Chapter 9 Oregon Laws 2001

AN ACT

HB 2274

Relating to taxation; creating new provisions; amending ORS 314.380, 314.410, 316.082 and 316.131; and prescribing an effective date.

Be It Enacted by the People of the State of Oregon:

SECTION 1. ORS 316.082 is amended to read:

316.082. (1) A resident individual shall be allowed a credit against the tax otherwise due under this chapter for the amount of any income tax imposed on the individual, or on an Oregon S corporation or Oregon partnership of which the individual is a member (to the extent of the individual's pro rata share of the S corporation or distributive share of the partnership), for the [taxable] tax year by another state [of the United States or the District of Columbia] on income derived from sources therein and that is also subject to tax under this chapter.

(2) The credit provided under this section shall not exceed the proportion of the tax otherwise due under this chapter that the amount of the modified adjusted gross income of the taxpayer derived from sources in the other [taxing jurisdiction] state bears to the entire modified adjusted gross income of the taxpayer [as modified by this chapter].

(3) The Department of Revenue shall provide by rule the procedure for obtaining credit provided by this section and the proof required. The requirement of proof may be waived partially, conditionally or absolutely, as provided under ORS 315.063.

(4) No credit allowed under this section or ORS 316.292 shall be applied in calculating tax due under this chapter if the tax upon which the credit is based has been claimed as a deduction, unless the tax upon which the credit is based is restored to income on the Oregon return.

(5) Credit shall not be allowed under this section for income taxes paid to a state [which] that allows a nonresident a credit against the income taxes imposed by that state for taxes paid or payable to the state of residence. It is the purpose of this subsection to avoid duplicative taxation through use of a nonresident, rather than a resident, credit for taxes paid or payable to another state.

(6) The Department of Revenue may adopt rules under this section that provide a credit against the tax imposed by this chapter when the department considers the credit necessary to avoid taxation of the same income by this state and another state.

[(6)] (7) [For purposes of] As used in this section:

(a) “Modified adjusted gross income” means federal adjusted gross income as modified by this chapter and the other laws of this state applicable to personal income taxation.

[(a)] (b) “Oregon partnership” means an entity that is treated as a partnership for Oregon excise and income tax purposes.

[(b)] (c) “Oregon S corporation” means a corporation that has elected S corporation status for Oregon excise and income tax purposes.

(d) “State” means a state, district, territory or possession of the United States.

[(7)] (8) For purposes of this section:

(a) A direct tax imposed upon income of an Oregon S corporation is an income tax imposed on the Oregon S corporation.

(b) An excise tax that is measured by income of an Oregon S corporation is an income tax imposed on the Oregon S corporation.

[(8)] (c) [For purposes of subsection (7) of this section,] An excise tax is [“]measured by income[”] only if the statute imposing the excise tax provides that the base for the excise tax:

[(a) Includes:]

[(A) Revenue from sales;]

[(B) Revenue from services rendered; and]

[(C) Income from investments; and]

(A) Includes revenue from sales and from services rendered, and income from investments; and

[(b)] (B) Permits a deduction for the cost of goods sold and the cost of services rendered.

SECTION 2. ORS 316.131 is amended to read:

316.131. (1) A nonresident shall be allowed a credit against the taxes otherwise due under this chapter for income taxes imposed by and paid to the state of residence (not including any preference, alternative or minimum tax) on income taxable under this chapter, subject to the following conditions:

(a) The credit shall be allowed only if the state of residence either:

(A) Does not tax the income of residents of this state derived from sources within that state; or

(B) Allows residents of this state a credit against income taxes imposed by that state on income for tax paid or payable under this chapter.

(b) The credit shall not be allowed for taxes paid to a state [which] that allows its residents a credit against the taxes imposed by that state for income tax paid or payable under this chapter irrespective of whether its residents are allowed a credit against the taxes imposed by this chapter for income taxes paid to that state.

(c) Credit shall be allowed only for the proportion of the taxes paid to the state of residence (not including preference, alternative or minimum taxes) as the adjusted gross income taxable under this chapter and also subject to taxes in the state of residence bears to the entire adjusted gross income upon which the taxes paid to the state of residence are imposed.

(d) The credit shall not exceed the proportion of the tax payable under this chapter [as] that the modified adjusted gross income subject to tax in the state of residence and also taxable under this chapter bears to the entire modified adjusted gross income [(as modified) taxable under this chapter] of the taxpayer.

(2) For purposes of this section, the amount of [“]income taxes[”] paid to another state [shall include] includes the taxpayer's pro rata share of any taxes on, or according to, or measured by, income or profits paid or accrued[, which] that were paid by an S corporation.

(3) As used in this section:

(a) “Modified adjusted gross income” means federal adjusted gross income as modified by this chapter and the other laws of this state applicable to personal income taxation.

(b) “State” means a state, district, territory or possession of the United States.

SECTION 3. The amendments to ORS 316.082 and 316.131 by sections 1 and 2 of this 2001 Act apply to:

(1) Tax years beginning on or after January 1, 2001;

(2) Any tax year for which the Department of Revenue may issue a notice of deficiency or a refund on the effective date of this 2001 Act; and

(3) Any tax year for which a proceeding is pending before the Regular Division or Magistrate Division of the Oregon Tax Court on the effective date of this 2001 Act.

SECTION 4. ORS 314.380 is amended to read:

314.380. (1) Every taxpayer shall, upon request of the Department of Revenue, furnish a copy of the return for the corresponding year, which the taxpayer has filed or may file with the federal government, showing the taxpayer's net income and how obtained and the several sources from which derived. Every taxpayer shall, upon request of the department, furnish a copy of any federal revenue agent's report or other audit report made upon any audit or adjustment of the taxpayer's federal income tax return or income tax return of another state.

(2)(a) [If] The taxpayer shall report to the department any change in the taxpayer's taxable income that is subject to tax by this state or any change in the taxpayer's tax liability paid to or owing this state because:

(A) The Internal Revenue Service or other competent authority has changed or corrected the amount of a taxpayer's taxable income, tax credit or other amount taken into account in determining the taxpayer's tax liability as reported on a federal income tax return or an income tax return of another state for any taxable year; or [is changed or corrected by the United States Internal Revenue Service or other competent authority, resulting in a change in the taxpayer's taxable income that is subject to tax by this state or in the taxpayer's tax liability paid to or owing this state, the taxpayer shall report the change or correction to the department.]

(B) The taxpayer:

(i) Files an original or amended return that is accepted by the Internal Revenue Service or the taxing authority of another state; or

(ii) Is assessed tax by the Internal Revenue Service or the taxing authority of another state for the failure to file a return as required.

(b) In the case of a change or correction made by the Internal Revenue Service or by the taxing authority of another state, the report shall either concede the accuracy of the determination or state wherein the taxpayer believes it to be erroneous.

[(b) A change or correction that results in a reduction in Oregon tax liability shall] The report may be treated by the department as a claim for refund pursuant to ORS 314.415 [and,] if the department determines that the taxpayer's correct Oregon tax liability is a reduction from the taxpayer's Oregon tax liability prior to the filing of the report. Notwithstanding the limitations of ORS 314.415, a claim for refund under this paragraph shall be deemed timely if received by the department within two years after the federal or other state correction was made.

[(3)] (c) [Any taxpayer filing an amended federal income tax return or amended income tax return of another state reporting] In the case of a taxpayer filing an original or amended federal or other state return that reports a change in the taxpayer's taxable income that is subject to tax by this state or that results in a change in the taxpayer's tax liability paid to or owing this state, the report required by this subsection shall be an amended Oregon return. The taxpayer shall [also] file [an] the amended return with the department within 90 days thereafter.

[(4)] (3) For purposes of this section[,]:

(a) A change or correction of a taxpayer's taxable income is deemed to be made on the date of the audit report making the change or correction; and

(b) The date on which an original or amended return is accepted by the Internal Revenue Service or other state taxing authority is the date the original or amended return is filed if the return is subsequently accepted by the Internal Revenue Service or other state taxing authority.

[(5)] (4) The provisions of ORS 305.305 shall constitute the exclusive remedy of a person whose notice of deficiency or assessment is based upon a change or correction of the person's taxable income under this section.

SECTION 5. ORS 314.410 is amended to read:

314.410. (1) At any time within three years after the return was filed, the Department of Revenue may give notice of deficiency as prescribed in ORS 305.265.

(2) If the department finds that gross income equal to 25 percent or more of the gross income reported has been omitted from the taxpayer's return, notice of the deficiency may be given at any time within five years after the return was filed.

(3)(a) The limitations to the giving of notice of a deficiency provided in this section shall not apply to a deficiency resulting from false or fraudulent returns, or in cases where no return has been filed.

(b)(A) If the Commissioner of Internal Revenue or other authorized officer of the federal government or an authorized officer of another state's taxing authority makes a change or correction as described in ORS 314.380 (2)(a)(A) and, as a result of the change or correction, an assessment of tax or issuance of a refund is permitted under any provision of the Internal Revenue Code or applicable law of the other state, or pursuant to an agreement between the taxpayer and the federal or other state taxing authority that extends the period in which an assessment of federal or other state tax may be made, then notice of a deficiency under any Oregon law imposing tax upon or measured by income for the corresponding tax year may be mailed within two years after the department is notified by the taxpayer or the commissioner or other tax official of the correction, or within the applicable three-year or five-year period prescribed in subsections (1) and (2) of this section, [respectively,] whichever period expires [the] later.

(B) A notice of deficiency mailed pursuant to this paragraph may assert any adjustment necessary to arrive at the correct amount of Oregon taxable income and Oregon tax liability for the tax year for which the federal or other state change or correction is made.

(c) If the taxpayer files an original or amended federal or other state return as described in ORS 314.380 (2)(a)(B), the department may reduce any claim for refund as a result of a change in Oregon tax liability related to the original or amended federal or other state return, but may not give notice of a deficiency for an adjustment to Oregon tax liability following the expiration of the applicable period prescribed in subsections (1) and (2) of this section and paragraph (a) of this subsection.

(4) The tax deficiency must be assessed and notice of tax assessment mailed to the taxpayer or authorized representative, who is authorized in writing, within one year from the date of the notice of deficiency unless an extension of time is agreed upon as prescribed in subsection (6) of this section.

(5) Notwithstanding other provisions of this section, the period for the assessment of any deficiency attributable to any part of the gain realized upon the sale or exchange of the taxpayer's principal residence, as provided in section 1034 of the [federal] Internal Revenue Code [as applicable to the Personal Income Tax Act of 1969, shall] (as in effect prior to the repeal of section 1034 of the Internal Revenue Code by the Taxpayer Relief Act of 1997 (P.L. 105-34)), does not expire prior to the expiration of three years from the date the department is notified by the taxpayer of:

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

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

(c) A failure to purchase a new residence within the period prescribed in [the federal] section 1034 of the Internal Revenue Code [as applicable to the Personal Income Tax Act of 1969] (as in effect prior to the repeal of section 1034 of the Internal Revenue Code by the Taxpayer Relief Act of 1997 (P.L. 105-34)).

(6) If, prior to the expiration of any period of time prescribed in this section for giving of notice of deficiency or of assessment, the department and the taxpayer consent in writing to the notice of deficiency being mailed or deficiency being assessed after the expiration of such prescribed period, notice of such deficiency may be mailed or the deficiency assessed at any time prior to the expiration of the period agreed upon. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period agreed upon.

(7) In the case of a deficiency attributable to the application to the taxpayer of a net operating loss carryback, notice of such deficiency may be mailed at any time before the expiration of the period within which notice of a deficiency for the taxable year of the net operating loss which results in such carryback may be mailed.

(8) Notwithstanding the other provisions of this section, if any taxpayer agreed with the United States Commissioner of Internal Revenue or the taxing authority of another state for an extension, or renewals thereof, of the period for giving notices of deficiencies and assessing deficiencies in income tax for any year, the period for mailing notices of deficiencies of tax for such years and the period for filing a claim for refund under ORS 314.380 (2)(b) shall expire on the later of:

(a) The expiration of an applicable period described in subsections (1) to (7) of this section; or

(b) Six months after the date of the expiration of the agreed period for assessing a deficiency.

(9) For purposes of this section, ORS 314.415 and any other provision of law establishing the time for which a refund may be claimed or notice of deficiency may be given with respect to a tax imposed on or measured by net income, “return” means the return required to be filed by the taxpayer and does not include a return of any person from whom the taxpayer has received an item of income, gain, loss, deduction or credit.

SECTION 6. The amendments to ORS 314.380 and 314.410 by sections 4 and 5 of this 2001 Act apply to:

(1) Reports to the Department of Revenue that are prescribed by ORS 314.380 and that are required to be made on or after October 4, 1997.

(2) Notices of deficiency and refund claim reductions made on or after October 4, 1997.

SECTION 7. Notwithstanding section 6 of this 2001 Act, any notice of deficiency issued in compliance with ORS 314.410 (1997 Edition or 1999 Edition) on or after October 4, 1997, and before the effective date of this 2001 Act is hereby validated and approved.

SECTION 8. This 2001 Act takes effect on the 91st day after the date on which the regular session of the Seventy-first Legislative Assembly adjourns sine die.

Approved by the Governor March 5, 2001

Filed in the office of Secretary of State March 5, 2001

Effective date October 6, 2001

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