the following:

(A) Factors in favor of relief.

(i) Marital status. The requesting spouse is separated (whether legally separated or living apart) or divorced from the nonrequesting spouse.

(ii) Economic hardship. The requesting spouse would suffer economic hardship if relief from liability is not granted.

(iii) Abuse. The requesting spouse was abused by the nonrequesting spouse, but such abuse did not amount to duress.

(iv) No knowledge or reason to know. In the case of a liability that was properly reported but not paid, the requesting spouse did not know and had no reason to know that the liability would not be paid. In the case of a liability that arose from a deficiency, the requesting spouse did not know and had no reason to know of the items giving rise to the deficiency.

(v) Other spouse's legal obligation. The other spouse has a legal obligation as part of a divorce decree or agreement to pay the outstanding liability. This will not be a factor weighing in favor of relief if the requesting spouse knew or had reason to know, when the divorce decree or agreement was entered into that the other spouse would not pay the liability.

(vi) Attributable to the nonrequesting spouse. The liability for which relief is sought is solely attributable to the nonrequesting spouse.

(B) Factors weighing against relief.

(i) Attributable to the requesting spouse. The unpaid liability or item giving rise to the deficiency is attributable to the requesting spouse.

(ii) Knowledge or reason to know. When the requesting spouse signed the return, the requesting spouse knew or had reason to know of the item giving rise to a deficiency or that the reported liability would not be paid.

(iii) Significant benefit. The requesting spouse has significantly benefited from the unpaid liability or items giving rise to the deficiency.

(iv) Lack of economic hardship. The requesting spouse will not experience economic hardship if relief from the liability is not granted.

(v) Noncompliance with Oregon income tax laws. The requesting spouse has not made a good faith effort to comply with Oregon income tax laws in the tax years following the tax year or years to which the request for relief relates.

(vi) Requesting spouse's legal obligation. The requesting spouse has a legal obligation as part of a divorce decree or agreement to pay the liability. If, taking into account all the facts and circumstances, the department determines that it would be unreasonable, in the department's judgment, to hold the requesting spouse liable for the liability, the department may relieve a requesting spouse of all or part of the joint liability.

(d) If the taxpayer seeking relief asks for a refund of state tax payments, the taxpayer also must provide proof that he or she made the payments to the Oregon Department of Revenue. If the department grants relief, it will refund only payments the requesting spouse made after the request for relief was filed with the department. Refunds are subject to the refund procedures and limitations of ORS 305.270 and 314.415. This applies to any request for relief the department receives on or after August 1, 2004.

(7) Appeal Rights. If the department denies the relief requested under any of the provisions described above, the department will send the requesting spouse a conference decision letter that will have appeal rights. To appeal the conference decision, the requesting spouse must file an appeal with the Magistrate Division of the Oregon Tax Court within 90 days of the date of the conference decision letter. Whether or not relief was granted, the nonrequesting spouse can not appeal the determination.

(8) Time Period For Requesting Relief. A taxpayer may request relief from liability for tax at any time. There is no statute of limitation on requesting relief. However, the department will not grant relief under any provision of ORS 316.369 if the requesting spouse has entered into a closing agreement or settlement agreement with the department or if the year at issue has been litigated at the Oregon Tax Court, and the requesting spouse was a party to the litigation.

(9) Relief provided under ORS 316.368. If the requesting spouse does not qualify for relief under ORS 316.369, the department will determine if relief can be granted under ORS 316.368.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.369
Hist.: RD 10-1983, f. 12-20-83, cert. ef. 12-31-83; RD 11-1985, f. 12-26-85, cert. ef. 12-31-85; REV 9-1999, f. 12-30-99, cert. ef. 12-31-99; REV 8-2001, f. & cert. ef. 12-31-01; Renumbered from 150-316.369(2), REV 6-2004, f. 7-30-04, cert. ef. 7-31-04

150-316.382

Liability of Fiduciaries

A fiduciary is required to file a return reporting all of the income of the estate or trust even though such income may not in whole or in part be taxable to the estate or trust. If an estate or trust is exempt from filing under federal Internal Revenue Code regulations, it is also exempt from filing for Oregon unless notice to file is given by the Oregon Department of Revenue. The fiduciary also is required to pay the taxes on the income taxable to the estate or trust. Liability for the payment of the tax attaches to the person of the estate's personal representative up to and after discharge, where prior to distribution and discharge, personal representative failed to file a return as required by law or failed to exercise due diligence in determining and satisfying the tax obligation. Liability for the tax also follows the estate itself. When by reason of the distribution of the estate and the discharge of the personal representative it appears that collection of tax cannot be made from the personal representative, legatees or distributees must account for their proportionate share of the tax due and unpaid to the extent of the distributive share received by them. See ORS 314.310. The same considerations apply in the case of trusts. See also ORS 316.387.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.382
Hist.: 1-69; 12-19-75; 2-11-82(Temp); 5-5-82

150-316.387(1)

Decedent's Estate: Request for a Final Tax Determination

(1) The representative of a decedent's estate has an affirmative duty to file any returns which the decedent failed to file or was unable to file (e.g., the return required for the part of the tax year prior to death, or returns required for previous tax years which weren't filed due to the final illness of the decedent) and to pay the indicated tax, penalties and interest, if any, from the funds of the estate. The state has no duty to watch for printed notices to creditors or to file a creditor's claim with the decedent's representative.

(2) The representative of a decedent's estate may make an election for a final tax determination of any returns required to be filed under chapter 316 during the period of estate administration from a decedent or a decedent's estate. The election must be in writing and may be made by filing Department of Revenue Form 150-101-151 "Election for Final Tax Determination." The election is applicable to:

(a) All individual income tax returns filed by the decedent for which the statute of limitations is open for adjustment at the time the election is filed;

(b) The decedent's final individual income tax return;

(c) Any individual income tax returns the representative of a decedent's estate is required to file on behalf of the decedent because the decedent failed to file the required returns prior to their death; and

(d) Any fiduciary income tax returns filed during the period of estate administration. The election must be filed with the return(s) for which the election is applicable.

(3) The Department of Revenue may give notice of deficiency as described in ORS 305.265 within 18 months after a written election for final tax determination is made by the representative of the decedent's estate. If the Department of Revenue fails to give notice of deficiency within the 18 month period, the statute of limitations for the returns covered by the election for final tax determination will expire, except as described in paragraph (4). The Department of Revenue has no affirmative duty to respond to the election for final tax determination in any way other than the giving of notice of deficiency within 18 months.

(4) The limitations to the giving of a notice of deficiency provided in this section shall not apply in the following circumstances:

(a) If the department finds that gross income equal to 25 percent or more of the gross income reported has been omitted from the taxpayer's return, notice of deficiency may be given at any time within five years after the return was filed;

(b) If the department finds that false or fraudulent returns were filed, or that no returns were filed but returns were required to be filed, notice of deficiency, or notice of assessment in the case of failure to file, may be given at any time after the department makes that finding;

(c) If the Commissioner of Internal Revenue makes a correction resulting in a change of the decedent's or the estate of the decedent's tax, then notice of deficiency may be given within one year after the department is notified of such federal correction, or within the applicable 18-month or five-year period, whichever period expires later.

(5) The representative of a decedent's estate may choose to close the estate administration at the earliest date practicable, even though the period for giving notice of deficiency has not expired. If the department then gives notice of deficiency, the transferees of the money or property of the estate shall be liable for the tax, penalties and interest imposed against the decedent or the decedent's estate.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.387
Hist.: 1-69; 12-70; 11-73; 12-19-75; RD 3-1987(Temp), f. & cert. ef. 4-3-87; RD 8-1987, f. & cert. ef. 6-5-87; 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 3-1995, f. 12-29-95, cert. ef. 12-31-95

150-316.387(4)

Decedents' Estate: Application for Discharge from Personal Liability for Tax on Decedent's Income

(1) The representative of a decedent's estate may make written application to the department for discharge from personal liability for tax on the decedent's income. This application must be made after filing the decedent's final individual income tax return, or any individual income tax returns the representative of a decedent's estate is required to file on behalf of the decedent because the decedent failed to file the required returns prior to their death.

(2) The written application must include the following information:

(a) The name of the decedent;

(b) The decedent's Social Security Number;

(c) A list of the tax years for which the representative of a decedent's estate filed individual income tax returns on behalf of the decedent during the period of estate administration. The representative of a decedent's estate must also provide a copy of the document which shows they were appointed to represent the estate.

(3) The discharge becomes effective nine months after the department receives the application for discharge, if the representative of a decedent's estate has received no notification of tax liability during that time, or if notification of tax liability was received and paid during that time.

(4) The discharge does not apply to tax liability resulting from assets of the decedent's estate which are still in the possession or control of the representative of a decedent's estate.

(5) The failure of a representative of a decedent's estate to make application under this subsection does not affect the protection available to the representative under ORS 116.113(2), 116.123 and 116.213.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.387
Hist.: RD 3-1995, f. 12-29-95, cert. ef. 12-31-95

150-316.457

Requirement of Copy of Federal Return

Unless especially requested in individual cases, no copy of the federal income tax return need be filed with Form 40S ("short form").

Beginning with tax year 1994, a copy of the federal Form 1040, 1040A, 1040EZ, or 1040PC, whichever is applicable, must always be filed with Forms 40, 40P and 40N or the returns shall be deemed incomplete. No other federal forms or schedules are required to be filed with the Oregon return. Copies of federal forms and schedules must be made available to the department on request. If partnership income is reported on the return, a copy of the federal partnership return must be filed with the department by one of the partners.

[Forms: The forms referred to in this rule are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.457
Hist.: 1-69; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89; RD 5-1994, f. 12-15-94, cert. ef. 12-31-94

Payment of Estimated Tax

150-316.563

Estimated Tax

(1)(a) No declaration of estimated tax is required if the estimated tax as defined ORS 316.557 is less than $1,000.

(b) A required declaration shall contain information and be in the form prescribed by the Department of Revenue. Federal forms are not acceptable.

(2) A taxpayer may amend the declaration of estimated tax by recalculating the estimated tax due for the year, subtracting the payments already made and dividing the balance by the remaining payment dates.

(3) 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. 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 which will be considered sufficient to warrant a refund are as follows:

(a) Estimated tax payments were made by an individual who will not be required to file a return for the tax year for which the estimated tax payments were made.

(b) The estimated tax payments were intended for the Internal Revenue Service but were sent to the Department of Revenue in error. 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.

(4) Estimated tax payments cannot be used to pay additional tax liabilities for prior or current tax years, regardless of whether the liability is created by the taxpayer filing an amended return or by adjustment of the return by the department.

Example 1: Douglas has made estimated tax payments for 1998 totaling $2,000. His 1996 tax return was audited & a deficiency of $500 was imposed. No part of the $2,000 payments may be used to pay the deficiency.

(5) Interest shall be computed on excess estimated tax payments starting 45 days after the return is filed, or 45 days after the due date of the return, whichever is later.

(6) An individual with a taxable year of less than 12 months may be required to file a declaration of estimated tax and pay estimated tax.

(a) No declaration is needed for a short taxable year that is:

(A) Less than four months.

(B) At least four months but less than six months and the declaration filing requirements of ORS 316.563 are met after the first day of the fourth month.

(C) At least six months but less than nine months and the requirements to file the declaration are met after the first day of the sixth month.

(D) At least nine months and the requirements to file the declaration are met after the first day of the ninth month.

(b) If the taxpayer is required to file the declaration, the declaration must be filed on or before:

(A) The 15th day of the fourth month if the requirements to file are met before the second day of the fourth month.

(B) The 15th day of the sixth month if the requirements to file are first met after the first day of the fourth month but before the second day of the sixth month.

(C) The 15th day of the ninth month if the requirements to file are first met after the first day of the sixth month but before the second day of the ninth month.

(D) The 15th day of the first month of the succeeding year if the requirements to file are first met after the first day of the ninth month but before the last day of the year unless the return for such tax year is filed on or before the last day of the first month of the succeeding year.

(c) The estimated tax shall be paid in equal installments. The amount of each installment depends on the length of the short taxable year and the date during the year when the requirements to file and pay estimated tax are first met.

Example 2. Tom has a short taxable year beginning January 1, 1998 & ending October 31, 1998. The requirements to filing a declaration of estimated tax are first met prior to April 2, 1998. The estimated tax is payable in four equal payments on April 15, June 15, September 15 & November 15, 1998. Each payment would equal one-fourth of the total estimated tax due. If, on the other hand, the requirements to filing a declaration of estimated tax were first met after April 1 but before June 2, the estimated tax would be payable in three equal payments of one-third of the total estimated tax. The payment dates would be June 15, September 15 & November 15, 1998.

Example 3. A five-month short taxable year beginning January 1, 1998, & ending May 31, 1998, & the requirements to file were met on March 31, 1998, Tom must file & pay:

1/2 of the estimated tax on April 15, 1998

1/2 of the estimated tax on June 15, 1998

Example 4. A seven-month short taxable year from April 1, 1998, through October 31, 1998, and the requirements to file are met on July 1, 1998. Tom must file and pay:

1/3 of the estimated tax on July 15, 1998

1/3 of the estimated tax on September 15, 1998

1/3 of the estimated tax on November 15, 1998

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.563
Hist.: 12-31-80; TC 9-1981, f. 12-7-81, cert. ef. 12-31-81; RD 14-1982, f. 12-6-82, cert. ef. 12-31-82; RD 7-1983, f. 12-20-83, cert. ef. 12-31-83; RD 12-1984, f. 12-5-84, cert. ef. 12-31-84; RD 12-1985, f. 12-16-85, cert. ef. 12-31-85; RD 10-1986, f. & cert. ef. 12-31-86, Renumbered from 150-316.563(1)?; RD 15-1987, f. 12-10-87, cert. ef. 12-31-87; 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 9-1999, f. 12-30-99, cert. ef. 12-31-99

150-316.567

Allocation of Joint Estimated Tax Payments

(1) Husband and wife may make joint estimated tax payments for any part of the tax year although they may elect to file separate tax returns. If separate returns are filed the joint estimated tax payments may be treated as the estimated tax of either the husband or wife or may be divided between the spouses in such manner as they agree.

(2) If the spouses do not agree on how to divide their joint estimated tax payments, the payments shall be allocated between them by the department. Spouses will be considered not to have agreed on a method for dividing their joint estimated payments when both spouses file separate returns claiming credit for estimated tax payments which when combined do not equal the amount of joint estimated tax payments received by the department during the tax year.

(3) The department shall divide the joint estimated tax payments by allocating to each spouse an amount of the payments in the proportion that the spouses' separate tax liability computed after credits, other than the credits for withholding and estimated tax payments, bears to the combined separate tax liabilities of both spouses. [Formula not included. See ED. NOTE.]

During 19X5, Adam and Betty make joint estimated tax payments of $2,000, Betty also has tax withholding of $1,000. Adam and Betty decide to file separate returns for 19X5 but fail to agree on how to divide their 19X5 joint estimated tax payments. Adam has a separate tax liability after credits of $1,500. Betty has a separate tax liability of $1,100 before credit for withholding of $1,000. Using the formula stated above, Adam's share of the estimated tax payments is $1,154 ($1,500 ÷ $2,600 x $2,000). Betty's share of the estimated tax payments is $846 ($1,100 ÷ $2,600 x $2,000). Adam will owe a net amount of $346 ($1,154 – $1,500) and Betty will receive a refund of $746 ($846 + $1,000 – $1,100).

(4) If a husband and wife make joint estimated tax payments and the department issues a notice of assessment against either or both of the spouses under the provisions of ORS 305.265(10), the department shall allocate the estimated tax payments between the spouses. The allocation of payments shall be made using the best information available to the department.

(5) In the event one of the spouses received credit for more than their allocable share of the joint estimated tax payments as determined by the department, the difference between their allocable share and the amount for which credit was received when the return was processed, shall be remitted to the department. This amount shall be remitted with the filing of an amended return or through payment of a notice of deficiency issued by the department.

[ED NOTE: Formulas referenced in this rule are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.567
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 6-1996, f. 12-23-96, cert. ef. 12-31-96

150-316.573

Estimated Tax: Farmer's and Fisher's

For the purpose of declaring estimated tax, gross income is determined using sources within and without this state.

Example. John is a resident of the state of Washington and owns a farm which is located in Oregon. All of his other income is from nonfarm sources within the state of Washington. The total farm income from Oregon sources is $50,000. The total gross income from within and without Oregon is $90,000. Since the gross income from farming is not equal to or greater than two-thirds of John's total gross income, the exception for farmers and fishers to making estimated tax payments is not met.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.573
Hist.: RD 15-1987, f. 12-10-87, cert. ef. 12-31-87

150-316.583(2)

Estimated Tax: Application of Prior Year Overpayment (Refund)

(1) Definitions.

(a) Department notification. To properly notify the department that the overpayment is to be applied against an installment other than the first instalment, the taxpayer shall attach a statement to the income tax return showing the overpayment and indicate to which instalments the overpayment is to be applied.

(b) Delinquent return. If the taxpayer fails to file a return by the due date of the return and has not obtained an extension to file, the return is considered delinquent.

(2)(a) Refunds from current year's returns. The department shall apply overpayments occurring on or before the due date of a return against the first instalment payment of the next year's estimated tax, unless the taxpayer notifies the department that the overpayment should be applied against another instalment. The payment shall be applied 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.

Exception: The taxpayer's overpayment may not be applied to the following year's estimated tax if the taxpayer owes delinquent child or spousal support.

Example 1: The taxpayer makes all four estimated tax payments for tax year 1992. The last payment was made in January, 1993. The taxpayer filed the 1992 Oregon return on April 15, 1993. The return shows a refund due. The taxpayer requests that the refund be applied to 1993 estimated tax. The refund will be credited to the estimated tax account as of April 15, 1993.

(b) Refunds from delinquent returns. When the taxpayer files a delinquent return, and the tax shown due is less than the amount of withholding and prepayments, the taxpayer may apply the overpayment to an estimated tax account for a subsequent year. Overpayments shall be applied to the extent approved on review and as of the date the return is filed.

Example 2: Taxpayer files a 1992 return on October 25, 1993. The taxpayer made all four estimated tax payments for 1992. The return shows a refund due. The taxpayer requests that the refund be applied to the 1993 estimated tax account. The department processes the return and on December 13, 1993 verifies that the refund requested is correct. The overpayment is credited to the 1993 estimated tax account as of October 25, 1993.

(3) Refunds from amended returns. When an election is made to have an overpayment resulting from the amendment of a prior year return applied to an estimated tax account, the overpayment shall be applied to the extent approved on review and as of the date the return is filed.

Example 3: Taxpayer files an amended return for calendar year 1989 on October 15, 1990, claiming a $500 overpayment and electing to have it applied to the 1990 estimated tax account. The 1989 amended return was received by the department on October 20, 1990. The refund was reduced to $400 and approved on November 20, 1990. The actual transfer of the $400 plus interest was made on December 1, 1990. The application date to the 1990 estimated tax account is October 15, 1990.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.583
Hist.: RD 12-1984, f. 12-5-84, cert. ef. 12-31-84; 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

150-316.587(1)

Tax Used to Compute Underpayment of Estimated Tax

Any interest due for underpaying estimated taxes is computed using the total tax shown on the return. If the return is adjusted in initial processing, the recomputed tax must be used for determining any underpayment interest. Prior to October 6, 2001, subsequent amendments to the tax will not affect the underpayment interest amount unless the amended return is received prior to the statutory due date of the original return. Amended returns filed on or after October 6, 2001 will not affect the underpayment interest amount unless the amended return is received by the statutory due date of the original return or within the extension period granted for the original return.

Example 1: Mary files an Oregon income tax return on a calendar year basis. She filed a return for tax year 2000 on February 15, 2001, showing a tax liability of $1,700. On April 10, 2001, she filed an amended return for tax year 2000 showing a tax liability of $1,450. The return for the taxable year for purposes of computing any interest on underpayment of estimated tax is the amended return filed on April 10, 2001.

Example 2: Using the same facts as given in Example 1 except that Mary's amended return was filed on May 20, 2001. The original return filed on February 15, 2001, is the return for the taxable year for purposes of computing any interest on underpayment of estimated tax.

Example 3: Mark files an Oregon income tax return on a calendar year basis and had an extension to October 15, 2008 in which to file his 2007 return. He filed his 2007 return on May 1, 2008 showing a tax liability of $2,150. On October 15, 2008, he filed an amended return for 2007 showing a tax liability of $1,375. The return for the taxable year for purposes of computing any interest on underpayment of estimated tax is the amended return filed on October 15, 2008.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.587
Hist.: RD 15-1987, f. 12-10-87, cert. ef. 12-31-87; REV 8-2001, f. & cert. ef. 12-31-01; REV 11-2004, f. 12-29-04, cert. ef. 12-31-04; REV 3-2006, f. & cert .ef. 7-31-06

150-316.587(5)(b)

Estimated Tax: Underpayment Interest Not Imposed if There is a Casualty, Disaster or Other Unusual Circumstances

(1) No interest for underpayment of estimated tax will be imposed on any portion of the underpayment that is caused by reason of casualty, disaster or other unusual circumstances where it would be against equity and good conscience to impose interest. The determination of whether unusual circumstances exist is made on a case-by-case basis, taking into account all pertinent facts and circumstances. The most important factor is the extent of the effort required by the taxpayer to comply with the law and make the required installments.

(2) The following are examples of situations that will be accepted by the department as unusual circumstances for not imposing interest.

(a) Where the failure to make the necessary estimated tax payment was caused by death or serious illness of the taxpayer, or death or serious illness in the taxpayer's immediate family.

(b) Where the taxpayer's books and records are destroyed by fire, flood or other natural disaster and therefore, the taxpayer is unable to determine the correct estimated tax payment.

(c) Where the disaster is so overwhelming that the taxpayer neglects to make the necessary estimated tax payment.

(d) Where the failure to make the necessary estimated tax payment was caused by the unavoidable and unforeseen absence of the taxpayer from the state immediately prior to the due date of the estimated tax payment.

(3) Example: Sharon filed her 2003 Oregon income tax return and had tax to pay of $2,500. Interest on underpayment of estimated tax was imposed. Sharon's house was destroyed by fire on August 5, 2003 and all of her tax records were destroyed. The department will not impose the interest on underpayment of estimated tax for the third and fourth installment periods due to the casualty.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.587
Hist.: RD 7-1991, f. 12-30-91, cert. ef. 12-31-91; REV 11-2004, f. 12-29-04, cert. ef. 12-31-04

150-316.587(5)(c)

Estimated Tax: Underpayment Interest Not Imposed If There Is Reasonable Cause

(1) No interest for underpayment of estimated tax will be imposed on any portion of the underpayment if in or prior to the tax year the estimated tax payment was required to be made, the taxpayer retired after attaining age 62 or became disabled, and the underpayment was due to reasonable cause and not to willful neglect. The determination of whether the taxpayer's actions were due to reasonable cause and not willful neglect is made on a case-by-case basis, taking into account all pertinent facts and circumstances. The most important factor is the extent of the effort required by the taxpayer to assess the taxpayer's proper liability.

(2) The following are examples of situations that will be accepted by the department as reasonable cause for not imposing interest.

(a) Where the failure to make the necessary estimated tax payment or failure to pay the correct amount of estimated tax was caused by the unavoidable and unforeseen absence of the taxpayer from the state immediately prior to the due date of the estimated tax payment.

(b) Where the failure to make the necessary estimated tax payment or failure to pay the correct amount of estimated tax was caused by reliance on an information return or other facts, if under all the circumstances, such reliance was reasonable and the taxpayer acted in good faith. Reliance on information reported on a Form W-2, Form 1099 or other information is reasonable if the taxpayer did not know or have reason to know that the information was incorrect. Generally, a taxpayer knows or has reason to know that the information on an information return is incorrect if such information is inconsistent with other information reported or otherwise furnished to the taxpayer, or with the taxpayer's knowledge of the transaction.

(c) Where the failure to make the necessary estimated tax payment or failure to pay the correct amount of estimated tax was caused by incorrect professional advice and:

(A) The taxpayer relied upon the advice of an individual who the taxpayer could reasonably assume was knowledgeable and experienced in the tax involved;

(B) The taxpayer supplied the individual with complete information connected with the advice given; and

(C) The taxpayer could not reasonably be expected to be knowledgeable in the tax matter connected with the erroneous advice.

(d) Where the taxpayer exercised ordinary business care and prudence and nevertheless was unable to make the necessary estimated tax payment or to pay the correct amount of estimated tax.

(e) Where the taxpayer is unable to obtain records necessary to determine the amount of estimated tax due, for reasons beyond the taxpayer's control.

(f) Where the taxpayer failed to pay the tax based on erroneous written information received from an employee of the Department of Revenue.

(g) Examples:

(A) Bob, age 65, retired from his job on March 30, 2003. Bob did not request that Oregon state tax be withheld from his retirement income and he didn't know that he needed to make estimated tax payments. When Bob filed his 2003 tax return he found he owed $1,500 of tax. Since the underpayment was not due to reasonable cause, interest on underpayment of estimated tax will be imposed.

(B) Grace, age 62, retired from her job on February 1, 2003. Before Grace retired she consulted her tax consultant for advice on when to retire and what payment elections to make. Grace turned all her paperwork over to her tax consultant to fill out. The tax consultant neglected to have Oregon state tax withheld from Grace's retirement income. Because the underpayment was due to reasonable cause, interest on underpayment of estimated tax will not be imposed.

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

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.587
Hist.: 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 11-2004, f. 12-29-04, cert. ef. 12-31-04

150-316.587(5)(d)

Estimated Tax: Partnership and S Corporation Income of Part-year Residents and Nonresidents

For purposes of imposing interest on underpayment of estimated tax, an exception exists for part-year and nonresidents receiving income from an S corporation. No interest will be imposed on the underpayment attributable to the shareholders pro rata share of the S corporation income if the income is for the initial year in which S corporation status is elected and the shareholder is a nonresident or for the prior tax year was a part-year resident for Oregon. This exception applies to tax years beginning on or after January 1, 1987.

Example: Frank and Ethel move to Oregon in August, 2006. Frank is a partner in an Oregon partnership. The partnership incorporates in 2007 and elects S corporation status. For 2007, Frank and Ethel file as full-year Oregon residents and report their share of the S corporation income. No interest is imposed on any underpayment attributable to Frank's share of the S corporation income because they meet the exception. They are part-year residents for 2006; 2007 is the initial year of election of S corporation status.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.587
Hist.: 10-7-85, 12-31-85, Renumbered from 150-316.587(4); 12-31-87, Renumbered from 150-316.587(4)(A); RD 7-1989, f. 12-18-89, cert. ef. 12-31-89; RD 7-1991, f. 12-30-91, cert. ef. 12-31-91, Renumbered from 150-316.587(5); REV 6-2008, f. 8-29-08, cert. ef. 8-31-08; REV 4-2009, f. & cert. ef. 7-31-09

150-316.587(8)-(A)

Required Installments for Estimated Tax

(1) Definitions.

(a) “Required annual payment” means the total amount of required installment payments for the tax year.

(b) “Required installment payment” means the amount of the payment that is due for each of the four payment periods during the tax year.

(2) There are two steps to determine estimated tax payments. The first step is to determine the required annual payment, and the second step is to determine the amount of the required installment payments.

(3) Determination of required annual payment amount.

(a) The required annual payment is the lesser of:

(A) Ninety percent of the tax shown on the return for the taxable year (or, if no return is filed, ninety percent of the tax for such year); or

(B) One hundred percent of the tax shown on the prior year's return, if qualified. This is sometimes referred to as ‘safe harbor.’ To use the prior year’s tax to determine the required annual payment, the prior year’s return must have been a timely filed Oregon return, including extensions, and the prior tax year must consist of 12 months.

Example :1: Amanda’s adjusted gross income on her timely filed return in 2008 was $30,000 and her Oregon tax liability after credits was $2,000. Amanda’s 2009 Oregon tax liability after credits is $2,800. Ninety percent of the 2009 tax after credits is $2,520. She can use the prior year tax and pay 2009 estimated tax payments equal to 100 percent of her 2008 tax liability ($500 on each installment due date).

(b) A part-year resident may use the prior year tax unless disqualified for a reason described in this section.

Example 2: Michael moved to Oregon from California on July 1, 2008 and filed as a part-year resident. His 2008 Oregon tax after credits was $1,500. Even though his 2008 return shows 6 months of Oregon residency, his taxable year for 2008 was 12 full months. He qualifies to use safe harbor (prior year tax) to determine his required annual payment for 2009. This is less than 90 percent of his 2009 tax, so he will use that to determine his required annual payment. His required installment payments in 2009 are $375 for each period (25% of $1,500) ) for regular installment payments, or the applicable percentage if using the annualized income installment payments, in order to avoid interest on underpayment of estimated tax for 2009.

(c) Tax shown on the prior year’s return does not include any payment received as a state surplus refund of personal income tax determined under ORS 291.349.

Example 3: Roberta had tax after credits of $1,500 for 2006. She received a surplus refund check in November 2007 of $309 based on her 2006 tax before credits. That payment is not taken into account in determining the tax shown on her 2006 return (prior year) when figuring her required annual payment for 2007. Her 2007 tax after credits is $2,300, so she will use her prior year tax of $1,500 as her required annual payment because it is the lesser amount.

(d) Use the amounts from the original return to determine the payments unless an amended return was filed before the due date, including extensions. In that case, use the amounts from the amended return to determine the required annual payment. Returns filed after the due date cannot be used to determine the required annual payment.

Example 4: Aliyah’s original tax return showed a tax liability after all credits of $1,400. Aliyah did not file an extension. In July, the return was amended and the tax liability after credits was $1,200. Aliyah bases her required annual payment on the $1,400 tax shown on the original return.

Example 5: Shaylee’s original tax return was filed June 30, 2008 with an approved extension to October 15, 2008 showing a tax liability of $1,975. On October 09, 2008 the return was amended and the tax liability was reduced to $1,245. In 2009, if Shaylee chooses to use the prior year’s tax, the required annual payment is based on the $1,245 tax shown on the amended return filed within the extension period.

(e) Estimated tax payments are not required if the amount of the required annual payment minus Oregon tax withheld is less than $1,000. For information about additional exceptions, see ORS 316.563 through 316.588, and OAR 150-316.573 through 150-316.587(5)(d).

Example 6: Brandon and Michelle are married and have three children. Brandon is self-employed. Michelle works part-time. They want to know if they are required to make estimated tax payments. Their estimated 2009 adjusted gross income is $75,000, their estimated net itemized deductions are $13,500 and they expect to have $630 withheld from Michelle’s wages.

They need to calculate the amount of their required annual payment as follows: [Tables not included. See ED. NOTE.]

(4) Determination of the required installment payment amount.

(a) The required installment payment for each of the four tax periods is the lesser of the payment due under one of the following two methods for determining the amount of an installment payment:

(A) Regular Installment: The required installment payment for each period is 25 percent of the required annual payment.

(B) Annualized Income Installment: The required annualized income installment payment is the “applicable percentage” of the required annual payment for the taxable year minus the amount of any required installments paid for prior periods during the tax year. The applicable percentages are:

(i) 22.5% for the first period;

(ii) 45% for the first and second periods;

(iii) 67.5% for the first, second and third periods; and

(iv) 90 % for the first through fourth periods.

(b) If the taxpayer shows that the annualized income installment for a period (as determined from the annualized income worksheet) is less than the regular installment for that period, the amount of the required installment payment for that period is the annualized income installment.

(c) If the annualized income installment method is used to determine a required installment payment, the difference between that amount and the amount that would have been due if the regular installment method had been used must be added to the required installment payment for the next succeeding period.

(d) Generally, credits based on income or deductions are figured on the annualized income or deductions for each period.

(e) Credits computed as a percentage of income must be based upon the annualized income for the period.

(f) Credits that use income as a basis for determining an applicable percentage or for otherwise limiting the allowable credit must be based upon the total annualized income before allocation to the installment period.

Example 7: Richard and Terrie are married with no dependents. They had adjusted gross income of $14,000 for the period of January 1, 2006 to March 31, 2006. For the same period, they had itemized deductions of $2,810. For the period of January 1, 2006 to May 31, 2006, they had adjusted gross income of $27,000 and itemized deductions of $4,300. For the period of January 1, 2006 to August 31, 2006, they had adjusted gross income of $41,000 and itemized deductions of $6,300. For the period January 1, 2006 to December 31, 2006, they had adjusted gross income of $69,000 and itemized deductions of $14,100. Their 2005 timely filed return showed tax after credits of $3,155. For purposes of computing the required installment, the following computations are necessary: [Tables not included. See ED. NOTE.]

(g) Pass-through entity (PTE) income may be annualized following the methodology provided under Internal Revenue Code (IRC) section 6654, Treasury Regulation section 1.6654-2 and all other related regulations and rules, if annualizing more accurately reflects the fluctuations in income to the shareholder from the entity. Solely for purposes of annualizing, the shareholder or partner may recognize the distributable share of income or loss from the PTE for the months in the PTE’s taxable year ending within the taxable year of the shareholder or partner that precede the month in which the estimated tax installment is due.

Example 8: Ed’s Catering, Inc. (ECI) is a calendar year S corporation that is in the catering business. ECI has limited business outside of the busy holiday party season. The majority of its business occurs in October, November, and December. In 2009, ECI’s income was $30,000 from January 1 – March 31; $25,000 from April 1 – June 30; $20,000 from July 1 – September 30; and $450,000 October 1 to December 31. An ECI shareholder who receives most of his or her income during the last quarter in ECI’s tax year may choose to use the annualized income installment method for purposes of determining estimated tax payments.

Example 9: Wedding Planner’s, Inc. (WPI), an S corporation, has a fiscal year ending July 31st. The majority of its business occurs in May, June, and July. In fiscal year beginning 2008, WPI’s income was $30,000 from August 1, 2008 – October 31, 2008; $25,000 from November 1, 2008 – January 31, 2009; $20,000 from February 1, 2009 – April 30, 2009; and $450,000 May 1, 2009 to July 31, 2009. The shareholder must include the income attributable to WPI as follows when determining the required installment for the shareholder’s calendar year 2009 using the annual method:

The 1st required installment is based on PTE income/loss from August 1st of the prior year to March 31st. Date payment is due is April 15th. The 2nd required installment is based on PTE income/loss from August 1st of the prior year to May 31st. Date payment is due is June 15th. The 3rd required installment is based on PTE income/loss from August 1st of the prior year to July 31st. Date payment is due is September 15th. The 4th required installment would already include the entire amount from the PTE received in the tax year of the shareholder but should not increase the underpayment for the 4th quarter since it was fully included by the third payment.

[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 316.587
Hist.: 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 5-1994, f. 12-15-94, cert. ef. 12-31-94; RD 3-1995, f. 12-29-95, cert. ef. 12-31-95; REV 9-1999, f. 12-30-99, cert. ef. 12-31-99; REV 8-2001, f. & cert. ef. 12-31-01; REV 3-2006, f. & cert .ef. 7-31-06; REV 6-2008, f. 8-29-08, cert. ef. 8-31-08; REV 16-2010, f. 12-17-10, cert. ef. 1-1-11

150-316.587(8)-(B)

Estimated Tax: Joint Return to Single or Separate Return

For estimated tax payments due for tax years beginning on or after January 1, 1988, in computing the required installment for the current year, the tax liability for the prior year may be used even though the current year is a single or separate return and the prior year's return is a joint return. The prior year's return must be filed timely including extensions and must cover 12 months. The prior year's tax will be allocated in the following manner:

(1) Recompute the prior year's tax liability as if each spouse had filed a single or separate return; and

(2) Multiply the joint tax liability for the prior year by a ratio of each spouse's single or separate liability to the combined single or separate liabilities.

Example: Dan and Jessica filed a joint return for the calendar year 2008 showing taxable income of $63,000 and a tax after credits of $4,084. Of the $63,000 taxable income, $38,000 was attributable to Dan and $25,000 was attributable to Jessica. Dan and Jessica will file separate returns in 2009. The tax shown on the return for the preceding taxable year, for determining the required installments for 2009, is determined as follows: [Table not included. See ED. NOTE.]

[ED. NOTE: Table referenced is not included in rule text. Click here for PDF of table.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.587
Hist.: RD 11-1988, f. 12-19-88, cert. ef. 12-31-88; REV 4-2009, f. & cert. ef. 7-31-09

150-316.587(8)-(C)

Estimated Tax: Single or Separate Returns to Joint Return

For estimated tax payments beginning on or after Jan. 1, 1988, in computing the required instalment for the current year, the tax liability for the prior year may be used even though the current year is a joint return and the prior year's returns are single or separate returns. This is done by combining the net income tax amounts from the previous year's returns of both spouses. The previous year's returns of both spouses must be filed timely including extensions, must have a tax liability, and must cover 12 months.

Example: Al and Darlene filed separate income tax returns for the calendar year 1987, showing tax liabilities of $2,640 and $350, respectively. In 1988 they elected to file a joint return. For the purpose of determining the required instalment mentioned above, the previous year's net income tax would be $2,990 ($2,640 plus $350).

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.587
Hist.: 10-5-87, 12-31-87, Renumbered from 150-316.587(4)-(B); RD 11-1988, f. 12-19-88, cert. ef. 12-31-88

Modifications of Taxable Income Generally

150-316.680-(A)

Oregon Lottery Winnings and Losses

(1) For purposes of this rule:

(a) "Oregon lottery losses" means the amount of wagering losses defined in Internal Revenue Code Section 165(d) that is attributable to the Oregon State Lottery which was includable in federal taxable income.

(b) "Oregon lottery" means all games administered by the Oregon State Lottery Commission including those games jointly administered by Oregon and other states.

(c) "Other wagering earnings" means the amount of wagering earnings that is included in Oregon taxable income.

(2)(a) For purposes of Ch. 316, Oregon lottery winnings referred to in Ch. are not included in Oregon taxable income, if:

(A) The ticket was purchased before January 1, 1998; or

(B) The ticket was purchased on or after January 1, 1998 and the winnings from that ticket minus the purchase price are $600 or less.

(b) Oregon lottery losses and other wagering losses are allowable for Oregon purposes to the extent that total wagering losses do not exceed total wagering earnings included in Oregon taxable income.

Example: Angela is receiving lottery prize payments of $20,000 per year for the next 15 years from a Powerball ticket purchased before 1998. She also has winnings from three Oregon lottery tickets she bought after 1997. Those three tickets paid $300, $400 and $750, respectively. During the current year, Angela won $800 in other gambling winnings. She spent $1,000 on Oregon lottery tickets and had $1,300 in other gambling losses. Angela determines her net Oregon adjustment to be a subtraction of $19,950, as follows: [Table not included. See ED. NOTE.]

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

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.680
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; REV 7-1998, f. 11-13-98, cert. ef. 12-31-98

150-316.680-(B)

Modification of Federal Taxable Income: Interest and Dividends

(1) The character of interest and dividends received by an intermediary entity which owns the underlying obligations shall flow through to a taxpayer receiving a distribution from the intermediary entity.

(2) Oregon law allows the character of the interest or dividends to flow through to the taxpayer as if the taxpayer had received the interest or dividends directly from the obligor. If federal or Oregon law allows the character of such interest or dividends to flow through to the taxpayer, then such laws shall determine whether the distributions are taxable or nontaxable for Oregon purposes.

(3) No modifications will be allowed on the taxpayer's Oregon return if the intermediary entity is the guarantor of the taxpayer's principle and interest. See Example 6.

Example 1: Bill and Fay invested in a mutual fund in 1987 that invests in federal Series E obligations. The mutual fund holds title to the obligations. The mutual fund qualifies under ORS 316.683 to pay state exempt-interest dividends from the fund. Because the state exempt-interest dividends are treated as an item of interest described in ORS 316.680(1)(a), Bill and Fay may subtract those dividends from federal taxable income.

Example 2: Frank is a shareholder in an S corporation (qualifying as such for Oregon purposes after 12/31/82) which purchased some federal Series E obligations. Frank's share of income from the S corporation includes interest income from the Series E obligations. Federal law, IRC §1366, allows the character of the interest to flow through to Frank. Therefore, ORS 316.680(1)(a) allows Frank to subtract his share of the Series E interest from federal taxable income.

Example 3: Mary is a shareholder in a mutual fund. The mutual fund invests solely in obligations of this state. The mutual fund qualifies under IRC §852(b)(5) to pay exempt-interest dividends. Mary received a distribution of exempt-interest dividends from the fund. The exempt-interest dividends retain the character given to them by the underlying obligations owned by the fund. Therefore, since federal and Oregon law do not tax such income, Mary is not required to make a modification to her federal taxable income for such distributions.

Example 4: Susan is a shareholder in a mutual fund. The mutual fund invests solely in obligations of states (other than Oregon). The mutual fund qualifies under Internal Revenue Code Section 852(b)(5) to pay exempt-interest dividends. Susan received a distribution of the federally exempt-interest dividends from the fund. Since exempt-interest dividends retain the character given to them by the underlying obligations owned by the fund, and ORS 316.680(2) requires interest from other states' obligations to be added to federal taxable income, Susan shall add the amount of the distribution from the fund to her federal taxable income.

Example 5: Barbara is a shareholder in a mutual fund. The mutual fund invests solely in obligations of territories and possessions of the United States. The mutual fund qualifies under IRC §852(b)(5) to pay exempt-interest dividends. Barbara received a distribution of the exempt-interest dividends from the fund. The exempt-interest dividends retain the character given to them by the underlying obligations owned by the fund. The dividends retain the exempt character and are not taxed by federal. Federal law also prohibits states or other authorities from taxing interest on such obligations. Barbara is not required to make any modification to her federal taxable income for the distribution.

Example 6: Leo invests $500 in an interest bearing obligation issued by an investment firm. The obligation issued by the firm is a certificate entitling Leo to $1,000 payable by the firm in 1995. Although the firm makes investments in various securities, including U.S. government obligations, none of the interest received by Leo will qualify for subtraction on the Oregon return. The investment firm is liable for making repayment of the principal and interest, not the U.S. government.

[Publications: The publication(s) referred to or incorporated by reference in this rule is available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.680
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 5-1994, f. 12-15-94, cert. ef. 12-31-94

150-316.680(1)(a)

U.S. Government Obligations

(1) Interest and dividend income on obligations of the federal government which are exempt from state income taxation but not from federal income taxation shall be subtracted from federal taxable income in arriving at Oregon taxable income.

(2) Amounts that may not be subtracted include:

(a) Timely payments of interest by the insurer of obligations backed by the U.S. government;

(b) Interest received on federal tax refunds.

Example: Paul and Margaret filed a joint income tax return and received a federal tax refund from the U.S. Treasury Department for $1,200. This amount included $1,000 tax and $200 interest. The $200 interest amount does not qualify for the subtraction for interest or dividend income on U.S. government obligations as provided under ORS 316.680(1)(a).

(c) Interest received on obligations of territories and possessions of the United States. Interest on these obligations is not taxable for federal or state purposes and is not included in federal adjusted gross income so no subtraction is made on the Oregon return. Interest on the following obligations is not subtracted under ORS 316.680(1)(c):

(A) Territory of Guam;

(B) Commonwealth of Puerto Rico;

(C) Territory of Puerto Rico;

(D) Territory of Samoa;

(E) Territory of Virgin Islands;

(d) Income received from repurchase agreements. These are agreements in which a seller other than the United States sells securities (which can be federal obligations), and agrees to repurchase the same or similar securities at a price that includes interest for the period of the sale. The seller, in this case, is the true owner; and, the buyer merely receives interest under a contract with the seller. It is not interest paid by the United States, but it is income (or the equivalent to interest) paid by the seller at the time of repurchase.

(3) For interest received from organizations that invest in U.S. government securities refer to OAR 150-316.680-(B).

(4) If expenses connected with U.S. government obligations are claimed as an itemized deduction, an adjustment is required. These expenses include interest on indebtedness incurred to carry the bonds or notes and expenses incurred in the production of income from the bonds or notes. Oregon doesn't allow a deduction for these expenses, since the income from the bonds or notes is exempt from Oregon tax. The subtraction allowable under ORS 316.680(1)(a) shall be reduced by the amount of the expenses deducted in arriving at federal taxable income.

Example: Charles reported $500 interest income from Series EE Bonds. He borrowed $6,000 to purchase the bonds. During the year he paid $200 interest on the amount he borrowed. He claimed the $200 interest expense as an itemized deduction. His allowable subtraction under ORS 316.680(1)(a) of $300 is computed as follows: [Formula not included. See ED. NOTE.]

(5) Below is a list of obligations that may or may not qualify for the subtraction permitted under ORS 316.680(1)(a). [List not included. See ED. NOTE.]

[ED NOTE: Formulas & Lists referenced in this rule are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.680
Hist.: 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; RD 7-1991, f. 12-30-91, cert. ef. 12-31-91; RD 5-1994, f. 12-15-94, cert. ef. 12-31-94

150-316.680(2)(a)

Addition for Original Issue Discount (OID)

(1) The "original issue discount" (OID), as defined in section 1273 of the Internal Revenue Code, is considered as paid in lieu of interest on state and municipal obligations of other states, and is taxable for Oregon purposes.

(2) Holders of state and municipal bonds of other states (foreign states) shall include in income the sum of the daily portion of original issue discount determined for each day during the taxable year the bond is held. The original issue discount (OID) shall be prorated over the life of the bond using the federal rules for taxable securities under Section 1272 of the Internal Revenue Code and corresponding regulations.

Example: On July 1, 1987, Jack purchased a California municipal bond for $800. The bond matures in two years and has a stated redemption price of $1,000. The bond contains $200 of original issue discount (stated redemption price of $1,000 less issue price of $800). Because the bond does not provide for periodic payments of interest, a six-month accrual period ending December 31 and June 30 of each calendar year is used to determine the semiannual yield factor of 5.74 percent ($800 compounded semiannually for two years at 5.74 percent is $1,000). The amount of the original issue discount included in income for the period ending December 31, 1987, is the issue price ($800), multiplied by the semiannual yield factor of 5.74 percent, or $45.90. The adjusted issue price (basis) at the beginning of the second accrual period is equal to the issue price plus the portion of original issue discount included in the first accrual period ($845.90 = $800 + $45.90). The includable original issue discount and basis is determined for each subsequent period in the same manner. [Table not included. See ED. NOTE.]

[ED NOTE: Tables referenced in this rule are available from the agency.]

[Publications: Publications referenced in this rule are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.680
Hist.: RD 11-1988, f. 12-19-88, cert. ef. 12-31-88

150-316.680(2)(b)

Modification of Federal Taxable Income: Adding Interest or Dividends of the United States Exempted by Federal Income Tax Law

Interest or dividend income attributable to obligations of any authority, commission, instrumentality or territorial possession of the United States, which by the laws of the United States is exempt from federal income taxation but not from state income taxation, shall be added to federal taxable income.

Costs incurred to carry the income-producing securities may be deducted, to the extent those costs are not already deducted in arriving at federal taxable income.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.680
Hist.: 1-69; 12-70, Renumbered from 150-316.097(2)(b); 12-31-83; RD 12-1984, f. 12-5-84, cert. ef. 12-31-84; RD 12-1985, f. 12-16-85, cert. ef. 12-31-85

150-316.680(2)(c)

Modification of Federal Taxable Income: Adding Federal Estate Tax Attributable to Income in Respect of a Decedent Not Taxable by Oregon

The deduction allowed in the computation of federal taxable income for federal estate tax attributable to income in respect of a decedent must be added to federal taxable income to the extent that the deduction is allocable to income not taxable by Oregon.

The federal estate tax deduction allowed in arriving at federal taxable income is computed in accordance with section 691(c) of the Internal Revenue Code and section 1.691(c)-1 of the Treasury Regulations. The amount thus computed must be allocated to the income in respect of a decedent not taxable by Oregon.

The following formula will be used in determining the amount to be added to federal taxable income on the Oregon return: [Formula not included. See ED. NOTE.]

[ED NOTE: Formulas referenced in this rule are available from the agency.]

[Publications: Publications referenced in this rule are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.680
Hist.: 11-73, Renumbered from 150-316.067(2)(g); 12-31-80, Renumbered from 150-316.067(2)(c); 12-31-83; RD 7-1991, f. 12-30-91, cert. ef. 12-31-91

150-316.680(2)(i)

Addition of Long-Term Care Insurance Premiums Claimed as Federal Deductions

(1) If the Oregon credit for long-term care insurance premiums is claimed and the premiums are also taken as a federal deduction, an Oregon addition is required. The taxpayer must add back to income on the Oregon return a specified percentage of medical expenses allowed as a deduction on the federal return. The specified percentage is determined as the amount of long-term care insurance premiums included in total medical deductions on the federal return divided by the total medical deductions on the federal return. The Oregon addition equals the specified percentage multiplied by the total allowed medical deductions on the federal return. See the examples for further clarification.

Example 1: Rebecca, age 35, paid long-term care insurance premiums of $1,200 during the tax year. Under Internal Revenue Code section 213(d)(10), she is limited to a $210 federal itemized deduction for the premiums. She has other medical expenses of $3,600 for a total of $3,810 in deductible medical expenses. After the 7.5 percent federal adjusted gross income (FAGI) limitation, her allowed medical itemized deduction is $175.

Rebecca determines the specified percentage is equal to 5.5 percent ($210 ÷ $3,810). She multiplies that percentage by her allowed medical deduction of $175. The result is $10 ($175 x 5.5 percent), which is the addition she must include on her Oregon return.

Rebecca's Oregon credit under ORS 315.610 is based on the entire $1,200 of long-term care insurance premiums paid during the year.

Example 2: Sid paid long-term care insurance premiums of $1,200 during the tax year. He is over age 71 so his premium expenses are less than the federal limit under IRC 213(d)(10). His other medical expenses are $2,800 for a total of $4,000 in medical itemized deductions. After the 7.5 percent FAGI limitation, his allowed medical itemized deduction on the federal return is $2,050. On his Oregon return, Sid claims $1,950 as a special medical deduction under ORS 316.695(1)(d)(B).

Sid computes his specified percentage by dividing the long-term care insurance premiums claimed on his federal return by the total medical deductions allowed on the federal return. The result is 30 percent ($1,200 ÷ 4,000 = 30 percent). Sid multiplies the allowed medical expense on his federal return of $2,050 by 30 percent. The result is $615, which is the amount Sid must report as an addition on the Oregon return if he claims the Oregon credit.

Example 3: Don provides long-term care insurance coverage for his five Oregon employees and claims the credit under ORS 315.610. He deducts the $5,000 premium expense as a business expense on his federal return. Don also claimed a self-employed health insurance deduction of $400. His total medical itemized deductions include long-term care premiums of $200 and other medical expenses of $2,000. His allowed medical itemized deduction after the 7.5 percent limitation is $700. Don computes his specified percentage of 40.6 percentage by dividing total long-term care premiums of $5,200 ($5,000 + 200) by total medical expenses of $12,800 ($5,000 + 200 +400 +2,000).

Don multiplies the total allowed medical deductions on the federal return of $5,700 ($5,000 + 700), by 40.6 percent to determine his Oregon addition of $2,314.

(2) No addition is required if the taxpayer claims the standard deduction on the federal tax return but claims medical expenses as an itemized deduction for Oregon.

Example 4: Jose and Luisa claim the standard deduction on the federal return but itemize deductions for Oregon. Included in the Oregon itemized deductions is $1,000 of long-term care insurance premiums. Jose and Luisa may claim a credit of $150 for the premiums paid during the tax year. They are not required to make an addition on the Oregon return.

[Publications: Publications referenced in this rule are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.680
Hist.: REV 5-2000, f. & cert. ef. 8-3-00

150-316.680(5)

Gain or Loss Upon the Sale of State and Municipal Bonds of Other States (Foreign States)

(1) Holders of state and municipal bonds of other states (foreign states) shall determine the gain or loss upon the sale or disposition of the bonds by following the federal rules for taxable securities under Internal Revenue Code sections 1271 to 1283 inclusive.

(2) Adjusted Issue Price: The adjusted issue price or basis of the bonds shall be the issue price increased by the total amount of original issue discount (OID) included in Oregon taxable income using the rules for federal taxable securities in section 1272 of the Internal Revenue Code and corresponding regulations. See OAR 150-316.680(2)(a) for example.

[Publications: The publication(s) referred to or incorporated by reference in this rule is available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.680
Hist.: RD 11-1988, f. 12-19-88, cert. ef. 12-31-88

150-316.681

U.S. Government Interest in Retirement Accounts

(1) Interest or dividends on U.S. obligations under ORS 316.680(1)(a) included in distributions from self-employed plans or individual retirement accounts as described under sections 401 to 408 of the Internal Revenue Code shall be subtracted from federal taxable income to determine Oregon taxable income.

(2) Annuities: The amount of the subtraction shall be determined by applying a "state exempt-interest ratio" to distributions received as annuity payments to the extent the payments are included in federal adjusted gross income for the taxable year.

The "state exempt-interest ratio" is the year-to-date balance of qualifying interest or dividends under ORS 316.680(1)(a) included in the account balance prior to the current year distribution divided by the account balance prior to the current year distribution.

The year-to-date balance of qualifying interest or dividends is equal to the cumulative total of those earnings less any prior year's subtraction. The formula is as follows: [Formula not included. See ED. NOTE.]

The ratio shall be applied on the later of the annuity starting date or the date on which the taxpayer established residency. The annuity starting date shall be the date determined under Treas. Reg. Section 1.72-4(b).

Example 1: Sylvester Taxpayer set up an individual retirement account (IRA) which invested solely in U.S. Government securities throughout the life of the IRA. Sylvester contributed $2,000 per year for a period of 35 years to the IRA. At retirement his account balance is $542,041, of which $472,041 consists of interest and $70,000 the original contributions. His life expectancy is 20 years and the annual payout will be $63,668 paid at the end of each year. The rate of earnings equals 10 percent and for simplicity, the investments continue to earn at the rate of 10 percent.

Since the IRA continued to invest solely in U.S. Government securities after Sylvester retired, the numerator of the ratio for the first year's distribution would include all prior year's earnings plus the earnings for that year. The earnings for the first year of retirement equals $54,204. Therefore, the numerator in the ratio equals 526,245 (472,041 + 54,204). The account balance at the end of the first year equals $532,577 (Note: this is after the current year's distribution). We add back the current year's distribution to obtain the balance of the account just prior to the current year's distribution (the denominator in the formula). Sylvester's tax-exempt interest for his first year of retirement is $56,193, computed as follows: [Formula not included. See ED. NOTE.]

In the third year the account earns $52,217, and the account balance at the end of the year is $510,716. Sylvester's tax-exempt interest that year is $57,491, computed as follows: [Formula not included. See ED. NOTE.]

This table illustrates Example 1: [Table not included. See ED. NOTE.].

Example 2: Assume the facts in Example 1, except the IRA which Sylvester set up ceased investing in U.S. Government securities the year in which Sylvester retired. Therefore, the balance of exempt interest earnings is equal to 472,041 for computing the first year's subtraction (the numerator of the ratio). It would not include the first year's earnings as in Example 1 since those earnings are not earnings on U.S. Government securities. For simplicity we will assume the investment is earning at the same rate (10 percent each year). Therefore, the account balance is the same as in Example 1.

Sylvester's tax-exempt interest for his first year of retirement is $50,405, computed as follows: [Formula not included. See ED. NOTE.]

During Sylvester's second year of retirement the account earns $53,258, and the account balance at the end of the year is $522,167. His tax-exempt interest that year is $45,823, computed as follows: [Formula not included. See ED. NOTE.]

During Sylvester's third year of retirement the account earns $52,217, and the account balance at the end of the year is $510,715. His tax-exempt interest that year is $41,657, computed as follows: [Formula not included. See ED. NOTE.]

(3) Lump-sum distributions: For lump-sum distributions from individual retirement accounts and self-employed retirement plans, the subtraction shall be equal to the total qualifying interest under ORS 316.680(1)(a) included in the account balance at the time of distribution.

This table illustrates Example 2: [Formula not included. See ED. NOTE.]

Example 3: Assume the same facts as in Example 2, except that Sylvester elected to receive the $542,041 balance of his account as a lump-sum distribution. The subtraction for the taxable year is $472,041, the amount of U.S. government interest in the account.

(4) Change of status from nonresident to resident: Nonresidents who become residents sometime after the annuity starting date shall use the same formula for computation of the ratio as if they were residents at the annuity starting date. For purposes of the formula shown in subsection (2)(a), "a" will equal the year-to-date balance of qualifying interest or dividends which is equal to the cumulative total of those earnings less any prior years deemed or actual subtraction.

Example 4: Assume the same facts in Example 2, except Sylvester became a resident in the second year of distribution. Sylvester's subtraction would equal $45,823 in that year. Note: This is the same amount of subtraction Sylvester received in the second year of distribution as computed in Example 2. Sylvester's subtraction would equal $41,657 in the third year of distribution (same as if he were a resident at the annuity starting date).

[ED NOTE: Formulas & Tables referenced in this rule are available from the agency.]

[Publications: Publications referenced in this rule are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.681
Hist.: RD 11-1988, f. 12-19-88, cert. ef. 12-31-88; RD 7-1991, f. 12-30-91, cert. ef. 12-31-91; RD 5-1997, f. 12-12-97, cert. ef. 12-31-97

150-316.683(1)

Pool of Assets that Qualify to Pay State Exempt-Interest Dividends

As used in ORS 316.683(1), a "pool of assets" means funds that are managed by financial institutions acting in a fiduciary capacity for the benefit of trust beneficiaries. Financial institutions shall include, but not be limited to banks, savings associations, or credit unions. The pool of assets need not be incorporated as a regulated investment company in order to pay state exempt-interest dividends to its beneficiaries.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.683
Hist.: RD 11-1988, f. 12-19-88, cert. ef. 12-31-88

150-316.685(1)

Federal Tax Deduction: Accrual Method of Accounting Required; Deductions Allowable to Cash Basis Taxpayers; Refunds to be Included

(1) Regardless of the method of accounting used by the taxpayer to report income to the federal government and to the State of Oregon, the federal income tax deduction for tax years beginning on or after January 1, 1969, shall be computed under the accrual method of accounting. Under ORS 316.685, an individual's federal income tax for the year must first be computed. The amount of federal income tax for that year will be the taxpayer's deduction on the Oregon income tax return for the same year. Time of actual payment will not be significant.

(2) For tax years beginning January, 1979, or later, any additional federal tax for a prior year shall be deducted when the tax is paid or when the adjustment is finally determined, whichever is later.

Example (1): Cash basis taxpayers' computation of federal income taxes on their 1979 federal tax return was $550. Their federal withholding for 1979 was $600. The amount of taxes deductible on their 1979 Oregon return is $550. In 1980 their federal tax liability as computed on their federal return was $780. Their withholding for the year 1980 was $650. Their federal tax deduction for 1980 is $780.

Example (2): Assume the same situation as in Example (1) except that, in 1979, federal tax deficiencies amounting to $170 for 1976 and $180 for 1978 were paid. The total tax deduction for 1979 is: [Table not included. See ED. NOTE.] Total 1979 deduction is $900

(3) If a person receives a refund of federal income taxes previously deducted on an Oregon return, the amount received shall be added to income in the year in which the refund was received. However, a taxpayer should add only those refunds for which a prior tax benefit has been received.

Example: John and Mary compute their joint 1984 federal income tax to be $1,200. They had $1,700 withheld from wages and received a federal refund of $500. The Internal Revenue Service audited the return, resulting in a refund of $150 in 1986. They are required to add $150 to their 1986 Oregon taxable income.

(4) Federal Tax Deduction:

(a) For tax years beginning on or after January 1, 1987, the federal tax deduction on each return is limited to the lesser of:

(A) The amount of federal tax accrued attributable to the current year; or

(B) $3,000 ($1,500 if married filing separately).

(b) Refunds of federal tax for a prior year for which a previous tax benefit was received are included as income in the year received. The amount of the addition on the Oregon return is the amount of tax benefit received. Tax benefit is the amount of federal tax deducted in a prior year for which you received a refund in a later year.

Example 1: Dan and Karen have a 1987 federal tax liability of $4,000. They are limited to a $3,000 federal tax subtraction on their 1987 Oregon return. In 1989, their 1987 return is audited by IRS and they receive a $1,200 refund. Tax benefit received is calculated as follows: [Table not included. See ED. NOTE.]

(c) Additional tax for a prior year. The deduction for additional federal income taxes paid or determined for tax years beginning on or after January 1, 1987, is the lesser of:

(A) The amount of federal tax accrued attributable to the current year plus any deficiencies paid or determined for prior years during the current year; or

(B) $3,000 ($1,500 if married filing separately).

Example 2: Randy's 1989 federal tax liability is $2,100. During 1989, his 1987 federal return is audited by the IRS. After the audit, he owes $1,500 additional federal tax. He pays that amount in 1989. On his 1989 Oregon return, Randy may subtract a total of $3,000 federal tax. Of this, $2,100 is his 1989 federal tax liability. He may subtract $900 of the $1,500 of federal tax paid for 1987 on his 1989 Oregon return. [Table not included. See ED. NOTE.]

(d) If additional federal income taxes are paid or determined in tax years beginning on or after January 1, 1987, for tax years beginning on or before December 31, 1986, the deduction for the additional tax is the lesser of:

(A) The difference between the federal tax deducted on the original return and $7,000 ($3,500 if married filing separately); or

(B) The actual amount of additional federal income taxes paid or determined.

Example 3: Ralph and Louise have a 1989 federal tax liability of $4,500. Also in 1989, they amend their 1986 federal return and pay additional federal tax of $2,700. Their federal tax deducted on their original 1986 return was $5,200. Their federal tax subtraction for the 1989 federal tax is limited to $3,000 but because the additional federal tax paid is for a tax year beginning before December 31, 1986, the additional tax paid is not subject to the $3,000 limit. Their subtraction for the additional 1986 federal tax paid is the lesser of: [Table not included. See ED. NOTE.]

(5) If husband and wife change from separate returns to joint returns after the original return is filed, the federal tax subtraction to be claimed on the amended return shall be the amount of combined federal tax liability shown on the original returns subject to the dollar limitation in effect for the taxable year. Any additional tax due or refund from the amended federal return shall be reported on the Oregon return in the year paid or received.

[ED NOTE: Tables referenced in this rule are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.685
Hist.: 1-69; 12-70; 11-73; 9-74; 12-19-75; 11-19-76; 12-31-77; 12-31-78, Renumbered from 150-316.072; 12-31-79, Renumbered from 150-316.072(1); 12-31-83; 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 7-1989, f. 12-18-89, cert. ef. 12-31-89

150-316.685(2)

Adjustment of Federal Tax Liability

The federal tax liability accrued shall be the correct federal tax based on all information on the return. If, during processing, the Department recomputes and adjusts the federal tax liability, the adjusted tax shall be the amount accrued for that year.

Example 1: Because of a computation error on their joint federal return, A and B overstated their federal tax liability on both their federal and Oregon returns. When the Department processed the return, the federal tax liability was recomputed and reduced from the $500 reported on the return to $300. The $300 is the 1979 tax accrued and deducted in 1979. If the taxpayers receive a federal refund for the same $200, that amount should not be added to income in the year received.

Example 2: On their 1979 return, A and B claimed a federal tax subtraction of $1,000, which was the amount of federal tax withheld from their wages. Their federal tax liability was actually $2,500. When the Department processes the return, the federal tax deduction shall be increased to $2,500.

Example 3: A and B claimed a federal tax deduction of $5,000 for 1979. When their Oregon return was processed, the Department computed their correct federal tax liability to be $6,000. Their 1979 federal tax accrued in 1979 is $6,000.

In 1980, they are required to pay the additional federal tax of $1,000. Since the taxpayers have already received a benefit for the additional 1979 tax, they cannot deduct it in 1980.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.685
Hist.: 12-18-79(Temp); 5-20-80, Renumbered from 150-316.072(2); 12-31-83

150-316.687

Election to Include Child's Unearned Income -- Addition Required

An addition to federal taxable income is required for taxpayers who elect to include a minor child's unearned income on their federal return. For federal purposes, unearned income in excess of a dependent's standard deduction, but less than twice that amount, is taxed at a special rate on a separate schedule and is not included in taxable income of the parent. For Oregon, this amount must be added to federal taxable income. The excess unearned income already included in the parent's federal taxable income requires no addition to the parent's return.

Example (1): Bob and Phyllis file a joint federal return for tax year 1997. Their son Ray has $1,700 interest income from a trust account. Bob and Phyllis elect to include Ray's unearned income in excess of the $650 exclusion on their 1997 federal return. For federal purposes, $650 is taxed at a special rate and $400 is included in taxable income. For Oregon, Bob and Phyllis must add $650 to federal taxable income. This is the $650 of Ray's unearned income that was taxed at the special federal rate. Since the remaining $400 is included in federal taxable income, no addition is required for this amount.

Example (2): Assume the same facts above, except that Ray's unearned income is only $750. For federal purposes, Bob and Phyllis exclude the first $650. The remaining $100 is taxed at the special federal rate. For Oregon, Bob and Phyllis must add $100 to federal taxable income.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.687
Hist.: RD 7-1989, f. 12-18-89, cert. ef. 12-31-89; RD 5-1997, f. 12-12-97, cert. ef. 12-31-97

150-316.693

Special Oregon Medical Subtraction

(1) Eligible Expenses. Expenses eligible for this subtraction are those authorized under IRC ¦213. Medical and dental expenses not allowed for this subtraction include expenses:

(a) Otherwise deducted in the calculation of Oregon taxable income for any tax period; or

(b) Paid on behalf of any other individual who is not an eligible taxpayer or eligible spouse of the taxpayer under ORS 316.693.

Example 1: Sam (age 66) and Rebecca (age 60) file a joint return and claim Rebecca’s 80-year-old mother as a dependent. During the year, Sam and Rebecca paid $4,000 in medical and dental expenses: $1,000 for Sam, $1,000 for Rebecca and $2,000 for Rebecca’s mother. Sam’s medical expenses are the only medical expenses that qualify for the special Oregon medical subtraction because Rebecca does not meet the age requirement and Rebecca’s mother is a dependent.

Example 2: Shannon and Dustin, both age 66, file a joint return with Oregon itemized deductions. During the year, Shannon and Dustin paid $18,900 in unreimbursed medical and dental expenses: $6,900 for self-employed health insurance premiums (claimed on the front of Form 1040), $10,000 for health insurance for two employees (claimed on Schedule C), and $2,000 of unreimbursed medical and dental expenses (claimed on Schedule A, line 1). Only the medical and dental expenses on Schedule A, line 1 ($2,000) can be used in the calculation of eligible expenses for the special Oregon medical subtraction because deduction for the self-employed health insurance was already used in the calculation of Oregon taxable income and employee insurance is not an eligible expense.

(2) Calculation of Eligible Expenses.

(a) General rule. The general rule is that if the expenses can be attributed to a particular individual, only that individual can claim those expenses.

Example 3: Mary (age 59) and Steve (age 66). Mary and Steve each have their own insurance policy and do not cover each other on the individual policies. Mary’s premium is $350 per month and Steve’s premium is $400 per month. The only expenses that are eligible to be considered for this subtraction are Steve’s premiums, ($4,800). Depending on his income and the portion of Steve’s premiums already included in itemized deductions on Schedule A, Steve may claim up to $1,800 as a special Oregon medical subtraction.

(b) Expenses that cannot be attributed to a particular individual. A taxpayer that cannot determine to whom the expense is attributable must prorate the expense using a method that is reasonable based on the taxpayer’s particular facts and circumstances. Common examples of expenses that are not attributable to a particular individual include, but are not limited to, medical, dental or long-term care insurance premiums. Depending on the facts and circumstances, reasonable methods of proration for such expenses may include:

(A) Dividing the eligible expenses that are for more than one person by the number of individuals covered by the policy.

(B) In the case of spouses filing separate returns, splitting any eligible expenses paid out of a joint checking account in which the taxpayer and the taxpayer’s spouse have the same interest equally, unless you can show otherwise.

Example 4: Branden (age 66) and Natalie (age 61) file a joint return with Oregon itemized deductions and three dependent children. During the year, Branden and Natalie paid $19,380 in medical expenses: $16,600 in health insurance premiums for a plan that covered Branden, Natalie, and all three children; $500 in dental expenses for Branden; $1,500 in medical expenses for Natalie; and $780 in medical and dental expenses for the children. Natalie and the children‘s medical and dental expenses do not qualify for this subtraction because Natalie does not meet the age requirement and the children are dependents. For Branden and Natalie, a reasonable method to calculate the joint expenses attributable to Branden is to divide the total health insurance premiums paid ($16,600) by the number of insured (5) to arrive at $3,320 for Branden’s portion of the joint expenses. Add the additional medical expenses attributable to Branden, $500, to arrive at a total of $3,820 of eligible expenses.

(3) Taxpayer who itemizes deductions. If a taxpayer has already claimed a portion of the eligible expenses as an itemized deduction on federal schedule A, line 4, the taxpayer must make an adjustment for those eligible expenses already deducted. Only medical and dental expenses for an age-qualifying taxpayer that are not already deducted in the calculation of Oregon taxable income are eligible for the subtraction. The taxpayer must prorate medical and dental expenses included in itemized deductions to determine what portion is eligible for this subtraction.

Example 5: Jeff and Maggie, both age 64, file a joint return with Oregon itemized deductions and federal Adjusted Gross Income (AGI) of $55,000. Jeff and Maggie also claim Maggie’s 84-year-old mother as a dependent. During the year, Jeff and Maggie paid $12,300 in unreimbursed medical and dental expenses: $3,400 for self-employed health insurance premiums (claimed on the front of the 1040), $1,200 for Jeff, $4,200 for Maggie, $1,500 for Maggie’s mother, and $2,000 in long-term care insurance premiums for Jeff and Maggie.

Jeff and Maggie deduct the entire self-employed health insurance premiums on the federal return; therefore, they do not include those expenses in the calculation of the subtraction. They can only include the $8,900 of medical expenses claimed on Schedule A, line 1, to calculate the subtraction ($1,200 for Jeff, $4,200 for Maggie, $1,500 for Maggie’s mother, and $2,000 in long-term care insurance premiums for Jeff and Maggie).

For Jeff and Maggie, a reasonable method to calculate their joint expenses is to divide by two the total long-term care insurance premiums paid ($2,000) to arrive at $1,000 for each individual. Add the additional medical expenses attributable to Jeff and Maggie to arrive at total eligible expenses before calculating the subtraction. Jeff’s expenses total $2,200 ($1,200 + $1,000) and Maggie’s expenses total $5,200 ($4,200 + $1,000).

Jeff’s expenses claimed on the Schedule A are 24.7% of the total expenses ($2,200 divided by $8,900). Maggie’s expenses claimed on the Schedule A are 58.4% of the total expenses ($5,200 divided by $8,900). Jeff and Maggie could not deduct $5,500 of their expenses on Schedule A because of the AGI limitation. Jeff’s portion of the expenses that were not deducted are $1,359 ($5,500 x 24.7%; rounded). Maggie’s portion of the expenses that were not deducted is $3,212 ($5,500 x 58.4%). Based on their federal AGI, each of their expenses may not exceed $1,400 for this subtraction. Jeff’s expenses are less than the limit, so his subtraction is limited to $1,359. Maggie’s expenses are more than the limit, so her subtraction is $1,400. They will claim a $2,759 special Oregon medical subtraction on their return.

Stat. Auth.: ORS 305.100 & 316.693
Stats. Implemented: ORS 316.693
Hist.: REV 10-2013, f. 12-26-13, cert. ef. 1-1-14

150-316.695(1)

Modification of Federal Taxable Income: Itemized vs. Standard Deduction

(1) The election of an Oregon taxpayer to itemize or claim a standard deduction is independent of the federal election. Beginning on or after January 1, 1978, a taxpayer may claim the greater of the Oregon standard deduction or net itemized deductions.

(2) The standard deduction is zero for Oregon taxpayers in the following cases:

(a) Married persons filing separate returns and their spouse itemizes;

(b) Nonresident aliens;

(c) Individuals making a return for a period of less than 12 months on account of a change in annual accounting period;

(d) Estates and trusts;

(e) A common trust fund;

(f) A partnership.

(3) Taxpayer claimed as a dependent.

(a) For a taxpayer who can be claimed as a dependent on another person's return, the standard deduction claimed by the dependent is limited to the lesser of:

(A) The amount allowed to a dependent under the Internal Revenue Code Section 63(c)(5) for the tax year; or

(B) The standard deduction amount as provided in ORS 316.695.

(b) In addition to the standard deduction, a taxpayer claimed as a dependent on another person's return can also claim the additional deduction amounts under ORS 316.695(7) if they are blind or age 65 or older.

Example 1: Brian is 17 and works part-time. He earned $2,000 wages and $1,300 interest income in 1997. Brian is claimed as a dependent on his parents' 1997 return. His federal standard deduction is the greater of $650 or his earned income. Brian's $2,000 federal standard deduction, based on earned income, is limited by the Oregon standard deduction for a single person of $1,800. Therefore, Brian's standard deduction for 1997 would be $1,800.

Example 2: Assume the same facts as in Example 1, except that Brian is blind. Brian's total deduction is equal to $3,000 ($1,800 standard deduction + $1,200 additional deduction for being blind).

[Publications: The publication(s) referred to or incorporated by reference in this rule is available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.695
Hist.: 12-31-80, Renumbered from 150-316.068(1); 12-31-83; 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 5-1997, f. 12-12-97, cert. ef. 12-31-97

150-316.695(1)(c)-(A)

Modification of Federal Taxable Income: Oregon Income Tax Claimed as an Itemized Deduction

Beginning in tax year 1991, if the taxpayer itemizes deductions for Oregon, the itemized deductions will be subject to the same phase-out requirement as required for federal income tax purposes under IRC Section 68. Oregon law allows federal itemized deductions, after the phase-out, reduced by any Oregon income tax that has been itemized for federal income tax purposes. To determine the amount of phased-out Oregon income tax that must be removed from total itemized deductions, taxpayers will use the following formula: [Formula not included. See ED. NOTE.]

For Oregon, the taxpayers need to reduce the $93,000 of itemized deductions by $30,426 of Oregon income tax. Taxpayers have net Oregon itemized deductions of $62,574 ($93,000 – 30,426).

[ED NOTE: Formulas referenced in this rule are available from the agency.]

[Publications: Publications referenced in this rule are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.695
Hist.: RD 7-1991, f. 12-30-91, cert. ef. 12-31-91

150-316.695(2)

Modification of Federal Taxable Income: Previously Taxed Contributions to Pension or Annuity

If part of the contributions toward the purchase of a pension or annuity was taxed by the state of Oregon and not taxed by the federal government, that part taxed by Oregon shall be subtracted from federal taxable income on the Oregon return.

The subtraction allowed by this section shall be taken each year to the extent any amount is included in federal taxable income until the total amount taxed by Oregon and not taxed by the federal government in years beginning prior to January 1, 1969, has been recovered. Thereafter, the distribution will be taxed for Oregon income tax purposes in the same manner and amount as taxed for federal purposes.

Example (1). A retired employee began receiving benefits from a pension plan on January 1, 1975. In tax years beginning prior to January 1, 1969, Oregon taxed $3,000 of the contributions to the pension plan. None of the contributions were taxed for federal purposes. The taxpayer is receiving $2,000 each year, all of which is taxable for federal purposes. In 1975 the taxpayer will subtract $2,000 and in 1976 $1,000 from federal taxable income in arriving at Oregon taxable income. In subsequent years, Oregon will tax the same amount taxed for federal purposes.

This section applies to tax years ending on or after September 13, 1975.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.695
Hist.: 12-19-75, Renumbered from 150-316.068(3); 12-31-83; RD 11-1988, f. 12-19-88, cert. ef. 12-31-88; RD 7-1991, f. 12-30-91, cert. ef. 12-31-91, Renumbered from 150-316.695(3)

150-316.707(1)-(A)

Basis of Depreciable Assets Moved into Oregon

(1) For purposes of this rule taxpayer means an individual, S corporation, or partnership.

(2) Taxpayers not subject to the apportionment provision of ORS 314.280 or 314.605 to 314.675.

(a) For Assets First Brought into Oregon's Taxing Jurisdiction in Tax Years Beginning After 1982 and Prior to Tax Years Beginning January 1, 1985.

(A) If a taxpayer first brings a depreciable asset into Oregon's taxing jurisdiction in tax years beginning after December 31, 1982 and prior to tax years beginning January 1, 1985, the asset shall be treated as if it is being converted from personal use to business use. The asset's Oregon basis shall be the lower of the federal unadjusted basis or fair market value. However, in no instance shall the asset's Oregon basis be greater than the lower of:

(i) The federal unadjusted basis less Oregon depreciation previously allowed for Oregon tax purposes; or

(ii) The fair market value less Oregon depreciation previously allowed for Oregon tax purposes.

(B) The federal unadjusted basis of an asset is its original basis prior to any adjustments (including, but not limited to, reductions for investment tax credits, depreciation, depletion, amortization, or amounts properly expensed under IRC Section 179). The asset's fair market value and its expected useful life shall be determined as of the time the asset was brought into Oregon's taxing jurisdiction. The taxpayer shall depreciate the asset using a method consistent with federal tax law as of December 31, 1980.

Example 1: A nonresident taxpayer has a business in California. The taxpayer has a light truck that is used only for business purposes. The truck was purchased on June 1, 1981 at a cost of $10,000. The truck was depreciated in California over a life of three years. The taxpayer moved to Oregon on September 1, 1983. The fair market value of the truck was $6,000 on this date. The expected useful life of the truck on September 1, 1983 was four years. The taxpayer elected to depreciate the truck using the straight-line method for Oregon purposes over four years. The amount of depreciation the taxpayer can claim in 1983 for Oregon purposes is $500 (4Ž12 x 1Ž4 x 6,000).

Example 2: Assume the same facts as in Example 1 above. The taxpayer sold the asset for $11,000 on January 1, 1985. The taxpayer shall recognize a total Oregon gain of $7,000. The type and amount of gain the taxpayer shall recognize for Oregon purposes is computed as follows: [Formula not included. See ED. NOTE.]

(b) For Assets First Brought into Oregon's Taxing Jurisdiction in Tax Years Beginning After 1984. Assets first brought into Oregon's taxing jurisdiction in tax years beginning after December 31, 1984, shall be allowed to use the Accelerated Cost Recovery System (ACRS) method of depreciation as defined and allowed in IRC Section 168 for Oregon purposes, if such assets were first placed in service in tax years beginning after December 31, 1984 pursuant to the conditions set forth in OAR 150-316.707(1)-(B). The basis of all assets first brought into Oregon's taxing jurisdiction beginning after December 31, 1984, shall be computed as if the asset is being converted from personal use to business use. The asset's Oregon basis shall be the lower of the federal unadjusted basis or fair market value. However, in no instance shall the asset's Oregon basis be greater than the lower of:

(A) The federal unadjusted basis less Oregon depreciation previously allowed for Oregon tax purposes; or

(B) The fair market value less Oregon depreciation previously allowed for Oregon tax purposes. The allowable depreciation method for Oregon purposes shall be determined as of the time the asset was first placed in service as defined in OAR 150-316.707(1)-(B).

Example: Mike is a California resident. He has owned a beanery business in Yreka since 1984. Mike purchased an office building for $100,000 and placed it in service on April 1, 1984. For federal purposes, the building qualifies as 18-year real property and is being depreciated using the applicable percentages allowed under ACRS. On January 1, 1988, Mike purchased his only other asset, a light truck, for $10,000. For federal purposes, the truck qualifies as a 5-year property and is being depreciated using the applicable percentages allowed under MACRS. On January 1, 1990, Mike moved to Ashland, Oregon and continued his California business in Yreka. Since Mike has moved into Oregon's taxing jurisdiction, Mike must determine his Oregon adjusted basis in the building and the truck in order to depreciate the assets for Oregon. The Oregon adjusted basis is computed as follows: [Formula not included. See ED. NOTE.]

The Oregon basis for depreciation of the building is the lesser of the net basis of $100,000 or fair market value of $115,000. The basis for Oregon depreciation is $100,000. Since Oregon did not adopt ACRS for assets first placed in service in tax years beginning before January 1, 1985, Mike must use an allowable depreciation method available for such assets using the federal laws in effect as of December 31, 1980. Mike elects for Oregon purposes to depreciate the building using the straight-line method over a useful life of 14 years.

The Oregon basis for depreciation of the truck is the lesser of the net basis of $10,000 or fair market value of $6,000. The basis for Oregon depreciation is $6,000. Since Oregon adopted ACRS for assets first placed in service in tax years beginning after December 31, 1984, and subsequently MACRS for assets placed in service in tax years beginning after December 31, 1986, Mike will use MACRS for his Oregon and federal depreciation deduction.

(3) For taxpayers subject to the apportionment provisions of ORS 314.280 or 314.605 to 314.675.

The basis for depreciation on a previously acquired asset shall be computed as if the taxpayer had always been subject to Oregon tax. The original unadjusted basis shall be reduced by the depreciation allowable in previous years, using a method acceptable for Oregon tax purposes in the year the asset is placed in service. The remaining basis of the asset shall be depreciated over the remainder of its original useful life, using the same allowable method.

Example 1: Alpha, Ltd. is a partnership that started operation in Washington. On January 1, 1984, the partnership purchased a building in Seattle for $100,000. For federal purposes, the partnership is depreciating the building under ACRS as 15-year property. The partnership expanded and began doing business in Oregon on July 1, 1986. In 1984 Oregon did not allow the ACRS depreciation method. For Oregon purposes, the partnership elected to depreciate the building under the straight-line method over a 20-year life. Since the partnership is subject to the apportionment rules, the basis of the building for Oregon will be as if the building was depreciated for Oregon tax purposes using the straight-line method from the date of purchase. [Formula not included. See ED. NOTE.]

For purposes of determining Oregon taxable income, the partnership will depreciate the building using an Oregon basis of $87,500 and the straight-line method over the remaining life. For purposes of determining federal taxable income, the partnership will continue to depreciate the building under ACRS.

(4) Bringing assets into Oregon's taxing jurisdiction. A taxpayer may bring assets into Oregon's taxing jurisdiction in several different manners. First, a nonresident may become an Oregon resident and physically bring business assets into Oregon. Second, a nonresident taxpayer may become an Oregon resident and leave the assets in the other state. Third, a nonresident may open a business operation in Oregon and transfer business assets from a different state to the Oregon business.

(5) Applicable dates. Section (2) of this rule applies to tax years beginning after December 31, 1982.

(6) Five year provision. If for any period of five consecutive calendar years beginning on or after January 1, 1985, the Oregon and federal depreciation methods are identical, the Oregon basis for depreciation may be the same as the federal basis at the option of the taxpayer. This election applies only to assets first brought into Oregon's taxing jurisdiction upon the expiration of the five-year period.

[ED NOTE: Formulas referenced in this rule are available from the agency.]
[Publications: Publications referenced in this rule are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.707
Hist.: 12-20-83, 12-31-83(Temp); RD 2-1984, f. & cert. ef. 2-21-84, Renumbered from 150-316.707; RD 10-1986, f. & cert. ef. 12-31-86; RD 7-1991, f. 12-30-91, cert. ef. 12-31-91; RD 5-1994, f. 12-15-94, cert. ef. 12-31-94

150-316.707(1)-(B)(1)

Property Subject to Accelerated Cost Recovery System

(1)(a) In general, the Accelerated Cost Recovery System (ACRS) is available to recovery property placed in service in tax years beginning on or after January 1, 1985. "Recovery Property" means tangible property of a character subject to the allowance for depreciation. This property must be used in a trade or business or be held for the production of income.

(b) Property is considered placed in service when it is in a condition or state of readiness and availability for a specifically assigned function whether in a trade or business, in the production of income, in a tax-exempt activity, or in a personal activity. Where property was placed in service for personal use in a tax year which begins before 1985 and is thereafter converted to business or income producing use, the property is not recovery property for Oregon purposes.

Example: Beth Muhlenberg purchased her personal residence in 1978. She is a calendar year taxpayer. On November 15, 1985 she converted her residence to rental property. The residence is considered to be placed in service when it is in a condition of readiness for a specifically assigned function whether in a trade or business, for the production of income, in a personal activity, etc. This occurred in 1978. Thus, the rental property is not considered recovery property for Oregon purposes.

(2) Property Excluded from ACRS Treatment.

(a) Recovery property does not include property which is placed in service by the taxpayer prior to the taxpayer's tax year which begins in 1985.

(b) Recovery property does not include property which is the subject of transactions referred to in Internal Revenue Code (IRC) Section 168(e)(4). For purposes of this rule, the following dates shall be substituted for dates used in IRC Sections 168(e)(4):

(A) For "after December 31, 1980" substitute "in taxable years beginning on or after January 1, 1985;"

(B) For "1980" substitute "the taxpayer's tax year which begins in 1984;" and

(C) For "January 1, 1981" substitute "the taxpayer's tax year which begins in 1985."

(c) Recovery property does not include property which is described in IRC Sections 168(e)(2), 168(e)(3), and 168(e)(5).

Example 1: Dr. Randall Farwell purchased and placed in service $20,000 of dental equipment on January 18, 1984. Dr. Farwell is a calendar year taxpayer. The equipment is IRC Section 1245 class property. On June 1, 1985, Dr. Farwell decides to sell the equipment to Laura Ryan by contract under which Dr. Farwell will lease back and use the same dental equipment. Laura Ryan, is precluded from using the ACRS method because Dr. Farwell used the same equipment in a tax year prior to 1985.

Example 2: Dee Brinlee purchased a house which she used as rental property in 1979. Dee is a calendar year taxpayer. Since 1984, she has been trying to sell her rental house. On July 2, 1985, she sold her rental house to her daughter Jennifer. Jennifer uses the house as rental property. The house is not recovery property to Jennifer since Jennifer bought the property from a "related person" who used it in tax years prior to January 1, 1985.

Example 3: In 1980 through 1984, Gary Humphrey was in business as a sole proprietorship. Gary is a calendar year taxpayer and incorporates his business during 1985 with Gary as the sole shareholder. The depreciable personal and real property, having an adjusted basis of $50,000, was transferred to the corporation in a nontaxable transfer under IRC Section 351. Since the adjusted basis of the transferred property is carried over to the corporation, the corporation may not use ACRS with respect to the $50,000 transferred basis.

[Publications: The publication(s) referred to or incorporated by reference in this rule is available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.707
Hist.: RD 12-1985, f. 12-16-85, cert. ef. 12-31-85

150-316.707(1)-(C)

Adjustment to Income for Basis Differences

On the return for the first taxable year beginning after December 31, 1995, federal taxable income shall be increased or decreased by an amount equal to the difference between the property's adjusted federal basis as determined for regular tax purposes and its adjusted Oregon basis due to the use of different federal and Oregon depreciation methods, periods, or conventions, as defined by IRC 168. If the adjusted Oregon basis is less than the adjusted federal basis, the modification shall be an addition. If the adjusted Oregon basis is greater than the adjusted federal basis, the modification shall be a subtraction. For tax years beginning after December 31, 1996, no modifications to depreciation expense shall be made as a result of using different depreciation methods, periods, or conventions prior to January 1, 1996.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.707
Hist.: RD 3-1995, f. 12-29-95, cert. ef. 12-31-95

150-316.737

Amount Specially Taxed Under Federal Law to be Included in Computation of State Taxable Income: Accumulation Distributions

(1) Oregon law contains no alternate method of calculating tax in the manner provided by the Internal Revenue Code for the federal tax treatment of accumulation distributions. Therefore, income from an accumulation distribution must be added to Oregon taxable income.

(2) Distribution of a trust's income accumulation must be included in the income of the Oregon resident beneficiary for the taxable year that such income is distributed by the trust. The distributions are included in Oregon income in the same manner and to the same extent that the trust's income accumulations are includable in the taxable income of the beneficiary under federal law. The change in the Oregon fiduciary adjustment will also be distributed to the beneficiary.

Example 1: In 1987, the ABC trust had $27,596 of gross income. Of this amount, $15,496 was included in distributable net income (DNI). The other $12,100 was capital gain income, which was not included in DNI. The trust made a distribution of $9,460 to the beneficiary, leaving $6,036 in undistributed net income (UNI). After the $9,460 distribution deduction and the $100 exemption, the trust's federal taxable income was $18,036 ($12,000 capital gain plus $6,036 UNI).

On the Oregon return, the total fiduciary adjustment was ($10,862), of which the beneficiary's share was ($6,626), leaving ($4,236) as the fiduciary's share. The fiduciary's Oregon taxable income was $13,800 ($18,036 minus $4,236), and the Oregon tax was $1,102.

In 1993, the trust distributed more DNI to the beneficiary than the current year's DNI amount, resulting in a distribution of the 1987 accumulated income. The addition to Oregon income is the taxable accumulation distribution as defined in the Internal Revenue Code, Sections 665–668. The beneficiary is also allowed an additional fiduciary adjustment amount, based on the additional 1987 DNI distributed in 1993. This additional amount is calculated as follows: [Formula not included. See ED. NOTE.]

(3) See OAR 150-316.287 for the limitations imposed on the portion of the fiduciary subtraction allowed to the beneficiaries.

(4) The change in fiduciary adjustment will be distributed to the beneficiaries in the same allocable portions as the income was distributed, according to the provisions in the trust instrument.

Example 2: If there's only one beneficiary, they will receive the entire $2,064 subtraction calculated in the previous example. If there are two beneficiaries who each get one-half of the income, they will each get one-half of the additional fiduciary adjustment.

(5) Income accumulation distributions of a trust must be included in the income of a nonresident beneficiary for the taxable year that distribution is actually made by the trust. The distributions are included in the adjusted gross income of a nonresident in accordance with the provisions of ORS 316.127. The nonresident will also be allowed the change in fiduciary adjustment to the extent this change is applicable to Oregon source income.

(6) A copy of the Schedule J of federal Form 1041, "Allocation of Accumulation Distribution," shall be attached to the Oregon fiduciary return for the taxable year of distribution, and a copy of federal Form 4970, "Tax on Accumulation Distribution of Trust," shall be attached to the Oregon return of the beneficiary.

(7) For information about calculating the accumulation distribution credit for Oregon taxes paid by a trust during income accumulation years, see OAR 150-316.298.

[ED. NOTE: Formulas referenced in this rule are available from the agency.]

[Publications: The publication(s) referred to or incorporated by reference in this rule is available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.737
Hist.: RD 9-1992, f. 12-29-92, cert. ef. 12-31-92; RD 5-1994, f. 12-15-94, cert. ef. 12-31-94

150-316.752

Definition for Severely Disabled Exemption

"Physical or mental condition" means an impairment of the body which is of such gravity as to prevent a person from engaging in normal activity without the aid of special equipment or assistance.

Examples of severe disabilities include cerebral palsy, multiple sclerosis, and brain damage. These disabilities may or may not be permanent. Disabilities due to surgery, hospitalization, disease, or injury or acute infectious diseases do not qualify where a person can be expected to resume a normal life within a generally accepted recovery period.

If the disabled person was employed in a substantially gainful occupation, the fact that a physical or mental condition will not permit the resumption in the same occupation will not, in and of itself, qualify the taxpayer for the exemption.

Example: A baseball player was injured in an accident and was unable to resume that occupation. Subsequently, the player was employed full time as a sales representative of a sports company. The player received disability compensation from the former employer. The taxpayer is not eligible for the exemption.

"Orthopedic or medical equipment" means special equipment approved and recommended by a physician. The equipment should alleviate some or all of the difficulties which result from the physical or mental condition and contribute to the person's mobility and independence. Examples of such equipment includes, but are not limited to, wheelchairs, special braces, prosthesis or special crutches. Special equipment does not include: glasses, ordinary crutches, hearing aids and protective gloves.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.752
Hist.: 12-6-82, 12-31-82, Renumbered from 150-316.135; 12-31-83; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89; RD 5-1997, f. 12-12-97, cert. ef. 12-31-97

150-316.758

Exemption for Blind and Severely Disabled

(1) Oregon allows a personal exemption credit (in the amount determined under ORS 316.085) multiplied by the number of personal exemptions claimed under IRC Section 151. If a taxpayer or spouse qualifies for the additional standard deduction for blindness as defined under ORS 316.695(8)(d), the taxpayer or spouse also qualifies for the credit for severely disabled as defined under ORS 316.752(1)(c).

(2) The additional personal exemption will be allowed even if the taxpayer can be claimed on another taxpayer's return and is unable to claim their own personal exemption.

Example: Sam is 23 years old and blind. He qualifies as a dependent on his parents' return. Because Sam is over the age of 17, his parents cannot claim the additional exemption for their dependent disabled child allowed under ORS 316.099. Sam invests in a partnership and is required to file a tax return for federal and state purposes. Since his parents are eligible to claim him on their return, he cannot claim his own personal exemption. Sam is allowed to claim the additional exemption for being severely disabled allowed under ORS 316.758 and the additional standard deduction for being blind.

[Publications: The publication(s) referred to or incorporated by reference in this rule is available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.758
Hist.: RD 10-1986, f. & cert. ef. 12-31-86; 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 6-1996, f. 12-23-96, cert. ef. 12-31-96

150-316.771

Substantiation for Permanently Severely Disabled

(1) Upon audit, taxpayers who are permanently severely disabled shall have available a letter from a physician, which substantiates their disability. The letter must:

(a) State the nature and extent of the physical disability in layman's terms; and

(b) Confirm that the disability is of a permanent nature according to the requirements for permanent severe disability stated below.

(2) "Permanently severely disabled" taxpayer means a taxpayer who:

(a) Meets and continues to meet the qualifications for severely disabled under ORS 316.752; and

(b) Has a disability that is reasonably certain to continue throughout the life of the taxpayer; and

(c) Has a disability of such a character that there is no likelihood of improvement.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.758
Hist.: 12-6-82, 12-31-82, Renumbered from 150-316.138; 12-31-83; RD 5-1994, f. 12-15-94, cert. ef. 12-31-94

150-316.777

Exempt Income of Native Americans

(1) ORS 316.777 exempts from Oregon taxation certain income earned by an enrolled member of a federally recognized Indian tribe. To qualify under these provisions, at the time the income is earned the tribal member must reside in "Indian country" in Oregon, and the income must be derived from sources within Indian country in Oregon. A tribal member who resides outside of Indian country can not exclude income from Oregon tax under the provisions of ORS 316.777. The person is subject to the statutes and rules governing Oregon residents and nonresidents and is taxed accordingly.

(2) Definitions: For purposes of this rule:

(a) "Current reservation boundaries" means the boundaries in existence at the time of the transaction.

(b) "Indian country" means any federally recognized Indian reservation in Oregon or other land in Oregon that has been set aside for the residence of tribal Indians under federal protection, and includes:

(A) Any land within the current reservation boundaries of a federally recognized reservation regardless of ownership.

(B) Tribal- or member-owned land outside current reservation boundaries if held in trust for the benefit of the tribe or its members.

(C) Land that the federal government allotted to a tribal member that since the time of the allotment has been continuously either:

(i) Held in trust by the federal government for the benefit of an individual tribal member(s), i.e. a trust allotment; or

(ii) Owned by a tribal member(s) with continuing federal restrictions against sale of the land, i.e., a restricted allotment.

(3) Income derived from sources within Indian country includes:

(a) Wages earned for work performed in Indian country;

(b) Income from a business or real estate located in Indian country;

(c) Distributions, including earnings, from retirement plans, if the contributions to the plan were derived from or connected with services performed in Indian country;

(d) Unemployment compensation, if the benefits are received as a result of work performed in Indian country;

(e) Interest, dividends, capital gain from the sale of stock, and other income from intangibles regardless of the location of the bank accounts or other intangible assets.

(4) To be exempted from Oregon personal income tax withholding, a tribal member whose wages are exempt from Oregon tax must furnish the member's employer with an extract from the tribal rolls as proof of enrolled status. Any employer of a qualified exempt tribal member who has documentary proof under this rule must keep this proof as part of the employer's payroll records.

(5) The following examples illustrate the provisions of this rule:

Example 1: Margaret, an enrolled member of the Confederated Tribes of Warm Springs, lives and works on the reservation of the Confederated Tribes of the Umatilla Indian Reservation. Under ORS 316.777, her income is exempt from state income tax.

Example 2: Claire, an enrolled member of the Coquille Indian Tribe, resides on reservation land in Oregon and works as an accountant for the city of Coos Bay at City Hall. Claire's income is taxable by Oregon because she resides on, but does not work on, Indian country on Oregon.

Example 3: Charles, an enrolled member of the Confederated Tribes of the Umatilla Indian Reservation, resides on the reservation of the Confederated Tribes of the Umatilla Indians. For six months of each year, he works on a fishing trawler off the Alaska coast. During the remaining six months, he is employed as a forester by the Blue Mountain Timber Company. None of his work is performed in Indian country. Charles owns a Certificate of Deposit, (CD), at a bank in Portland, Oregon. Charles is taxed on the income he earns fishing in Alaska and on his wages from the timber company because none of that income is earned in Indian country. Charles is not taxed on the interest from the CD because that income is considered to be earned on the reservation on which he lives.

Example 4: Using the facts in Example 3, assume that Charles is retired and receives a pension from the lumber company. His pension income is subject to state tax because the contributions made to the plan were not related to services performed in Indian country.

Example 5: William, an enrolled member of the Navajo Nation, is a resident of the Navajo Nation reservation in Arizona. During the summer months, he temporarily lives and works on the reservation of the Burns Paiute Tribe in Oregon. Under ORS 316.777, Oregon will not tax any of William's wages earned on the reservation of the Burns Paiute Tribe because he lives and works in Indian country in Oregon and he is an enrolled member of a federally recognized Indian tribe.

Example 6: John, an enrolled member of the Confederated Tribes of the Grande Ronde, resides on land that he inherited from his father's estate. The land came into John's family through an allotment by the federal government to tribal members. The federal government holds the land in trust for the benefit of John. It is allotment land. As long as John lives on allotment land and works in Indian country, his income is exempt from Oregon tax.

Example 7: Ben, an enrolled member of the Confederated Tribes of the Grande Ronde, lives on land that a prior owner, who was also a tribal member, received from the federal government in an allotment. Ben owns the land, but the federal restrictions prohibit him from selling it. Those restrictions have been in place since the federal government allotted the land, but they will be lifted next month. The land is allotment land now, but it will not be after the restrictions are lifted. Once the federal restrictions are lifted, all of Ben's income is taxed by Oregon. The land is no longer Indian country and Ben may sell the land.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.777
Hist.: RD 11-1985, f. 12-26-85, cert. ef. 12-31-85; RD 5-1994, f. 12-15-94, cert. ef. 12-31-94; RD 6-1996, f. 12-23-96, cert. ef. 12-31-96; REV 6-2004, f. 7-30-04, cert. ef. 7-31-04

150-316.778

Oregon Investment Advantage Business Income Exemption

(1) Definitions. For purposes of ORS 316.778 and this rule, "business firm's income" has the meaning given the term "business income" in ORS 314.610(1) and OAR 150-314.610(1)-(A).

(2) Computing exempt income. Any ratio contained in the formulas outlined in ORS 316.778 may not be greater than 100 percent or less than zero.

(3) Method of determining the business firm's income derived from the activities at the certified facility. A business firm's income derived from the firm's activities at a certified facility is determined by multiplying the total business income of the business firm by a fraction, the numerator of which is the total sales from the certified facility during the tax period, and the denominator of which is the total sales of the business firm everywhere during the tax period.

Example 1: Wee Company had sales of $2,250,000 from its certified facility. Total sales of Wee Company were $3,450,000. Business income of Wee Company for the same fiscal year equaled $500,000. Wee Company computes its income derived from the certified facility as follows: $2,250,000 (Sales from certified facility) ÷ $3,450,000 (Total firm sales) = 65.2 percent. $500,000 (Business income) x 0.652 = $326,000 (Business firm's income derived from certified facility).

(4) Intra-firm transfers. If a business firm transfers product from a certified facility to a non-certified facility without a sale actually occurring (intra-firm transfer), the business firm must impute sales to the product transferred from the certified facility to use the method prescribed in section 3 of this rule.

(a) Imputing sales value for transferred production when part of total production is transferred. If a business firm transfers some of its production at the certified facility to a non-certified facility without a sale actually occurring (intra-firm transfer), the business firm needs to impute the sales value of the transferred production. This is necessary in order to determine sales from the certified facility. To impute the sales value, the taxpayer must first compute a ratio, the numerator of which is the total sales for all other items sold from the certified facility and the denominator of which is the cost of goods sold (COGS) for all other items sold from the certified facility. This ratio is then multiplied by the COGS of the transferred product to determine its imputed sales value.

Example 2: Zee Company has two facilities in Oregon. One is a tackle box manufacturing facility in the Willamette Valley. The other is a new part-making facility that qualifies as a "certified facility" under ORS 316.778(6)(b). The part-making facility builds parts R, S, T, and U. Zee Company makes the R-Parts for internal use in building the tackle boxes. The part-making facility sold S, T, and U Parts for $675,000 to companies other than Zee Company. Zee Company's total sales for the fiscal year were $2,175,000 ($1,500,000 from tackle box sales and $675,000 from S, T, and U Parts sales). Zee Company's business income for the same fiscal year was $1,250,000. To determine sales value derived from R-Parts produced at the certified facility, Zee Company computed the ratio of total sales from parts S, T, and U over the cost of goods sold (COGS) for parts S, T, and U and multiplied the result by the COGS for R-Parts to determine the value of tackle box sales attributable to R-Parts. Zee Company calculated that COGS for R-Parts was $200,000. COGS for S-Parts was $100,000 and sales were $200,000; COGS for T-Parts was $50,000 and sales were $75,000; and COGS for U-Parts was $300,000 and sales were $400,000. Sales value computed as follows: $675,000 (Total sales for parts S, T, and U) ÷ $450,000 (COGS for parts S, T, and U) = 1.5 $200,000 (COGS for part R) x 1.5 = $300,000 (Sales value attributed to R-Parts) Zee Company uses $300,000 of the total sales of the tackle boxes as sales value attributable to the certified facility for R-Parts. Zee Company uses $975,000 ($675,000 + $300,000) as the sales attributed to the certified facility to determine the amount of income that is exempt from tax.

(b) Imputing sales for transferred production when all product is transferred. If a business firm transfers all of its production at the certified facility to a non-certified facility without a sale actually occurring (intra-firm transfer), the business firm must impute the sales value attributed to the production transferred in order to determine sales from the certified facility. To impute the sales value for product transferred, the taxpayer uses a ratio of COGS of the transferred production over COGS of all production. This ratio is then multiplied by total sales for the non-certified facility.

Example 3: Tee Company operates a wholesale facility in Southern Oregon. It has a processing plant in Eastern Oregon that is a certified facility. The processing plant transfers all of its output to the wholesale facility. Tee Company's total sales from all activities were $20,000,000. Cost of production at the processing plant was $4,000,000. The total cost of all goods sold (COGS) was $18,000,000. Tee will use $4,440,000 of total sales from the wholesale facility to determine the business firm's income that is attributable to the certified facility computed as follows: $4,000,000 (Cost of processing plant output) ÷ $18,000,000 (Total COGS) = 22.2 percent $20,000,000 (Total sales) x 0.222 = $4,440,000 (Sales attributed to certified facility).

(c) Alternate approach for imputing sales value. If a taxpayer's circumstances do not substantially meet the standards for imputing sales value in this rule, the taxpayer must consult with the department on an appropriate allocation approach based on that taxpayer's facts and circumstances.

Stat. Auth.: ORS 305.100, 316.778
Stats. Implemented: ORS 316.778
Hist.: REV 3-2006, f. & cert .ef. 7-31-06

150-316.792

Military Pay Subtraction

(1) Definitions.

(a) “Uniformed services” refers only to services under the orders of the President of the United States and means the commissioned corps of the National Oceanic and Atmospheric Administration (i.e., the Coast and Geodetic Survey) and the Public Health Service (regular and reserve), consistent with 10 USC §101(a)(5)(B) and (5)(C). Other members of the National Oceanic and Atmospheric Administration and the Public Health Service, or members of these organizations not under the orders of the President, are not included in this definition and would not qualify for an Oregon military pay subtraction.

(b) “Home of the taxpayer” is where the taxpayer does any of the following:

(A) Maintains his or her primary residence;

(B) Lives with his or her family; or

(C) Incurs continuing living expenses, such as mortgage or rent, utilities, and real and personal property taxes and insurance.

(2) Military pay subtraction. A member of the Armed Forces as defined in ORS Chapter 316 and this rule may subtract the following from their taxable military pay:

(a) Year of entry-Year of discharge. Military pay earned for services performed outside of Oregon.

(A) Year of discharge includes termination of full-time active duty from the Armed Forces of the United States.

(B) Year of entry is for initial enlistment or draft and only allowed one time per taxpayer, but the subtraction for year of discharge is allowed each time a taxpayer is discharged.

(C) The date of the enlistment order or date of discharge is the applicable tax year.

Example 1: Brian is domiciled in Oregon and remains domiciled in Oregon for all years relevant to this example. He enlists in the U.S. Army for the first time in 2004 and is stationed in California. In 2008, he is discharged and moves back to Oregon. The Army offers him a position in Portland, Oregon. He accepts the offer and reenlists shortly after the discharge. In 2012, Brian is reassigned to Florida. He plans to retire from the Army in 2024 and move back to Oregon. Brian will qualify for a subtraction of all military pay earned outside Oregon for tax year 2004 because that is his initial year of enlistment into the Armed Forces. He will also qualify for a subtraction for all of his military pay earned outside Oregon for tax years 2008 and 2024 because both years are treated as a year of discharge. From 2008 to 2012, he will qualify for a subtraction of $6,000 of his military pay while stationed in Oregon.

Example 2: Karen is domiciled in Oregon and remains domiciled in Oregon for all years relevant to this example. She enlists in the U.S. Navy in 2000 and is discharged in 2004 and returns to Oregon. Karen decides to reenlist in 2005 at which time she leaves Oregon and is assigned outside Oregon for the rest of her military career. In 2021, she retires from the Navy and returns to Oregon. Karen qualifies for a subtraction of military pay earned outside Oregon for tax year 2000 because that is her initial year of enlistment into the Armed Forces. She will also qualify for a subtraction for her military pay earned outside Oregon for tax years 2004 and 2021 because both years are treated as a year of discharge. Karen does not qualify for a subtraction for her military pay earned outside Oregon in 2005 under the year of entry or year of discharge rules because it was not her initial year of entry. However, she may subtract all of her military pay earned outside Oregon for that year under the subtraction for service performed outside of Oregon discussed in subsection (2)(b) of this rule.

(b) Service outside Oregon. Military pay earned for service performed outside of Oregon from August 1, 1990, to the date set by the President as the end of combat activities in the Persian Gulf Desert Shield area can be subtracted (Executive Order 12744).

Example 3: Jan enlisted in the Air Force Reserves in 2010. She was called to active duty September 15, 2013, and shipped to Fort Lewis, Washington. She earned a total of $10,000 military pay in 2013. $2,000 was earned in Oregon before September 15. She qualifies to subtract her military pay earned outside Oregon after September 15. Jan also qualifies to subtract the remaining $2,000 because it is less than $6,000. Her military pay subtraction is $10,000.

Example 4: Mike enlisted in the Oregon Army National Guard in 2000. He was called to active duty on August 1, 2013 and assigned outside Oregon. He earned $15,000 in military pay -- $10,000 prior to August 1, and $5,000 after. Mike’s military pay subtraction for 2013 is $11,000 ($5,000 for service performed outside Oregon and up to $6,000 of his remaining military pay).

(c) Reserve component members away from home overnight. The taxpayer is “away from home” when the taxpayer is required to stay in a temporary location that is not a home of the taxpayer and is not allowed to go home while at the temporary location. The pay earned while away from home for 21 days or longer may only be subtracted by someone who is a member of a reserve component; reserves or National Guard.

Example 5: Hallie is a member of the Army National Guard assigned to her unit in Medford and earned a total of $12,000 for the year. She was required to go on assignment to Umatilla from April 5 to June 23 and stayed overnight in that area. Hallie wasn’t authorized to go home during this time. She may subtract the $3,000 she earned during her assignment because she was away from home overnight for 21 days or longer. She may also subtract $6,000 of her remaining military pay.

(d) Other military pay. Any taxable military pay that is not eligible for one of the above subtractions may be subtracted up to $6,000. The military pay subtraction may not exceed the taxable military pay on the return. If both taxpayers on a joint tax return are eligible for a military pay subtraction, each person’s subtraction is separately figured before adding them together to report on the return.

Example 6: Joe is a member of the Marine Corps and on active duty for all of 2013. He is domiciled and stationed in Oregon. He earned $25,000 of military pay during 2013. Joe’s military pay subtraction is $6,000.

Example 7: Mary and Clyde are married and both members of the Army National Guard. During 2013, Mary was stationed overseas on active duty for 10 months. She received $1,000 of military pay before she was deployed. During her deployment she received $28,000 and $15,000 of that was excluded from federal taxable income. Of the total $29,000 she made, she’s only reporting $14,000 as taxable income. She qualifies for a military pay subtraction of all $14,000; $13,000 of her taxable military pay was earned outside Oregon and the remaining taxable military pay is eligible as other military pay. Clyde remained in Oregon during 2013 and earned $10,000 of taxable military pay. He isn’t eligible for any of the subtractions allowed for certain situations, but he is eligible to subtract up to $6,000 of his taxable military pay. Together the subtraction on their joint Oregon tax return is $20,000; $14,000 is Mary’s and $6,000 is Clyde’s.

(3) Combat zone benefits.

(a) Additional time to file and pay. Members of the Armed Forces who served in a combat zone are allowed extra time to take care of their Oregon income tax matters. Taxpayers are allowed the statutory filing period of 3 months and 15 days following the close of the tax year plus at least 180 days after the later of:

(A) The last day the person was in a combat zone (or the last day the area qualifies as a combat zone); or

(B) The last day of any continuous qualified hospitalization for injury from service in the combat.

(b) Eligible actions. The following are some of the income tax actions that can be extended:

(A) Filing any return of income tax (except withholding taxes);

(B) Paying any income tax (except withholding taxes);

(C) Filing a petition with the Tax Court;

(D) Filing a refund claim;

(E) Collection of any income tax due by the Department of Revenue.

(c) For purposes of this subsection (3), “income tax” includes the taxes imposed upon the income of estates and trusts and paid by the fiduciary thereof.

Example 8: Margaret entered Saudi Arabia on August 26, 2012. She remained there through March 16, 2013, when she departed for the United States. She was not injured and did not return to the combat zone. She has 285 days (180 plus 105) after her last day in the combat zone, March 16, to file her 2012 income tax return. The 105 additional days are the number of days in the three and a half month filing period that were left when she entered the combat zone (January 1–April 15). Margaret’s return is due by December 26, 2013.

Example 9: Leonard’s ship entered the Persian Gulf on January 5, 2013. On February 15, 2013, he was injured and flown to a U.S. hospital. Leonard remained in the hospital through April 21, 2013. He has 281 days (180 plus 101) after April 21, his last day in the hospital, to file his 2012 income tax return. The 101 additional days are the number of days in the three and a half month filing period that were left when he entered the combat zone (January 5–April 15). His 2012 return is due by January 27, 2014.

Stat. Auth.: ORS 305.100 & 316.792
Stats. Implemented: ORS 316.792
Hist.: REV 10-2013, f. 12-26-13, cert. ef. 1-1-14

150-316.806

Road Construction Worker's Travel Expenses

(1) As used in ORS 316.806(1), the term "construction job site" includes a roadway.

(2) As used in ORS 316.806(2), the term "structure" includes a road or railway.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.806
Hist.: RD 10-1986, f. & cert. ef. 12-31-86

150-316.818

Substantiation Required

Upon audit, the taxpayer may be required to provide the same substantiation that would be necessary for a travel expense deduction allowable under IRC 162(a).

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.818
Hist.: 11-6-78(Temp); 12-331-78, Renumbered from 150-316.059; 12-31-83

150-316.832(2)

Substantiation Required

Upon audit, the taxpayer may be required to provide the same substantiation that would be necessary for a travel expense deduction allowable under IRC 162(a).

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.832
Hist.: 12-31-79, Renumbered from 150-316.063(2); 12-31-83

150-316.844

(Miscellaneous) Valuation of Forest Land or "Farm Use" Land for Oregon Inheritance Tax Purposes

(1) Real property appraised under ORS 308.370 as land for farm use and passing by reason of death, is valued for purposes of Oregon inheritance tax as farm use land and the value used is the same as appraised for ad valorem purposes. ORS 308.370 provides for the assessment of farmland as "farm use" rather than "the highest and best use." See OAR 150-118.155.

(2) For deaths occurring on or after October 3, 1979, land which received special assessment as forest land or land classified under the Western Oregon small tract option tax law is valued as provided in ORS 118.155(3) and (4).

(3) The valuation for Oregon inheritance tax purposes may not be the same as the valuation for federal estate tax purposes. The difference in values may result in a required modification under this section. Federal will value the land at fair market value upon the date of death of the decedent under IRC Section 1014 or the alternate valuation date under IRC Section 2032.

(4) If the real property is subsequently disposed of, the difference in taxable gain or loss computed from the disposition using the federal valuation and the taxable gain or loss that would have been computed using the valuation for Oregon inheritance tax purposes, must be added to federal taxable income as gain or reduction of loss. The addition to a fiduciary return is not included as part of the fiduciary adjustment. It is a separate adjustment to federal net income of the fiduciary. In the case of forest land and Western Oregon small tract option land, the addition is applicable only to dispositions occurring on or after November 1, 1981.

(5) The adjustment to federal taxable income is required not only when gain or loss is realized by the beneficiary on the inherited property, but is also required when:

(a) Gain or loss is realized on other property which, in the computation of its basis, the basis of the inherited property is used. Examples of this type of property is that received as a result of a fully or partially nontaxed exchange or involuntary conversion where there has been a proper reinvestment.

(b) A taxpayer, other than the beneficiary, may realize gain or loss on the disposition of inherited property, or property the basis of which is computed in whole or in part with respect to such inherited property, when the basis of the beneficiary is used. For example: property under this section received as a gift from a donor who acquired it by inheritance. The adjustment must be made to the donee's tax return at the time the donee disposes of the property in a manner that results in a taxable event.

(6) This rule applies to gains and losses from disposition of property acquired from a decedent, or from property the basis of which is computed in whole or in part with respect to property acquired from a decedent, whose death occurred before January 1, 1987.

[Publications: Publications referenced in this rule are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.844
Hist.: 11-73; 12-19-75; 12-31-81; 12-31-82, Renumbered from 150-316.081; 12-31-83; RD 15-1987, f. 12-10-87, cert. ef. 12-31-87; RD 11-1988, f. 12-19-88, cert. ef. 12-31-88

150-316.846

Scholarship Awards used for Housing Expenses

(1) If a scholarship award is used to pay housing expenses, the taxpayer may subtract the amount paid for such expenses from federal taxable income, but not in excess of the amount of the award included in federal taxable income.

(2) For purposes of ORS 316.846 and this rule, “housing expenses” are the reasonable expenses paid or incurred during the taxable year by an individual for housing for the individual. The term includes expenses attributable to the housing (such as utilities and insurance) and not otherwise taken into account as a deduction on the federal income tax return of the individual. Housing expenses will be treated as reasonable to the extent the department determines the expenses are neither lavish nor extravagant under the circumstances.

Example 1: Jasmine, a student at Oregon State University, receives a scholarship award that she includes in her federal taxable income. She buys a house close to the school. She uses part of the scholarship award to pay the mortgage interest and property taxes. She also uses part of the scholarship award to buy food and to fix the roof. Jasmine may subtract the mortgage interest and property taxes from her federal taxable income on her Oregon return if she does not claim them as itemized deductions on her federal return, but not in excess of the amount of the award included in federal taxable income. She may not subtract the food purchases and the cost of fixing the roof.

Example 2: Louis, a student at Portland State University, receives a scholarship award that he includes in his federal taxable income. He rents an apartment with a roommate about three blocks from school. In addition to the rent he is responsible for half of the electric bill and for a monthly parking fee at the apartment complex. He also pays for half of the monthly fee to Rent-A-Center to rent a sofa and loveseat. He uses part of the scholarship award to pay for these housing expenses. Louis may subtract from his federal taxable income on his Oregon return the sum of his portion of the rent, his portion of the electric bill, the parking fees, and his portion of the monthly fees for renting a sofa and loveseat, to the extent such sum does not exceed the amount of the award included in federal taxable income.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.846
Hist.: REV 10-2008, f. & cert. ef. 9-23-08

150-316.852

Subtraction for Land Contributed to Educational Institutions

(1) General. A taxpayer who donates land, or who sells land at less than its fair market value, to a qualified educational institution may claim a subtraction from income. The subtraction is limited to a specific percentage of the taxpayer's contribution base. Any subtraction not allowed because it exceeds the specified percentage of the contribution base may be carried forward for a maximum of 15 years. An individual's contribution base is defined in section 170 of the Internal Revenue Code as federal adjusted gross income computed without regard to any net operating loss carryback.

(2) Donations of land. If land is donated to a qualified entity, the Oregon subtraction cannot exceed 50 percent of the taxpayer's contribution base.

Example 1: Sandy's contribution base is $100,000. Sandy donates land with a fair market value of $60,000 to a public school district. Sandy's subtraction on the Oregon return is limited to $50,000.

(3) Reduced sale of land. If land is sold to a qualified entity for less than its fair market value, the Oregon subtraction cannot exceed 25 percent of the contribution base.

Example 2: Mary has a contribution base of $100,000. Mary sells land worth $175,000 to a local school district for $120,000 cash. Mary is limited to a subtraction on the Oregon return of $25,000.

(4) Add-back of amounts claimed as a federal deduction. If the taxpayer has claimed a deduction for the donation or reduced sale of land for federal purposes, the amount deducted from federal income must be added to Oregon income if a subtraction is taken under this provision.

Example 3: Singh's contribution base is $100,000. He contributes $27,000 to a church and land worth $40,000 to a university. Singh must consider two limitations in figuring his charitable contribution deduction for federal purposes. First, his total charitable contribution deduction cannot exceed 50 percent of his contribution base, or $50,000 (50 percent of $100,000). Second, the donation of land, which is capital gain property, cannot exceed 30 percent of his contribution base, or $30,000. Singh's contribution of land worth $40,000 is limited to a deduction of $23,000, which is the unused portion of the overall $50,000 deduction limit after taking into account his $27,000 cash donation. To figure the Oregon subtraction, Singh restores $23,000, the amount of federal deduction he received for his qualifying land donation, to federal income by showing it as an addition to income on his Oregon return. He then computes the Oregon subtraction for the land donation as the lesser of:

(a) $50,000 (50 percent of his contribution base of $100,000); or

(b) $40,000 (fair market value of the land that is the qualified donation).

Singh benefits from the full $40,000 donation on his Oregon return in the year of donation.

(5) If the taxpayer's itemized deductions for Oregon are limited because of the phase-out requirements under section 68 of the Internal Revenue Code, the amount of the addition will be computed using the formula shown at OAR 150-316.695(1)(c)-(A).

Example 4: Max has a contribution base of $100,000. During the tax year he gave $35,000 cash to a 50 percent limitation charitable organization. He owned land with a fair market value (FMV) of $75,000 near an Oregon public high school. The school wanted the property for a sports field. Max agreed to exchange his property for a piece of property owned by the school district with a FMV of $25,000. His contribution from this qualifying reduced sale is $50,000; that is, $75,000 fair market value given up less $25,000 fair market value received. For federal purposes, his contribution of the land is limited to 30 percent of his contribution base, $30,000, and is further limited to $15,000, the unused portion of 50 percent of his contribution base, $50,000, after taking into account his $35,000 cash donation. His federal charitable deduction for the land is $15,000 with a five-year carryover of the remaining $35,000. On his Oregon return he first restores the $15,000 to income by showing an Oregon addition for that amount. He then computes his Oregon subtraction for the qualified bargain sale of land as 25 percent of his $100,000 contribution base. His Oregon subtraction is $25,000 with a fifteen-year carryover of the remaining $25,000.

[Publications: The publication(s) referred to or incorporated by reference in this rule is available from the agency]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.852
Hist.: REV 5-2000, f. & cert. ef. 8-3-00; Administrative correction 7-25-02, Renumbered from Chapter 358, 1999 Oregon Laws

150-316.856

Subtraction for Qualified Investment of Severance Pay

(1) Definitions.

(a) “Invest” means to exchange cash for equity, debt, convertible debt, or management responsibilities, accompanied by terms that substantiate ownership or control of an interest in a business. “Invest” does not mean to make a loan to a business.

(b) “Material participation” means regular, continuous, and substantial participation in the small business. A taxpayer is considered to have materially participated in the small business if the taxpayer:

(A) Worked for the small business for more than 500 hours in each of the 12 month periods required under section 2(b) of this rule;

(B) Worked for the small business for more than 100 hours in each of the 12 month periods required under section 2(b) of this rule and at least as much as any other owner or employee; or

(C) Performed substantially all the work in the small business.

(c) “Severance pay” means compensation payable, other than back wages, vacation pay or sick pay, on voluntary termination or involuntary termination of employment based on length of service, a percentage of final salary, a contract between the employer and the employee, or some other reasonable method. “Severance pay” does not include retirement income as defined in ORS 316.127(9).

(d) “Small business” means a corporation, partnership, sole proprietorship or other legal entity formed for the purpose of making a profit, which is independently owned and operated from all other businesses and which has 50 or fewer employees.

(2) Qualifications. Severance pay that a taxpayer receives during the tax year and invests in a new or existing small business in Oregon may be subtracted from federal taxable income if:

(a) The investment occurs on or before the due date of the return, including extensions, for the first tax year in which the subtraction may be claimed;

(b) The investment continues for at least 24 consecutive calendar months following the termination of employment (for example - July 13, 2010 through July 12, 2012);

(c) The small business is not the employer that paid the severance pay and does not have any owner in common with the employer that paid the severance pay;

(d) No subtraction has previously been claimed under this section;

(e) The taxpayer completes a form provided by the department that is attached to the return of the taxpayer or is otherwise maintained or filed pursuant to form instructions; and

(f) The taxpayer materially participates in the small business for the period required under subsection (b) of this section.

(3) The taxpayer must demonstrate to the department’s satisfaction that the small business is carrying on an activity for profit. If requested, the taxpayer must provide documentation to that effect to the department. In making such a determination, the department may consider the following nonexclusive list of factors:

(a) Whether the small business keeps and maintains a detailed business plan that includes strategies or methods to make a profit or improve profitability;

(b) Whether separate books, records and bank account(s) are maintained for the small business;

(c) Whether the taxpayer carries on the activity in a businesslike manner.

(4) Severance pay received as an annuity. Only cash invested on or before the due date of the return, including extensions, qualifies for this subtraction. Any severance pay invested after the return is filed does not qualify for a subtraction under this section.

(5) Severance pay received as stock options. All stock options must be converted to cash before being invested to qualify for a subtraction under this section.

(6) The subtraction may not exceed the lesser of:

(a) The minimum balance of principal that remains invested by the taxpayer in the small business at the close of any month during the 24 consecutive calendar months following the termination of employment; or

(b) $500,000.

(7) Interest accrues as provided in ORS 305.220 on any unpaid tax attributable to any disallowance or withdrawal of principal.

Example 1: Maggie was terminated from employment on October 1, 2010, and received severance pay of $50,000 as a condition of her termination. On April 1, 2011, Maggie filed her personal income tax return, for which she had not requested an extension of time to file. On August 11, 2011, Maggie invested the severance pay in a qualifying small business. Maggie does not qualify for the subtraction because she did not invest the severance pay by the due date of the return.

Example 2: Joe was terminated from employment on July 1, 2010, and received severance pay of $20,000 as a condition of his termination. Joe invested the entire $20,000 in Company A, which qualifies as a small business, on September 1, 2010, and took a $20,000 subtraction on his 2010 return. On January 30, 2012, Joe withdrew the entire $20,000 he invested. Joe must file an amended return for tax year 2010 to remove the $20,000 subtraction (and pay any additional tax and interest that may be due) because he did not continue the investment for at least 24 consecutive months following the termination of employment.

Example 3: Alicia was terminated from employment on October 1, 2010, and received severance pay of $80,000 as a condition of her termination. Alicia invested the entire $80,000 in Company B, which qualifies as a small business, on December 1, 2010. Alicia took an $80,000 subtraction on her 2010 personal income tax return. On July 30, 2012, Alicia withdrew $20,000 of principal from her initial investment for personal use. Alicia must amend her 2010 return to remove $20,000 of the subtraction (and pay any additional tax and interest that may be due).

Example 4: Ryan was terminated from employment on October 1, 2010. He received severance pay in the form of a $1,000 a month annuity over 5 years beginning in October of 2010. Ryan accumulated his severance payments for 6 months and invested the $6,000 in a small business. He claimed a subtraction of $6,000 on his return he filed on April 1, 2011. Ryan continues to accumulate his severance pay for the next year and invests another $12,000 in the small business on March 1, 2012. Ryan cannot claim a subtraction for the additional severance pay he invested because it was invested after the return was filed.

(8)(a) If the small business is doing business both in Oregon and some other place outside of Oregon, the amount of the subtraction allowed is generally determined by multiplying the total qualifying amount of severance pay invested by the sales factor determined under ORS 314.665 and associated administrative rules.

(b) The taxpayer may present an alternative method of calculating the amount of the qualified subtraction if the calculation under subsection (a) does not result in a reasonable reflection of the extent of the business activity in Oregon. To be considered reasonable, the method of calculation must take into account the business activity taking place within Oregon versus the activity taking place outside of Oregon. The method must be fully described in an attachment to the taxpayer’s return on which the subtraction is claimed.

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

Stat. Auth.: ORS 305.100, 316.856
Stats. Implemented: ORS 316.856
Hist.: REV 12-2010(Temp), f. & cert. ef. 7-23-10 thru 12-31-10; REV 16-2010, f. 12-17-10, cert. ef. 1-1-11

150-316.863

Individual Pension and Retirement Plans

A plan (Individual Retirement Account, IRA; Self-employment Account, HR 10 or KEOGH; or Simplified Employee Account, SEP) shall not be disqualified for Oregon income tax purposes solely as the result of an increase to the percentage allowable or maximum allowable contribution amount for federal tax purposes. A taxpayer may still deduct, for Oregon tax purposes, the lesser of the percentage allowable or maximum allowable contribution under the federal rules in effect for tax years beginning on or before December 31, 1984. This difference in allowable deductions for federal and state purposes requires that the taxpayer add or subtract the difference from federal taxable income.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.863
Hist.: 10-5-83, 12-31-83, Renumbered from 150-318.020(Note); RD 12-1985, f. 12-16-85, cert. ef. 12-31-85

150-316.992

Waiver of Frivolous Return Penalty Imposed Under ORS 316.992

The department will waive 50 percent of the $250 penalty if the taxpayer:

(1) Submits a timely written request for waiver as required in OAR 150-305.145(4);

(2) Files a return for that same tax year that is not frivolous under ORS 316.992; and

(3) Pays the balance of the account (other than the penalty amount that may be waived under this rule) for the tax period for which waiver is requested, or has entered into and is in compliance with a department-approved plan for payment of the amounts.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.992
Hist.: REV 6-2007, f. 7-30-07, cert. ef. 7-31-07

150-316.992(5)

Frivolous Return Penalty

(1) A $250 penalty shall be assessed if a taxpayer takes a "frivolous position" in respect to preparing the taxpayer's return. A return is considered frivolous if a taxpayer does not provide information on which the substantial correctness of the self-assessment may be judged or if the return contains information that on its face indicates that the self-assessment is substantially incorrect.

(2) Some additional examples where a "frivolous position" is considered to have been taken include but are not limited to:

(a) An argument that wages or salary are not included in taxable income. This can occur when the taxpayer alters lines on the return to recharacterize wages or salary as nontaxable or takes deductions on Schedule C equal to income and characterizes the deductions as the total of business expenses or cost of goods sold.

(b) An argument that the law directs "taxpayers" to file a return and they aren't a taxpayer.

(c) An argument that by filing a return their rights of nonself-incrimination under the Fifth Amendment to the United States Constitution will be violated. An example of this is when a taxpayer writes "object" or "object -- self-incrimination" in the amount columns or across the face of the return.

(d) An argument that requiring a taxpayer to file a return violates their right to prohibition of involuntary servitude provided in the Thirteenth Amendment to the United States Constitution.

(e) Submitting a return that may show an address, be signed and have W-2's attached but has zeros, object, Fifth Amendment or self-incriminating written in the columns or on the face of the return.

(f) An argument that the tax system is discriminatory.

(g) An argument that the taxpayer's right to free speech as provided by the First Amendment to the United States Constitution has been violated by requiring a return or by providing the information required on the return.

(h) An argument that a check which can only be redeemed in Federal Reserve Notes is not taxable income. The taxpayer's argument is that only gold and silver can be taxed and that Federal Reserve Notes are not income because they can't be redeemed for gold or silver. Also, that the Federal Reserve Notes should be considered accounts receivable that do not have to be reported as income until they are paid in gold or silver.

(i) An argument that a graduated tax is unconstitutional.

(j) Taking unauthorized deductions or credits based on a percentage of the national debt used for defense (war tax) or abortions.

(k) Taking unauthorized deductions or credits based on the declining value of the dollar to reflect the difference between the face value and the fair market value of Federal Reserve Notes.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 316.992
Hist.: RD 4-1988, f. 5-25-88, cert. ef. 6-1-88

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