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DEPARTMENT OF REVENUE

 

DIVISION 317

CORPORATION EXCISE TAX ACT OF 1929: RULES
GENERAL PROVISIONS

150-317.NOTE

Procedure for Handling State Surplus Refund

(1) For purposes of determining underpayment of estimated tax for tax years beginning on or after January 1, 1985 the credit allowed for the state surplus refund shall be used to reduce the amount of the current year "net excise or income tax" of the taxpayer. Net excise or income tax means the total tax minus any credits against tax.

(2) Whenever the taxpayer's excise or income tax liability for tax years beginning on or after January 1, 1985 is either increased or decreased, the amount of the credit for the state surplus refund shall be adjusted accordingly.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.Note
Hist.: RD 12-1985, f. 12-16-85, cert. ef. 12-31-85; RD 11-1988, f. 12-19-88, cert. ef. 12-31-88

150-317.010

Substantial Nexus Guidelines

(1) The State of Oregon imposes taxes on or measured by net income to the extent allowed under state statutes, federal Public Law 86-272, and the Oregon and U.S. Constitutions. For purposes of determining whether Oregon has jurisdiction to impose an excise tax for the privilege of doing business in the state under ORS Chapter 317 or tax on income from sources within this state under ORS Chapter 318, there must exist a substantial nexus between the state and the activity or income it seeks to tax.

(2) “Substantial nexus” for corporate excise and income tax jurisdiction purposes, under the Commerce Clause of the U.S. Constitution, does not require a taxpayer to have a physical presence in Oregon. Substantial nexus exists where a taxpayer regularly takes advantage of Oregon’s economy to produce income for the taxpayer and may be established through the significant economic presence of a taxpayer in the state.

(3) In determining whether a taxpayer has a substantial nexus with Oregon the department may consider whether the taxpayer:

(a) Maintains continuous and systematic contacts with Oregon’s economy or market;

(b) Conducts deliberate marketing to or solicitation of Oregon customers;

(c) Files or is required to file reports or returns with Oregon regulatory bodies;

(d) Receives significant gross receipts attributable to customers in Oregon;

(e) Receives significant gross receipts attributable to the use of taxpayer’s intangible property in Oregon; or

(f) Receives benefits provided by the state, such as:

(A) Laws providing protection of business interests or regulating consumer credit;

(B) Access to courts and judicial process to enforce business rights, including debt collection and intellectual property rights;

(C) Highway or transportation system access for transport of taxpayer’s goods or services;

(D) Access to educated workforce in Oregon; or

(E) Police and fire protection for property in Oregon that displays taxpayer’s intellectual or intangible property.

(4) The list of possible facts in section (3) that the department may consider in determining whether a taxpayer has a substantial nexus with Oregon is meant to be nonexclusive, and those facts should be considered only to the extent they are relevant. The department may consider any other relevant facts and circumstances.

(5) The provisions in sections (1) through (4) of this rule, as well as the provisions in OAR 150-314.620-(A), 150-314.620-(B), and 150-314.620-(C), must be applied in determining if a taxpayer has substantial nexus in a state other than Oregon.

Example 1: Credit Card Company (CC) has, for several years, provided credit card lending services over the internet and by mail to over 25,000 Oregon customers. Solicitations for such credit cards have been mailed three or four times a year for the last three years to prospective Oregon customers in six Oregon cities. CC has substantial nexus in Oregon.

Example 2: IS Company (IS), headquartered in San Francisco, operates a website supporting internet sales, primarily to Asian country customers. IS made approximately 50 sales, at $6.95 per sale, to residents of Oregon during the tax year. IS contracts with an Oregon mailing service to make deliveries of the merchandise in Oregon (all sales are final). IS does not have substantial nexus in Oregon. Even though activities in greater volume might be sufficient for nexus, the amount of sales is de minimis.

Example 3: WB Distributing Company (WB) has for many years distributed wine and beer throughout Oregon, through Oregon licensed distributors with whom WB has distribution agreements. WB is required to obtain and maintain a wholesaler’s license from the Oregon Liquor Control Commission (OLCC). A condition of the license is that WB must make monthly reports of sales volumes to the OLCC. WB also periodically seeks advice and approval from the OLCC for special event activities in Oregon, at which no sales are solicited by the corporation. WB has substantial nexus in Oregon.

Example 4: IP Company (IP), organized under Delaware law and wholly owned by FP Company (FP) a foreign parent, owns intellectual property including trade marks, trade names, and logos. RS Company (RS), also wholly owned by FP but not unitary with IP, operates retail stores in Oregon that prominently and beneficially use the intellectual property owned by IP. By agreement, RS pays IP five percent of its gross sales for the right to use the intellectual property. IP has substantial nexus in Oregon.

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

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.010
Hist.: REV 3-2008, f. & cert. ef. 5-5-08

150-317.010(4)

Definition: "Doing Business"

(1) A taxpayer is doing business when it engages in any profit-seeking activity in the State of Oregon. What transaction or transactions need be entered into within this state in the course of such an activity to constitute the doing or carrying on of business within the state is primarily a question of fact, depending upon the circumstances in each case.

Example 1: The taxpayer is clearly doing business within this state if it occupies, has, maintains or operates an office, shop, store, warehouse, factory, agency or other place within this state where some of its affairs are systematically and regularly carried on, notwithstanding the fact that it may also enter into transactions outside this state.

Example 2: A corporation engaged in the sale of tangible personal property is doing business within this state if sales activities are regularly carried on within this state by an employee or agent of the seller, and if either a stock of goods is maintained within this state, or an office or other place of business where affairs of the corporation are regularly carried on is maintained within this state.

Example 3: A foreign corporation consigns goods to one or more consignees within Oregon who then sell the goods. The foreign corporation is doing business in Oregon since it has sales activity and a stock of goods within Oregon.

(2) A foreign corporation whose business is providing services is "doing business" in this state if it has employees providing those services in Oregon. It does not matter whether the services are provided on the client's property or on the corporation's own property since it is engaged in a profit seeking activity in Oregon.

(3) If a foreign corporation's business activities in this state are confined to purchase and storage of personal property incident to shipment outside the state, the corporation is not deemed to be doing business for corporation excise tax purposes if the following conditions are met:

(a) The personal property remains in the exact state or form as it was when purchased during the time it is located within Oregon.

(b) The foreign corporation is not an affiliate of another foreign or domestic corporation, as defined in section 1504 of the Internal Revenue Code, which is doing business in Oregon.

(4) The fact that a corporation has no employees in Oregon does not mean the corporation is not doing business in this state. If activities are performed in Oregon by a third party on behalf of the corporation, and the activities are not protected under Public Law 86-272, the corporation is doing business in Oregon.

Example 4: The provision of in-state repair and warranty services by an independent contractor for a direct marketing computer company, advertised as part of its standard warranty or as an option that can be separately purchased, contribute significantly to the company's ability to establish and maintain its market for computer hardware sales in Oregon. Therefore, the computer company is doing business in Oregon. The extension of immunity for activities by independent contractors under Public Law 86-272 does not include repair and warranty service.

(5) A corporation that is not "doing business" in Oregon may still be subject to tax in this state. The Oregon corporation income tax under ORS Chapter 318 imposes tax on corporations that have income derived from sources within Oregon. See OAR 150-318.020(2) for a list and description of the activities that, if conducted in Oregon, will result in a corporation being subject to the corporation income tax.

[Publications: The publication(s) referred to in this rule is available from the agency pursuant to ORS 183.360(2) and 183.355(6).]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.010
Hist.: 1959; 1-1-77, Renumbered from 150-317.010(8); RD 7-1983, f. 12-20-83, cert. ef. 12-31-83; RD 12-1990, f. 12-20-90, cert. ef. 12-31-90; RD 6-1996, f. 12-23-96, cert. ef. 12-31-96; REV 12-1999, f. 12-30-99, cert. ef. 12-31-99; REV 11-2013, f. 12-26-13, cert. ef. 1-1-14

150-317.010(10)

Taxable Income of Regulated Investment Companies and Real Estate Investment Trusts

(1) In the case of a corporation that is treated for federal tax purposes as a regulated investment company under IRC Section 851, for purposes of ORS 317.010(10) taxable income under Chapter 1, Subtitle A of the Internal Revenue Code means "investment company taxable income," as defined in IRC Section 852.

(2) In the case of an entity that is treated for federal tax purposes as a real estate investment trust under IRC Section 856, for purposes of ORS 317.010(10) taxable income under Chapter 1, Subtitle A of the Internal Revenue Code means "real estate investment trust taxable income" as defined in IRC Section 857(b)(2), except that the adjustments provided by IRC Sections 857(b)(2)(D) and (F) shall not be allowed.

[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 317.010
Hist.: RD 1-1984, f. & cert. ef. 2-21-84; RD 3-1984(Temp), f. & cert. ef. 4-9-84; RD 12-1985, f. 12-16-85, cert. ef. 12-31-85; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89

150-317.010(10)-(B)

Foreign Corporations Subject to Tax

(1) Generally, foreign corporations doing business in Oregon that are exempt from federal income taxes pursuant to treaties between the United States and a foreign country are not exempt from Oregon corporation excise and income taxes.

(2) For foreign corporations to be exempt from the Oregon corporation excise or income tax, the federal treaty must specifically contain a provision exempting them from state corporation taxes upon or measured by net income.

(3) Oregon taxable income is determined by calculating the corporation's federal taxable income as if the corporation was subject to federal income taxes and making certain modifications as provided by Oregon law. As provided under ORS 317.625, income from outside the United States is accounted for in the computation of Oregon taxable income without regard to IRC sections 861 to 864. Income classified as income from outside the United States and excluded from federal taxable income must be added to the federal taxable income calculation required by this rule as an "other addition."

(4) Oregon has adopted the federal IRC provisions for computing taxable income, but did not adopt the federal provisions that define exempt corporations. Oregon law in ORS 317.080 lists those corporations that are exempt from Oregon corporate taxes.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.010
Hist.: RD 12-1990, f. 12-20-90, cert. ef. 12-31-90; REV 5-2000, f. & cert. ef. 8-3-00

150-317.013

Capital Losses -- Carrybacks and Carry-overs

(1) This rule is effective July 31, 2010 and is applicable to all tax years beginning on or after January 1, 1986 that are open to examination.

(2) Federal law applies to capital losses occurring in tax years beginning on or after January 1, 1986.

(a) Capital losses are deducted to the extent of capital gains in the same tax year.

(b) Capital losses in excess of capital gains must be carried back three tax years. Capital losses that do not fully offset capital gains for a year to which the losses are carried back may be carried forward for up to five tax years after the tax year in which the capital losses were incurred.(c) Capital loss carrybacks and carryovers can only be used to reduce capital gains in the tax years to which they are carried.

(d) A capital loss carryback cannot be used to create or increase a net loss in the tax year to which it is carried.

(e) If a capital loss is not carried to tax years in the order provided in subsections (1)(b) through (1)(d), the amount of net capital loss that should have been utilized to decrease capital gain net income cannot be used to offset capital gains in other taxable years.

(3) Oregon provisions, such as the requirement that corporations be unitary to be included in the consolidated Oregon return and the apportionment provisions, may result in differences between the Oregon and federal capital loss deductions and carryovers. (a) Capital losses in excess of capital gains in tax years beginning prior to January 1, 1986, cannot be carried forward since those losses were deductible in full in the tax year they occurred.

(b) When a corporation or consolidated group of corporations is taxable within and without this state, its Oregon net capital loss carryback and carryover must be computed using the apportionment provisions. The Oregon capital loss is computed using the apportionment factor for the tax year of the loss. The capital loss is applied to the Oregon capital gains for the year of carryback or carryover. Oregon capital gains are computed using the apportionment factor for the tax year of the gain.

Example 1: Corporation X has a federal net capital loss of $3,000 for 2009. X’s apportionment factor for 2009 is 40 percent. In 2006, X had a federal net capital gain of $1,000 and its Oregon apportionment factor was 50 percent. X has a $1,200 ($3000 x 40 percent) Oregon net capital loss available for carryback to 2006. X will deduct $500 ($1000 x 50 percent) on the 2006 return and must carry the remaining $700 forward to other tax years.

(c) Oregon net capital losses that are attributed to corporations that continue to be included in the same consolidated Oregon return may be deducted fully against the Oregon consolidated net capital gain of the tax years to which such losses are carried. Example 2: Corporations X and Y filed a consolidated Oregon return in 2009 reporting a net capital loss of $5,000 that is attributable to Y. The consolidated apportionment factor for 2009 is 40 percent. In 2006, X and Y filed a consolidated Oregon return reporting a net capital gain of $10,000 attributable to X. The consolidated Oregon apportionment factor in 2006 was 25 percent. The Oregon capital loss carryback of $2,000 ($5,000 x 40 percent) from 2009 is fully deductible in 2006 because it does not exceed the Oregon consolidated net capital gain of $2,500 ($10,000 x 25 percent).

(4) If a corporation is included in a combined return, separate return or in a different consolidated return in the year of the capital loss and the capital loss is carried into a year when a consolidated Oregon return is filed, the Oregon capital loss carryover may be subject to the federal separate return limitation year (SRLY) limitations in Treas. Regs. 1.1502-22.

(a) If a net capital loss is reported on a separate Oregon return by a corporation doing business only in Oregon, the SRLY limitation applies if the loss is carried to a tax year in which a consolidated return is filed, apportionment is not required, and the corporation with the loss (the limited member) is not the parent corporation. To compute the Oregon SRLY limitation, first recompute the consolidated net capital gain by excluding the capital gains and losses and the IRC section 1231 gains and losses of the limited member. Then subtract the recomputed consolidated net capital gain from the total consolidated net capital gain (computed without regard to any net capital loss carryover or carrybacks).

Example 3: Corporation R filed a separate Oregon return for 2008 reflecting an Oregon net capital loss of $3,000. Corporation R did not have net capital gains in any of the prior three years. For 2009, Corporation R was included in a consolidated Oregon return with Corporations S and T. The consolidated group was not subject to the apportionment provisions. [Table not included. See ED. NOTE.]

(b) If a corporation is included in a consolidated Oregon return in the year of the consolidated net capital loss and files a separate Oregon return or is included in a different consolidated Oregon return in the year to which the net capital loss is carried, the Oregon consolidated net capital loss is attributed to the corporations with net capital losses for purposes of determining the allowable net capital loss carryover. The portion of an Oregon consolidated net capital loss attributable to a member of a consolidated group is an amount equal to such Oregon consolidated net capital loss multiplied by a fraction, the numerator of which is the net capital loss of such member and the denominator of which is the sum of the net capital losses of those members of the consolidated group having net capital losses.

Example 4: X Corp. and unitary subsidiaries Y and Z filed a consolidated Oregon return for 2008, their first year in business. X had a $3,000 capital loss, Y had a $2,000 capital gain and Z had a $1,000 capital loss (consolidated net capital loss of $2,000). The 2008 Oregon apportionment factor for the consolidated group is 75 percent. On December 31, 2008, X Corp. sold 100 percent of Z’s stock to an outside investor. The capital loss that can be carried forward to the 2009 consolidated return of X and Y is computed as follows: [Table not included. See ED. NOTE.]

(c) If corporations carry their net capital losses to a tax year in which separate tax returns are filed, the net capital losses can be deducted by each corporation only if a net capital gain is shown on the separate tax return. The net capital loss deduction is further limited by the amount of the net capital gain attributable to Oregon based on the Oregon apportionment factor.

Example 5: Assume the same facts as in Example 4. The 2009 separate Oregon return of Z shows a net capital gain of $200 with an Oregon apportionment factor of 50 percent. The net capital loss deduction allowed is $100 ($200 x 50 percent). Z has a net capital loss carryover to 2010 of $275.

(d) If a group of unitary corporations, taxable within and without this state, filed a consolidated return for the year of the net capital loss and carries the net capital loss after apportionment back to a year in which a combined return is filed, the net capital loss must be allocated among the corporations as provided under the SRLY limitations in Treas. Reg. 1.1502-22. The net capital gain of the unitary group in the combined year must be apportioned among the corporations based on each corporation’s Oregon apportionment percentage.

(5) If a corporation, taxable within and without this state, filed a separate return or was included in a different consolidated return for the year of the net capital loss and carries the net capital loss after apportionment to a year in which a consolidated return is filed, the net capital loss can be deducted only to the extent that the same corporation has a net capital gain which is attributed to Oregon. If the consolidated group in the carryover year is subject to the apportionment provisions, the net capital gain of the member must be attributed to Oregon based on the consolidated Oregon apportionment factor.

Example 6: In its first tax year 2008, B Corporation had a net capital loss of $6,000. Because of its 50 percent Oregon apportionment factor, $3,000 of the loss is apportioned to Oregon. On January 1, 2009, 100 percent of B’s stock was purchased by P Corporation. Because they were unitary, P and B file a 2009 consolidated Oregon return that includes B’s net capital gain of $1,000 and P’s net capital gain of $3,000. The consolidated return apportionment factor is 35 percent. On the 2009 consolidated return, only $350 of B’s $3,000 net capital loss carryover can be deducted (the lesser of $1,000 x .35 or $4,000 x .35).

(6) If a corporation participated in Oregon’s tax amnesty program pursuant to Oregon Laws 2009, chapter 710 (SB 880), the capital loss carried from another year is applied to the total Oregon capital gains reported as if the taxpayer had not participated in the amnesty program. A refund may be paid when a capital loss is applied to a year in which the taxpayer participated in the amnesty program only to the extent that the taxpayer paid taxes for that year other than under the amnesty program and in excess of the statutory minimum tax. Whether or not a refund is paid, the capital loss carried to subsequent years is reduced by the amount applied to the amnesty year as if the taxpayer had not participated in the amnesty program.

Example 7: Corporation X has a federal net capital loss of $3,000 for 2009. X’s Oregon apportionment factor for 2009 is 40 percent. X has a $1,200 ($3000 x 40 percent) Oregon net capital loss available for carryback to 2006. For tax year 2006, X filed an original Oregon corporate tax return under Oregon’s amnesty program. The 2006 return reported a federal net capital gain of $1,000 and an Oregon apportionment factor of 50 percent, resulting in an Oregon net capital gain of $500. X must carry back the capital loss to tax year 2006 but cannot receive a refund for any taxes paid because all taxes paid for tax year 2006 were paid under the amnesty program. X must reduce the capital loss carried to subsequent years to $700. The $500 capital loss that would have been allowed to offset against the capital gains had the 2006 return not been filed under the Oregon amnesty program is eliminated.

Example 8: Corporation Y has a federal net capital loss of $5,000 for 2009. Y’s Oregon apportionment factor for 2009 is 30 percent. Y has a $1,500 ($5,000 x 30 percent) Oregon net capital loss available for carryback to 2006. For tax year 2006, Y filed a timely Oregon corporate tax return showing no capital gain income and paying $50 Oregon net excise tax. During Oregon’s amnesty program, Y filed an approved amnesty amended return claiming previously unreported federal net capital gain of $3,000 and a revised Oregon apportionment factor of 60 percent, resulting in Oregon capital gains of $1,800. Additional Oregon taxes paid were $119.

All of the $1,500 capital loss carryback is offset against the $1,800 capital gain income for tax year 2006. Any resulting refund is limited to taxes paid outside the amnesty program that exceed the statutory minimum tax. Y is entitled to a refund of $40 ($50 tax paid outside the amnesty program minus the $10 minimum tax for tax year 2006). Y does not have a remaining capital loss to carry to subsequent years.

[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 317.013
Hist.: RD 10-1986, f. & cert. ef. 12-31-86; RD 15-1987, f. 12-10-87, cert. ef. 12-31-87; RD 11-1988, f. 12-19-88, cert. ef. 12-31-88; RD 12-1990, f. 12-20-90, cert. ef. 12-31-90; RD 9-1992, f. 12-29-92, cert. ef. 12-31-92; REV 6-2004, f. 7-30-04, cert. ef. 7-31-04; REV 8-2010, f. 7-23-10, cert. ef. 7-31-10

150-317.013(2)

Administrative and Judicial Interpretations

As used in ORS 317.013(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 317.013(1), regardless of the date of promulgation or issuance of the regulation, ruling, procedure or decision.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.013
Hist.: RD 12-1985, f. 12-16-85, cert. ef. 12-31-85

150-317.018

Adoption of Federal Law

Generally, Oregon corporation excise tax law, as related to the definition of taxable income, is tied to federal tax law as applicable to the tax year of the taxpayer. Changes enacted to the definition of federal taxable income are effective for Oregon tax purposes in the same manner as for federal tax purposes, unless otherwise provided in Oregon tax law.

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

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.018
Hist.: 10-5-83, 12-31-83; 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 7-1991, f. 12-30-91, cert. ef. 12-31-91; RD 3-1995, f. 12-29-95, cert. ef. 12-31-95; RD 4-1997, f. 9-12-97, cert. ef. 12-31-97; REV 6-2004, f. 7-30-04, cert. ef. 7-31-04; REV 3-2005, f. 12-30-05, cert. ef. 1-1-06

150-317.018(1)

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

(1) 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 corporations. 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.

(2) The provisions of this rule concerning "Claim of right" apply to tax years beginning before January 1, 1998. For tax years beginning on or after January 1, 1998, a credit is allowed to a taxpayer for a claim of right income repayment under section 2, Chapter 1007, Or Laws 1999.

(3) Claim of right: IRC section 1341 allows a deduction on the federal return for amounts repaid by a taxpayer on income previously reported under a claim of right. This deduction is also allowed on the Oregon return. If the amount repaid exceeds $3,000 in the year of repayment, IRC section 1341 allows the taxpayer to instead use a special tax computation rather than claim a deduction. If the taxpayer uses this special tax computation on the federal return, the taxpayer may not make a special tax computation for Oregon. However, the taxpayer may claim any repayments as a subtraction on the Oregon return.

[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 317.018
Hist.: REV 12-1999, f. 12-30-99, cert. ef. 12-31-99

150-317.018(2)

Periods of Less than 12 Months Are Tax Years

(1) Under Oregon's tie to federal accounting periods, an Oregon return shall cover the same period as the corresponding federal return. See also OAR 150-314.085(2).

(2) Internal Revenue Code Regulation 1.1502-76 provides that any period of less than 12 months for which either a separate return or a consolidated return is filed shall be considered as a separate taxable year.

Example: Corporation X and its federal consolidated subsidiaries have a fiscal year end of June 30. On January 31, 1989, Corporation X sold Corporation Y (one of its 100 percent owned subsidiaries included in its consolidated returns) to Corporation Z. Corporation Z has a fiscal year ending May 31, 1988 and Corporation Y is required to change its tax year to be the same.

Corporation Y must file two short-period returns for federal and Oregon tax purposes (one for July 1, 1988, through January 31, 1989, and another for February 1 through May 31, 1989). Each short-period return shall count as a tax year for purposes of net operating loss and tax credit carryovers. If Corporation Y was not unitary with Corporation X or Corporation Z, it shall file separate Oregon returns for the two periods. For tax years beginning before January 1, 1986, Corporation Y was allowed by the department to file one Oregon return with the two short-period federal returns attached.

[Publications: The publication referred to 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 317.018
Hist.: RD 7-1989, f. 12-18-89, cert. ef. 12-31-89

150-317.021

Tax Reform Act of 1984 Adjustments

The rule under OAR 150-316.021 shall be followed in determining how adjustments due to adoption of effective dates in the federal Tax Reform Act of 1984 shall be reported.

[Publications: The publication referred to 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 317.021
Hist.: RD 12-1985, f. 12-16-85, cert. ef. 12-31-85

150-317.063

Farm Capital Gain

(1) This rule is effective July 31, 2010 and applies to all tax years open to examination.

(2) Definitions. For purposes of ORS 317.063 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.

(3) 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.

(4) 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.

Example 1: Forty years ago, Corporation A purchased an orchard next to the company’s row crop farm. The company did not regularly harvest the fruit or care for the trees but allowed its employees and their families to use the fruit. Last year, the urban growth boundary moved to include the company’s parcel. Corporation A wanted to sell the property to developers so it 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.

(5) Use Test. The asset 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 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, 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 that makes farming impractical 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 2: BJ Farms raised corn and beans on 500 acres the entire time it owned the acreage. BJ Farms used the cornfields as a corn maze after the corn was harvested. BJ Farms sold the 500 acres to CJ Farms and recognized a capital gain. Assuming the gain from the sale meets the other three tests, the gain from the sale qualifies for the reduced tax rate because BJ Farms used the property predominantly (80 percent or more) in the trade or business of farming even though the company used the farmland for an incidental purpose after the harvest.

Example 3: D & D, Inc owned and operated a 30 acre farm. The farm had a waterway and riparian land that was not farmed, which took up 10 acres of the farm. Assuming the company meets the other three tests, D & D, Inc qualifies for the reduced tax rate because the property was predominantly used in the business of farming. The farm use qualifies as predominant for the entire 30 acres because the 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 4: John B. Dairy, Inc sold 20 acres of land. The company owned the land and leased out 15 acres to a farmer who grew crops. The remaining 5 acres was made into baseball fields where the company allowed local Little League teams to use it for practices and games. Assuming John B. Dairy, Inc meets the other three tests, the 15 acres used for farming qualifies for the reduced tax rate.

(6) 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 5: Green Beans Inc and Sweet Corn Inc own a farm together as a partnership. The partnership decides to sell the business to BJ Farms, (the parent company). Assume the sale meets the other three tests. The Green Beans Inc and Sweet Corn Inc capital gain does not qualify for the reduced tax rate because Green Beans Inc and Sweet Corn Inc are related to BJ Farms under IRC section 267.

(7) Termination Test. If a taxpayer sold an 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 after the sale. The sale of the taxpayer’s interests through an installment sale constitutes a substantially complete termination for purposes of ORS 317.063 and this rule. A taxpayer has substantially terminated its interests in the trade or business of farming even though the taxpayer retained a portion of the farm for personal use.

Example 6: Happy Cow Dairy Inc, (Parent Corporation) owned two subsidiaries, a dairy operation and a hop 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. Happy Cow Dairy Inc sold the dairy farm. After selling all of the dairy equipment and dairy cows, the company realized a capital gain of $350,000. The company decided not to sell the hop farm. The gain on the sale of the dairy operation qualifies for the reduced tax rate. Even though the company still owned the hop farm, it had sold the entire dairy business.

(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 7: JD Inc sold its farm, which included three silos. 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 it results in 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 that are taxable to Oregon.

Example 8: B Inc sold a farming business for a net long-term capital gain of $800,000. During the year, the company also sold other property for a net capital loss of $150,000. Assuming the sale of the farm business meets all four tests, B Inc is only eligible for the reduced tax rate on $650,000 (net farm long-term capital gain minus other net capital loss) of the taxable income.

(10) Installment Method under IRC section 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 (8) 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 9: Green Acres Inc sells its row crop farm in 2007 and meets all four tests to receive the reduced tax rate. The company elects to recognize the income from the sale using the installment method under IRC section 453. Green Acre Inc 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. The company’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 Green Acres Inc, which is reported separately on the return. In 2007, the company will claim the 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, the company will claim the farm capital gain rate for $75,000 ($100,000 x 75 percent) of capital gain from the sale reported each year.

(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 10: Dee Farms decided to exchange farmland for investment property. The exchange meets all four tests. Dee Farms deferred $400,000 of capital gain. Later, Dee Farms sells the investment property and reports 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 the company had not deferred it.

(12) 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, the taxpayer must be actively trying to sell all farm property (or all property from a farming business) 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 11: Sunshine Grass Seed Inc owns 1,000 acres of farmland in four different locations. The properties are treated as one business and all of the property is actively for sale. The company sells 200 acres to a neighboring farmer in 2006. Sunshine Grass Seed Inc files its 2006 tax return but cannot claim the reduced tax rate on the gain because it is not out of the business of farming. In November 2007, the company sells the remaining 800 acres of farmland to Dees Farms (an unrelated party). Sunshine Grass Seed Inc, files its 2007 tax return and the long-term capital gain from the sales qualifies for the reduced tax rate because the property was actively for sale the entire time. Sunshine Grass Seed Inc may now amend its tax return for 2006 and claim the reduced tax rate on the qualifying capital gain from the earlier sale.

(13) If a taxpayer sells farm property and then buys other farm property, the taxpayer may qualify for the reduced tax rate. The taxpayer must meet all four tests described in section (3) of this rule with the sale of farm property before purchasing other farm property to qualify for the reduced tax rate.

Example 12: JB Farms, sold the company’s farm and equipment to start a retail business. After some difficulty in getting started, the company decides to go back to farming and purchased another farm. JB Farms qualifies for the reduced tax rate because the company had completely terminated its interest in property used in farming at the time of the sale and met the other tests.

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

Stat. Auth.: ORS 305.100, 317.063
Stats. Implemented: ORS 317.063
Hist.: REV 8-2010, f. 7-23-10, cert. ef. 7-31-10

150-317.067

Tax on Homeowner's Association Income

Homeowners associations, such as condominium management associations and residential real estate management associations, may elect to be treated as tax-exempt organizations for taxable years beginning on and after January 1, 1978. But this tax-exempt status will protect the association from tax only on its exempt function income, such as membership dues, fees, and assessments received from member-owners of residential units in the particular condominium or subdivision involved. The homeowners association taxable income will be taxed at the corporate rates provided in ORS 317.061. To qualify for the election, the association must meet the following conditions:

(1) A copy of the federal Form 1120-H filed with the Internal Revenue Service must be filed with the Oregon Department of Revenue no later than the time prescribed by law for filing the return.

(2) It must be organized and operated as provided in section 528(c) of the Internal Revenue Code.

(3) "Homeowners association taxable income" is determined pursuant to section 528(d) of the Internal Revenue Code and pertinent federal regulations. However, net capital gains shall be included in the computation of homeowners association taxable income and shall receive no special treatment.

(4) “Exempt function income” is determined pursuant to section 528(d) of the Internal Revenue Code and pertinent federal regulations.

(5) If a homeowners association that elects to be treated as a tax exempt organization has positive homeowners association taxable income, it shall be reported on an Oregon Corporation Excise Tax Return, Form 20and the association is subject to the greater of the calculated corporation excise tax or the minimum tax.

(6) If a homeowners association that elects to be treated as a tax-exempt organization does not have positive homeowners association taxable income, the association is not required to file an Oregon Corporation Excise Tax Return, Form 20 and is not subject to the minimum tax.

[Publications: Publications referenced are available from the agency pursuant to ORS 183.360(2) and 183.355(1)(b).]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.067
Hist.: 10-7-77; TC 9-1978, f. 12-5-78, cert. ef. 12-31-78, Renumbered from 150-317.080(6)(b); RD 12-1990, f. 12-20-90, cert. ef. 12-31-90; REV 12-1999, f. 12-30-99, cert. ef. 12-31-99; REV 11-2013, f. 12-26-13, cert. ef. 1-1-14

150-317.070(1)

Imposition of the Tax: Mercantile, Manufacturing and Business Corporations

A corporation excise tax is imposed for the privilege of doing business in Oregon during the year prior to that in which the tax is due and payable. The tax is measured by the corporation's Oregon taxable income as computed in accordance with the provisions of this chapter. A foreign corporation is authorized to do business in this state if it is qualified to do business here. A domestic corporation is authorized to do business if a certificate of incorporation has been issued to it, even though the details of corporate organization have not been completed and no business has been transacted.

If a corporation is subject to Oregon jurisdiction and is a part of a unitary group, as defined in ORS 317.705, the determination of the taxable income attributable to Oregon shall be made in accordance with ORS 314.605 to 314.675, 317.705 to 317.720, and the rules thereunder, although the corporation itself may be taxable only by Oregon.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.070
Hist.: 1958; 11-69; 12-70; 1-1-77; RD 7-1983, f. 12-20-83, cert. ef. 12-31-83; RD 7-1991, f. 12-30-91, cert. ef. 12-31-91

150-317.080

Adoption of Federal Exempt Organizations

NOTE: Health Maintenance Organizations. With the adoption of Oregon Laws 1987, Ch. 293, Section 36, (Enrolled HB 2225), Oregon exempts the same organizations from Oregon corporation income or excise tax as tax exempt for federal tax purposes, with the exception of health maintenance organizations (HMOs). HMOs are not exempt from the Oregon Corporation income or excise tax for tax years beginning prior to January 1, 1989, if a substantial part of their activities consists of providing commercial type insurance. For tax years beginning on or after January 1, 1989, HMOs are exempt for Oregon tax purposes to the same extent they are exempt for federal tax purposes. For taxable years beginning prior to January 1, 1987, the law and corresponding rules applicable for those years shall remain in full force and effect.

Insurance Companies. For tax years beginning on or after January 1, 1987 and before January 1, 1997, corporations exempt from Oregon corporation excise or income tax include; 1) Foreign or alien insurance companies and foreign or alien interinsurance and reciprocal exchanges, upon which a tax on premiums is levied; 2) Domestic insurance companies organized after January 1, 1971, owned or controlled by a foreign insurance company or by a foreign corporation owning or controlling a foreign insurance company, upon which a tax on premiums is levied. Effective for tax years beginning on or after January 1, 1997, foreign or alien insurance companies are exempt from the corporation excise tax only with respect to the underwriting profit derived from writing wet marine and transportation insurance subject to tax under ORS 731.824 and ORS 731.828.

Other Exempt Corporation. Oregon specifically exempts those corporations listed under ORS 317.080, including: 1) Corporations organized and operated primarily for the purpose of furnishing permanent residential, recreational and social facilities primarily for elderly persons; 2) People's utility districts established under ORS Chapter 261; 3) Charitable risk pools described in section 501(n) of the Internal Revenue Code; and 4) Qualified state tuition programs described in section 529 of the Internal Revenue Code.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.080
Hist.: RD 15-1987, f. 12-10-87, cert. ef. 12-31-87; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89; REV 7-1998, f. 11-13-98, cert. ef. 12-31-98

150-317.080

Exemption and Return Requirements

(1) For taxable years beginning on or after January 1, 1987, corporations exempt for federal tax purposes, will no longer need to submit an affidavit or a federal determination letter to the department as previously required. This does not, however, preclude the department from requesting information regarding the activities or other information from the exempt corporation.

(2) In order to establish its exemption and thus be relieved of the duty of filing returns and paying taxes, each organization claiming exemption for Oregon purposes but which is not exempt for federal purposes must file with the department:

(a) An affidavit showing the character of the organization, the purpose for which it was organized, its actual activities, the sources and the disposition of its income, whether or not any of its income is credited to surplus or may inure to the benefit of any private stockholder or individual (see below), and in general all other facts relating to its operations which affect its right to exemption;

(b) A copy of the articles of association or incorporation;

(c) The by-laws of the organization; and

(d) The latest financial statement showing the assets, liabilities, receipts and disbursements of the organization. The articles should clearly indicate the disposition to be made of surpluses in the event of termination.

(3) When an organization has established its right to exemption and does not have unrelated business taxable income, it need not thereafter voluntarily make a return or any further showing with respect to its status unless it changes the character of its organization or operations from the purpose for which it is organized, or unless the department requests the filing of returns or the furnishing of other information.

(4) As provided in ORS 317.920, a corporation otherwise exempt from tax shall be subject to Oregon Corporation Excise Tax on its unrelated business taxable income, and shall file a return in any tax year the corporation has unrelated business taxable income.

(5) Organizations exempt under federal law, but not exempt under Oregon law, must attach a copy of the organization's federal Form 990 or 990T to the Oregon return in lieu of a federal Form 1120.

(6) Organizations which devote a substantial amount of their time or funds to promote legislation or support political candidates are not exempt within any section of ORS 317.080.

(7) The exempt status granted to organizations by the Internal Revenue Service (IRS) or the department may be reviewed at a later date. If the department finds that the exempt status was granted in error due to misstatements or fraud in the application for exemption, or a mistake on a point of law by an employee of the department or the IRS, the exemption will be retroactively revoked to the date the exemption was granted. If the department finds that the exemption was justified when granted, but that subsequent activities disqualified the organization for the exemption, the exemption shall be revoked as of the date such disqualifying activities began.

(8) If an organization's exemption is revoked by the IRS, the department shall revoke the exemption for Oregon tax purposes with the same effective date as the IRS.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.080
Hist.: 1953; 6-68;12-19-75; 12-31-82; RD 15-1987, f. 12-10-87, cert. ef. 12-31-87; RD 11-1988, f. 12-19-88, cert. ef. 12-31-88; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89

150-317.090

Minimum Tax

(1)(a) For tax years beginning on or after January 1, 2009, the tax liability of an affiliated group of corporations filing a consolidated return may not be less than the minimum tax as defined in ORS 317.090. Only one minimum tax is charged per return, regardless of the number of corporations in the group that are doing business in Oregon.

Example 1: X Corporation and its only subsidiary, Y Corporation, are doing business in Oregon and file a consolidated Oregon Excise Tax Return showing a net loss for the 2009 tax year. The consolidated Oregon excise tax return properly shows Oregon sales for X of $500,000 and for Y of $250,000. The minimum tax for the year is $500 based on Oregon sales of $750,000.

(b) For tax years beginning on or after January 1, 2006, and before January 1, 2009 the tax liability of an affiliated group of corporations filing a consolidated return may not be less than the $10 minimum tax multiplied by the number of corporations in the group that are doing business in Oregon.

Example 2: Alpha Corporation and its only subsidiary, Beta Corporation, are doing business in Oregon and file a consolidated Oregon Excise Tax Return showing a net loss for the 2006 tax year. The Oregon minimum tax for the year is $20.

(c) For consolidated returns filed for tax years beginning before January 1, 2006, the department determines that a $10 minimum tax is due for the consolidated group and the $10 minimum tax due for each affiliate included in the return doing business in Oregon is cancelled. This determination is made under authority of ORS 305.145(3).

Example 3: On July 1, 2006, Corporation A and Affiliates filed an amended tax return for 2005. The return included three affiliates doing business in Oregon and showed a net loss for the tax year. Although ORS 317.090 provides that each of the four corporations owes $10 of minimum tax, the department will cancel the tax attributable to the affiliates and only one $10 tax is owed by Corporation A and Affiliates.

(2) For tax years beginning on or after January 1, 1999, the excise tax is measured by the corporation's Oregon taxable income as computed in accordance with the provisions of the statute, but the tax cannot be less than the specified minimum. The minimum tax is due even though the corporation had a net loss and it must be paid in full even though the taxpayer was subject to the statute for only a part of the year, except that it may be apportioned in the case of a change of accounting periods. A corporation with no business activity in Oregon is not subject to the $10 minimum tax.

(3) For tax years beginning before January 1, 1999, the provisions of section (2) of this rule apply, except that a corporation qualified to do business in Oregon, but engaging in no business activity in the state, is subject to the $10 minimum tax.

(4) Definition of “Oregon Sales”. For tax years beginning on or after January 1, 2009, the minimum excise tax is determined by referencing the taxpayer’s “Oregon sales.” Corporations using the apportionment method described in ORS 314.650 to 314.665 compute Oregon sales as provided under ORS 314.665. For corporations that apportion business income using a method different from that prescribed by ORS 314.650 to 314.665, "Oregon sales" means the numerator of the sales factor for:

(a) Carriers of freight or passengers in general, as provided in OAR 150-314.280-(G);

(b) Railroads, as provided in OAR 150-314.280-(H);

(c) Airlines, as provided in OAR 150-314.280-(I);

(d) Trucking companies, as provided in OAR 150-314.280-(J);

(e) Companies engaged in sea transportation service, as provided in OAR 150-314.280-(K);

(f) Companies involved in interstate river transportation service, as provided in OAR 150-314.280-(L);

(g) Public utilities (other than those provided for in subsections (a) through (f)), as provided in OAR 150-314.280-(E)(5), 150-314.280-(F), and ORS 314.650;

(h) Financial organizations, as defined in ORS 314.610(4), as provided in OAR 150-314.280-(N);

(i) Taxpayers with income from long-term construction contracts, as provided in OAR 150-314.615-(F);

(j) Motion picture and television film producers, as provided in OAR 150-314.615-(H);

(k) Publishers, as provided in OAR 150-314.670-(A);

(l) Interstate broadcasters, as provided in ORS 314.684;

(m) Insurers (as defined in ORS 317.010(11)), as provided in ORS 317.660(1); and

(n) Title insurers, and health care service contractors not classed as insurers under ORS 317.010(11), as provided in OAR 150-314.280-(E)(4), including gross premium receipts.

Stat. Auth.: ORS 305.100 & 317.090
Stats. Implemented: ORS 317.090
Hist.: 1953; TC 19-1979, f. 12-20-79, cert. ef. 12-31-79; RD 7-1983, f. 12-20-83, cert. ef. 12-31-83; RD 15-1987, f. 12-10-87, cert. ef. 12-31-87; REV 12-1999, f. 12-30-99, cert. ef. 12-31-99; REV 8-2006(Temp), f. 11-20-06, cert. ef. 11-21-06 thru 12-31-06; REV 11-2006, f. 12-27-06, cert. ef. 1-1-07; REV 2-2010, f. & cert. ef. 2-19-10

150-317.092

Definition of "Oregon Sales" for One-time Small Sales Credit

(1) For tax years beginning on or after January 1, 2007, and before January 1, 2008 (tax year 2007), a C corporation with Oregon sales of less than $5 million is allowed a credit against Corporation Excise Tax or Corporation income tax equal to 67 percent of such tax.

(2) For a taxpayer that apportions business income for tax year 2007 using a method different from that prescribed by ORS 314.650 to 314.665, "Oregon sales" means the numerator of:

(a) The insurance sales factor provided in ORS 317.660(1) for insurers as defined in ORS 317.010(11);

(b) The sales factor, including gross premium receipts, as provided in OAR 150-314.280-(E)(2) for title insurers and health care service contractors not classed as insurers under ORS 317.010(11);

(c) The sales factor as provided in OAR 150-314.280-(G) for carriers of freight or passengers in general;

(d) The sales factor as provided OAR 150-314.280-(H) for railroads;

(e) The sales factor as provided in OAR 150-314.280-(I) for airlines;

(f) The sales factor as provided in OAR 150-314.280-(J) for trucking companies;

(g) The sales factor as provided in OAR 150-314.280-(K) for companies engaged in sea transportation service;

(h) The sales factor as provided in OAR 150-314.280-(L) for companies involved in interstate river transportation service;

(i) The sales factor as provided in OAR 150-314.280-(E)(3), OAR 150-314.280-(F), and ORS 314.650 for public utilities other than those provided for in subsections (c) through (h);

(j) The sales factor as provided in OAR 150-314.280-(N) for financial organizations, as defined in ORS 314.610(4);

(k) The sales factor as provided in OAR 150-314.615-(F) for taxpayers with income from long-term construction contracts;

(l) The sales factor as provided in OAR 150-314.615-(H) for motion picture and television film producers;

(m) The sales factor as provided in OAR 150-314.670-(A) for publishers; and

(n) The sales factor as provided in ORS 314.684 for interstate broadcasters.

Stat. Auth.: ORS 305.100, 317.092
Stats. Implemented: ORS 317.092
Hist.: REV 9-2007(Temp), f. & cert. ef. 10-5-07 thru 12-31-07; REV 10-2007, f. 12-28-07, cert. ef. 1-1-08

150-317.097

Affordable Housing Credit; Definitions; Transfers; Carry Forward of Unused Credit

(1) Definitions, as used in ORS 317.097.

(a) Community Rehabilitation Program. A "community rehabilitation program" is a program sponsored by a nonprofit corporation or local government unit for the rehabilitation of low income housing.

(b) Project. A "project" is one or more units of housing that will be sold or rented to households whose incomes are less than 80 percent of the area median income.

(c) Time the qualified loan for housing construction, development, acquisition or rehabilitation is made. The "time the qualified loan for housing construction, development, acquisition or rehabilitation is made" is the date a note is signed for a loan and the interest rate becomes effective with the closing of the loan, or the date a conversion loan becomes a permanent loan. Either date may be used to determine the interest rate on nonsubsidized loans made under like terms and conditions as the qualifying affordable housing loan.

(2) If a qualifying loan is transferred by a lending institution to another entity, the transferee's credit must be computed in the same way and subject to the same limitations as the prior lending institution's credit. The transferee cannot claim a credit on the loan beyond the 20 year period that started with the date the loan was originally made.

(3) Unused credits from tax years starting before January 1, 1995 may be carried forward 15 years. Unused credits from tax years starting on or after January 1, 1995 may be carried forward 5 years.

(4) See OAR 813-110-0005 through 813-110-0040 for Housing and Community Development Department rules relating to the Oregon Affordable Housing Tax Credit Program.

Stat. Auth.: ORS 305.100 & 317.097
Stats. Implemented: ORS 317.097
Hist.: RD 1-1990, f. & cert. ef. 3-15-90; 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 7-1999, f. 12-1-99, cert. ef. 12-31-99; REV 3-2005, f. 12-30-05, cert. ef. 1-1-06; REV 10-2009, f. 12-21-09, cert. ef. 1-1-10

150-317.099

Commercial Lending Institution Loans for Underground Storage Tanks or Soil Remediation

(1) ORS 317.099 was repealed December 31, 1991. On January 1, 1992, any finance charge that would have been eligible for a tax credit to a commercial lending institution under ORS 317.099 on the outstanding term of any loan made under ORS 317.099, shall cease to be eligible for a tax credit. Such finance charges accrued after December 31, 1991, shall be eligible for reimbursement by the Department of Environmental Quality, under the provisions of ORS 466.705 to 466.835.

(2) A commercial lending institution with a fiscal tax year ending after January 1, 1992, shall receive a tax credit on all eligible finance charges received or accrued before that date.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.099
Hist.: RD 9-1992, f. 12-29-92, cert. ef. 12-31-92

150-317.111

Carryover of the Lender's Credit for Weatherization Loans

An excess Lender's Credit may be carried forward for up to 15 years. Carryovers from tax years beginning in 1977 may not be claimed on the taxpayer's 1985 or 1986 corporation excise tax returns. Carryovers from tax years beginning in 1978 may not be claimed on the taxpayer's 1986 corporation excise tax return. For purposes of computing the remaining carryover from tax years beginning in 1977 and 1978, the years in which the credit carryover was not allowed reduces the number of carryover years remaining. Credit carryovers from tax years beginning in 1979 and later may be claimed in tax years beginning in 1985 and 1986.

In addition to the Lender's Credit Form (150-102-125) a separate schedule showing how the amount of unused credit carryover is computed shall be attached to the return for tax years that the unused credit carryover is being claimed.

[Forms: Forms referred to in this rule are available from the agency pursuant to ORS 183.360(2) and ORS 183.355(6).]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.111
Hist.: RD 12-1985, f. 12-16-85, cert. ef. 12-31-85

150-317.112

Lender's Credit: Loans to Wood Heat and Fuel Oil Heat Customers

A credit is available to commercial lending institutions for tax years beginning on or after January 1, 1982, for low interest loans made to wood heat and fuel oil heat customers to finance energy conservation measures. To qualify, the loans must be made on or after January 1, 1982.

The amount of the credit is equal to the difference between the interest charged on a qualifying loan, at an interest rate of 6 percent, and the interest that would have been charged if the loan had been issued at the lending institution's normal fixed interest rate. The fixed interest rate cannot exceed a maximum rate set by the director of the Office of Energy. The normal fixed interest rate is the rate that would have been charged on a similar loan made on the same day as the qualifying loan. The initial rate of interest charged on variable rate loans may be substituted for the fixed rate if the lending institution does not make fixed rate nonsubsidized loans. If the credit exceeds the commercial lending institution's tax liability, the balance may be carried forward for up to 15 years.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.112
Hist.: 12-6-82, 12-31-82; 12-31-87; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89, Renumbered from 150-317.100(Note)-(A); RD 12-1990, f. 12-20-90, cert. ef. 12-31-90, Renumbered from 150-317.090(Note)-(B)-(1); RD 7-1991, f. 12-30-91, cert. ef. 12-31-91, Renumbered from 150-317.099(Note)-(B)-(1); RD 3-1995, f. 12-29-95, cert. ef. 12-31-95; REV 7-1999, f. 12-1-99, cert. ef. 12-31-99; REV 8-2001, f. & cert. ef. 12-31-01

150-317.112(1)

Lender's Credit: Computation

The credit is computed as follows:

Step 1: Calculate the interest that would have been charged during the tax year if the qualifying loans had been issued at the commercial lending institution's normal fixed rate of interest at the time the loans were made.

Step 2: Determine the actual interest charged on the qualifying loans during the tax year at an interest rate of 6 1/2 percent.

Step 3: Subtract the interest charged as determined in Step 2 from the interest calculated in Step 1. The difference is the available lender's credit.

Normal loan fees and prepayment penalties do not affect the eligibility of a low interest loan. Loan fees financed as part of the qualifying loan are includable in computing the interest that would have been charged at the lending institution's normal interest rate as well as the actual interest charged on the qualifying loan.

If a qualified loan is terminated because of a prepayment or default, interest is computed from the start of the tax year through the date of termination at both the 6 1/2 percent rate and the normal fixed interest rate determined at the time the loan was made. The amount by which the interest charged at the normal fixed interest rate exceeds the interest charged at 6 1/2 percent is included in computing the available lender's credit.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.112
Hist.: 12-6-82, 12-31-82; RD 15-1987, f. 12-10-87, cert. ef. 12-31-87; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89, Renumbered from 150-317.100(Note)-(C); RD 12-1990, f. 12-20-90, cert. ef. 12-31-90, Renumbered from 150-317.090(Note)-(B)-(3); RD 7-1991, f. 12-30-91, cert. ef. 12-31-91, Renumbered from 150-317.099(Note)-(B)-(3)

150-317.112(7)

Lender's Credit: Definitions

(1) Fuel oil is defined under rules adopted by the Office of Energy.

(2) "Commercial lending institution" is defined in Section 22, Chapter 894, Oregon Laws 1981 to include state and federal credit unions maintaining an office in the state. Although credit unions are included in the definition, they are exempt from the Oregon Corporate Excise Tax by ORS 317.080(12). Section 28, Chapter 894, Oregon Laws 1981 grants a credit "...against taxes otherwise due under this chapter for the taxable year." Therefore, unless a credit union loses its exemption from the Oregon Corporation Excise Tax by either paying more than 8 percent interest on share accounts or by having unrelated business taxable income, it would not be eligible for the refundable credit.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.112
Hist.: 12-31-81, Renumbered from 150-317.100(Note); 12-31-82; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89, Renumbered from 150-317.100(Note)-(B); RD 12-1990, f. 12-20-90, cert. ef. 12-31-90, Renumbered from 150-317.090(Note)-(B)-(2); RD 7-1991, f. 12-30-91, cert. ef. 12-31-91, Renumbered from 150-317.099(Note)-(B)-(2); REV 7-1999, f. 12-1-99, cert. ef. 12-31-99

150-317.147

Lender's Credit for Farmworker Housing

(1) A credit is available to commercial lending institutions that make low interest loans to finance the construction or rehabilitation of farmworker housing.

(2) Qualifications for the Tax Credit:

(a) The farmworker housing must be located in Oregon.

(b) The interest rate charged by the lending institution cannot exceed 13.5 percent per annum. If the interest rate exceeds 13.5 percent for a short period of time, but the annual rate for the year is 13.5 percent or less, the credit would not be lost for that year. Each year will stand alone in determining whether the credit is available for the year.

(3) Computation of the Tax Credit:

(a) For loans made in tax years beginning on or after January 1, 2002, the credit is equal to 50 percent of the interest income earned. For loans made in tax years beginning on or after January 1, 1996, and before January 1, 2002, the credit is equal to 30 percent of the interest income earned. For loans made in tax years beginning before January 1, 1996, the credit is equal to 50 percent of the interest actually received by the commercial lending institution on loans certified by the borrower to finance the construction or rehabilitation of farmworker housing. Construction includes acquisition of new or used prefabricated or manufactured housing. Interest that has been accrued but not actually received may not be included in computing the credit.

(b) Interest on loans to finance the acquisition of land and existing improvements on that land does not qualify for the credit. If a loan is made to cover the acquisition and construction or rehabilitation costs, only interest on the portion of the loan attributable to the construction and rehabilitation costs qualifies for the credit.

(c) Loan fees and other charges imposed and collected by the lending institution may not be included in the computation of the credit.

(d) The tax credit must be claimed over the term of the loan or 10 tax years, whichever is shorter.

(4) If a qualifying loan is transferred by the original lender to another commercial lending institution, the transferee may not claim a credit on the loan beyond the 10-year period that started with the tax year the loan was originally made. The transferee's credit must be computed in the same way and subject to the same limitations as the original lender's credit.

(5) If a qualifying loan is transferred by the original lender to another person, the transferor may retain the right to claim the credit if it also retains the responsibility for servicing the loan.

(6) For tax years beginning on or after January 1, 2002, a lending institution that is not subject to tax under ORS Chapter 317 may sell or otherwise transfer its allowable credit to a taxpayer that is subject to taxation under ORS Chapter 317. The transferee of the credit may claim the credit for the same tax years the transferor would have been allowed to claim the credit. The transferee and the transferor must attach to the return on which the credit is claimed by the transferee, a statement that includes the following information:

(a) The transferor's name, federal employer ID number (FEIN) and Oregon business identification number (BIN);

(b) The transferee's name, FEIN and BIN;

(c) The amount of the credit transferred;

(d) The amount of any proceeds received for the transfer; and

(e) Signatures of a corporate officer of the transferor and a corporate officer of the transferee.

(7) A single unit of housing can qualify as a farmworker housing project.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.147
Hist.: RD 7-1989, f. 12-18-89, cert. ef. 12-31-89; RD 12-1990, f. 12-20-90, cert. ef. 12-31-90; RD 7-1991, f. 12-30-91, cert. ef. 12-31-91, Renumbered from 150-317.145(Note)-(C)-(2); RD 3-1995, f. 12-29-95, cert. ef. 12-31-95; REV 8-2001, f. & cert. ef. 12-31-01

150-317.151

Credit For Contributions of Computers, Scientific Equipment, and Research

(1) In General. Charitable contributions of tangible personal property shall not be eligible for the credit if the donee educational institution does not use the property primarily for the education of students in Oregon. The requirement that the property be used primarily for the education of students in Oregon is met if the donee provides the donor (taxpayer) with a written statement that the property's use is in accordance with this requirement. Such written statement shall be made available to the department upon request. For purposes of this rule "primarily" means at least 80 percent.

(2) Substantiation of Fair Market Value.

(a) When the taxpayer files its Oregon return claiming a credit under this section, a schedule shall be attached to the Oregon return listing the following information:

(A) The name and address of the donee;

(B) A description of the property contributed;

(C) The date or dates of the donation;

(D) The fair market value of the donation.

(b) Upon audit, the taxpayer may be required to provide the same substantiation of fair market value that would be necessary for a charitable contribution deduction allowable under Internal Revenue Code Section 170.

(3) Effective Date.

(a) The credit for qualified charitable contributions of tangible personal property or maintenance agreements is effective for contributions made in tax years beginning on or after January 1, 1986, and prior to January 1, 2004.

(b) The credit for qualified charitable contributions of monies made under a contract or agreement for scientific or engineering research is effective for contributions of monies made under a contract or agreement entered into in taxable years beginning on or after January 1, 1986, and prior to January 1, 2004. If the contract or agreement was entered into in a taxable year beginning prior to January 1, 2004, but the monies aren't contributed until a taxable year beginning on or after January 1, 2004, the credit shall be allowed for the taxable year the monies are contributed to the qualifying educational institution.

(4) Carryover. Credits otherwise allowable for tax years beginning on or after January 1, 1993, which are not used by the taxpayer in a particular year may be carried forward for up to five years.

[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 317.151
Hist.: 10-7-85, 12-31-85; 12-31-87; 12-31-89, Renumbered from 150-317.102(NOTE) to 150-317.102(Note)-(B); RD 7-1989, f. 12-18-89, cert. ef. 12-31-89; RD 7-1991, f. 12-30-91, cert. ef. 12-31-91, Renumbered from 150-317.102(Note)-(B); RD 4-1997, f. 9-12-97, cert. ef. 12-31-97

150-317.153

Research Tax Credit: Notice of Election

The election to compute the credit under ORS 317.152 or ORS 317.154 shall be made on the Oregon return for the tax year in which the credit is claimed. The election can be changed on an amended return subject to the limitations provided in ORS 314.410 and ORS 314.415.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.153
Hist.: 9-20-89, 12-31-89, Renumbered from 150-317.145(Note)-(B) to 150-317.145(Note)-(B)-(1); RD 12-1990, f. 12-20-90, cert. ef. 12-31-90; RD 12-1990, f. 12-20-90, cert. ef. 12-31-90; RD 7-1991, f. 12-30-91, cert. ef. 12-31-91, Renumbered from 150-317.145(Note)-(B)-(1); RD 3-1995, f. 12-29-95, cert. ef. 12-31-95

150-317.154

Research Tax Credit: Alternative Computation

(1) The research credit based on Oregon sales is the lesser of the following:

(a) Five percent of the amount by which the qualified research expenses exceed 10 percent of Oregon sales,

(b) $10,000 times the number of percentage points by which the qualifying research expenses exceed 10 percent of Oregon sales; or

(c) The taxpayer's liability after other credits.

(2) For tax years beginning on or after January 1, 2006, the credit may not exceed $2,000,000. The limit applies to the consolidated group when a consolidated Oregon return is filed.

(3) For tax years beginning on or after January 1, 1995 and before January 1, 2006, the credit may not exceed $500,000. The limit applies to the consolidated group when a consolidated Oregon return is filed.

(4) For tax years beginning before January 1, 1995, the credit may not exceed $50,000 or one-third of the excise tax liability of the taxpayer before credits, whichever is less. These limits apply to the consolidated group when a consolidated Oregon return is filed.

(5) Credits otherwise allowable for tax years beginning before January 1, 1995 and not used in such years may not be carried forward. Credits otherwise allowable for tax years beginning on or after January 1, 1995 and not used in such years may be carried forward for up to 5 years.

Example: A corporation has 1994 Oregon sales of $40,000,000, qualified research expenses of $4,900,000 and Oregon excise tax of $264,000 before credits. The allowable 1994 credit is calculated as follows:

Credit before limitations:

Qualified research expenses -- $4,900,000

Less: Oregon sales -- $40,000,000 x .10

10% of Oregon sales -- (4,000,000)

Excess -- $900,000 x .05

Credit before limitations -- $45,000

Limitations:

Qualified research expenses in

excess of 10% of Oregon sales -- $900,000

Divide by Oregon sales -- ÷ 40,000,000

Excess percentage points -- 2.25

Multiply by $10,000 -- x $10,000

   $22,500

Maximum credit amount -- $50,000

One-third of excise tax liability before credits ($264,000 ÷ 3) $88,000

The credit allowed is $22,500.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.154
Hist.: 12-31-93; RD 7-1993, f. 12-30-93, cert. ef. 12-31-93; RD 3-1995, f. 12-29-95, cert. ef. 12-31-95; REV 8-2001, f. & cert. ef. 12-31-01; REV 5-2006, f. & cert. ef. 7-31-06

150-317.259-(A)

Bad Debt Reserve of Financial Institutions Not Qualifying as Large Banks That Have Differences in Reserve for Federal and Oregon Tax Purposes

Bad Debt Reserve of Financial Institutions Not Qualifying as Large Banks That Have Differences in Reserves for Federal and Oregon Tax Purposes

(1) For tax years beginning on or after January 1, 1987, Oregon has adopted the federal provisions for treatment of bad debts of financial institutions provided in Sections 585(a) and 585(b) of the Internal Revenue Code (IRC). These provisions apply to financial institutions not considered large banks, as defined in IRC 585(c) (2).

(2) For Oregon tax purposes, the allowable addition to the reserve for bad debts shall be computed using the method provided in IRC 585(b), starting with the ending balance in the bad debt reserve calculated for Oregon tax purposes for the 1986 tax year.

(a) For 1987 tax years, the federal law provides that the addition to reserve for bad debts shall be the greater of the amounts computed using the percentage method in IRC 585(b) (2) or the experience method in IRC 585(b) (3), as revised in 1986.

(b) For tax years beginning on or after January 1, 1988, federal law provides that the addition to reserve for bad debts shall be no greater than the amount computed using the experience method in IRC 585(b) (2).

(c) An Oregon addition modification shall be made if the federal addition exceeds the Oregon addition to the reserve for bad debts for the tax year. An Oregon subtraction modification shall be made if the Oregon addition exceeds the federal addition to the reserve for bad debts for the tax year.

Example: Small Bank, Inc., must calculate its 1991 addition to its reserve for bad debts based on the following information: [Table not included. See ED. NOTE.]

Using the experience method, the addition to the reserves for bad debts for 1991 is computed as follows: [Table not included. See ED. NOTE.]

[ED. NOTE: The Table(s) referenced in this rule is not printed in the OAR Compilation. Copies are available from the agency.]

[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 317.259
Hist.: RD 11-1988, f. 12-19-88, cert. ef. 12-31-88; RD 9-1992, f. 12-29-92, cert. ef. 12-31-92

150-317.267-(A)

Modification of Federal Taxable Income: Dividends From Certain Subsidiaries

(1) For taxable years beginning before January 1, 1986, a corporation owning 50 percent or more of the voting stock of another corporation is allowed to subtract from federal taxable income amounts included as dividends from the subsidiary. The subtraction is limited, however, to the extent that the payor corporation is subject to Oregon tax.

Example: Corporation S is a wholly-owned subsidiary of Corporation P. Corporation P does business only in Oregon, but Corporation S has activities within and without the state and an Oregon apportionment factor of 10 percent. In 1983, S pays dividends of $10,000, all of which are included in P's federal taxable income. The allowable subtraction for P is $1,000 ($10,000 x 10 percent).

(2) For tax years beginning on or after January 1, 1985, Oregon does not recognize any transaction between a corporation and a related domestic international sales corporation (DISC) or foreign sales corporation (FSC). Therefore, any dividends received in these years from a related DISC or FSC that are included in federal taxable income shall be subtracted to derive Oregon taxable income.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.267
Hist.: RD 7-1983, f. 12-20-83, cert. ef. 12-31-83, Renumbered from 150-317.267; RD 12-1985, f. 12-16-85, cert. ef. 12-31-85

150-317.267-(B)

Modification for Dividends Received: Tax Years 1986 and Later

(1) For dividends received in tax years beginning on or after January 1, 1986 and before January 1, 1987, a corporation is allowed to subtract from federal taxable income 85 percent of dividends received or deemed received from another corporation.

(2) For dividends received in tax years beginning on or after January 1, 1987 and ending before January 1, 1988, a corporation is allowed to subtract from federal taxable income 80 percent of dividends received or deemed received from another corporation. However, in the case of any dividend on debt-financed portfolio stock as described in section 246A of the Internal Revenue Code, the subtraction allowed must be reduced under the same conditions and in the same amount as the dividends received deduction is reduced for federal tax purposes.

(3) For dividends received or accrued after December 31, 1987, in tax years ending after December 31, 1987, a corporation is allowed to subtract from federal taxable income 80 percent of dividends received or deemed received from another corporation. Dividends deemed received includes subpart F income included in federal taxable income pursuant to IRC Section 951. In order to take the Oregon dividends received deduction, however, the taxpayer must first add back the federal dividend received deductions allowed by Internal Revenue Code (IRC) Sections 243 and 245 and the dividends eliminated under the federal consolidation rules. Exceptions to this general rule are as follows:

(a) Dividends received from corporations owned less than 20 percent by the recipient must be reduced by a 70 percent rather than 80 percent dividends received deduction for dividends received or accrued after December 31, 1987.

(b) Dividends received from a foreign sales corporation and deducted under IRC Section 245(c) are not added back. These dividends are totally excluded from Oregon taxable income.

(c) Dividends received from a related domestic international sales corporation are totally excluded from Oregon taxable income. A subtraction is allowed for these dividends to the extent they are included in federal taxable income.

(d) Dividend income included in federal taxable income pursuant to the "gross-up" provisions of IRC Section 78 is not taxable by Oregon. These dividends are subtracted in full under ORS 317.273.

(e) Dividends eliminated under IRC section 243(a)(3) are not added back to federal taxable income on the Oregon return if the recipient and the payer corporations are both members of the same unitary group filing an Oregon consolidated tax return. If they are not members of the same Oregon consolidated group, the 100 percent federal dividend deduction is added back to federal taxable income and the appropriate Oregon dividends received deduction is subtracted.

(4) Unlike the federal dividend received deduction, the Oregon deduction is permitted on dividends received or deemed received from foreign as well as domestic corporations. Income included in federal taxable income pursuant to IRC Section 951(a) qualifies for the dividend received deduction. Such income is a dividend "deemed received." Dividends from tax exempt corporations and dividends that qualify for a federal dividend deduction limited to a certain measure of income qualify for the full Oregon dividend deduction. An example of the latter is a dividend from a Federal Home Loan Bank.

(5) An Oregon dividends received deduction is not allowed with respect to "dividends" that are not treated as dividends under federal law or dividends that are not included in federal taxable income as provided in ORS 317.267(1). For tax years beginning on or after January 1, 2006, ORS 317.267(2)(b) provides that a dividend that is not treated as a dividend under IRC section 243(d) or 965(c)(3) may not be treated as a dividend for purposes of the Oregon dividends received deduction.

Example: L corporation received $10,000 in "dividend" income from a mutual savings bank. L corporation does not own stock in the bank. The $10,000 represents interest income on funds deposited in the mutual savings bank, and not dividend income. Since these "dividends" are not treated as dividends for purposes of the federal dividends received deduction under the provisions of IRC section 243(d)(1), they are not eligible for the Oregon dividends received deduction.

(6) For tax years beginning on or after January 1, 2006, a taxpayer may not claim an Oregon dividend received deduction for a dividend if the federal dividends received deduction is not allowed because of IRC section 246(a) or (c).

(7) In the case of dividends on debt-financed portfolio stock, the percentage of the Oregon dividend received deduction will be reduced in the same manner as the federal deduction under IRC 246A.

(8) For tax years beginning before January 1, 2007, a dividends received deduction allowed under IRC section 965 for federal tax purposes is allowed in determining taxable income under ORS chapter 317 for the same tax year as the deduction is allowed for federal tax purposes. IRC section 965 provides a temporary dividends received deduction for cash dividends received from controlled foreign corporations.

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

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.267
Hist.: RD 12-1985, f. 12-16-85, cert. ef. 12-31-85; RD 15-1987, f. 12-10-87, cert. ef. 12-31-87; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89; RD 12-1990, f. 12-20-90, cert. ef. 12-31-90; RD 9-1992, f. 12-29-92, cert. ef. 12-31-92; REV 2-2003, f. & cert. ef. 7-31-03; REV 3-2005, f. 12-30-05, cert. ef. 1-1-06

150-317.288

Modification of Federal Taxable Income: Internal Revenue Code Subpart F Income

A taxpayer that owns stock in a "Controlled Foreign Corporation," as defined in IRC Section 957, may be required to include in federal taxable income its pro rata share of the subpart F income (as defined in IRC Section 952) of the foreign corporation. If the foreign corporation is included with the taxpayer in a combined report permitted or required under ORS 314.363, any subpart F income attributable to the foreign subsidiary shall be subtracted from federal taxable income in arriving at Oregon taxable income.

[NOTE: With the adoption of Oregon Laws 1984, Ch. 1, (Enrolled HB 3029), ORS 317.288 was repealed. This rule will no longer be in effect for taxable years beginning on or after January 1, 1986. For all prior years, this rule shall remain in full force and effect.]

[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 317.288
Hist.: RD 7-1983, f. 12-20-83, cert. ef. 12-31-83

150-317.307

Oregon Subtraction Where Charitable Contribution Is Reduced Under Federal Law

Under IRC section 170(d)(2)(B), a corporation's current year charitable contribution must be reduced by a corresponding increase in the corporation's NOL carryover. To derive Oregon taxable income, the amount by which a corporation reduces its charitable contribution shall be subtracted from federal taxable income.

Example: ABC corporation has current year federal taxable income (pre-NOL application) of $100,000 and NOL carry forward amounts from prior years of $120,000. The corporation has a current year charitable contribution of $15,000. Since the NOL application exceeds taxable income, ABC's otherwise deductible $10,000 charitable contribution is converted to an additional NOL carry forward under IRC section 170(d)(2)(B). The remaining $5,000 excess contribution may be carried forward for five years under IRC section 170(d)(2)(A).

For Oregon, ABC corporation reports federal taxable income (pre-NOL application) of $100,000 in the current year. The $10,000 reduction of the federal charitable contribution is shown as an "other subtraction" on the Oregon return. The remaining $5,000 excess charitable contribution is carried forward as under federal law.

[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 315.311
Hist.: RD 6-1996, f. 12-23-96, cert. ef. 12-31-96

150-317.309

Definition of "State"

For purposes of ORS 317.309, the term "state" shall mean any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, and a territory or possession of the United States, and any foreign country or political subdivision thereof.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.309
Hist.: RD 12-1985, f. 12-16-85, cert. ef. 12-31-85

150-317.310(2)

Bad Debt Reserve of Financial Institutions That Have Changed From Reserve Method to Specific Charge-off Method

(1) For tax years beginning on or after January 1, 1987, Oregon has adopted the federal provisions for treatment of bad debts of financial institutions provided in Section 585(c) of the Internal Revenue Code (IRC). Financial institutions considered large banks, defined in IRC 585(c) (2), must recapture the balance in their reserve for bad debts over a four-year period unless they elect the federal "cut-off" method.

(a) The recapture provisions of IRC 585(c) (3) shall be applied to the ending reserve balance calculated for Oregon tax purposes for the 1986 tax year.

(b) For each of the four recapture years, an Oregon addition modification shall be made if the Oregon reserve recaptured exceeds the federal reserve recaptured. An Oregon subtraction modification shall be made if the federal reserve recaptured exceeds the Oregon reserve recaptured.

Example: Lending Corp., a calendar year filer, has a bad debt reserve of $5,000,000 for federal and $3,000,000 for Oregon tax purposes on December 31, 1986. Lending Corp. qualifies as a large bank. It elects to recapture 10 percent of the bad debt reserve as income on its 1987 federal return. An Oregon subtraction modification of $200,000 is calculated as follows: [Table not included. See ED. NOTE.]

(c) Financially troubled banks don't have to recapture existing bad debt reserves as long as their nonperforming loans exceed seventy-five percent of the average of their equity capital for the year.

(2) Oregon also adopted the cut-off method provided under IRC 585(c)(4) for tax years beginning on or after January 1, 1987. If the financial institution elects the cut-off method, the ending balance of the reserve for bad debts for the 1986 tax year shall not be recaptured. Instead, bad debts in tax years after 1986 shall be charged to the reserve rather than deducted from income. When the entire reserve has been depleted, bad debts shall be deducted as they occur.

(a) The provisions in IRC 585(c) (4) shall be applied to the ending reserve balance calculated for Oregon tax purposes for the 1986 tax year.

(b) The ending balance of the reserve for bad debts as of December 31, 1986, may be greater for federal purposes than it is for Oregon. If so, the Oregon reserve will be depleted before the federal reserve. An Oregon subtraction modification shall be made when the Oregon deduction for bad debts exceeds the federal deduction for the tax year.

Example: Large Bank, Inc., elected the cut-off method of treating its reserve for bad debts, starting in 1987. The reserve balance on January 1, 1991, was $100,000 for federal purposes and $50,000 for Oregon purposes. During 1991, $150,000 of bad debts were written off. An Oregon subtraction modification of $50,000 is calculated as follows: [Table not included. See ED. NOTE.]

(c) The ending balance of the reserve for bad debts as of December 31, 1986, may be greater for Oregon purposes than it is for federal. If so, the federal reserve will be depleted before the Oregon reserve. An Oregon addition modification shall be made when the federal deduction for bad debts exceeds the Oregon deduction for the tax year.

[ED. NOTE: The Table(s) referenced in this rule is not printed in the OAR Compilation. Copies are available from the agency.]

[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 317.310
Hist.: RD 11-1988, f. 12-19-88, cert. ef. 12-31-88; RD 9-1992, f. 12-29-92, cert. ef. 12-31-92

150-317.314

Deductibility of Michigan's Single Business Tax

For purposes of ORS 317.314, the Michigan Single Business Tax is not a tax upon or measured by net income or profits imposed by a state. Therefore, the tax is deductible in computing Oregon taxable income.

This rule shall apply to all taxable years which are open to audit.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.314
Hist.: RD 12-1984, f. 12-5-84, cert. ef. 12-31-84; RD 11-1988, f. 12-19-88, cert. ef. 12-31-88

150-317.329

IRC Section 338: Application to Oregon

(1) Internal Revenue Code (IRC) Section 338 applies when at least 80 percent of the voting power and total value of the stock of a target corporation is acquired by a purchasing corporation. Under the election provided by IRC 338(g), the acquiring corporation treats the purchase of the target corporation's stock as the purchase of its assets. The target's assets are given a stepped-up basis and the target reports gain as if its assets were sold at fair market value. The seller recognizes a gain on the sale of stock.

(2) For all Oregon apportionment computations discussed in this rule, the gross receipts from the deemed sale of assets are not included in the target's sales factor.

(3) If the target filed a separate federal return for the period ending with the date of acquisition, the gain from the deemed sale of assets must be included in the separately filed final return of the target corporation for the period which ends on the date of acquisition.

(a) For Oregon apportionment purposes, the apportionment factors computed on the separate Oregon return for the period ending with the date of acquisition must be used.

(b) The deemed gain on sale of assets is subject to Oregon apportionment if the target is doing business in Oregon.

(c) The gain on sale of stock is taxed by Oregon to the selling corporation through apportionment if the stock is considered a business asset and the seller is doing business in Oregon.

(d) The gain on sale of stock is taxed by Oregon to the selling corporation through allocation if the stock is considered a nonbusiness asset and the seller's commercial domicile is in Oregon.

Example: S Corporation, a calendar year filer, and its nonunitary subsidiary, T Corporation, file separate federal returns. T does business in Oregon. S does not. On July 31, 2002, P Corporation purchases all of T's stock from S and makes an election under IRC 338. T files a separate short period Oregon return through July 31, 2002, and apportions income, including the deemed sale of assets, to Oregon using its apportionment factors for the year to date. S's gain on the sale of T's stock, an intangible, is not taxed by Oregon.

(4) If the acquired target corporation is the common parent of an affiliated group, the group may elect to file a consolidated federal return. The final return of the common parent is also the final return of each subsidiary, which is considered to be acquired on the same date. The deemed sale of assets for each consolidated corporation must be reported on the consolidated return for the period ending on the date of acquisition. The apportionment factors computed on the Oregon return for the period ending with the date of acquisition must be used to apportion the income including the gain from the deemed sale of assets. The property factor must reflect the corporation's basis prior to the step-up in basis under IRC 338.

(5) If the acquired corporation was purchased from an affiliated group with which it was unitary and elects to file a consolidated federal return, it must be included in the consolidated Oregon return of the selling group through the date of acquisition. However, the deemed gain from the sale of assets must be included on a separately filed single transaction return unless an election is made under IRC 338(h)(10). (See Section 6 of this rule for further information concerning the IRC 338(h)(10) election). For Oregon purposes, the deemed gain must be attributed to Oregon using the apportionment factors from the consolidated Oregon return for the period ending with the date of acquisition.

(6) An election may be made jointly by the selling and acquiring corporations under IRC 338(h)(10). If a corporation makes the election under IRC 338(h)(10) on its federal return, that election applies to the Oregon return.

(a) If a selling corporation making the election under IRC 338(h)(10) files a consolidated Oregon return including the target corporation, that return must include the gain or loss from the deemed sale of the target's assets in income to be apportioned. The gain or loss from the sale of the target's stock will not be recognized. The apportionment factors for the target must be included through the date of the stock sale. The property factor must reflect the target's basis in its assets prior to the step-up in basis under IRC 338.

(b) If a selling corporation making an election under IRC 338(h)(10) does not file a consolidated Oregon return with the target corporation, and the target corporation is doing business in Oregon, the gain or loss from the target's deemed sale of assets must be reported on the target's separately filed Oregon return.

(c) If the selling corporation has not made an election under IRC 338(h)(10) on its federal return, the election will not be accepted by Oregon.

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

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.329
Hist.: RD 12-1990, f. 12-20-90, cert. ef. 12-31-90; RD 6-1996, f. 12-23-96, cert. ef. 12-31-96; REV 2-2003, f. & cert. ef. 7-31-03

150-317.349-(A)

Payments Received Under Federal Safe Harbor Lease Agreements For Transactions Entered Into in Tax Years Beginning on or After January 1, 1983

(1) Oregon law provides that safe harbor lease transactions will not be treated as a lease, or in "any other way" be recognized for Oregon tax purposes. Therefore, for safe harbor lease transactions entered into in tax years beginning on or after January 1, 1983, the following Oregon modifications are required:

(a) Seller-Lessee:

(A) A depreciation subtraction is allowable based upon the original cost of the safe harbor lease property.

(B) Lease payments made to the purchaser-lessor and deducted for federal tax purposes must be added to income.

(C) Interest payments received from the purchaser-lessor and included in income for federal tax purposes must be subtracted from income.

(b) Purchaser-Lessor:

(A) Depreciation deducted for federal tax purposes must be added to income.

(B) Lease payments received from the seller-lessee and included for federal tax purposes must be subtracted from income.

(C) Interest payments made to the seller-lessee and deducted for federal tax purposes must be added to income.

(2) Legal fees, accounting costs or similar expenses incurred or paid to third parties in connection with safe harbor leases are deductible.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.349
Hist.: 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 12-1990, f. 12-20-90, cert. ef. 12-31-90

150-317.349-(B)

Payments Received Under Federal Safe Harbor Lease Agreements for Transactions Entered Into in Tax Years Beginning Prior to 1983

(1) Oregon has not adopted the safe harbor lease provisions contained in the federal Economic Recovery Tax Act of 1981 (IRC 168(f)(8)). Sale and leaseback transactions must meet the prior federal sale and leaseback provisions to qualify as a sale and leaseback for Oregon corporation tax purposes. The Oregon treatment of a safe harbor lease transaction for safe harbor lease transactions entered into in tax years beginning prior to January 1, 1983 is as follows:

(a) The down payment received by the seller-lessee is not taxable as income in the year received or accrued.

(b) The down payment made by the purchaser-lessor is not deductible from income. The payment is considered a payment in lieu of federal income taxes which are not deductible under ORS Chapters 317 and 318.

(c) The purchaser-lessor is not taxable in Oregon under ORS Chapter 317 or 318 solely due to federal tax ownership under a safe harbor lease agreement.

(d) The property subject to the safe harbor lease agreement is considered property of the seller-lessee. Depreciation is allowed based upon the original cost less the down payment received.

(e) If the corporation is doing business within and without Oregon and the apportionment provisions (ORS 314.650 through 314.670) apply, the property subject to the safe harbor lease agreement is included in the property factor of the seller-lessee. Lease payments made by the seller-lessee under the agreement are not included in the computation of the property factor.

(2) Since Oregon does not recognize the transaction as a true sale and leaseback, it is necessary to reverse the effect of such treatment in preparing the Oregon tax returns of the seller-lessee, and the purchaser-lessor. Adjustments are as follows:

(a) Seller-Lessee:

(A) A depreciation deduction is allowed based upon the original cost reduced by the down payment received. The deduction is computed using the methods allowable under ORS 317.285 and 318.044.

(B) The lease payments made to the purchaser-lessor are not deductible except to the extent they exceed the principal and interest payments received from the purchaser-lessor.

(C) Interest payments received are includible in income only to the extent the principal and interest payments received exceed the lease payments made to the purchaser-lessor.

(b) Purchaser-Lessor:

(A) No depreciation deduction is allowed for the property purchased and leased under a federal safe harbor lease agreement.

(B) Lease payments received from the seller-lessee are not includible in income.

(C) The "interest" payments made are not deductible.

(3) Legal fees, accounting costs or similar expenses incurred or paid to third parties in connection with safe harbor leases are deductible.

[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 317.349
Hist.: 4-5-83(Temp); 8-1-83, Renumbered from 317.105(1); 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 7-1989, f. 12-18-89, cert. ef. 12-31-89; RD 12-1990, f. 12-20-90, cert. ef. 12-31-90

150-317.356

Modification of Federal Taxable Income: Difference Between Oregon and Federal Bases on Assets Sold, Exchanged or Otherwise Disposed Of

(1) Oregon law and federal law differ substantially with respect to allowable methods of depreciation, depletion, or other cost recovery. Therefore, the adjusted basis of a particular asset for Oregon tax purposes will often differ from federal adjusted basis. Upon the sale, exchange, or other disposition of such an asset, federal taxable income must be increased or decreased by the difference in depreciation, depletion, etc., allowed or allowable in previous years for Oregon and federal tax purposes.

Example. B corporation purchased property in 1982 for $5,000. For federal tax purposes, B elected to expense the total cost under IRC Section 179 and, therefore, had a basis in the property of zero. For Oregon tax purposes, B had claimed $3,000 of depreciation on the property in 1982 and 1983, and had an adjusted basis of $2,000 in the property when it was sold in 1983. Federal taxable income for 1983 must be reduced by $2,000 ($5,000 – 3,000) in arriving at Oregon taxable income.

(2) Effective for tax years ending after December 31, 1986, for property dispositions after February 28, 1986, the provisions of section 453C of the Internal Revenue Code concerning the proportionate disallowance rule have been adopted by Oregon as part of its tie to federal accounting methods. Under the federal provisions, a taxpayer's average indebtedness is treated as an installment payment in the ratio of the face amount of installment obligations receivable to the adjusted basis in all assets.

(3) In computing Oregon taxable income, a modification shall be made to reflect the difference in deemed installment income created for federal and Oregon tax purposes by the proportionate disallowance rule. Such a difference arises when the basis of assets for federal and Oregon tax purposes is not the same. If the Oregon deemed income is greater than the federal, the difference shall be an addition. If the Oregon deemed income is less than the federal, the difference shall be a subtraction.

(4) Oregon has also adopted the repeal of IRC Section 453C through its tie to federal accounting methods. The repeal applies to dispositions in taxable years beginning after December 31, 1987.

[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 317.356
Hist.: RD 7-1983, f. 12-20-83, cert. ef. 12-31-83; RD 11-1988, f. 12-19-88, cert. ef. 12-31-88

150-317.362

Modification of Federal Taxable Income: Timber Cut but Unsold

(1) For federal tax purposes, a taxpayer may elect under Section 631(a) of the Internal Revenue Code to treat the cutting of timber as a sale or exchange of such timber, even if it remains unsold at the end of the tax year. For Oregon tax purposes, the gain is not included in income until the actual sale takes place.

(2) The gain from the sale or cutting of timber that is included as capital gain income for federal tax purposes under IRC 631(a) does not automatically qualify as capital gain income for Oregon tax purposes. Gain from the sale or cutting of timber not qualifying as capital assets under IRC 1221 shall not be used to offset capital losses. However, such gain may be used as an offset to ordinary losses.

(3) In order to modify federal taxable income to reverse the effects of IRC Section 631(a), the taxpayer must compare the amount of Section 631(a) gain in beginning and ending inventory. If the amount of such gain in ending inventory exceeds the amount in beginning inventory, the difference is subtracted from federal taxable income. If the amount of Section 631(a) gain in beginning inventory exceeds the amount in ending inventory, the difference must be added to federal taxable income in arriving at Oregon taxable income.

[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 317.362
Hist.: RD 7-1983, f. 12-20-83, cert. ef. 12-31-83; RD 9-1992, f. 12-29-92, cert. ef. 12-31-92

150-317.374(2)

Depletion Allowance; Method of Computation

Except in the case of metal mines with respect to which percentage depletion is allowed, the computation of the allowance for depletion of mines, oil and gas wells, other natural deposits and timber, for a given year shall be based upon the number of units of the particular class removed during that year and the unit cost for depletion purposes of such deposits or timber. The unit cost for depletion purposes of any taxable period is to be determined by dividing the sum of the amount to be recovered by depletion of the particular class at the beginning of the taxable period and the additions at cost during the period by the sum of the units of the particular class on hand at the beginning of the taxable period and the number of units acquired during such period. As to capitalization of carrying charges (items of expenses which do not add to the value of the property, such as interest and taxes), see IRC Section 266.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.068
Hist.: 6-68, Renumbered from 150-317.290(2); RD 7-1983, f. 12-20-83, cert. ef. 12-31-83

150-317.374(3)

Depletion of Metal Mines

In the case of metal mines, a taxpayer may compute its depletion allowance based on the cost of the property, as provided in ORS 317.374(2), or by using percentage depletion. For purposes of this section, metal mines include those mines where the metal being extracted occurs in a pure state, such as gold or silver, or where it is found in combination with other substances, such as in the case of aluminum obtained from bauxite. The percentage depletion allowance is equal to 15 percent of the gross income from the property during the tax year, but shall not in any case exceed 50 percent of the net income of the taxpayer (computed without allowance for depletion) from the property. In its first return made under the tax law, the taxpayer must state, as to each property with respect to which it has any item of income or deduction (in case of metal mines), whether it elects to have the depletion allowance for each such property for the tax year computed with or without reference to percentage depletion. An election once exercised under this paragraph cannot thereafter be changed by the taxpayer, and the depletion allowance in respect to each such property will for all succeeding tax years be computed in accordance with the election so made.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.374
Hist.: 6-68; 12-31-83, Renumbered from 150-317.290(3); RD 7-1983, f. 12-20-83, cert. ef. 12-31-83; RD 12-1990, f. 12-20-90, cert. ef. 12-31-90

150-317.476(4)

Limitation on Oregon Net Loss Deduction

(1) The Oregon net loss which is deductible in any year is the Oregon net loss of a prior year reduced by taxable income, if any, in the intervening tax year or years between the year of loss and the succeeding tax year in which the Oregon net loss deduction is claimed. Net losses occurring in tax years beginning prior to January 1, 1987, can be carried forward five tax years. Net losses occurring in tax years beginning on or after January 1, 1987, can be carried forward fifteen tax years. See the limitation on "apportioned" taxpayers in ORS 314.675. In computing the taxable income which will reduce the Oregon net loss which is carried forward, any refund of an expense used in computing the Oregon net loss which is excluded from gross income shall be added to and included in the taxable income of an intervening tax year.

(2) If a consolidated Oregon return is filed in tax years beginning on or after January 1, 1986, the separate return limitation year (SRLY) rules as defined in Treasury Regulation §1.1502-1, shall be followed. Oregon net losses incurred in tax years beginning prior to January 1, 1986, shall be considered losses from a separate return limitation year. Therefore, the Oregon net losses from those years can be deducted in tax years beginning on or after January 1, 1986, only to the extent the same corporation that incurred the loss has Oregon net income on a separate basis. This limitation does not apply to a corporation that qualifies as a common parent. The provisions of this paragraph are demonstrated by the following examples: [Example not included. See ED. NOTE.]

[ED. NOTE: The Examples referenced in this rule are not printed in the OAR Compilation. Copies are available from the agency.]

[Publications: The publication(s) referred to or incorporated by reference in this rule is available from the agencye pursuant to ORS 183.360(2) and ORS 183.355(6).]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.476
Hist.: 1-69, Renumbered from 150-317.297(4); 12-31-83; RD 10-1986, f. & cert. ef. 12-31-86; RD 15-1987, f. 12-10-87, cert. ef. 12-31-87; RD 9-1992, f. 12-29-92, cert. ef. 12-31-92

150-317.478

Pre-change and Built-in Losses

(1) Pre-change and built-in losses, other than capital losses, which the taxpayer elects to carry back under federal law, must be carried forward and subtracted in computing Oregon taxable income to the extent that such losses are apportioned or allocated to Oregon. All limitations imposed under ORS 317.478 apply to the loss carryforward amount. If the pre-change or built-in loss carried back for federal purposes is a capital loss, the provisions of OAR 150-317.013 apply.

(2) When the assets of a corporation are acquired by another corporation and the provisions of IRC section 382 apply, the Oregon apportionment factors of the old loss corporation for the reporting period ending on the date of ownership change are considered the Oregon apportionment factors of the new loss corporation existing at the time of the change in ownership. These apportionment factors must be used to compute the IRC section 382 limitation applicable to Oregon.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.478
Hist.: RD 9-1992, f. 12-29-92, cert. ef. 12-31-92; REV 5-2000, f. & cert. ef. 8-3-00

150-317.660(1)

Definition of "Premiums" in the Insurance Sales Factor

For purposes of computing the Insurance Sales Factor, the term "premiums" shall mean "premiums written" as required to be reported in the Annual Statement filed with the Department of Consumer and Business Services, Insurance Division.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.660
Hist.: REV 12-1999, f. 12-30-99, cert. ef. 12-31-99

150-317.660(2)

Insurers; Wage and Commission Factor

(1) For tax years beginning on or after January 1, 2007, ORS 317.660 provides that the apportionment factor for insurance companies consists of only the insurance sales factor.

(2) For tax years beginning prior to January 1, 2007, the wages, salaries, commissions and other compensation for personal services included in the wage and commission apportionment factor denominator for insurers are the amounts required to be included in appropriate schedules of the annual report filed with the Insurance Division of the Department of Consumer and Business Services.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.660
Hist.: REV 5-2000, f. & cert. ef. 8-3-00; REV 5-2008, f. 8-29-08

150-317.705

Applicable Date

OAR 150-317.705 to OAR 150-317.725, concerning consolidated Oregon returns, apply to tax years beginning on or after January 1, 1986.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.705
Hist.: RD 12-1985, f. 12-16-85, cert. ef. 12-31-85; RD 12-1990, f. 12-20-90, cert. ef. 12-31-90

150-317.705(3)(a)

Unitary Business

(1) This rule is based partially on a model regulation adopted by the Multistate Tax Commission to promote uniform treatment of the unitary business principle by the states. Sections (3) through (10) of this rule apply to tax years beginning on or after January 1, 2007. However, the principles outlined in those sections may also be applied to years prior to 2007 to the extent that they reflect case history and the policy of the Department.

(2) The presence of all of the factors described in ORS 317.705(3) will demonstrate that a unitary business exists, but the presence of one or two such factors may also demonstrate the flow of value requisite for a unitary business determination.

(3) The Concept of a Unitary Business. A unitary business is a single economic enterprise that is made up either of separate parts of a single business entity or of a commonly controlled group of business entities that are sufficiently interdependent, integrated and interrelated through their activities so as to provide a synergy and mutual benefit that produces a sharing or exchange of value among them and a significant flow of value to the separate parts. This flow of value to a business entity located in Oregon that comes from being part of a unitary business conducted both within and without Oregon is what provides the constitutional due process "definite link and minimum connection" necessary for Oregon to apportion business income of the unitary business, even if that income arises in part from activities conducted outside of Oregon. The business income of the unitary business is then apportioned to Oregon using the apportionment formula set forth in ORS 314.650. This sharing or exchange of value may also be described as requiring that the operation of one part of the business be dependent upon, or contribute to, the operation of another part of the business. Phrased in the disjunctive, the foregoing means that if the activities of one business either contributes to the activities of another business or are dependent upon the activities of another business, those businesses are part of a unitary business.

(4) Constitutional Requirement for a Unitary Business. The sharing or exchange of value described in section (3) that defines the scope of a unitary business requires more than the mere flow of funds arising out of a passive investment or from the financial strength contributed by a distinct business undertaking that has no operational relationship to the unitary business. In Oregon, the unitary business principle will be applied to the fullest extent allowed by the U.S. Constitution. The unitary business principle will not be applied where the result would not be allowed by the U.S. Constitution.

(5) Separate Trades or Businesses Conducted within a Single Entity. A single entity may have more than one unitary business. In such cases it is necessary to determine the business or apportionable income attributable to each separate unitary business as well as its nonbusiness income, which is specifically allocated. The business income of each unitary business is then apportioned by a formula that takes into consideration the in-state and the out-of-state factors that relate to the respective unitary business whose income is being apportioned.

(6) Unitary Business Unaffected by Formal Business Organization. A unitary business may exist within a single business entity or among a commonly controlled group of business entities.

(7) Determination of a Unitary Business. A unitary business is characterized by significant flows of value evidenced by factors such as those described in Mobil Oil Corp. v. Vermont, 445 U.S. 425 (1980): centralization of management, economies of scale, and functional integration. These factors provide evidence of whether the business activities operate as an integrated whole or exhibit substantial mutual interdependence. Facts suggesting the presence of the factors mentioned above should be analyzed in combination for their cumulative effect and not in isolation. A particular business operation may be suggestive of one or more of the factors mentioned above.

(8) Description and Illustration of Centralization of Management, Economies of Scale, and Functional Integration.

(a) Centralization of Management. Centralization of management exists when directors, officers, and/or other management employees jointly participate in the management decisions that affect the respective business activities and that may also operate to the benefit of the entire economic enterprise. Centralization of management can exist whether the centralization is effected from a parent entity to a subsidiary entity, from a subsidiary entity to a parent entity, from one subsidiary entity to another, from one division within a single business entity to another division within a business entity, or from any combination of the foregoing. Centralization of management may exist even when day-to-day management responsibility and accountability has been decentralized, so long as the management has an ongoing operational role with respect to the business activities. An operational role can be effected through mandates, consensus building, or an overall operational strategy of the business, or any other mechanism that establishes joint management.

(A) Facts Providing Evidence of Centralization of Management. Evidence of centralization of management is provided when common officers participate in the decisions relating to the business operations of the different segments. Centralization of management may exist when management shares or applies knowledge and expertise among the parts of the business. Existence of common officers and directors, while relevant to a showing of centralization of management, does not alone provide evidence of centralization of management. Common officers are more likely to provide evidence of centralization of management than are common directors.

(B) Stewardship Distinguished. Centralized efforts to fulfill stewardship oversight are not evidence of centralization of management. Stewardship oversight consists of those activities that any owner would take to review the performance of or safeguard an investment. Stewardship oversight is distinguished from those activities that an owner may take to enhance value by integrating one or more significant operating aspects of one business activity with the other business activities of the owner. For example, implementing reporting requirements or mere approval of capital expenditures may evidence only stewardship oversight.

(b) Economies of Scale. Economies of scale refers to a relation among and between business activities resulting in a significant decrease in the average per unit cost of operational or administrative functions due to the increase in operational size. Economies of scale may exist from the inherent cost savings that arise from the presence of functional integration or centralization of management. The following are examples of business operations that can support the finding of economies of scale. The order of the list does not establish a hierarchy of importance.

(A) Centralized Purchasing. Centralized purchasing designed to achieve savings due to the volume of purchases, the timing of purchases, or the interchangeability of purchased items among the parts of the business engaging in the purchasing provides evidence of economies of scale.

(B) Centralized Administrative Functions. The performance of traditional corporate administrative functions, such as legal services, payroll services, pension and other employee benefit administration, in common among the parts of the business may result in some degree of economies of scale. A business entity that secures savings in the performance of corporate administrative services due to its affiliation with other business entities that it would not otherwise reasonably be able to secure on its own because of its size, financial resources, or available market, provides evidence of economies of scale.

(c) Functional integration: Functional integration refers to transfers between, or pooling among, business activities that significantly affect the operation of the business activities. Functional integration includes, but is not limited to, transfers or pooling with respect to the unitary business's products or services, technical information, marketing information, distribution systems, purchasing, and intangibles such as patents, trademarks, service marks, copyrights, trade secrets, know-how, formulas, and processes. There is no specific type of functional integration that must be present. The following is a list of examples of business operations that can support the finding of functional integration. The order of the list does not establish a hierarchy of importance.

(A) Sales, exchanges, or transfers (collectively "sales") of products, services, and/or intangibles between business activities provide evidence of functional integration. The significance of the intercompany sales to the finding of functional integration will be affected by the character of what is sold and/or the percentage of total sales or purchases represented by the intercompany sales. For example, sales among business entities that are part of a vertically integrated unitary business are indicative of functional integration. Functional integration is not negated by the use of a readily determinable market price to affect the intercompany sales, because such sales can represent an assured market for the seller or an assured source of supply for the purchaser.

(B) Common Marketing. The sharing of common marketing features among business entities is an indication of functional integration when such marketing results in significant mutual advantage. Common marketing exists when a substantial portion of the business entities' products, services, or intangibles are distributed or sold to a common customer, when the business entities use a common trade name or other common identification, or when the business entities seek to identify themselves to their customers as a member of the same enterprise. The use of a common advertising agency or a commonly owned or controlled in-house advertising office does not by itself establish common marketing that is suggestive of functional integration. Such activity, however, is relevant to determining the existence of economies of scale and/or centralization of management.

(C) Transfer or Pooling of Technical Information or Intellectual Property. Transfers or pooling of technical information or intellectual property, such as patents, copyrights, trademarks and service marks, trade secrets, processes or formulas, know-how, research, or development, provide evidence of functional integration when the matter transferred is significant to the businesses' operations.

(D) Common Distribution System. Use of a common distribution system by the business entities, under which inventory control and accounting, storage, trafficking, and/or transportation are controlled through a common network provides evidence of functional integration.

(E) Common Purchasing. Common purchasing of substantial quantities of products, services, or intangibles from the same source by the business entities, particularly where the purchasing results in significant cost savings or where the products, services or intangibles are not readily available from other sources and are significant to each entity's operations or sales, provides evidence of functional integration.

(F) Common or Intercompany Financing. Significant common or intercompany financing, including the guarantee by or the pledging of the credit of, one or more business entities for the benefit of another business entity or entities provides evidence of functional integration, if the financing activity serves an operational purpose of both borrower and lender. Lending which serves an investment purpose of the lender does not necessarily provide evidence of functional integration. See subsection (8)(a) for discussion of centralization of management.

(9) Indicators of a Unitary Business.

(a) Same Type of Business. Business activities that are in the same general line of business generally constitute a single unitary business, as, for example, a multistate grocery chain.

(b) Steps in a Vertical Process. Business activities that are part of different steps in a vertically structured business almost always constitute a single unitary business. For example, a business engaged in the exploration, development, extraction, and processing of a natural resource and the subsequent sale of a product based upon the extracted natural resource, is engaged in a single unitary business, regardless of the fact that the various steps in the process are operated substantially independently of each other with only general supervision from the business's executive offices.

(c) Strong Centralized Management. Business activities which might otherwise be considered as part of more than one unitary business may constitute one unitary business when there is a strong central management, coupled with the existence of centralized departments for such functions as financing, advertising, research, or purchasing. Strong centralized management exists when a central manager or group of managers makes substantially all of the operational decisions of the business. For example, some businesses conducting diverse lines of business may properly be considered as engaged in only one unitary business when the central executive officers are actively involved in the operations of the various business activities and there are centralized offices which perform for the business activities the normal matters which a truly independent business would perform for itself, such as personnel, purchasing, advertising, or financing.

(10) Commonly Controlled Group of Business Entities. Separate corporations can be part of a unitary business only if they are members of a commonly controlled group.

(a) A "commonly controlled group" means any of the following:

(A) A parent corporation and any one or more corporations or chains of corporations, connected through stock ownership (or constructive ownership) with the parent, but only if:

(i) The parent owns stock possessing more than 80 percent of the voting power of at least one corporation, and, if applicable,

(ii) Stock cumulatively possessing more than 80 percent of the voting power of each of the corporations, except the parent, is owned by the parent, one or more corporations described in subparagraph (i), or one or more other corporations that satisfy the conditions of this subparagraph.

(B) Any two or more corporations, if stock possessing more than 80 percent of the voting power of the corporations is owned, or constructively owned, by the same person.

(C) Any two or more corporations that constitute stapled entities.

(i) For purposes of this paragraph, "stapled entities" means any group of two or more corporations if more than 80 percent of the ownership or beneficial ownership of the stock possessing voting power in each corporation consists of stapled interests.

(ii) Two or more interests are stapled interests if, by reason of form of ownership, restrictions on transfer, or other terms or conditions, in connection with the transfer of one of the interests the other interest or interests are also transferred or required to be transferred.

(D) Any two or more corporations, if stock possessing more than 80 percent of the voting power of the corporations is cumulatively owned (without regard to the constructive ownership rules of paragraph (A) of subsection (10)(d)) by, or for the benefit of, members of the same family. Members of the same family are limited to an individual, his or her spouse, parents, brothers or sisters, grandparents, children and grandchildren and their respective spouses.

(b)(A) If, in the application of subsection (a) of this section, a corporation is a member of more than one commonly controlled group of corporations, the corporation shall elect to be treated as a member of only the commonly controlled group (or part thereof) with respect to which it has a unitary business relationship. If the corporation has a unitary business relationship with more than one of those groups, it shall elect to be treated as a member of only one of the commonly controlled groups with respect to which it has a unitary business relationship. This election shall remain in effect until the unitary business relationship between the corporation and the rest of the members of its elected commonly controlled group is discontinued, or unless revoked with the approval of the Department of Revenue.

(B) Membership in a commonly controlled group shall be treated as terminated in any year, or fraction thereof, in which the conditions of subsection (a) of this section are not met, except as follows:

(i) When stock of a corporation is sold, exchanged, or otherwise disposed of, the membership of a corporation in a commonly controlled group shall not be terminated, if the requirements of subsection (a) of this section are again met immediately after the sale, exchange, or disposition.

(ii) The Department of Revenue may treat the commonly controlled group as remaining in place if the conditions of subsection (a) of this section are again met within a period not to exceed two years.

(c) A taxpayer may exclude some or all corporations included in a "commonly controlled group" by reason of paragraph (a)(D) of this section by showing that those members of the group are not controlled directly or indirectly by the same interests, within the meaning of the same phrase in Section 482 of the Internal Revenue Code. For purposes of this subsection, the term "controlled" includes any kind of control, direct or indirect, whether legally enforceable, and however exercisable or exercised.

(d) Except as otherwise provided, stock is "owned" when title to the stock is directly held or if the stock is constructively owned.

(A) An individual constructively owns stock that is owned by any of the following:

(i) His or her spouse.

(ii) Children, including adopted children, of that individual or the individual's spouse, who have not attained the age of 21 years.

(iii) An estate or trust, of which the individual is an executor, trustee, or grantor, to the extent that the estate or trust is for the benefit of that individual's spouse or children.

(B) Stock owned by a corporation, or a member of a controlled group of which the corporation is the parent corporation, is constructively owned by any shareholder owning stock that represents more than 80 percent of the voting power of the corporation.

(C) In the application of paragraph (a)(D) of this section (dealing with stock possessing voting power held by members of the same family), if more than 80 percent of the stock possessing voting power of a corporation is, in the aggregate, owned by or for the benefit of members of the same family, stock owned by that corporation shall be treated as constructively owned by members of that family in the same ratio as the proportion of their respective ownership of stock possessing voting power in that corporation to all of such stock of that corporation.

(D) Except as otherwise provided, stock owned by a partnership is constructively owned by any partner, other than a limited partner, in proportion to the partner's capital interest in the partnership. For this purpose, a partnership is treated as owning proportionately the stock owned by any other partnership in which it has a tiered interest, other than as a limited partner.

(E) In any case where a member of a commonly controlled group, or shareholders, officers, directors, or employees of a member of a commonly controlled group, is a general partner in a limited partnership, stock held by the limited partnership is constructively owned by a limited partner to the extent of its capital interest in the limited partnership.

(F) In the application of paragraph (a)(D) of this section (dealing with stock possessing voting power held by members of the same family), stock held by a limited partnership is constructively owned by a limited partner to the extent of the limited partner's capital interest in the limited partnership.

(e) For purposes of the definition of a commonly controlled group, each of the following shall apply:

(A) "Corporation" means a subchapter S corporation, any other incorporated entity, or any entity defined or treated as a corporation (including but not limited to a limited liability company).

(B) "Person" means an individual, a trust, an estate, a qualified employee benefit plan, a limited partnership, or a corporation.

(C) "Voting power" means the power of all classes of stock entitled to vote that possess the power to elect the membership of the board of directors of the corporation.

(D) "More than 80 percent of the voting power" means voting power sufficient to elect a majority of the membership of the board of directors of the corporation.

(E) "Stock possessing voting power" includes stock where ownership is retained but the actual voting power is transferred in either of the following manners:

(i) For one year or less.

(ii) By proxy, voting trust, written shareholder agreement, or by similar device, where the transfer is revocable by the transferor.

(F) In the case of an entity treated as a corporation under paragraph (e)(A) of this section (e), "stock possessing voting power" refers to an instrument, contract, or similar document demonstrating an ownership interest in that entity that confers power in the owner to cast a vote in the selection of the management of that entity.

(G) In the general application of this section, if an entity may elect to be treated as a partnership or as a corporation under the laws of this state (or under Section 7701 of the Internal Revenue Code), and elects to be treated as a partnership, that entity shall be treated as a general partnership. If, however, contractual agreements, member agreements, or other restrictions limit the power of some or all of the members to participate in the vote of stock possessing voting power owned by that entity (similar to the restrictions of limited partners in a limited partnership), the Department of Revenue may permit or require that entity to be treated as a limited partnership.

(f) The Department of Revenue may prescribe any regulations as may be necessary or appropriate to carry out the purposes of this section, including, but not limited to, regulations that do the following:

(A) Prescribe terms and conditions relating to the election described by subsection (b), and the revocation thereof.

(B) Disregard transfers of voting power not described by paragraph (E) of subsection (e).

(C) Treat entities not described by paragraph (B) of subsection (e) as a person.

(D) Treat warrants, obligations convertible into stock, options to acquire or sell stock, and similar instruments as stock.

(E) Treat holders of a beneficial interest in, or executor or trustee powers over, stock held by an estate or trust as constructively owned by the holder.

(F) Prescribe rules relating to the treatment of partnership agreements which authorize a particular partner or partners to exercise voting power of stock held by the partnership.

(G) Treat limited partners as constructive owners of stock possessing voting power held by the limited partnership, in proportion to their interest in the partnership.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.705
Hist.: 10-7-85, 12-31-85, Renumbered from 150-317.705 to 150-317.705 (3)(a); RD 10-1986, f. & cert. ef. 12-31-86; RD 15-1987, f. 12-10-87, cert. ef. 12-31-87; REV 11-2006, f. 12-27-06, cert. ef. 1-1-07; REV 10-2007, f. 12-28-07, cert. ef. 1-1-08; REV 3-2009, f. & cert. ef. 7-31-09

150-317.705(3)(b)

Direct or Indirect Relationships

In determining whether a unitary business exists, all direct and indirect relationships must be considered. This is true even when the relationships extend to corporations not includable in the consolidated return. However, relationships that extend to corporations not doing business in the United States or not subject to federal income taxation may only be considered when there is an attempt to evade or avoid taxation.

Example 1: Corporation M is a U.S. company engaged in the marketing of oil and oil products. It has two wholly-owned domestic subsidiaries, Corporations E and R. Corporation E is a drilling company involved in exploration for oil. Corporation R buys the crude oil from E, refines it, and sells the refined oil to M. Although the operations of Corporations E and M are not directly related, they are part of a unitary business by virtue of their indirect relationship through R.

Example 2: Assume the same facts as in Example 1, except that the refining company, R, is jointly owned by Corporation M and another oil company (50 percent each). Although Corporation R is no longer includable in the consolidated return (due to less than 80 percent ownership), Corporations E and M are still considered part of a unitary business.

Example 3: Assume the same facts as in Example 1, except that the refining company, R, is a foreign subsidiary of Corporation M doing business only in Mexico. In determining whether Corporations E and M are part of a unitary business, the relationships and transactions with Corporation R are not considered unless they were made in an attempt to evade or avoid taxation.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.705
Hist.: 10-7-85, 12-31-85, Renumbered from 150-317.705; 12-31-86; REV 10-2007, f. 12-28-07, cert. ef. 1-1-08

150-317.705(3)(c)

Corporations Doing Business Outside the United States

A corporation included in a consolidated federal return shall not be excluded from a consolidated Oregon return simply because its business operations are conducted outside the United States.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.705
Hist.: RD 5-1994, f. 12-15-94, cert. ef. 12-31-94

150-317.710(5)(a)-(A)

Consolidated Oregon Return: Format and Information Required

(1) Generally, the consolidated Oregon return shall be filed by and in the name of the common parent corporation. If the common parent corporation is not a member of the affiliated group filing the consolidated Oregon return or is not subject to Oregon taxation, the return shall be filed in the name of a member of the affiliated group doing business in Oregon as defined under ORS 317.010(4). If more than one member is doing business in Oregon, the name of the member having the greatest presence in Oregon shall be used. If the name under which a prior year's consolidated Oregon return was filed is changed, a statement shall be attached to the current year's return advising the department of the name change.

(2) If the affiliated group filing a consolidated federal return consists of more than one unitary group, each unitary group that includes an Oregon taxpayer shall file a separate consolidated Oregon return.

(3) For purposes of this section "having the greatest presence" means having the largest Oregon property value as determined under ORS 314.655.

(4) The consolidated Oregon return shall be prepared in columnar form reflecting separately, for each member of the affiliated group, and in total, the federal consolidated taxable income, the modifications required by ORS 317.259, the tax credits, and any other information requested by the department. If taxable income is determined under ORS 317.010(10)(a) to (c), the nonbusiness income or loss and apportionment formula shall also be reflected separately for each member of the affiliated group and in total.

(5) A schedule of corporations subject to Oregon's jurisdiction to tax shall be attached to the consolidated Oregon return.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.710
Hist.: RD 12-1985, f. 12-16-85, cert. ef. 12-31-85, Renumbered from 150-317.710(5)(a)-(A); RD 10-1986, f. & cert. ef. 12-31-86; RD 7-1989, f. 12-18-89, cert. ef. 12-31-89

150-317.710(5)(a)-(B)

Consolidated Oregon Return: Affiliated Group

(1) A corporation filing a consolidated federal return shall file a consolidated Oregon return. The consolidated Oregon return shall include the same affiliated group included in the consolidated federal return, except as provided in this section.

(2) The following taxpayers included in consolidated federal returns shall not file consolidated Oregon returns:

(a) A corporation that is not a member of a unitary group (as defined under ORS 317.705(2)) with any other corporation included in the consolidated federal return;

(b) A corporation that is permitted or required under ORS 314.670 to determine its Oregon taxable income on a separate basis; or

(c) A corporation that is permitted or required by rule or statute to use different apportionment factors than are applicable to other members of the affiliated group.

(3) A newly organized member of a unitary group, included in an affiliated group filing a consolidated federal return, shall be included in the consolidated Oregon return in the taxable year the new member is organized.

(4) A newly acquired member of an affiliated group shall be excluded from the consolidated Oregon return until completion of the first full taxable year in which the new member is a unitary member of the affiliated group.

(5) However, if a newly acquired member is unitary on or near the acquisition date, it shall be included in the consolidated Oregon return. This treatment also applies to combined reporting in taxable years beginning before January 1, 1986.

(a) The newly acquired member's net income, for the period from the acquisition date to the end of the affiliated group's taxable year, shall be included in Oregon consolidated net income.

(b) The newly acquired member's property, payroll and sales, for the period from the acquisition date to the end of the affiliated group's taxable year, shall be included in the computation of the Oregon apportionment percentage. The average value of the newly acquired member's assets in the property factor shall be computed as provided in OAR 150-314.655(3). The monthly property value shall be zero for the newly acquired member for each of the months prior to acquisition.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.710
Hist.: RD 10-1986, f. & cert. ef. 12-31-86; RD 11-1988, f. 12-19-88, cert. ef. 12-31-88; RD 12-1990, f. 12-20-90, cert. ef. 12-31-90; REV 7-1998, f. 11-13-98, cert. ef. 12-31-98

150-317.710(5)(a)-(C)

Consolidated Oregon Return: Credits

The amount of credit that may offset tax on a consolidated Oregon return is not limited to the tax attributable to the corporation earning the credit. This provision applies to credits carried forward from years in which a separate or combined report is filed to years in which a consolidated return is filed, as well as current year credits.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.710
Hist.: RD 7-1993, f. 12-30-93, cert. ef. 12-31-93

150-317.710(5)(b)

Different Apportionment Factors

(1) An Oregon taxpayer that is permitted or required to use different apportionment factors under Oregon law cannot be included in an Oregon consolidated return with another Oregon taxpayer using the standard apportionment factor provided in ORS 314.650. This restriction only applies when both corporations using different apportionment factors are subject to Oregon tax under ORS Chapters 317 or 318. The only corporations that are permitted or required to use different apportionment factors are:

(a) Insurers required to apportion income as provided in ORS 317.660; and

(b) Taxpayers primarily engaged in utilities or telecommunications that elect to have income from business activity apportioned by applying the weightings used in ORS 314.650 (1999 Edition) for tax years beginning on or after May 1, 2003.

(2) Corporations other than those listed in subsections 1(a) and 1(b) of this rule use specific applications of the standard apportionment factor provided in ORS 314.650. The factors for each corporation in the unitary group of a consolidated Oregon return are computed as provided in:

(a) ORS 314.650 to 314.665 and the rule thereunder for corporations not described in subsections (b) through (l) of this section;

(b) ORS 314.682 through 314.686 and the rules thereunder for interstate broadcasters;

(c) OAR 150-314.280-(G) for carriers of freight or passengers in general;

(d) OAR 150-314.280-(H) for railroads;

(e) OAR 150-314.280-(I) for airlines;

(f) OAR 150-314.280-(J) for trucking companies;

(g) OAR 150-314.280-(K) for companies engaged in sea transportation service;

(h) OAR 150-314.280-(L) for companies involved in interstate river transportation service;

(i) OAR 150-314.280-(N) for financial organizations;

(j) OAR 150-314.615-(F) for long-term construction contractors;

(k) OAR 150-314.670-(A) for publishers; or

(l) OAR 150-314.615-(h) for movie and television production companies.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.710
Hist.: RD 12-1985, f. 12-16-85, cert. ef. 12-31-85; RD 11-1988, f. 12-19-88, cert. ef. 12-31-88; REV 7-1998, f. 11-13-98, cert. ef. 12-31-98; REV 5-2006, f. & cert. ef. 7-31-06; REV 4-2011, f. 12-30-11, cert. ef. 1-1-12

150-317.710(6)

Consolidated Oregon Return: Copy of Federal Return Required

(1) A complete copy of the taxpayer's federal return must be attached to the Oregon return.

(2) If an affiliated group filing a consolidated federal return is required to file more than one Oregon return under ORS 317.710(5), a copy of the consolidated federal return need not be attached to each Oregon return. Instead, one complete copy of the consolidated federal return may be attached to one of the Oregon returns filed. A statement shall be attached to the other Oregon returns advising the department that a copy of the complete consolidated federal return is being provided with the Oregon return of another taxpayer. The statement must include the corporation's name and federal identification number used on the Oregon return to which the complete copy of the consolidated federal return is attached.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.710
Hist.: RD 10-1986, f. & cert. ef. 12-31-86

150-317.710(7)

Interinsurance and Reciprocal Exchanges.

(1) Affiliated interinsurance and reciprocal exchanges may elect to file a consolidated return under ORS 317.710(7). The election shall be made by attaching a statement to the timely filed (including extensions) consolidated tax return for the tax year in question. The statement shall contain the names and identifying number of the members, and shall clearly indicate that the members are electing to file a consolidated tax return.

(2) An election, once made, shall remain in effect until revoked. Revocation of the election shall be clearly indicated on a statement attached to each timely filed (including extensions) separate excise tax return filed by the members. The statement shall also include a scheduled allocating consolidated estimated tax payment to the members.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.710
Hist.: REV 7-1998, f. 11-13-98 cert. ef. 12-31-98

150-317.713

Limitations on Deduction of Group Losses

(1) Oregon has adopted the provisions of IRC Section 1503(f) that apply to corporations filing consolidated returns and limit the use of group losses to offset income of a subsidiary paying dividends on preferred stock.

(2) The new limitations apply in tax years ending after November 17, 1989.

(3) Only the income or losses of those corporations included in the Oregon consolidated return will be included in the computation of the "group losses" and "separately computed taxable income."

(4) Oregon modifications that apply should be made prior to computing "group losses," and "separately computed taxable income."

(5) The following examples demonstrate the application of the limitation for Oregon:

Example 1: An affiliated group filing a consolidated federal return consists of Corporation P (the parent corporation) and Corporations R and S (subsidiaries of P). All three corporations are unitary and the consolidated Oregon apportionment percentage is 50 percent. Corporation S issues IRC Section 1504(a)(4) preferred stock. In 1991, Corporation P has federal income of $900 and an Oregon addition modification of $100. Corporation R has a federal loss of $1,500 with no Oregon modifications. Corporation S has federal "separately computed taxable income" of $1,000, no Oregon modifications, and pays a dividend of $900 on the preferred stock. For both federal and Oregon purposes, R's loss is a group loss. It can be offset against P's Oregon net income of $1,000 leaving a balance of $500. The $500 balance of R's loss can be offset against S's net income to the extent it was not distributed to preferred stockholders ($100). The remaining $400 cannot be deducted in 1991. Therefore, the Oregon consolidated taxable income of the group is computed as follows: [Example not included. See ED. NOTE.]

The remaining $400 of Corporation R's loss can be carried forward and deducted in future years subject to the same limitation.

Example 2: Assume the same facts as in Example 1, except that corporations R and S are unitary but P is not. Without corporation P in the consolidated Oregon return, the Oregon apportionment percentage increases to 75 percent. In this case, R's loss cannot be offset against P's income since they are not unitary. Corporation R's loss can only be offset against S's net income to the extent it was not distributed to preferred stockholders ($100). Therefore, $1,400 of the loss cannot be deducted in 1991 and the Oregon consolidated taxable income of the group would be computed as follows: [Example not included. See ED. NOTE.]

The remaining $1,400 of Corporation R's loss can be carried forward and deducted in future years subject to the same limitation.

[ED. NOTE: The Examples referenced in this rule are not printed in the OAR Compilation. Copies are available from the agency.]

[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 317.713
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

150-317.715(2)-(A)

Modified Federal Consolidated Taxable Income

Federal consolidated taxable income shall be modified if the affiliated group of corporations consists of more than one unitary group. The separate taxable income determined under the provisions set forth in the treasury regulations under Internal Revenue Code (IRC) Section 1502 attributable to an affiliated corporation, which does not belong to the unitary group of which the corporation subject to tax under this chapter is a member, shall be subtracted from federal consolidated taxable income.

Example: Corporations M, G and W file a consolidated federal return. Corporations M and W are engaged in a single unitary business. Corporation G's business activities are separate and unrelated. Modified federal consolidated taxable income is computed by subtracting, from federal consolidated taxable income, Corporation G's separate taxable income and by reversing the necessary adjustments pursuant to the provisions set forth in the treasury regulations under IRC Section 1502 attributable to Corporation G.

[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 317.713
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 7-1991, f. 12-30-91, cert. ef. 12-31-91, Renumbered from 150-317.715(2)

150-317.715(2)-(B)

Modified Federal Consolidated Taxable Income -- Contribution Deduction for the Oregon Consolidated Group

(1) In general. The contribution deduction allowed corporations subject to taxation under Oregon Revised Statutes (ORS) Chapter 317 or 318, that file federal consolidated returns, is limited to the lesser of:

(a) The contributions made by the members of the unitary group; or

(b) 10 percent of the modified federal consolidated taxable income of the members of the unitary group.

Example 1: Corporation A files a consolidated federal return for tax year 1987. A's federal return consists of two unitary groups of corporations, one of which is required to file an Oregon return. Corporation B is a member of the unitary group of corporations required to file a 1987 Oregon return. B contributed $1,000,000 to charities. No other corporation included in A's consolidated federal return made contributions in 1987. For tax year 1987, A has federal consolidated taxable income of $20,000,000 before any contribution deduction. The unitary group required to file the Oregon return has modified federal consolidated taxable income of $500,000 before any contribution deduction.

Under Treasury Regulations adopted under section 1502 of the Internal Revenue Code (IRC), A is allowed to claim a contribution deduction of $1,000,000 (the lesser of the amount paid by all members of the federal consolidated group or 10 percent of the federal consolidated taxable income of the entire group before the contribution deduction). For Oregon purposes, however, the unitary group is allowed a contribution deduction of $50,000 (the lesser of the $1,000,000 paid by members of the unitary group or 10 percent of the $500,000 modified federal consolidated taxable income before the contribution deduction).

Example 2: Assume the same facts as in Example 1 except that the unitary group required to file an Oregon return has modified federal consolidated net loss of $100,000. This unitary group has no allowable contribution deduction even though A will be permitted to deduct the entire contribution on its 1987 consolidated federal return.

Example 3: Assume the same facts as in Example 1 except that no member of the unitary group required to file an Oregon return made any contribution and members of the nonunitary group made the $1,000,000 contribution. For federal purposes, the consolidated group is permitted to claim a deduction for the contributions made by any member of the group. However, for Oregon purposes, no deduction is allowed.

(2) Carryover of excess contributions.

(a) Any contribution not used in the tax year is carried over to the next tax year. In no case shall a contribution be carried over for more than five succeeding tax years. Any contribution not used is lost.

(b) Contribution carryovers for any consolidated return tax year shall consist of any excess contributions of the unitary group, plus any excess contributions of members of the group arising in separate return tax years of such members and which may be carried over to the taxable year pursuant to the principles of IRC section 170. However, such consolidated contribution carryovers shall not include any excess contributions apportioned to a corporation for a separate return tax year pursuant to Treasury Regulations adopted under section 1502 of the IRC.

Example 4: Assume the same facts as in Example 1 except that the unitary group has modified federal consolidated taxable income of $5,000. The allowable contribution deduction is limited to $500 (the lesser of the $1,000,000 contributed or 10 percent of the group's $5,000 modified federal consolidated taxable income). The unitary group is allowed to carry over $999,500 to the group's next tax year, 1988. None of the amount may be carried over beyond tax year 1992 (five years from the tax year in which the amount was contributed).

Example 5: Assume the same facts as in Example 4 except that in tax year 1987 A acquired Corporation C. C will be included in A's 1988 consolidated federal return and is unitary with the group required to file an Oregon return. In 1987, C had a contribution carryover of $200,000. Its income and deductions were used in computing the unitary group's 1988 Oregon consolidated taxable income. Since C is unitary with the group required to file an Oregon return, the unitary group's carryover for tax year 1988 is $1,199,500 ($999,500 plus $200,000).

(c) Excess contribution carryovers are applied to a given tax year in the same manner as provided under IRC sections 170 and 381 as they apply to the unitary group required to file an Oregon return.

[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 317.715
Hist.: RD 11-1988, f. 12-19-88, cert. ef. 12-31-88; RD 7-1993, f. 12-30-93, cert. ef. 12-31-93

150-317.715(3)(b)

Consolidated Oregon Return: Apportionment Formula

(1) Each member of an affiliated group of corporations must be treated as a separate corporation for purposes of determining whether it is subject to the tax jurisdiction of Oregon. A corporation is subject to the tax jurisdiction of Oregon if it is "doing business" in Oregon as defined under ORS 317.010(4) or has income from Oregon sources taxable under ORS 318.020.

(2) In applying the apportionment provisions of ORS 314.280 or 314.605 to 314.670, each corporation subject to the tax jurisdiction of Oregon must be considered separately.

Example: Corporations A, B and C are members of the same unitary group and file a consolidated federal return. Corporation C is "doing business" in Oregon as defined under ORS 317.010(4) while Corporations A and B have no activities in Oregon. Since Corporation C is the only member of the affiliated group subject to the tax jurisdiction of Oregon, the Oregon property, payroll and sales included in the numerator of the apportionment formula are determined by applying the provisions of ORS 314.605 to 314.670 to the business activities of Corporation C. The denominator of the apportionment formula will include the total property, payroll and sales for Corporations A, B and C as determined by applying the provisions of ORS 314.655 to ORS 314.670. See OAR 150-314.665(6) and 150-314.665(6)(a) for an explanation regarding how ORS 317.715(3) and this rule work with the "primary business activity" provisions of ORS 314.665(6).

(3) The property, payroll, sales and other factors included in the apportionment formula of a consolidated Oregon return must be computed by eliminating transactions between members of the affiliated group filing the consolidated Oregon return. See OAR 150-314.650(9) regarding transactions between members of an affiliated group filing a consolidated Oregon return and related pass-through entities such as partnerships and S corporations owned by other members of that affiliated group.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.715
Hist.: RD 12-1985, f. 12-16-85, cert. ef. 12-31-85; RD 10-1986, f. & cert. ef. 12-31-86; REV 1-2001, f. 7-31-01, cert. ef. 8-1-01; REV 11-2004, f. 12-29-04, cert. ef. 12-31-04

150-317.720

Computation of Taxable Income; Excess Loss Accounts

An Oregon subtraction is allowed for the amount of excess loss account included in federal taxable income under the provisions of Treasury Regulation subsection 1.1502-19 if:

(1) The losses did not offset unitary income in the year incurred; or

(2) The excess losses were attributable to losses incurred in tax years beginning prior to January 1, 1986.

Example (1): Corporation P purchased 100 percent of the stock of Corporation S for $1,000 on January 1, 1986. P and S were not unitary and S had negative earning and profits (E&P) of $1,000 in the tax year ending December 31, 1986. They filed a consolidated federal and separate Oregon returns in 1986. P and S were unitary and filed consolidated federal and Oregon returns in 1987. During 1987, S realized another negative E&P of $1,000. P sold S to an unrelated buyer for $1,000 on January 1, 1988.

P's federal adjusted basis in S: [Table not included. See ED. NOTE.]

For Oregon, the federal addition of $1,000, due to the excess loss account, can be subtracted since it is attributable to a loss that S claimed in 1986 that did not offset unitary income.

Example (2): Same facts as Example (1), except that all events took place two years earlier. The 1986 Oregon return would show a subtraction of $2,000,000 because both losses, even the 1985 loss which did offset unitary income, were incurred in tax years beginning before January 1, 1986.

[ED. NOTE: The Table(s) referenced in this rule is not printed in the OAR Compilation. Copies are available from the agency.]

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.720
Hist.: RD 7-1993, f. 12-30-93, cert. ef. 12-31-93

150-317.725(1)(b)

Application for Relief

If the application of ORS 317.715 is unduly burdensome or produces an inequitable or unreasonable result, the taxpayer may request relief under this section. The request for relief must be made in writing to the Oregon Department of Revenue, Business Division. The request for relief must be filed within 180 days after the beginning of the tax year for which the relief is being requested, and must include the following information:

(1) A statement that the request for relief is made under the provisions of ORS 317.725(1)(b);

(2) A concise statement of the facts on which the request is based;

(3) A statement of the proposed solution; and

(4) A statement of the impact of the proposed solution on the tax liability of the taxpayer.

Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.725
Hist.: RD 12-1985, f. 12-16-85, cert. ef. 12-31-85; REV 12-2000, f. 12-29-00, cert. ef. 12-31-00

150-317.920

Tax Imposed on Unrelated Business Income of Certain Exempt Corporations

(1) ORS 317.920 to ORS 317.950 apply to those corporations which earn unrelated business income although normally exempt under ORS 317.080.

(2) For purposes of ORS 317.920, the term "unrelated business income" shall have the same meaning as it is given in section 512 of the Internal Revenue Code.

(3) Such income shall be reported on an Oregon Corporation Excise Tax Return, Form 20, with a full copy of the Federal Form 990T or other required federal return attached.

[Publications: The publication 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 317.920
Hist.: 1959; 12-31-77; RD 7-1983, f. 12-20-83, cert. ef. 12-31-83; RD 11-1988, f. 12-19-88, cert. ef. 12-31-88

The official copy of an Oregon Administrative Rule is contained in the Administrative Order filed at the Archives Division, 800 Summer St. NE, Salem, Oregon 97310. Any discrepancies with the published version are satisfied in favor of the Administrative Order. The Oregon Administrative Rules and the Oregon Bulletin are copyrighted by the Oregon Secretary of State. Terms and Conditions of Use

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Phone: (503) 986-1523 • Fax: (503) 986-1616 • oregon.sos@state.or.us

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