Chapter 660 Oregon Laws 2001

AN ACT

HB 2272

Relating to taxation; creating new provisions; amending ORS 305.230, 305.265, 305.305, 305.494, 305.690, 307.130, 307.147, 310.140, 310.630, 310.800, 311.689, 314.011, 314.525, 315.004, 315.068, 315.262, 315.266, 315.274, 315.354, 316.012, 316.037, 316.078, 316.085, 316.087, 316.153, 316.157, 316.162, 316.182, 316.207, 316.298, 316.362, 316.369, 316.557, 316.563, 316.587, 316.588, 316.695, 317.010, 317.097, 317.151, 317.152, 317.154, 317.329, 469.205, 469.215 and 671.540; repealing ORS 316.371 and 316.743; prescribing an effective date; and providing for revenue raising that requires approval by a three-fifths majority.

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

SECTION 1. ORS 315.354 is amended to read:

315.354. (1) A credit is allowed against the taxes otherwise due under ORS chapter 316 (or, if the taxpayer is a corporation, under ORS chapter 317 or 318), based upon the certified cost of the facility during the period for which that facility is certified under ORS 469.185 to 469.225. The credit allowed in each of the first two tax years in which the credit is claimed shall be 10 percent of the certified cost of the facility, but shall not exceed the tax liability of the taxpayer. The credit allowed in each of the succeeding three years shall be five percent of the certified cost, but shall not exceed the tax liability of the taxpayer.

(2) In order for a tax credit to be allowable under this section:

(a) The facility must be located in Oregon; [,] and[:]

[(a) Owned during the tax year by the taxpayer claiming the credit;]

(b) The facility must have received final certification from the administrator of the Office of Energy under ORS 469.185 to 469.225.

[(b) If the facility is a qualified transit pass contract, the taxpayer must be the obligated purchaser of transit passes; or]

[(c) If the taxpayer is a corporation, financed by a public utility described in ORS 469.205 (1)(c)(B), that has been issued a certificate under ORS 469.215.]

[(3) A credit under this section may be claimed by a taxpayer for a facility only in those tax years which begin on and after January 1, 1980.]

[(4)] (3) The maximum total credit or credits allowed for a facility under this section to eligible taxpayers shall not exceed 35 percent of the certified cost of such facility.

[(5)] (4) Upon any sale, termination of the lease or contract, exchange or other disposition of the facility, notice thereof shall be given to the administrator of the Office of Energy who shall revoke the certificate covering the facility as of the date of such disposition. The transferee, or upon re-leasing of the facility, the lessor, may apply for a new certificate under ORS 469.215, but the tax credit available to that transferee shall be limited to the amount of credit not claimed by the transferor or, for a lessor, the amount of credit not claimed by the lessor under all previous leases.

[(6)] (5) Any tax credit otherwise allowable under this section which is not used by the taxpayer in a particular year may be carried forward and offset against the taxpayer’s tax liability for the next succeeding tax year. Any credit remaining unused in that next succeeding tax year may be carried forward and used in the second succeeding tax year, and likewise, any credit not used in that second succeeding tax year may be carried forward and used in the third succeeding tax year, and likewise, any credit not used in that third succeeding tax year may be carried forward and used in the fourth succeeding tax year, and likewise, any credit not used in that fourth succeeding tax year may be carried forward and used in the fifth succeeding tax year, and likewise, any credit not used in that fifth succeeding tax year may be carried forward and used in the sixth succeeding tax year, and likewise, any credit not used in that sixth succeeding tax year may be carried forward and used in the seventh succeeding tax year, and likewise, any credit not used in that seventh succeeding tax year may be carried forward and used in the eighth succeeding tax year, but may not be carried forward for any tax year thereafter. Credits may be carried forward to and used in a tax year beyond the years specified in subsection (1) of this section only as provided in this subsection.

[(7)] (6) The credit provided by this section is not in lieu of any depreciation or amortization deduction for the facility to which the taxpayer otherwise may be entitled for purposes of ORS chapter 316, 317 or 318 for such year.

[(8)] (7) The taxpayer’s adjusted basis for determining gain or loss shall not be decreased by any tax credits allowed under this section.

[(9)] (8) Except as provided in [subsection (2)(c) of this section] ORS 469.205 (1)(c), a credit under the provisions of this section shall not be allowed to any of the following:

(a) A public utility, as defined in ORS 757.005, that retails electricity or natural gas to more than 100 customers or, if the taxpayer is a corporation, a public utility, as defined in ORS 757.005, that retails electricity or natural gas to more than 100 customers unless the credit is for a facility for commercial or residential property owned and managed by the utility;

(b) A people’s utility district, as defined in ORS 261.010, a municipal utility or a cooperative utility that retails electricity or natural gas to more than 100 customers; or

(c) A subsidiary or an affiliated interest, as defined in ORS 757.015, of a public utility described in paragraph (a) of this subsection, or if the taxpayer is a corporation, a subsidiary or an affiliated interest, as defined in ORS 757.015, of a public utility described in paragraph (a) of this subsection unless the credit is for a facility for commercial or residential property owned and managed by the subsidiary or affiliated interest.

SECTION 1a. If Senate Bill 521 becomes law, section 1 of this 2001 Act (amending ORS 315.354) is repealed and ORS 315.354, as amended by section 1, chapter 583, Oregon Laws 2001 (Enrolled Senate Bill 521), is amended to read:

(a) Except as provided in paragraph (b) of this subsection, the credit allowed in each of the first two tax years in which the credit is claimed shall be 10 percent of the certified cost of the facility, but may not exceed the tax liability of the taxpayer. The credit allowed in each of the succeeding three years shall be five percent of the certified cost, but may not exceed the tax liability of the taxpayer.

(b) If the application for certification under ORS 469.185 to 469.225 was filed with the Office of Energy on or after January 1, 2001, and the certified cost of the facility does not exceed $20,000, the total amount of the credit allowable under subsection [(4)] (3) of this section may be claimed in the first tax year for which the credit may be claimed, but may not exceed the tax liability of the taxpayer.

(2) In order for a tax credit to be allowable under this section:

(a) The facility must be located in Oregon;

(b) The facility must have received final certification from the administrator of the Office of Energy under ORS 469.185 to 469.225; and

(c) The taxpayer must be an eligible applicant under ORS 469.205 (1)(c).

[(3) If the facility is a qualified transit pass contract, the taxpayer must be the obligated purchaser of transit passes.]

[(4)] (3) The maximum total credit or credits allowed for a facility under this section to eligible taxpayers may not exceed 35 percent of the certified cost of the facility.

[(5)(a)] (4)(a) Upon any sale, termination of the lease or contract, exchange or other disposition of the facility, notice thereof shall be given to the administrator of the Office of Energy who shall revoke the certificate covering the facility as of the date of such disposition. The new owner, or upon re-leasing of the facility, the new lessor, may apply for a new certificate under ORS 469.215, but the tax credit available to the new owner shall be limited to the amount of credit not claimed by the former owner or, for a new lessor, the amount of credit not claimed by the lessor under all previous leases.

(b) The Office of Energy may not revoke the certificate covering a facility under paragraph (a) of this subsection if the tax credit associated with the facility has been transferred to a taxpayer who is an eligible applicant under ORS 469.205 (1)(c)(A).

[(6)] (5) Any tax credit otherwise allowable under this section that is not used by the taxpayer in a particular year may be carried forward and offset against the taxpayer’s tax liability for the next succeeding tax year. Any credit remaining unused in that next succeeding tax year may be carried forward and used in the second succeeding tax year, and likewise, any credit not used in that second succeeding tax year may be carried forward and used in the third succeeding tax year, and likewise, any credit not used in that third succeeding tax year may be carried forward and used in the fourth succeeding tax year, and likewise, any credit not used in that fourth succeeding tax year may be carried forward and used in the fifth succeeding tax year, and likewise, any credit not used in that fifth succeeding tax year may be carried forward and used in the sixth succeeding tax year, and likewise, any credit not used in that sixth succeeding tax year may be carried forward and used in the seventh succeeding tax year, and likewise, any credit not used in that seventh succeeding tax year may be carried forward and used in the eighth succeeding tax year, but may not be carried forward for any tax year thereafter. Credits may be carried forward to and used in a tax year beyond the years specified in subsection (1) of this section only as provided in this subsection.

[(8)] (7) The taxpayer’s adjusted basis for determining gain or loss may not be decreased by any tax credits allowed under this section.

SECTION 1b. If Senate Bill 521 becomes law, ORS 469.215, as amended by section 8, chapter 583, Oregon Laws 2001 (Enrolled Senate Bill 521), is amended to read:

469.215. (1) No final certification shall be issued by the administrator of the Office of Energy under this section unless the facility was acquired, erected, constructed or installed under a preliminary certificate of approval issued under ORS 469.210 and in accordance with the applicable provisions of ORS 469.185 to 469.225 and any applicable rules or standards adopted by the administrator.

(2) Any person may apply to the Office of Energy for final certification of a facility:

(a) If the office issued preliminary certification for the facility under ORS 469.210; and

(b)(A) After completion of erection, construction, installation or acquisition of the proposed facility or, if the facility is a qualified transit pass contract, after entering into the contract with a transportation provider; or

(B) After transfer of the facility, as provided in ORS 315.354 [(5)] (4).

(3) An application for final certification shall be made in writing on a form prepared by the Office of Energy and shall contain:

(a) A statement that the conditions of the preliminary certification have been complied with;

(b) The actual cost of the facility certified to by a certified public accountant who is not an employee of the applicant or, if the actual cost of the facility is less than $50,000, copies of receipts for purchase and installation of the facility;

(c) A statement that the facility is in operation or, if not in operation, that the applicant has made every reasonable effort to make the facility operable; and

(d) Any other information determined by the administrator to be necessary prior to issuance of a final certificate, including inspection of the facility by the Office of Energy.

(4) The administrator shall act on an application for certification before the 60th day after the filing of the application under this section. The administrator, after consultation with the Public Utility Commission, may issue the certificate together with such conditions as the administrator determines are appropriate to promote the purposes of this section and ORS 315.354, 469.185, 469.200, 469.205 and 469.878. The action of the administrator shall include certification of the actual cost of the facility. However, in no event shall the administrator certify an amount for tax credit purposes which is more than 10 percent in excess of the amount approved in the preliminary certificate issued for the facility.

(5) If the administrator rejects an application for final certification, or certifies a lesser actual cost of the facility than was claimed in the application, the administrator shall send to the applicant written notice of the action, together with a statement of the findings and reasons therefor, by certified mail, before the 60th day after the filing of the application. Failure of the administrator to act constitutes rejection of the application.

(6) Upon approval of an application for final certification of a facility, the administrator shall certify the facility. Each certificate shall bear a separate serial number for each device. Where one or more devices constitute an operational unit, the administrator may certify the operational unit under one certificate.

SECTION 2. ORS 469.205 is amended to read:

469.205. (1) Prior to erection, construction, installation or acquisition of a proposed facility any person may apply to the Office of Energy for preliminary certification under ORS 469.210 if:

(a) The erection, construction, installation or acquisition of the facility is to be commenced on or after October 3, 1979;

(b) The facility complies with the standards or rules adopted by the administrator of the Office of Energy; and

(A) The applicant will be the owner or contract purchaser of the facility at the time of erection, construction, installation or acquisition of the proposed facility, and:

(i) The applicant is the owner, contract purchaser or lessee of a trade or business that plans to utilize the facility in connection with Oregon property;

(ii) The applicant is the owner, contract purchaser or lessee of a trade or business that plans to lease the facility to a person who will utilize the facility in connection with Oregon property; or

(iii) The applicant is a person to whom a tax credit has been transferred under ORS 469.208.

(B) [Notwithstanding ORS 315.354 (9)(a) and (b),] The applicant is a public utility as defined in ORS 757.005 or a subsidiary or an affiliated interest of a public utility as defined in ORS 757.015, for purposes of financing rental housing unit energy conservation measures as described in ORS 469.636 or alternative fuel vehicles for commercial or industrial customers as provided in ORS 469.878.

(C) [Notwithstanding ORS 315.354 (9)(a) and (b),] The applicant is a public utility as defined in ORS 757.005 or a subsidiary or an affiliated interest of a public utility as defined in ORS 757.015, for purposes of financing alternative fuel vehicles or associated facilities.

(D) [Notwithstanding ORS 315.354 (9)(a) and (b),] The applicant is a public utility as defined in ORS 757.005 or a subsidiary or an affiliated interest of a public utility as defined in ORS 757.015, for purposes of financing transportation facilities.

(2) An application for preliminary certification shall be made in writing on a form prepared by the Office of Energy and shall contain:

(a) A statement that the applicant or the lessee of the applicant’s facility:

(A) Intends to convert from a purchased energy source to a renewable energy resource;

(B) Plans to acquire, construct or install a facility that will use a renewable energy resource or solid waste instead of electricity, petroleum or natural gas;

(C) Plans to use a renewable energy resource in the generation of electricity for sale or to replace an existing or proposed use of an existing source of electricity;

(D) Plans to acquire, construct or install a facility that substantially reduces the consumption of purchased energy;

(E) Plans to acquire, construct or install equipment for recycling as defined in ORS 469.185 (6);

(F) Plans to acquire an alternative fuel vehicle or to convert an existing vehicle to an alternative fuel vehicle;

(G) Plans to acquire, construct or install a facility necessary to operate alternative fuel vehicles;

(H) Plans to acquire transit passes for use by the applicant’s employees; or

(I) Plans to acquire, construct or install a transportation facility.

(b) A detailed description of the proposed facility and its operation and information showing that the facility will operate as represented in the application.

(c) Information on the amount by which consumption of electricity, petroleum or natural gas by the applicant or the lessee of the applicant’s facility will be reduced, and on the amount of energy that will be produced for sale, as the result of using the facility.

(d) The projected cost of the facility.

(e) If applicable, a copy of the proposed qualified transit pass contract or transportation services contract.

(f) Any other information the administrator of Office of Energy considers necessary to determine whether the proposed facility is in accordance with the provisions of ORS 469.185 to 469.225, and any applicable rules or standards adopted by the administrator.

(3) An application for preliminary certification shall be accompanied by a fee established under ORS 469.217. The administrator may refund the fee if the application for certification is rejected.

(4) The administrator may allow an applicant to file the preliminary application after the start of erection, construction, installation or acquisition of the facility if the administrator finds:

(a) Filing the application before the start of erection, construction, installation or acquisition is inappropriate because special circumstances render filing earlier unreasonable; and

(b) The facility would otherwise qualify for tax credit certification pursuant to ORS 469.185 to 469.225.

SECTION 3. The amendments to ORS 315.354, 469.205 and 469.215 by sections 1, 1a, 1b and 2 of this 2001 Act apply to tax years beginning on or after January 1, 2001.

SECTION 4. ORS 316.587 is amended to read:

316.587. (1) Except as provided in subsection (5) of this section, if an individual makes an underpayment of estimated tax, interest shall accrue at the rate established under ORS 305.220 for each month, or fraction thereof, on the amount underpaid for the period the estimated tax or any installment remains unpaid. The penalty provisions contained in ORS chapter 314 for underpayment of tax shall not apply to underpayments of estimated tax under ORS 316.557 to 316.589.

(2) For purposes of subsection (1) of this section, the amount of underpayment shall be the excess of the required installment over the amount (if any) of the installment paid on or before the due date for the installment.

(3) The period of underpayment shall run from the date the installment was due to the earlier of the following dates:

(a) The 15th day of the fourth month following the close of the taxable year; or

(b) With respect to any portion of the underpayment, the date on which the portion is paid.

(4) For purposes of subsection (3)(b) of this section, a payment of estimated tax shall be credited against unpaid required installments in the order in which such installments are required to be paid.

(5)(a) Interest accruing under subsection (1) of this section shall not be imposed if the individual was a resident of this state throughout the preceding taxable year and had no tax liability for that year, and the preceding taxable year was a taxable year of 12 months.

(b) Interest accruing under subsection (1) of this section shall not be imposed with respect to any underpayment of estimated tax to the extent that the Department of Revenue determines that by reason of casualty, disaster or other unusual circumstances the imposition of interest would be against equity and good conscience.

(c) Interest accruing under subsection (1) of this section shall not be imposed with respect to any underpayment of estimated tax if the department determines that:

(A) In the tax year the estimated tax payment was required to be made or in the tax year preceding such tax year, the taxpayer (i) retired after having attained age 62 or (ii) became disabled; and

(B) The underpayment was due to reasonable cause and not to willful neglect.

(d) Interest accruing under subsection (1) of this section shall not be imposed with respect to any underpayment of estimated tax attributable to the pro rata share of a shareholder of the income of an S corporation if:

(A) The income is taxable income for an initial year for which S corporation status is elected for the corporation; and

(B) The shareholder is a nonresident or for the preceding taxable year was a part-year resident for Oregon tax purposes.

(6) For purposes of this section, the estimated tax shall be computed without any reduction for the amount of credit estimated to be allowed to the individual for the taxable year under ORS 316.187. The amount of the credit allowed under ORS 316.187 for the taxable year shall be considered a payment of estimated tax. An equal part of the credit shall be considered paid on each installment date for the taxable year, unless the taxpayer establishes the date on which all amounts were actually withheld, in which case the amount so withheld shall be considered payment of estimated tax on the dates on which the amounts were actually withheld.

(7) For purposes of subsections (5) and (8) of this section, the term “tax” means the tax imposed by this chapter minus any credits against tax allowed for purposes of this chapter, other than the credit against tax provided by ORS 316.187.

(8) For purposes of subsections (2) and (4) of this section, the term “required installment” means the amount of the installment that would be due if the estimated tax were equal to the lesser of:

(a) Ninety percent of the tax shown on the return for the taxable year (or, if no return is filed, 90 percent of the tax for such year);

(b) If the preceding taxable year was a taxable year of 12 months, the percentage of the tax shown on the return filed by the individual for the preceding taxable year that is established by the Department of Revenue by rule; or

(c) Ninety percent of the tax for the taxable year computed by placing on an annualized basis the taxable income for the months in the taxable year ending before the month in which the installment is required to be paid.

(9) For purposes of subsection (8) of this section:

(a) If an amended return is filed on or before the return due date (determined [without] with regard to [extensions] any extension of time granted to the taxpayer), then the term “return” means the amended return.

(b) If during initial processing of the return the department adjusts the amount of tax due, then the term “tax shown on the return” means the tax as adjusted by the department. This paragraph shall not apply if it is ultimately determined that the adjustment was improper.

SECTION 5. ORS 316.588 is amended to read:

316.588. (1) Interest accruing under ORS 316.587 shall not be imposed for any taxable year if the tax shown on the return for the taxable year (or, if no return is filed, the tax), minus the sum of any credits allowable for purposes of this chapter, including the credit allowable under ORS 316.187, is less than the amount established by rule adopted under ORS 316.563 (2).

(2) For purposes of [subsection (1) of] this section:

(b) If during initial processing of the return the Department of Revenue adjusts the amount of tax due, then the term “tax shown on the return” means the tax as adjusted by the department. This paragraph shall not apply if it is ultimately determined that the adjustment was improper.

SECTION 6. The amendments to ORS 316.587 and 316.588 by sections 4 and 5 of this 2001 Act apply to amended returns filed on or after the effective date of this 2001 Act.

SECTION 7. ORS 316.369 is amended to read:

316.369. [(1)] If a joint return has been made under this chapter for a [taxable year and on the return there is a substantial understatement of tax attributable to grossly erroneous items of one spouse, upon compliance with subsection (2) of this section, the other] tax year, a spouse shall be relieved of liability for tax, including interest, penalties and other amounts, for the [taxable] tax year: [and to the extent that the liability is attributable to the grossly erroneous items.]

[(2) To qualify for relief from liability for tax under subsection (1) of this section, the other spouse must establish:]

[(a)] (1) If the Internal Revenue Service has made a determination that relieved the spouse of liability for federal taxes for the same tax year under Internal Revenue Code provisions [providing] that provide for spouse relief from liability[, that the determination relieved the spouse from liability for federal taxes]; or

[(b)] (2) If the Internal Revenue Service has not made [such] a determination that relieved the spouse of liability for the tax year, but the spouse [would be qualified to be relieved of liability for federal taxes for the same taxable year under those] qualifies to be relieved of state tax liability under rules adopted by the Department of Revenue. In adopting rules under this subsection, the department shall consider the provisions of the Internal Revenue Code and regulations issued thereunder that provide for spouse relief from liability for federal taxes.

SECTION 8. The amendments to ORS 316.369 by section 7 of this 2001 Act apply to claims for relief of tax liability made under ORS 316.369 on or after July 23, 1998.

SECTION 9. ORS 316.371 is repealed.

SECTION 10. ORS 315.262 is amended to read:

315.262. (1) As used in this section:

(a) “Child care” means care provided to a qualifying child of the taxpayer for the purpose of allowing the taxpayer to be gainfully employed, to seek employment or to attend school on a full-time or part-time basis, except that the term does not include care provided by:

(A) The child’s parent or guardian, unless the care is provided by the parent in a licensed or registered child care facility; or

(B) A child of the taxpayer who has not yet attained 19 years of age at the close of the tax year.

(b) “Child care expenses” means the costs associated with providing child care to a qualifying child of a qualified taxpayer.

(d) “Qualified taxpayer” means a taxpayer:

(A) With at least $6,000 of earned income for the tax year;

(B) With federal adjusted gross income for the tax year that does not exceed 250 percent of the federal poverty level; and

(C) Who does not have more than the maximum amount of disqualified income under section 32(i) of the Internal Revenue Code that is allowed to a taxpayer entitled to the earned income tax credit for federal tax purposes.

(e) “Qualifying child” means a child of the taxpayer who is under 13 years of age, or who is a disabled child, as that term is defined in ORS 316.099.

(2) A qualified taxpayer shall be allowed a credit against the taxes otherwise due under ORS chapter 316 equal to the applicable percentage of the qualified taxpayer’s child care expenses (rounded to the nearest $50).

(3) The applicable percentage to be used in calculating the amount of the credit provided in this section shall be determined in accordance with the following table:

______________________________________________________________________________

Applicable Federal Adjusted

Percentage Gross Income as Percent

of Federal Poverty Level

40 200 or less

36 Greater than 200 and less than

or equal to 210

32 Greater than 210 and less than

or equal to 220

24 Greater than 220 and less than

or equal to 230

16 Greater than 230 and less than

or equal to 240

8 Greater than 240 and less than

or equal to 250

0 Greater than 250 percent

of federal poverty level

______________________________________________________________________________

(4) The credit shall be claimed on such form and containing such information as may be prescribed by the Department of Revenue.

(5) In the case of a credit allowed under this section:

(a) A nonresident shall be allowed the credit under this section in the proportion provided in ORS 316.117.

(b) If a change in the status of a taxpayer from resident to nonresident or from nonresident to resident occurs, the credit allowed by this section shall be determined in a manner consistent with ORS 316.117.

(c) If a change in the taxable year of a taxpayer occurs as described in ORS 314.085, or if the Department of Revenue terminates the taxpayer’s taxable year under ORS 314.440, the credit allowed under this section shall be prorated or computed in a manner consistent with ORS 314.085.

(d) In the case of a qualified taxpayer who is married, a credit shall be allowed under this section only if:

(A) The taxpayer files a joint return;

(B) The taxpayer files a separate return and is legally separated or subject to a separate maintenance agreement; or

(C) The taxpayer files a separate return and the taxpayer and the taxpayer’s spouse reside in separate households on the last day of the tax year with the intent of remaining in separate households in the future.

(6) The credit allowed under this section shall not exceed the tax liability of the taxpayer and may not be carried forward to a succeeding tax year.

(7)(a) [For tax years beginning on or after January 1, 1999,] The minimum amount of earned income a taxpayer must earn in order to be a qualified taxpayer shall be adjusted for tax years beginning in each calendar year by multiplying $6,000 by the ratio of the monthly averaged U.S. City Average Consumer Price Index for the [average of the monthly indexes for the second quarter] 12 consecutive months ending August 31 of the prior calendar year over the [average of the monthly indexes of] monthly averaged index for the second quarter of the calendar year 1998.

(b) As used in this subsection, “U.S. City Average Consumer Price Index” means the U.S. City Average Consumer Price Index for All Urban Consumers (All Items) as published by the Bureau of Labor Statistics of the United States Department of Labor.

(c) If any adjustment determined under paragraph (a) of this subsection is not a multiple of $50, the adjustment shall be rounded to the nearest multiple of $50.

SECTION 11. ORS 316.037 is amended to read:

316.037. (1)(a) A tax is imposed for each taxable year on the entire taxable income of every resident of this state. The amount of the tax shall be determined in accordance with the following table:

______________________________________________________________________________

If taxable income is: The tax is:

Not over $2,000..................................... 5% of

taxable

income

Over $2,000 but not

over $5,000.................................. $100 plus 7%

of the excess

over $2,000

Over $5,000............................................ $310 plus 9%

of the excess

over $5,000

______________________________________________________________________________

(b) For tax years beginning in each calendar year, the Department of Revenue shall adopt a table which shall apply in lieu of the table contained in paragraph (a) of this subsection, as follows:

(A) The minimum and maximum dollar amounts for each rate bracket for which a tax is imposed shall be increased by the cost-of-living adjustment for the calendar year.

(B) The rate applicable to any rate bracket as adjusted under subparagraph (A) of this paragraph shall not be changed.

(C) The amounts setting forth the tax, to the extent necessary to reflect the adjustments in the rate brackets, shall be adjusted.

(c) For purposes of paragraph (b) of this subsection, the cost-of-living adjustment for any calendar year is the percentage (if any) by which the monthly averaged U.S. City Average Consumer Price Index for the [average of the monthly indexes for the second quarter of the calendar year] 12 consecutive months ending August 31 of the prior calendar year exceeds the [average of the monthly indexes of] monthly averaged index for the second quarter of the calendar year 1992.

(d) As used in this subsection, “U.S. City Average Consumer Price Index” means the U.S. City Average Consumer Price Index for All Urban Consumers (All Items) as published by the Bureau of Labor Statistics of the United States Department of Labor.

(e) If any increase determined under paragraph (b) of this subsection is not a multiple of $50, the increase shall be rounded to the next lowest multiple of $50.

(2) A tax is imposed for each taxable year upon the entire taxable income of every part-year resident of this state. The amount of the tax shall be computed under subsection (1) of this section as if the part-year resident were a full-year resident and shall be multiplied by the ratio provided under ORS 316.117 to determine the tax on income derived from sources within this state.

(3) A tax is imposed for each taxable year on the taxable income of every full-year nonresident that is derived from sources within this state. The amount of the tax shall be determined in accordance with the table set forth in subsection (1) of this section.

SECTION 12. ORS 316.085 is amended to read:

316.085. (1)(a) There shall be allowed a personal exemption credit against taxes otherwise due under this chapter. The credit shall equal [$85] $90 multiplied by the number of personal exemptions allowed under section 151 of the Internal Revenue Code.

(b) In the case of an individual with respect to whom a credit under paragraph (a) of this subsection is allowable to another taxpayer for a taxable year beginning in the calendar year in which the individual’s taxable year begins, the credit amount applicable to such individual for such individual’s taxable year is zero.

(2)(a) A nonresident shall be allowed the credit provided under subsection (1) of this section computed in the same manner and subject to the same limitations as the credit allowed to a resident of this state. However, the credit shall be prorated using the proportion provided in ORS 316.117.

(b) If a change in the taxable year of a taxpayer occurs as described in ORS 314.085, or if the Department of Revenue terminates the taxpayer’s taxable year under ORS 314.440, the credit allowed by this section shall be prorated or computed in a manner consistent with ORS 314.085.

(c) If a change in the status of a taxpayer from resident to nonresident or from nonresident to resident occurs, the credit allowed by this section shall be determined in a manner consistent with ORS 316.117.

(3) [For each taxable year beginning on or after January 1, 1987,] The Department of Revenue shall recompute the dollar amount of the personal exemption credit allowed for state personal income tax purposes. The computation shall be as follows:

(a) Divide the [Portland Consumer Price Index for the average of the first six months of the current calendar year by the Portland Consumer Price Index for] monthly averaged U.S. City Average Consumer Price Index for the 12 consecutive months ending August 31 of the prior calendar year by the [average of] monthly averaged index for the first six months of 1986.

(b) Recompute the dollar amount of the personal exemption credit by multiplying [$85] $90 by the appropriate indexing factor determined as provided in paragraph (a) of this subsection. Round off the amount obtained under this paragraph to the nearest $1.

(4) As used in this section,[:]

[(a) “Internal Revenue Code” means the federal Internal Revenue Code, as amended and in effect on December 31, 1998.]

[(b) “Portland Consumer Price Index” means the Consumer Price Index for All Urban Consumers (Portland -- all items) as published by the Bureau of Labor Statistics of the United States Department of Labor. For purposes of this paragraph, the revision of the Consumer Price Index which is the most consistent with the Portland Consumer Price Index for 1986 shall be used] “U.S. City Average Consumer Price Index” means the U.S. City Average Consumer Price Index for All Urban Consumers (All Items) as published by the Bureau of Labor Statistics of the United States Department of Labor.

(5) For purposes of determining if a personal exemption credit or an additional personal exemption credit is allowable under this chapter or determining the number of personal exemption credits allowed, section 151(d)(3) of the Internal Revenue Code shall be disregarded.

SECTION 13. The amendments to ORS 315.262, 316.037 and 316.085 by sections 10 to 12 of this 2001 Act apply to tax years beginning on or after January 1, 2002.

SECTION 14. ORS 316.695, as amended by section 1, chapter 917, Oregon Laws 1999, is amended to read:

316.695. (1) In addition to the modifications to federal taxable income contained in this chapter, there shall be added to or subtracted from federal taxable income:

(a) If, in computing federal income tax for a taxable year, the taxpayer deducted itemized deductions, as defined in section 63(d) of the Internal Revenue Code, the taxpayer shall add the amount of itemized deductions deducted (the itemized deductions less an amount, if any, by which the itemized deductions are reduced under section 68 of the Internal Revenue Code).

(b) If, in computing federal income tax for a taxable year, the taxpayer deducted the standard deduction, as defined in section 63(c) of the Internal Revenue Code, the taxpayer shall add the amount of the standard deduction deducted.

(c)(A) From federal taxable income there shall be subtracted the larger of (i) the taxpayer’s itemized deductions or (ii) a standard deduction. Except as provided in subsection (8) of this section, for purposes of this subparagraph, “standard deduction” means the sum of the basic standard deduction and the additional standard deduction.

(B) For purposes of subparagraph (A) of this paragraph, the basic standard deduction is:

(i) $3,000, in the case of joint return filers or a surviving spouse;

(ii) $1,800, in the case of an individual who is not a married individual and is not a surviving spouse;

(iii) $1,500, in the case of a married individual who files a separate return; or

(iv) $2,640, in the case of a head of household.

(C) For purposes of subparagraph (A) of this paragraph, the additional standard deduction is the sum of each additional amount to which the taxpayer is entitled under subsection (7) of this section.

(D) As used in subparagraph (B) of this paragraph, “surviving spouse” and “head of household” have the meaning given those terms in section 2 of the Internal Revenue Code.

(E) In the case of the following, the standard deduction referred to in subparagraph (A) of this paragraph shall be zero:

(i) A husband or wife filing a separate return where the other spouse has claimed itemized deductions under subparagraph (A) of this paragraph;

(ii) A nonresident alien individual;

(iii) An individual making a return for a period of less than 12 months on account of a change in his or her annual accounting period;

(iv) An estate or trust;

(v) A common trust fund; or

(vi) A partnership.

(d) For the purposes of paragraph (c)(A) of this subsection, the taxpayer’s itemized deductions are the sum of:

(A) The taxpayer’s itemized deductions as defined in section 63(d) of the Internal Revenue Code (reduced, if applicable, as described under section 68 of the Internal Revenue Code) minus the deduction for Oregon income tax (reduced, if applicable, by the proportion that the reduction in federal itemized deductions resulting from section 68 of the Internal Revenue Code bears to the amount of federal itemized deductions as defined for purposes of section 68 of the Internal Revenue Code); and

(B) The amount that may be taken into account under section 213(a) of the Internal Revenue Code, not to exceed seven and one-half percent of the federal adjusted gross income of the taxpayer, if the taxpayer has attained the following age before the close of the taxable year, or, in the case of a joint return, if either taxpayer has attained the following age before the close of the taxable year:

(i) For taxable years beginning on or after January 1, 1991, and before January 1, 1993, a taxpayer must attain 58 years of age before the close of the taxable year.

(ii) For taxable years beginning on or after January 1, 1993, and before January 1, 1995, a taxpayer must attain 59 years of age before the close of the taxable year.

(iii) For taxable years beginning on or after January 1, 1995, and before January 1, 1997, a taxpayer must attain 60 years of age before the close of the taxable year.

(iv) For taxable years beginning on or after January 1, 1997, and before January 1, 1999, a taxpayer must attain 61 years of age before the close of the taxable year.

(v) For taxable years beginning on or after January 1, 1999, a taxpayer must attain 62 years of age before the close of the taxable year.

(2)(a) There shall be subtracted from federal taxable income any portion of the distribution of a pension, profit-sharing, stock bonus or other retirement plan, representing that portion of contributions which were taxed by the State of Oregon but not taxed by the Federal Government under laws in effect for tax years beginning prior to January 1, 1969, or for any subsequent year in which the amount that was contributed to the plan under the Internal Revenue Code was greater than the amount allowed under this chapter.

(b) Interest or other earnings on any excess contributions of a pension, profit-sharing, stock bonus or other retirement plan not permitted to be deducted under paragraph (a) of this subsection shall not be added to federal taxable income in the year earned by the plan and shall not be subtracted from federal taxable income in the year received by the taxpayer.

(3)(a) Except as provided in paragraph (b) of this subsection and subsection (4) of this section, in addition to the adjustments to federal taxable income required by ORS 316.680, there shall be added to federal taxable income the amount of any federal income taxes in excess of $5,000, accrued by the taxpayer during the taxable year as described in ORS 316.685, less the amount of any refund of federal taxes previously accrued for which a tax benefit was received.

(b) In the case of a husband and wife filing separate tax returns, the amount added shall be in the amount of any federal income taxes in excess of $2,500, less the amount of any refund of federal taxes previously accrued for which a tax benefit was received.

(c)(A) For a calendar year beginning on or after January 1, 2003, the Department of Revenue shall make a cost of living adjustment to the federal income tax threshold amount described in paragraphs (a) and (b) of this subsection.

(B) The cost of living adjustment for a calendar year is the percentage by which the monthly averaged U.S. City Average Consumer Price Index for the [average of the monthly indexes for the second quarter of the] 12 consecutive months ending August 31 of the prior calendar year exceeds the [average of the monthly indexes of the second quarter of the calendar year 2002] monthly averaged index for the period beginning September 1, 2000, and ending August 31, 2001.

(C) As used in this paragraph, “U.S. City Average Consumer Price Index” means the U.S. City Average Consumer Price Index for All Urban Consumers (All Items) as published by the Bureau of Labor Statistics of the United States Department of Labor.

(D) If any adjustment determined under subparagraph (B) of this paragraph is not a multiple of $50, the adjustment shall be rounded to the next lower multiple of $50.

(E) The adjustment shall apply to all tax years beginning in the calendar year for which the adjustment is made.

(4)(a) In addition to the adjustments required by ORS 316.130, a full-year nonresident individual shall add to taxable income a proportion of any accrued federal income taxes as computed under ORS 316.685 in excess of $5,000 in the proportion provided in ORS 316.117.

(b) In the case of a husband and wife filing separate tax returns, the amount added under this subsection shall be computed in a manner consistent with the computation of the amount to be added in the case of a husband and wife filing separate returns under subsection (3) of this section. The method of computation shall be determined by the Department of Revenue by rule.

(5) Subsections (3)(b) and (4)(b) of this section shall not apply to married individuals living apart as defined in section 7703(b) of the Internal Revenue Code.

(6)(a) For tax years beginning on or after January 1, 1981, and prior to January 1, 1983, income or loss taken into account in determining federal taxable income by a shareholder of an S corporation pursuant to sections 1373 to 1375 of the Internal Revenue Code shall be adjusted for purposes of determining Oregon taxable income, to the extent that as income or loss of the S corporation, they were required to be adjusted under the provisions of ORS chapter 317.

(b) For tax years beginning on or after January 1, 1983, items of income, loss or deduction taken into account in determining federal taxable income by a shareholder of an S corporation pursuant to sections 1366 to 1368 of the Internal Revenue Code shall be adjusted for purposes of determining Oregon taxable income, to the extent that as items of income, loss or deduction of the shareholder the items are required to be adjusted under the provisions of this chapter.

(d) As used in paragraph (a) of this subsection, an S corporation refers to an electing small business corporation.

(7)(a) The taxpayer shall be entitled to an additional amount, as referred to in subsection (1)(c)(A) and (C) of this section, of $1,000:

(A) For himself or herself if he or she has attained age 65 before the close of his or her taxable year; and

(B) For the spouse of the taxpayer if the spouse has attained age 65 before the close of the taxable year and an additional exemption is allowable to the taxpayer for such spouse for federal income tax purposes under section 151(b) of the Internal Revenue Code.

(b) The taxpayer shall be entitled to an additional amount, as referred to in subsection (1)(c)(A) and (C) of this section, of $1,000:

(A) For himself or herself if he or she is blind at the close of the taxable year; and

(B) For the spouse of the taxpayer if the spouse is blind as of the close of the taxable year and an additional exemption is allowable to the taxpayer for such spouse for federal income tax purposes under section 151(b) of the Internal Revenue Code. For purposes of this subparagraph, if the spouse dies during the taxable year, the determination of whether such spouse is blind shall be made immediately prior to death.

(c) In the case of an individual who is not married and is not a surviving spouse, paragraphs (a) and (b) of this subsection shall be applied by substituting “$1,200” for “$1,000.”

(d) For purposes of this subsection, an individual is blind only if his or her central visual acuity does not exceed 20/200 in the better eye with correcting lenses, or if his or her visual acuity is greater than 20/200 but is accompanied by a limitation in the fields of vision such that the widest diameter of the visual field subtends an angle no greater than 20 degrees.

(8) In the case of an individual with respect to whom a deduction under section 151 of the Internal Revenue Code is allowable for federal income tax purposes to another taxpayer for a taxable year beginning in the calendar year in which the individual’s taxable year begins, the basic standard deduction (referred to in subsection (1)(c)(B) of this section) applicable to such individual for such individual’s taxable year shall equal the lesser of:

(a) The amount allowed to the individual under section 63(c)(5) of the Internal Revenue Code for federal income tax purposes for the tax year for which the deduction is being claimed; or

(b) The amount determined under subsection (1)(c)(B) of this section.

SECTION 15. ORS 316.362 is amended to read:

316.362. (1) An income tax return with respect to the tax imposed by this chapter shall be made by the following:

(a) Every resident individual:

(A) Who is required to file a federal income tax return for the taxable year; or

[(B) Who has federal net income of more than $600 if single or more than $1,200 if married; or]

[(C) Who, having attained the age of 65 before the close of a taxable year, has federal net income of more than $1,200 if single, more than $1,800 if married and the spouse of the individual has not attained the age of 65, or more than $2,400, if both have attained the age of 65, before the close of the taxable year.]

(B) Who has gross income greater than the sum of:

(i) The basic standard deduction allowed under ORS 316.695 (1)(c)(B);

(ii) Any additional standard deduction allowed to the taxpayer under ORS 316.695 (7); and

(iii) An amount equal to the income equivalent of one personal exemption credit under ORS 316.085 (3)(b) if unmarried, or equal to the income equivalent of two personal exemption credits under ORS 316.085 (3)(b) if married.

(b) Every nonresident individual:

(A) Who has federal gross income from sources in this state of more than $600 if single and $1,200 if married; or

(B) Who, having attained the age of 65 before the close of a taxable year, has federal gross income from sources within this state of more than $1,200 if single, more than $1,800 if married and the spouse of the individual has not yet attained the age of 65, or more than $2,400 if both have attained the age of 65, before the close of the taxable year; or

(d) Every nonresident estate that has federal gross income of $600 or more for the taxable year from sources within this state.

(e) Every nonresident trust that for the taxable year has from sources within this state any taxable income, or gross income of $600 or more regardless of the amount of taxable income.

(2) Nothing contained in this section shall preclude the Department of Revenue from requiring any individual, estate or trust to file a return when, in the judgment of the department, a return should be filed.

(3) For purposes of this section, the income equivalent of a personal exemption credit under ORS 316.085 (3)(b) shall be determined as follows:

(a) Divide the personal exemption credit amount by the rate applicable to the lowest income bracket under ORS 316.037.

(b) If the resulting quotient is less than the maximum amount of income subject to the rate used in paragraph (a) of this subsection, the quotient is the income equivalent.

(c) If the resulting quotient is more than the maximum amount of income subject to the rate used in paragraph (a) of this subsection:

(A) Multiply the maximum amount of income subject to the rate used in paragraph (a) of this subsection by the rate used in paragraph (a) of this subsection.

(B) Determine the difference between the product calculated under subparagraph (A) of this paragraph and the personal exemption credit amount.

(C) Divide the difference determined in subparagraph (B) of this paragraph by the rate applicable to the income bracket that is the next succeeding the lowest income bracket under ORS 316.037.

(D) Add the quotient determined in subparagraph (C) of this paragraph to the maximum amount of income subject to the rate used in paragraph (a) of this subsection. The sum is the income equivalent.

SECTION 16. The amendments to ORS 316.362 by section 15 of this 2001 Act apply to tax years beginning on or after January 1, 2002.

SECTION 17. ORS 305.305 is amended to read:

305.305. (1) As used in this section, “appeal” means an appeal to the Internal Revenue Service or any federal court or an appeal to another state’s taxing authority or any state court having jurisdiction over the other state’s tax matters that are the subject of the appeal.

(2) If a deficiency is based wholly or in part upon an Internal Revenue Service revenue agent’s report made upon any audit or adjustment of the person’s federal income tax return or upon an audit report of another state’s taxing authority, the following procedures shall apply:

(a) If the person has filed a timely appeal from the deficiency asserted by the service or other state taxing authority, the person may file proof of the appeal with the Department of Revenue. If proof of the appeal is received before the tax is assessed, the deficiency shall be assessed without penalty for failure to pay the tax at the time the tax became due.

(b) If the department assesses the deficiency before receipt of proof of the filing of a timely appeal, the person may file the proof with the department. If the proof is filed after the tax has been assessed with a penalty for failure to pay the tax at the time the tax became due, the penalty shall not be waived.

(3) Notwithstanding any other provision of law, filing of proof of a timely appeal under subsection (2) of this section shall extend the time for filing a complaint or petition with the tax court in accordance with this subsection. The person shall notify the department in writing within 30 days after the appeal is finally resolved. The department shall review the issues raised by the appeal and shall make a determination of the effect upon the person’s state income or excise tax liabilities. The department shall then issue a refund, notice of denial of refund or notice of assessment, as appropriate, to the person. If the person disagrees with the department’s action, the person may file a complaint or petition with the tax court within [60] 90 days after the date of the department’s action as provided under ORS 305.404 to 305.560. Notwithstanding ORS 314.835 or any other law relating to confidentiality, the department may notify the magistrate division of the tax court if proof of a timely appeal is filed with the department or if the department determines that an appeal has been finally resolved.

(4) Except as provided in ORS 314.440 (2), when the department receives proof of a timely appeal, the department shall suspend action to collect the deficiency until the issues are resolved.

(5) If interest imposed by the federal government on a federal deficiency or partnership settlement agreement has been suspended under section 6601(c) of the Internal Revenue Code, interest imposed on a corresponding deficiency determined under ORS 305.265 and this section shall also be suspended. The suspension of interest imposed under ORS 305.265 shall be effective as of the date the federal interest is suspended and for the duration for which the federal interest is suspended.

(6) Except as provided in ORS 314.415 (5), the provisions of this section shall constitute the exclusive remedy of a person whose notice of deficiency is based wholly or in part upon a federal revenue agent’s report or the audit report of another state’s taxing authority.

SECTION 18. The amendments to ORS 305.305 by section 17 of this 2001 Act apply to refunds, notices of denial of refunds or notices of assessment issued by the Department of Revenue on or after the effective date of this 2001 Act.

SECTION 19. ORS 315.068 is amended to read:

315.068. (1) A credit against the taxes otherwise due under ORS chapter 316 (or, if the taxpayer is a corporation, under ORS chapter 317 or 318) shall be allowed to a taxpayer for a claim of right income repayment adjustment.

(2) The credit shall be allowed under this section only if the taxpayer’s federal tax liability is determined under section 1341(a) [(5)] of the Internal Revenue Code.

(3) The amount of the credit shall equal the difference between:

(a) The taxpayer’s actual Oregon state tax liability for the tax year for which the claim of right income was included in gross income for federal tax purposes; and

(b) The taxpayer’s Oregon state tax liability for that tax year, had the claim of right income not been included in gross income for federal tax purposes.

(4) A credit under this section shall be allowed only for the tax year for which the taxpayer’s federal tax liability is determined under section 1341 of the Internal Revenue Code for federal tax purposes.

(5) If the amount allowable as a credit under this section, when added to the sum of the amounts allowable as a payment of tax under ORS 314.505 to 314.525, 316.187 and 316.583, other payments of tax and other refundable credit amounts, exceeds the taxes imposed by ORS chapters 314 to 318 (reduced by any nonrefundable credits allowed for the tax year), the excess shall be treated as an overpayment of tax and shall be refunded or applied in the same manner as other tax overpayments.

(6) As used in this section, “claim of right income” means:

(a) An item included in federal gross income for a prior tax year because it appeared that the taxpayer had an unrestricted right to the item; and

(b) An item for which the taxpayer’s federal tax liability is adjusted under section 1341 of the Internal Revenue Code because the taxpayer did not have an unrestricted right to the item of gross income.

SECTION 20. The amendments to ORS 315.068 by section 19 of this 2001 Act apply to tax years beginning on or after January 1, 1998.

SECTION 21. ORS 305.265 is amended to read:

305.265. (1) Except as provided in ORS 305.305, the provisions of this section shall apply to all reports or returns of tax or tax liability including claims under ORS 310.630 to 310.706 filed with the Department of Revenue under the revenue and tax laws administered by it, except those filed under ORS chapter 320 and ORS 323.005 to 323.455 and 323.990.

(2) As soon as practicable after a report or return is filed, the department shall examine or audit it, if required by law or the department deems such examination or audit practicable. If the department discovers from an examination or an audit of a report or return or otherwise that a deficiency exists, it shall compute the tax and give notice to the person filing the return of the deficiency and of the department’s intention to assess the deficiency, plus interest and any appropriate penalty. Except as provided in subsection (3) of this section, the notice shall:

(a) State the reason for each adjustment;

(b) Give a reference to the statute, regulation or department ruling upon which the adjustment is based; and

(c) Be certified by the department that the adjustments are made in good faith and not for the purpose of extending the period of assessment.

(3) When the notice of deficiency described in subsection (2) of this section results from the correction of a mathematical or clerical error and states what would have been the correct tax but for the mathematical or clerical error, such notice need state only the reason for each adjustment to the report or return.

(4) With respect to any tax return filed under ORS chapter 314, 316, 317 or 318, deficiencies shall include but not be limited to the assertion of additional tax arising from:

(a) The failure to report properly items or amounts of income subject to or which are the measure of the tax;

(b) The deduction of items or amounts not permitted by law;

(d) Improper credits or offsets against the tax claimed in the return.

(5)(a) The notice of deficiency shall be accompanied by a statement explaining the person’s right to make written objections, the person’s right to request a conference and the procedure for requesting a conference. The statement, and an accompanying form, shall also explain that conference determinations are routinely transmitted via regular mail and that a person desiring to have conference determinations transmitted by certified mail may do so by indicating on the form the person’s preference for certified mail and by returning the form with the person’s written objections as described in paragraph (b) of this subsection.

(b) Within 30 days from the date of the notice of deficiency, the person given notice shall pay the deficiency with interest computed to the date of payment and any penalty proposed. Or within that time the person shall advise the department in writing of objections to the deficiency, and may request a conference with the department, which shall be held prior to the expiration of the one-year period set forth in subsection (7) of this section.

(6) If a request for a conference is made, the department shall notify the person of a time and place for conference and appoint a conference officer to meet with the person for an informal discussion of the matter. After the conference, the conference officer shall send the determination of the issues to the person. The determination letter shall be sent by regular mail, or by certified mail if the person given notice has indicated a preference for transmission of the determination by certified mail. The department shall assess any deficiency in the manner set forth in subsection (7) of this section. If no conference is requested and written objections are received, the department shall make a determination of the issues considering such objections, and shall assess any deficiency in the manner provided in subsection (7) of this section. The failure to request or have a conference shall not affect the rights of appeal otherwise provided by law.

(7) If neither payment nor written objection to the deficiency is received by the department within 30 days after the notice of deficiency has been mailed, the department shall assess the deficiency, plus interest and penalties, if any, and shall send the person a notice of assessment, stating the amount so assessed, and interest and penalties. The notice of assessment shall be mailed within one year from the date of the notice of deficiency unless an extension of time is agreed upon as described in subsection (8) of this section. The notice shall advise the person of the rights of appeal.

(8) If, prior to the expiration of any period of time prescribed in subsection (7) of this section for giving of notice of assessment, the department and the person consent in writing to the deficiency being assessed after the expiration of such prescribed period, such deficiency may be 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.

(9) The failure to hold a requested conference within the one-year period prescribed in subsection (5) of this section shall not invalidate any assessment of deficiency made within the one-year period pursuant to subsection (7) of this section or within any extension of time made pursuant to subsection (8) of this section, but shall invalidate any assessment of interest or penalties attributable to the deficiency. After an assessment has been made, the department and the person assessed may still hold a conference within 90 days from the date of assessment. If a conference is held, the 90-day period under ORS 305.280 (2) shall run from the date of the conference officer’s written determination of the issues.

(10)(a) In the case of a failure to file a report or return on the date prescribed therefor (determined with regard to any extension for filing), the department shall determine the tax according to the best of its information and belief, assess the tax plus appropriate penalty and interest, and give written notice of the failure to file the report or return and of the determination and assessment to the person required to make the filing. The amount of tax shall be reduced by the amount of any part of the tax which is paid on or before the date prescribed for payment of the tax and by the amount of any credit against the tax which may be lawfully claimed upon the return.

(b) Notwithstanding subsection (14) of this section and ORS 305.280, and only to the extent allowed by rules adopted by the department, the department may accept the filing of a report or return submitted by a person who has been assessed a tax under paragraph (a) of this subsection.

(A) That is not verified as required by ORS 305.810;

(B) That the department determines is not true and correct as to every material matter as required by ORS 305.815; or

(d) If the department rejects a report or return of a person assessed a tax under paragraph (a) of this subsection, the department shall issue a notice of rejection to the person. The person may appeal the rejection to the magistrate division of the Oregon Tax Court only if:

(A) The report or return was filed within 90 days of the date the department’s assessment under paragraph (a) of this subsection was issued; and

(B) The appeal is filed within 90 days of the date shown on the notice of rejection.

(e) If the person assessed under paragraph (a) of this subsection submits a report or return to the department and appeals the assessment to the tax court, the department may request a stay of action from the court pending review of the report or return. If the department:

(A) Accepts the filing of the report or return, the appeal shall be dismissed as moot.

(B) Rejects the report or return, the stay of action on the appeal shall be lifted.

(f) If the department accepts the filing of a report or return, the department may reduce the assessment issued under paragraph (a) of this subsection. A report or return filed under this subsection that is accepted by the department, whether or not the assessment has been reduced, shall be considered a report or return described in subsection (1) of this section and shall be subject to the provisions of this section, including but not limited to examination and adjustment pursuant to subsection (2) of this section.

(g) The department may refund payments made with respect to a report or return filed and accepted pursuant to this subsection. If the report or return is filed within three years of the due date for filing the report or return, excluding extensions, the refund shall be made as provided by ORS 305.270 and 314.415. If the report or return is not filed within three years of the due date for filing the report or return, excluding extensions, the refund shall be limited to payments received within the two-year period ending on the date the report or return is received by the department and payments received after the date the report or return is received by the department. Interest shall be paid at the rate established under ORS 305.220 for each month or fraction of a month from the date the report or return is received by the department to the time the refund is made.

(11) Mailing of notice to the person at the person’s last-known address shall constitute the giving of notice as prescribed in this section.

(12) If a return is filed with the department accompanied by payment of less than the amount of tax shown on or from the information on the return as due, the difference between the tax and the amount submitted is considered as assessed on the due date of the report or return (determined with regard to any extension of time granted for the filing of the return) or the date the report or return is filed, whichever is later. For purposes of this subsection, the amount of tax shown on or from the information on the return as due shall be reduced by the amount of any part of the tax that is paid on or before the due date prescribed for payment of the tax, and by any credits against the tax that are claimed on the return. If the amount required to be shown as tax on a return is less than the amount shown as tax on the return, this subsection shall be applied by substituting the lesser amount.

(13) Every deficiency shall bear interest at the rate established under ORS 305.220 for each month or fraction of a month computed from the due date of the return to date of payment. If the return was falsely prepared and filed with intent to evade the tax, a penalty equal to 100 percent of the deficiency shall be assessed and collected. All payments received shall be credited first to penalty, then to interest accrued, and then to tax due.

(14) If the deficiency is paid in full before a notice of assessment is issued, the department is not required to send a notice of assessment, and the tax shall be considered as assessed as of the date which is 30 days from the date of the notice of deficiency or the date the deficiency is paid, whichever is the later. A partial payment of the deficiency shall constitute only a credit to the account of the person assessed. Assessments and billings of taxes shall be final after the expiration of the appeal period specified in ORS 305.280, except to the extent that an appeal is allowed under ORS 305.280 (3) following payment of the tax.

(15) Appeal may be taken to the tax court from any notice of assessment. The provisions of this chapter with respect to appeals to the tax court shall apply to any deficiency, penalty or interest assessed.

SECTION 22. The amendments to ORS 305.265 by section 21 of this 2001 Act apply to reports or returns in the possession of the Department of Revenue on October 23, 1999, or filed on or after October 23, 1999.

SECTION 23. ORS 305.230 is amended to read:

305.230. Notwithstanding ORS 9.320:

(1) Any person who is duly qualified to practice law or public accountancy in this state or the authorized employee of a taxpayer who is regularly employed by the taxpayer in tax matters may represent the taxpayer before a tax court magistrate or the Department of Revenue in any conference or proceeding with respect to the administration of any tax.

(2) Any person who is duly licensed by the State Board of Tax Service Examiners or who is exempt from such licensing requirement as provided for and limited by ORS 673.610 may represent a taxpayer before a tax court magistrate or the department in any conference or proceeding with respect to the administration of any tax on or measured by net income.

(3) Any shareholder of an S corporation, as defined in section 1361 of the Internal Revenue Code, as amended and in effect on December 31, [1998] 2000, may represent the corporation in any proceeding before a tax court magistrate or the department in the same manner as if the shareholder were a partner and the S corporation were a partnership. The S corporation must designate in writing a tax matters shareholder authorized to represent the S corporation.

(4) Any person who is licensed as a real estate broker under ORS 696.025 or is a state certified appraiser or state licensed appraiser under ORS 674.310 or is a registered appraiser under ORS 308.010 may represent a taxpayer before a tax court magistrate or the department in any conference or proceeding with respect to the administration of any ad valorem property tax.

(5) A general partner who has been designated by members of a partnership as their tax matters partner under ORS 305.242 may represent those partners in any conference or proceeding with respect to the administration of any tax on or measured by net income.

(6) In a small claims procedure, a taxpayer may be represented by any of the persons described in subsections (1) to (5) of this section or by any other person permitted by the tax court.

(7) No person shall be recognized as representing a taxpayer pursuant to this section unless there is first filed with the magistrate or department a written authorization, or unless it appears to the satisfaction of the magistrate or department that the representative does in fact have authority to represent the taxpayer. A person recognized as an authorized representative under rules or procedures adopted by the tax court shall be considered an authorized representative by the department.

(8) A taxpayer represented by someone other than an attorney is bound by all things done by the authorized representative, and may not thereafter claim any proceeding was legally defective because the taxpayer was not represented by an attorney.

(9) Prior to the holding of a conference or proceeding before the tax court magistrate or department, written notice shall be given by the magistrate or department to the taxpayer of the provisions of subsections (6) and (8) of this section.

SECTION 24. ORS 305.494 is amended to read:

305.494. Notwithstanding ORS 9.320, any shareholder of an S corporation as defined in section 1361 of the Internal Revenue Code, as amended and in effect on December 31, [1998] 2000, may represent the corporation in any proceeding before the Oregon Tax Court in the same manner as if the shareholder were a partner and the S corporation were a partnership.

SECTION 25. ORS 305.690 is amended to read:

305.690. As used in ORS 305.690 to 305.753, unless the context otherwise requires:

(1) “Biennial years” means the two income tax years of individual taxpayers that begin in the two calendar years immediately following the calendar year in which a list is certified under ORS 305.715.

(2) “Commission” means the Oregon Charitable Checkoff Commission.

(3) “Department” means the Department of Revenue.

(4) “Internal Revenue Code” means the federal Internal Revenue Code as amended and in effect on December 31, [1998] 2000.

SECTION 26. ORS 307.130 is amended to read:

307.130. (1) Upon compliance with ORS 307.162, the following property owned or being purchased by art museums, volunteer fire departments, or incorporated literary, benevolent, charitable and scientific institutions shall be exempt from taxation:

(a) Except as provided in ORS 748.414, only such real or personal property, or proportion thereof, as is actually and exclusively occupied or used in the literary, benevolent, charitable or scientific work carried on by such institutions.

(b) Parking lots used for parking or any other use as long as that parking or other use is permitted without charge for no fewer than 355 days during the tax year.

(c) All real or personal property of a rehabilitation facility or any retail outlet thereof, including inventory. As used in this subsection, “rehabilitation facility” means either those facilities defined in ORS 344.710 or facilities which provide physically, mentally or emotionally disabled individuals with occupational rehabilitation activities of an educational or therapeutic nature, even if remuneration is received by the individual.

(d) All real and personal property of a retail store dealing exclusively in donated inventory, where the inventory is distributed without cost as part of a welfare program or where the proceeds of the sale of any inventory sold to the general public are used to support a welfare program. As used in this subsection, “welfare program” means the providing of food, shelter, clothing or health care, including dental service, to needy persons without charge.

(e) All real and personal property of a retail store if:

(A) The retail store deals primarily and on a regular basis in donated and consigned inventory;

(B) The individuals who operate the retail store are all individuals who work as volunteers; and

(C) The inventory is either distributed without charge as part of a welfare program, or sold to the general public and the sales proceeds used exclusively to support a welfare program. As used in this paragraph, “primarily” means at least one-half of the inventory.

(f) The real and personal property of an art museum that is used in conjunction with the public display of works of art or used to educate the public about art, but not including any portion of the art museum’s real or personal property that is used to sell, or hold out for sale, works of art, reproductions of works of art or other items to be sold to the public.

(g) All real and personal property of a volunteer fire department that is used in conjunction with services and activities for providing fire protection to all residents within a fire response area.

(2) An art museum or institution shall not be deprived of an exemption under this section solely because its primary source of funding is from one or more governmental entities.

(3) An institution shall not be deprived of an exemption under this section because its purpose or the use of its property is not limited to relieving pain, alleviating disease or removing constraints.

(4) As used in this section:

(a) “Art museum” means a nonprofit corporation organized to display works of art to the public.

(b) “Internal Revenue Code” means the federal Internal Revenue Code as amended and in effect on December 31, [1998] 2000.

(A) Is organized not for profit, pursuant to ORS chapter 65 or any predecessor of ORS chapter 65; or

(B) Is organized and operated as described under section 501(c) of the Internal Revenue Code.

(d) “Volunteer fire department” means a nonprofit corporation organized to provide fire protection services in a specific response area.

SECTION 27. ORS 307.147 is amended to read:

307.147. (1) For purposes of this section:

(a) “Internal Revenue Code” means the federal Internal Revenue Code as amended and in effect on December 31, [1998] 2000.

(b) “Nonprofit corporation” means a corporation that:

(A) Is organized not for profit, pursuant to ORS chapter 65 or any predecessor of ORS chapter 65; or

(B) Is organized and operated as described under section 501(c) of the Internal Revenue Code.

(A) Is owned or being purchased by a nonprofit corporation; and

(B) Is actually and exclusively used to provide services and activities (including parking) primarily to or for persons over 50 years of age; and

(D) Is not used primarily for fund-raising activities; and

(E) Is not a residential or dwelling place.

(2) Upon compliance with ORS 307.162, a senior services center is exempt from ad valorem property taxation.

SECTION 28. ORS 310.140 is amended to read:

310.140. The Legislative Assembly finds that section 11b, Article XI of the Oregon Constitution, was drafted by citizens and placed before the voters of the State of Oregon by initiative petition. Section 11b, Article XI of the Oregon Constitution, uses terms that do not have established legal meanings and require definition by the Legislative Assembly. Section 11b, Article XI of the Oregon Constitution, was amended by section 11 (11), Article XI of the Oregon Constitution. This section is intended to interpret the terms of section 11b, Article XI of the Oregon Constitution, as originally adopted and as amended by section 11 (11), Article XI of the Oregon Constitution, consistent with the intent of the people in adopting these provisions, so that the provisions of section 11b, Article XI of the Oregon Constitution, may be given effect uniformly throughout the State of Oregon, with minimal confusion and misunderstanding by citizens and affected units of government. As used in the revenue and tax laws of this state, and for purposes of section 11b, Article XI of the Oregon Constitution:

(1) “Tax on property” means any tax, fee, charge or assessment imposed by any government unit upon property or upon a property owner as a direct consequence of ownership of that property, but does not include incurred charges or assessments for local improvements. As used in this subsection, “property” means real or tangible personal property, and intangible property that is part of a unit of real or tangible personal property to the extent that such intangible property is subject to a tax on property.

(2) “Direct consequence of ownership” means that the obligation of the owner of property to pay a tax arises solely because that person is the owner of the property, and the obligation to pay the tax arises as an immediate and necessary result of that ownership without respect to any other intervening transaction, condition or event.

(3)(a) “Incurred charge” means a charge imposed by a unit of government on property or upon a property owner that does not exceed the actual cost of providing goods or services and that can be controlled or avoided by the property owner because:

(A) The charge is based on the quantity of the goods or services used, and the owner has direct control over the quantity;

(B) The goods or services are provided only on the specific request of the property owner; or

(C) The goods or services are provided by the government unit only after the individual property owner has failed to meet routine obligations of ownership of the affected property, and such action is deemed necessary by an appropriate government unit to enforce regulations pertaining to health or safety.

(b) For purposes of this subsection, an owner of property may control or avoid an incurred charge if the owner is capable of taking action to affect the amount of a charge that is or will be imposed or to avoid imposition of a charge even if the owner must incur expense in so doing.

(c) For purposes of paragraph (a)(A) of this subsection, an owner of property has direct control over the quantity of goods or services if the owner of property has the ability, whether or not that ability is exercised, to determine the quantity of goods or services provided or to be provided.

(4) “Specific request” means:

(a) An affirmative act by a property owner to seek or obtain delivery of goods or services;

(b) An affirmative act by a property owner, the legal consequence of which is to cause the delivery of goods or services to the property owner; or

(5) “Routine obligations of ownership” means a standard of operation, maintenance, use or care of property established by law, or if established by custom or common law, a standard that is reasonable for the type of property affected.

(6) “Assessment for local improvement” means any tax, fee, charge or assessment that does not exceed the actual cost incurred by a unit of government for design, construction and financing of a local improvement.

(7)(a) “Local improvement” means a capital construction project, or part thereof, undertaken by a governmental unit, pursuant to ORS 223.387 to 223.399, or pursuant to a local ordinance or resolution prescribing the procedure to be followed in making local assessments for benefits from a local improvement upon the lots that have been benefited by all or a part of the improvement:

(A) That provides a special benefit only to specific properties or rectifies a problem caused by specific properties;

(B) The costs of which are assessed against those properties in a single assessment upon the completion of the project; and

(C) For which the property owner may elect to make payment of the assessment plus appropriate interest over a period of at least 10 years.

(b) For purposes of paragraph (a) of this subsection, the status of a capital construction project as a local improvement is not affected by the accrual of a general benefit to property other than the property receiving the special benefit.

(8) “Single assessment” means the complete assessment process, including preassessment, assessment or reassessment, for any local improvement authorized by ORS 223.387 to 223.399, or a local ordinance or resolution that provides the procedure to be followed in making local assessments for benefits from a local improvement upon lots that have been benefited by all or part of the improvement.

(9) “Special benefit only to specific properties” shall have the same meaning as “special and peculiar benefit” as that term is used in ORS 223.389.

(10) “Actual cost” means all direct or indirect costs incurred by a government unit in order to deliver goods or services or to undertake a capital construction project. The “actual cost” of providing goods or services to a property or property owner includes the average cost or an allocated portion of the total amount of the actual cost of making a good or service available to the property or property owner, whether stated as a minimum, fixed or variable amount. “Actual cost” includes, but is not limited to, the costs of labor, materials, supplies, equipment rental, property acquisition, permits, engineering, financing, reasonable program delinquencies, return on investment, required fees, insurance, administration, accounting, depreciation, amortization, operation, maintenance, repair or replacement and debt service, including debt service payments or payments into reserve accounts for debt service and payment of amounts necessary to meet debt service coverage requirements.

(11) “Bonded indebtedness” means any formally executed written agreement representing a promise by a unit of government to pay to another a specified sum of money, at a specified date or dates at least one year in the future.

(12)(a) “Exempt bonded indebtedness” means:

(A) Bonded indebtedness authorized by a specific provision of the Oregon Constitution;

(B) Bonded indebtedness incurred or to be incurred for capital construction or capital improvements that was issued as a general obligation of the issuing governmental unit on or before November 6, 1990;

(C) Bonded indebtedness incurred or to be incurred for capital construction or capital improvements that was issued as a general obligation of the issuing governmental unit after November 6, 1990, with the approval of the electors of the issuing governmental unit; or

(D) Bonded indebtedness incurred or to be incurred for capital construction or capital improvements, if the issuance of the bonds is approved by voters on or after December 5, 1996, in an election that is in compliance with the voter participation requirements of section 11 (8), Article XI of the Oregon Constitution.

(b) “Exempt bonded indebtedness” includes bonded indebtedness issued to refund or refinance any bonded indebtedness described in paragraph (a) of this subsection.

(13) “Capital construction”:

(a) For bonded indebtedness issued prior to December 5, 1996, and for the proceeds of any bonded indebtedness approved by electors prior to December 5, 1996, that were spent or contractually obligated to be spent prior to June 20, 1997, means the construction, modification, replacement, repair, remodeling or renovation of a structure, or addition to a structure, that is expected to have a useful life of more than one year, and includes, but is not limited to:

(A) Acquisition of land, or a legal interest in land, in conjunction with the capital construction of a structure.

(B) Acquisition, installation of machinery or equipment, furnishings or materials that will become an integral part of a structure.

(C) Activities related to the capital construction, such as planning, design, acquisition of interim or permanent financing, research, land use and environmental impact studies, acquisition of permits or licenses or other services connected with the construction.

(D) Acquisition of existing structures, or legal interests in structures, in conjunction with the capital construction.

(b) For bonded indebtedness issued on or after December 5, 1996, except for the proceeds of any bonded indebtedness approved by electors prior to December 5, 1996, that were spent or contractually obligated to be spent before June 20, 1997, has the meaning given that term in paragraph (a) of this subsection, except that “capital construction”:

(A) Includes public safety and law enforcement vehicles with a projected useful life of five years or more; and

(B) Does not include:

(i) Maintenance and repairs, the need for which could be reasonably anticipated;

(ii) Supplies and equipment that are not intrinsic to the structure; or

(iii) Furnishings, unless the furnishings are acquired in connection with the acquisition, construction, remodeling or renovation of a structure, or the repair of a structure that is required because of damage or destruction of the structure.

(14) “Structure” means any temporary or permanent building or improvement to real property of any kind that is constructed on or attached to real property, whether above, on or beneath the surface.

(15) “Capital improvements”:

(a) For bonded indebtedness issued prior to December 5, 1996, and for the proceeds of any bonded indebtedness approved by electors before December 5, 1996, that were spent or contractually obligated to be spent before June 20, 1997, means land, structures, facilities, as that term is defined in ORS 288.805, machinery, equipment or furnishings having a useful life longer than one year.

(A) Includes public safety and law enforcement vehicles with a projected useful life of five years or more; and

(B) Does not include:

(i) Maintenance and repairs, the need for which could be reasonably anticipated;

(ii) Supplies and equipment that are not intrinsic to the structure; or

(16) “Maintenance and repairs, the need for which could be reasonably anticipated”:

(a) Means activities, the type of which may be deducted as an expense under the provisions of the federal Internal Revenue Code, as amended and in effect on December 31, [1998] 2000, and that keep the property in ordinarily efficient operating condition, and that do not add materially to the value of the property nor appreciably prolong the life of the property;

(b) Does not include maintenance and repair of property that is required by damage, destruction or defect in design, or that was otherwise not reasonably expected at the time the property was constructed or acquired, or the addition of material that is in the nature of the replacement of property and that arrests the deterioration or appreciably prolongs the useful life of the property; and

(17) “Supplies and equipment intrinsic to a structure” means the supplies and equipment that are necessary to permit a structure to perform the functions for which the structure was constructed, or that will, upon installation, constitute fixtures considered to be part of the real property that is comprised, in whole or part, of the structure and land supporting the structure.

(18) “Projected useful life” means the useful life, as reasonably estimated by the unit of government undertaking the capital construction or capital improvement project, beginning with the date the property was acquired, constructed or reconstructed and based on the property’s condition at the time the property was acquired, constructed or reconstructed.

SECTION 29. ORS 310.630 is amended to read:

310.630. As used in ORS 310.630 to 310.706:

(1) “Department” means the Department of Revenue.

(2) “Fuel and utility payments” include payments for heat, lights, water, sewer and garbage made solely to secure those commodities or services for the homestead of the taxpayer. “Payments for heat” mean those payments made to secure the commodities or services to be used as the principal source of heat for the homestead of the taxpayer and includes payments for natural gas, oil, firewood, coal, sawdust, electricity, steam or other materials that are capable of use as a primary source of heat for the homestead. “Fuel and utility payments” do not include telephone service.

(3) “Gross rent” means contract rent paid plus the fuel and utility payments made for the homestead in addition to the contract rent, during the calendar year for which the claim is filed.

(4) “Homestead” means the taxable principal dwelling located in Oregon, either real or personal property, rented by the taxpayer, and the taxable land area of the tax lot upon which it is built.

(5) “Household” means the taxpayer, the spouse of the taxpayer and all other persons residing in the homestead during any part of the calendar year for which a claim is filed.

(6) “Household income” means the aggregate income of the taxpayer and the spouse of the taxpayer who reside in the household, that was received during the calendar year for which the claim is filed. “Household income” includes payments received by the taxpayer or the spouse of the taxpayer under the federal Social Security Act for the benefit of a minor child or minor children who are members of the household.

(7) “Income” means “adjusted gross income” as defined in the federal Internal Revenue Code, as amended and in effect on December 31, [1998] 2000, even [where] when the amendments take effect or become operative after that date, relating to the measurement of taxable income of individuals, estates and trusts, with the following modifications:

(a) There shall be added to adjusted gross income the following items of otherwise exempt income:

(A) The gross amount of any otherwise exempt pension less return of investment, if any.

(B) Child support received by the taxpayer.

(D) Gifts and grants, the sum of which are in excess of $500 per year.

(E) Amounts received by a taxpayer or spouse of a taxpayer for support from a parent who is not a member of the taxpayer’s household.

(F) Life insurance proceeds.

(G) Accident and health insurance proceeds, except reimbursement of incurred medical expenses.

(H) Personal injury damages.

(I) Sick pay which is not included in federal adjusted gross income.

(J) Strike benefits excluded from federal gross income.

(K) Worker’s compensation, except for reimbursement of medical expense.

(L) Military pay and benefits.

(M) Veteran’s benefits.

(N) Payments received under the federal Social Security Act which are excluded from federal gross income.

(O) Welfare payments, except as follows:

(i) Payments for medical care, drugs and medical supplies, if the payments are not made directly to the welfare recipient;

(ii) In-home services authorized and approved by the Department of Human Services, or by any of its divisions; and

(iii) Direct or indirect reimbursement of expenses paid or incurred for participation in work or training programs.

(P) Nontaxable dividends.

(Q) Nontaxable interest not included in federal adjusted gross income.

(R) Rental allowance paid to a minister that is excluded from federal gross income.

(S) Income from sources without the United States that is excluded from federal gross income.

(b) Adjusted gross income shall be increased due to the disallowance of the following deductions:

(A) The amount of the net loss, in excess of $1,000, from all dispositions of tangible or intangible properties.

(B) The amount of the net loss, in excess of $1,000, from the operation of a farm or farms.

(C) The amount of the net loss, in excess of $1,000, from all operations of a trade or business, profession or other activity entered into for the production or collection of income.

(D) The amount of the net loss, in excess of $1,000, from tangible or intangible property held for the production of rents, royalties or other income.

(E) The amount of any net operating loss carryovers or carrybacks included in federal adjusted gross income.

(F) The amount, in excess of $5,000, of the combined deductions or other allowances for depreciation, amortization or depletion.

(G) The amount added or subtracted, as required within the context of this section, for adjustments made under ORS 316.680 (2)(d) and 316.707 to 316.737.

(A) Any governmental grant which must be used by the taxpayer for rehabilitation of the homestead of the taxpayer.

(B) The amount of any payments made pursuant to ORS 310.630 to 310.706.

(8) “Contract rent” means rental paid to the landlord for the right to occupy a homestead, including the right to use the personal property located therein. “Contract rent” does not include rental paid for the right to occupy a homestead that is exempt from taxation, unless payments in lieu of taxes of 10 percent or more of the rental exclusive of fuel and utilities are made on behalf of the homestead. “Contract rent” does not include advanced rental payments for another period and rental deposits, whether or not expressly set out in the rental agreement, or payments made to a nonprofit home for the elderly described in ORS 307.375. If a landlord and tenant have not dealt with each other at arm’s length, and the department is satisfied that the contract rent charged was excessive, it may adjust the contract rent to a reasonable amount for purposes of ORS 310.630 to 310.706.

(9) “Statement of gross rent” means a declaration by the applicant, under penalties of false swearing, that the amount of contract rent and fuel and utility payments designated is the actual amount both incurred and paid during the year for which elderly rental assistance is claimed.

(10) “Taxpayer” means an individual who is a resident of this state on December 31 of the year for which elderly rental assistance is claimed and whose homestead, as of the same December 31 and during all or a portion of the year ending on the same December 31, is rented and while rented is the subject, directly or indirectly, of property tax levied by this state or a political subdivision or of payments made in lieu of taxes.

SECTION 30. ORS 310.800 is amended to read:

310.800. (1) As used in this section:

(a) “Authorized representative” means a senior citizen who is authorized by a tax-exempt entity to perform charitable or public service on behalf of a senior citizen who has entered into a contract under subsection (2) of this section.

(b) “Homestead” means an owner-occupied principal residence.

(d) “Tax-exempt entity” means an entity that is exempt from federal income taxes under section 501 (c) of the Internal Revenue Code, as amended and in effect on December 31, [1998] 2000.

(e) “Taxing unit” means any county, city or common or union high school district, community college service district or community college district within this state with authority to impose ad valorem property taxes.

(2) A tax-exempt entity may establish a property tax work-off program pursuant to which a senior citizen may contract to perform charitable or public service in consideration of payment of property taxes extended against the homestead of the senior citizen and billed to the senior citizen. For purposes of ORS chapters 316 and 656, and notwithstanding ORS 670.600 or other law, a senior citizen who enters into a contract under this subsection shall be considered an independent contractor and not a worker or employee with respect to the services performed pursuant to the contract. Nothing in this section precludes a taxing unit from being considered an employer, for purposes of unemployment compensation under ORS chapter 657, of a senior citizen who enters into a contract under this section.

(3) A taxing unit may enter into an agreement with a tax-exempt entity that has established a property tax work-off program. Pursuant to the agreement the taxing unit may accept, as volunteer and public service, the services of a senior citizen who has entered into a contract described in subsection (2) of this section or an authorized representative.

(4) A taxing unit may provide funds or make grants to any tax-exempt entity that has established a property tax work-off program for use to carry out the program.

SECTION 31. ORS 311.689, as amended by section 7, chapter 1097, Oregon Laws 1999, is amended to read:

311.689. (1) Notwithstanding ORS 311.668 or any other provision of ORS 311.666 to 311.701, if the individual or, in the case of two or more individuals electing to defer property taxes jointly, all of the individuals together, or the spouse who has filed a claim under ORS 311.688, has federal adjusted gross income that exceeds $32,000 for the tax year that began in the previous calendar year, then for the tax year next beginning, the amount of taxes for which deferral is allowed shall be reduced by $0.50 for each dollar of federal adjusted gross income in excess of $32,000.

(2) Prior to June 1 of each year, and notwithstanding ORS 314.835, the Department of Revenue shall review returns filed under ORS chapter 314 and 316 to determine if subsection (1) of this section is applicable for a homestead for the tax year next beginning. If subsection (1) of this section is applicable, the department shall notify by mail the taxpayer or spouse electing deferral, and the taxes otherwise to be deferred for the tax year next beginning shall be reduced as provided in subsection (1) of this section or, if federal adjusted gross income in excess of $32,000 exceeds the amount of property taxes by a factor of two, the property taxes shall not be deferred.

(3) If the taxpayer or spouse does not file a return for purposes of ORS chapters 314 and 316 and the department has reason to believe that the federal adjusted gross income of the taxpayer or spouse exceeds $32,000 for the tax year that began in the previous calendar year, the department shall notify by mail the taxpayer or spouse electing deferral. If, within 30 days after the notice is mailed, the taxpayer or spouse does not file a return under ORS chapter 314 or 316 or otherwise satisfy the department that federal adjusted gross income does not exceed $32,000, the department shall again notify the taxpayer or spouse, and the taxes otherwise to be deferred for the tax year next beginning shall not be deferred.

(4) For tax years beginning on or after July 1, 2002, the federal adjusted gross income limit set forth in subsections (1) to (3) of this section shall be recomputed by multiplying $32,000 by the indexing factor described in ORS 311.668 (7)(a)(A), and rounding the amount so computed to the nearest multiple of $500.

(5) Nothing in this section shall affect the continued deferral of taxes that have been deferred for tax years beginning prior to the tax year next beginning or the right to deferral of taxes for a tax year beginning after the tax year next beginning if subsection (1) is not applicable for that tax year for the homestead.

(6) As used in this section, “federal adjusted gross income” means federal adjusted gross income of the individual or, in the case of two or more individuals electing to defer property tax jointly, the combined federal adjusted gross income of the individuals, or the federal adjusted gross income of the spouse who has filed a claim under ORS 311.688, all as determined for the tax year beginning in the calendar year prior to which a determination is required under subsection (2) of this section. “Federal adjusted gross income” shall be determined under the Internal Revenue Code, as amended and in effect on December 31, [1998] 2000, without any of the additions, subtractions or other modifications or adjustments required under ORS chapter 314 or 316.

(7)(a) If, after an initial determination under this section has been made by the department, upon audit or examination or otherwise, it is discovered that the taxpayer or spouse had federal adjusted gross income in excess of the limitation provided under subsection (1) of this section, the department shall determine the amount of taxes deferred that should not have been deferred and give notice to the taxpayer or spouse of the amount of taxes that should not have been deferred. The provisions of ORS chapters 305 and 314 shall apply to a determination of the department under this section in the same manner as those provisions are applicable to an income tax deficiency. The amount of deferred taxes that should not have been deferred shall bear interest from the date paid by the department until paid at the rate established under ORS 305.220 for deficiencies. A deficiency shall not be assessed under this section if notice required under this section is not given to the taxpayer or spouse within three years after the date that the department has paid the deferred taxes to the county. Upon payment of the amount assessed as deficiency, and interest, the department shall execute a release in the amount of the payment and the release shall be conclusive evidence of the removal and extinguishment of the lien under ORS 311.666 to 311.701 to the extent of the payment.

(b) If, after an initial determination under this section has been made by the department, upon claim for refund, audit or examination or otherwise, it is discovered that the taxpayer or spouse had federal adjusted gross income in the amount of or less than the limitation provided under subsection (1) of this section, the department shall determine the amount of taxes deferred that should have been deferred and give notice to the taxpayer or spouse of the amount of taxes that should have been deferred. The provisions of ORS chapters 305 and 314 shall apply to a determination of the department under this section in the same manner as those provisions are applicable to an income tax refund. The amount of the taxes that should have been deferred shall bear interest from the date paid by the taxpayer to the county at the rate established under ORS 305.220 for refunds until paid. Claim for refund under this paragraph must be filed within three years after the earliest date that the taxpayer or spouse is notified by the department that the taxes are not deferred.

(8) This section applies to all tax-deferred property, notwithstanding that election to defer taxes is made under ORS 311.666 to 311.701 before or after October 3, 1989.

SECTION 32. ORS 314.011 is amended to read:

314.011. (1) As used in this chapter, unless the context requires otherwise, “department” means the Department of Revenue.

(2)(a) As used in this chapter, any term has the same meaning as when used in a comparable context in the laws of the United States relating to federal income taxes, unless a different meaning is clearly required or the term is specifically defined in this chapter.

(b) A reference to the laws of the United States or to the Internal Revenue Code that relates to the definition of the income on, in respect to or by which taxes imposed by ORS chapter 316, 317 or 318 are imposed or measured, refers to the laws of the United States or the Internal Revenue Code as they are in effect and applicable for the tax year of the taxpayer, except where the Legislative Assembly has specifically provided otherwise.

(c) With respect to ORS 314.105, 314.256 (relating to proxy tax on lobbying expenditures), 314.260 (1)(b), 314.265 (1)(b), 314.302, 314.306, 314.330, 314.360, 314.362, 314.385, 314.402, 314.410, 314.412, 314.525, 314.742 (7), 314.750 and 314.752 and other provisions of this chapter, except those described in paragraph (b) of this subsection, any reference in this chapter to the laws of the United States or to the Internal Revenue Code means the laws of the United States relating to income taxes or the Internal Revenue Code as they are amended on or before December 31, [1998] 2000, even [where] when the amendments take effect or become operative after that date, except where the Legislative Assembly has specifically provided otherwise.

(3) Insofar as is practicable in the administration of this chapter, the department shall apply and follow the administrative and judicial interpretations of the federal income tax law. When a provision of the federal income tax law is the subject of conflicting opinions by two or more federal courts, the department shall follow the rule observed by the United States Commissioner of Internal Revenue until the conflict is resolved. Nothing contained in this section limits the right or duty of the department to audit the return of any taxpayer or to determine any fact relating to the tax liability of any taxpayer.

(4) When portions of the Internal Revenue Code incorporated by reference as provided in subsection (2) of this section refer to rules or regulations prescribed by the Secretary of the Treasury, then such rules or regulations shall be regarded as rules adopted by the department under and in accordance with the provisions of this chapter, whenever they are prescribed or amended.

(5)(a) When portions of the Internal Revenue Code incorporated by reference as provided in subsection (2) of this section are later corrected by an Act or a Title within an Act of the United States Congress designated as an Act or Title making technical corrections, then notwithstanding the date that the Act or Title becomes law, those portions of the Internal Revenue Code, as so corrected, shall be the portions of the Internal Revenue Code incorporated by reference as provided in subsection (2) of this section and shall take effect, unless otherwise indicated by the Act or Title (in which case the provisions shall take effect as indicated in the Act or Title), as if originally included in the provisions of the Act being technically corrected. If, on account of this subsection, any adjustment is required to an Oregon return that would otherwise be prevented by operation of law or rule, the adjustment shall be made, notwithstanding any law or rule to the contrary, in the manner provided under ORS 314.135.

(b) As used in this subsection, “Act or Title” includes any subtitle, division or other part of an Act or Title.

SECTION 33. ORS 314.525 is amended to read:

314.525. (1) An underpayment of estimated tax under ORS 314.505 to 314.525 will be considered to have occurred if the estimated tax is not paid as required.

(2) Notwithstanding subsection (1) of this section, there shall be no underpayment of estimated tax if the estimated tax paid equals or exceeds the amount described in any one of the following paragraphs:

(a) The amount which would be required to be paid if the estimated tax liability were equal to 100 percent of the tax shown on the return for the taxable year or, if no return was filed, 100 percent of the tax for such taxable year.

(b) The amount which would be required to be paid if the estimated tax liability were equal to 100 percent of the tax shown on the return for the preceding taxable year, and the preceding taxable year was a taxable year of 12 months.

(c)(A) An amount equal to 100 percent of the tax for the taxable year computed by placing on an annualized basis the taxable income:

(i) For the first three months of the taxable year, in the case of the installment required to be paid in the fourth month;

(ii) For the first three months or for the first five months of the taxable year, in the case of the installment required to be paid in the sixth month;

(iii) For the first six months or for the first eight months of the taxable year in the case of the installment required to be paid in the ninth month; and

(iv) For the first nine months or for the first 11 months of the taxable year, in the case of the installment required to be paid in the 12th month of the taxable year.

(B) For purposes of this paragraph the taxable income shall be placed on an annualized basis by:

(i) Multiplying by 12 the taxable income referred to in subparagraph (A) of this paragraph; and

(ii) Dividing the resulting amount by the number of months in the taxable year (3, 5, 6, 8, 9 or 11, as the case may be) referred to in subparagraph (A) of this paragraph.

(d) An amount equal to 100 percent of the amount obtained by applying section 6655(e) (3)(C) of the Internal Revenue Code to Oregon taxable income.

(e) An election made under section 6655(e) (2)(C) of the Internal Revenue Code (relating to annualization periods) for federal tax purposes shall also apply for purposes of estimated tax under ORS 314.505 to 314.525.

(3) Interest shall accrue on the underpayment of estimated tax under ORS 314.505 to 314.525 at the rate established under ORS 305.220, for each month or fraction thereof during which period the estimated tax or any installment thereof remains unpaid. The penalty provisions contained in this chapter and ORS chapters 317 and 318 for underpayment of tax shall not apply to underpayments of estimated tax under ORS 314.505 to 314.525.

(4) For purposes of subsection (3) of this section, the underpayment of estimated tax shall be the excess of:

(a) The amount of the installment which would be required to be paid if the estimated tax were equal to [100 percent of the tax shown on the return for the taxable year or, if no return was filed, 100 percent of the tax for such year] the lowest of the payments required under subsection (2) of this section (and allowed to be made by the taxpayer under subsection (5) of this section), over

(b) The amount, if any, of the installment paid on or before the last date prescribed for payment.

(5) In the case of a large corporation, subsection (2)(b) of this section shall apply only to determine the amount of the first required installment for any taxable year. Any reduction in the first installment by reason of this subsection shall be added to the amount of the next required installment determined without regard to subsection (2)(b) of this section. For purposes of this subsection, a “large corporation” is any corporation that had federal taxable income, determined without regard to any amount carried to any of the three taxable years under section 172 or 1212(a) of the Internal Revenue Code, of $1 million or more in any of the three taxable years immediately preceding the taxable year involved.

(6) The application of this section to taxable years of less than 12 months shall be in accordance with rules adopted by the Department of Revenue.

SECTION 34. ORS 315.004 is amended to read:

315.004. (1) Except when the context requires otherwise, the definitions contained in ORS chapters 314, 316, 317 and 318 are applicable in the construction, interpretation and application of the personal and corporate income and excise tax credits contained in this chapter.

(2)(a) For purposes of the tax credits contained in this chapter, any term has the same meaning as when used in a comparable context in the laws of the United States relating to federal income taxes, unless a different meaning is clearly required or the term is specifically defined for purposes of construing, interpreting and applying the credit.

(b) With respect to the tax credits contained in this chapter, any reference to the laws of the United States or to the Internal Revenue Code means the laws of the United States relating to income taxes or the Internal Revenue Code as they are amended on or before December 31, [1998] 2000, even [where] when the amendments take effect or become operative after that date.

(3) Insofar as is practicable in the administration of this chapter, the Department of Revenue shall apply and follow the administrative and judicial interpretations of the federal income tax law. When a provision of the federal income tax law is the subject of conflicting opinions by two or more federal courts, the department shall follow the rule observed by the United States Commissioner of Internal Revenue until the conflict is resolved. Nothing contained in this section limits the right or duty of the department to audit the return of any taxpayer or to determine any fact relating to the tax liability of any taxpayer.

(b) As used in this subsection, “Act or Title” includes any subtitle, division or other part of an Act or Title.

SECTION 35. ORS 316.012 is amended to read:

316.012. Any term used in this chapter has the same meaning as when used in a comparable context in the laws of the United States relating to federal income taxes, unless a different meaning is clearly required or the term is specifically defined in this chapter. Any reference in this chapter to the laws of the United States or to the Internal Revenue Code means:

(1) In the case of a reference relating to the definition of the income on, in respect to or by which the tax imposed by this chapter is imposed or measured, the laws of the United States relating to income taxes or the Internal Revenue Code as they are in effect and applicable for the tax year of the taxpayer, except where the Legislative Assembly has specifically provided otherwise; or

(2) In the case of a reference for any other purpose, as these laws are amended and in effect on December 31, [1998] 2000, except where the Legislative Assembly has specifically provided otherwise.

SECTION 36. ORS 316.078 is amended to read:

316.078. (1) A resident individual shall be allowed a credit against the tax otherwise due under this chapter in an amount equal to a percentage of employment-related expenses allowable pursuant to section 21 of the Internal Revenue Code [as of December 31, 1998], notwithstanding the limitation imposed by section 26 of the Internal Revenue Code [as of December 31, 1998]. The percentage shall be determined on the basis of federal taxable income, as defined in section 63 of the Internal Revenue Code [as of December 31, 1998,] and as reflected on the federal return, whether or not a joint return, of the taxpayer for the taxable year, in accordance with the following table:

______________________________________________________________________________

If federal taxable

income is: The percentage is:

Not over $5,000........................... 30%

Over $5,000 but not

over $10,000....................... 15%

Over $10,000 but not

over $15,000....................... 8%

Over $15,000 but not

over $25,000....................... 6%

Over $25,000 but not

over $35,000....................... 5%

Over $35,000 but not

over $45,000....................... 4%

Over $45,000............................... 0%

______________________________________________________________________________

(2) A nonresident individual shall be allowed the credit computed in the same manner and subject to the same limitations as the credit allowed a resident by subsection (1) of this section. However, the credit shall be prorated using the proportion provided in ORS 316.117.

(3) If a change in the taxable year of a taxpayer occurs as described in ORS 314.085, or if the Department of Revenue terminates the taxpayer’s taxable year under ORS 314.440, the credit allowed by this section shall be prorated or computed in a manner consistent with ORS 314.085.

(4) If a change in the status of a taxpayer from resident to nonresident or from nonresident to resident occurs, the credit allowed by this section shall be determined in a manner consistent with ORS 316.117.

(5) Any tax credit otherwise allowable under this section which is not used by the taxpayer in a particular year may be carried forward and offset against the taxpayer’s tax liability for the next succeeding tax year. Any credit remaining unused in such next succeeding tax year may be carried forward and used in the second succeeding tax year, and likewise any credit not used in that second succeeding tax year may be carried forward and used in the third succeeding tax year, and any credit not used in that third succeeding tax year may be carried forward and used in the fourth succeeding tax year, and any credit not used in that fourth succeeding tax year may be carried forward and used in the fifth succeeding tax year, but may not be carried forward for any tax year thereafter.

SECTION 37. ORS 316.087 is amended to read:

316.087. (1) A resident individual shall be allowed a credit against the tax otherwise due under this chapter in an amount equal to 40 percent of the credit for the elderly or the permanently and totally disabled allowable pursuant to section 22 of the Internal Revenue Code [as of December 31, 1998], notwithstanding the limitation imposed by section 26 of the Internal Revenue Code [as of December 31, 1998].

(5) No credit shall be allowed under this section for the taxable year if the taxpayer claims the credit allowed under ORS 316.157.

SECTION 38. ORS 316.153 is amended to read:

316.153. (1) As used in this section:

(a) “Involuntary move” means a move forced on an owner due to the termination of the owner’s rental agreement for a facility space resulting from the closure of the facility, or portion of the facility, as defined in ORS 90.100.

(b) “Mobile home” has the meaning given “manufactured dwelling” in ORS 446.003, and includes only a mobile home with a fair market value of $50,000 or less on the date that the mobile home is involuntarily moved.

(A) Owns and occupies as a principal residence, on the date of the involuntary move, a mobile home involuntarily moved; and

(B) Has a federal adjusted gross income, as described under ORS 316.013, of $30,000 or less for the tax year in which the mobile home is involuntarily moved.

(2) A qualified individual is allowed a credit against the taxes otherwise due under this chapter. The amount of the credit is the lesser of:

(a) $1,500; or

(b) The actual cost of moving and setting up the mobile home after subtracting any payments or reimbursements received by the qualified individual under ORS 90.630 (6) and (7).

(3)(a) One-third of the total amount of credit allowed under this section must be claimed by the qualified individual for the tax year in which the mobile home is involuntarily moved and one-third of the credit in each of the two tax years immediately following.

(b) Any credit which is not used by the taxpayer in a particular year may be carried forward and offset against the taxpayer’s tax liability for the next succeeding tax year. Any credit remaining unused in the next succeeding tax year may be carried forward and used in the second succeeding tax year, and likewise any credit not used in that second succeeding tax year may be carried forward and used in the third succeeding tax year, and any credit not used in that third succeeding tax year may be carried forward and used in the fourth succeeding tax year, and any credit not used in that fourth succeeding tax year may be carried forward and used in the fifth succeeding tax year, but may not be carried forward for any tax year thereafter.

(d) If the taxpayer is married at the close of the tax year, the credit shall be allowed to only one taxpayer if the spouses file separate returns for the tax year. Marital status shall be determined as provided under section 21 (e)(3) and (4) of the Internal Revenue Code[, as amended and in effect on December 31, 1998].

SECTION 39. ORS 316.157 is amended to read:

316.157. (1) In the case of an eligible individual, there shall be allowed as a credit against the taxes otherwise due under this chapter for the taxable year an amount equal to the lesser of the tax liability of the taxpayer or nine percent of net pension income.

(2) For purposes of this section:

(a) “Eligible individual” means any individual who is receiving pension income and who has attained the following age before the close of the taxable year:

(A) For taxable years beginning on or after January 1, 1991, and before January 1, 1993, the individual must attain 58 years of age before the close of the taxable year.

(B) For taxable years beginning on or after January 1, 1993, and before January 1, 1995, the individual must attain 59 years of age before the close of the taxable year.

(C) For taxable years beginning on or after January 1, 1995, and before January 1, 1997, the individual must attain 60 years of age before the close of the taxable year.

(D) For taxable years beginning on or after January 1, 1997, and before January 1, 1999, the individual must attain 61 years of age before the close of the taxable year.

(E) For taxable years beginning on or after January 1, 1999, the individual must attain 62 years of age before the close of the taxable year.

(b) “Household income” has that meaning given in ORS 310.630 except that “household income” shall not include Social Security benefits received by the taxpayer or the spouse of the taxpayer.

[(c) “Internal Revenue Code” means the federal Internal Revenue Code, as amended and in effect on December 31, 1998.]

[(d)] (c) “Net pension income” means:

(A) For eligible individuals filing a joint return, the lesser of the pension income of the eligible individuals received during the taxable year or the excess, if any, of $15,000 over the sum of the following amounts:

(i) Any Social Security benefits received by the eligible individual, or by the spouse of the individual, during the taxable year; and

(ii) The excess, if any, of household income over $30,000.

(B) For an eligible individual filing a return other than a joint return, the lesser of the pension income of the eligible individual received during the taxable year or the excess, if any, of $7,500 over the sum of the following amounts:

(i) Any Social Security benefits received by the eligible individual during the taxable year; and

(ii) The excess, if any, of household income over $15,000.

[(e)] (d) “Pension income” means income included in Oregon taxable income from:

(A) Distributions from or pursuant to an employee pension benefit plan, as defined in section 3(2) of the Employee Retirement Income Security Act of 1974, which satisfies the requirements of section 401 of the Internal Revenue Code;

(B) Distributions from or pursuant to a public retirement system of this state or a political subdivision of this state, or a public retirement system created by an Act of this state or a political subdivision of this state, or the public retirement system of any other state or local government;

(C) Distributions from or pursuant to a federal retirement system created by the federal government for any officer or employee of the United States, including any person retired from service in the United States Civil Service, the Armed Forces of the United States or any agency or subdivision thereof;

(D) Distributions or withdrawals from or pursuant to an eligible deferred compensation plan which satisfies the requirements of section 457 of the Internal Revenue Code;

(E) Distributions or withdrawals from or pursuant to an individual retirement account, annuity or trust or simplified employee pension which satisfies the requirements of section 408 of the Internal Revenue Code; and

(F) Distributions or withdrawals from or pursuant to an employee annuity, including custodial accounts treated as annuities, subject to section 403 (a) or (b) of the Internal Revenue Code.

[(f)] (e) “Social Security benefits” means Social Security benefits, as defined in section 86 of the Internal Revenue Code (Title II Social Security or tier 1 railroad retirement benefits).

(3) If a change in the taxable year of the eligible individual occurs as described in ORS 314.085, or if the Department of Revenue terminates the tax year of the eligible individual under ORS 314.440, the credit allowed by this section shall be prorated or computed in a manner consistent with ORS 316.085.

(4) If a change in the status of the eligible individual from resident to nonresident or from nonresident to resident occurs, the credit allowed by this section shall be determined in a manner consistent with subsection (1) of this section.

SECTION 40. ORS 316.162 is amended to read:

316.162. As used in ORS 316.162 to 316.212:

[(1) “Internal Revenue Code” means the federal Internal Revenue Code, as amended and in effect on December 31, 1998.]

[(2)] (1) “Number of withholding exemptions claimed” means the number of withholding exemptions claimed in a withholding exemption certificate in effect under ORS 316.182, except that if no such certificate is in effect, the number of withholding exemptions claimed is considered to be zero.

[(3)] (2) “Wages” means remuneration for services performed by an employee for an employer, including the cash value of all remuneration paid in any medium other than cash, except that “wages” does not include remuneration paid:

(a) For active service in the Armed Forces of the United States as to which no withholding is required by the Internal Revenue Code.

(b) To an employee of a common carrier to the extent that 49 U.S.C. 14503 and 40116 prohibit the remuneration from withholding for state income taxes.

(d) For casual labor not in the course of the employer’s trade or business.

(e) To an employee whose services to the employer consist solely of labor in connection with the planting, cultivating or harvesting of seasonal agricultural crops if the total amount paid to such employee is less than $300 annually.

(f) To seamen who are exempt from garnishment, attachment or execution under title 46 of the United States Code.

(g) To persons temporarily employed as emergency forest fire fighters.

(h) To employees’ trusts exempt from tax under provisions of the federal Internal Revenue Code.

(i) For services performed by a duly ordained, commissioned or licensed minister of a church in the exercise of the minister’s ministry or by a member of a religious order in the exercise of religious duties required by such order, which duties are not commercial in nature.

(j) For services performed by an independent contractor, as that term is defined in ORS 670.600.

(k) When the remuneration is exempt from taxation under this chapter.

[(4)] (3) “Employer” means:

(a) A person who is in such relation to another person that the person may control the work of that other person and direct the manner in which it is to be done; or

(b) An officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee or member is under a duty to perform the acts required of employers by ORS 316.167, 316.182, 316.197, 316.202 and 316.207.

SECTION 41. ORS 316.182 is amended to read:

316.182. (1) Subject to subsection (2) or (3) of this section and if the employee does not claim a different number of withholding exemptions for purposes of this chapter, an employer shall use the exemption certificate filed by the employee with the employer under the income tax withholding provisions of the Internal Revenue Code for determining the number of withholding exemptions to be used in computing the tax to be withheld under ORS 316.167 and 316.172. If a new exemption certificate is not filed as provided under section 1581 of the Tax Reform Act of 1986 (P.L. 99-514) for federal purposes, the employer shall use the same number of withholding exemptions as used for purposes of the Internal Revenue Code for determining the amount of tax to be withheld under ORS 316.167 and 316.172.

(2) The Department of Revenue may require an exemption certificate to be filed on a form prescribed by the department in any circumstance where the department finds that an exemption certificate filed for purposes of the Internal Revenue Code does not properly reflect the number of withholding exemptions allowable under this chapter.

(3) No exemption certificate need be procured from an employee whose wages consist of wages as defined in ORS 316.162 [(3)(e)] (2)(e).

SECTION 42. ORS 316.207 is amended to read:

316.207. (1) Every employer who deducts and retains any amount under ORS 316.162 to 316.212 shall hold the same in trust for the State of Oregon and for the payment thereof to the Department of Revenue in the manner and at the time provided in ORS 316.162 to 316.212.

(2) At any time the employer fails to remit any amount withheld, the department may enforce collection by the issuance of a distraint warrant for the collection of the delinquent amount and all penalties, interest and collection charges accrued thereon. Such warrant shall be issued, recorded and proceeded upon in the same manner and shall have the same force and effect as is prescribed with respect to warrants for the collection of delinquent income taxes.

(3)(a) In the case of an employer that is assessed pursuant to the provisions of ORS 305.265 (12) and 314.407 (1), the department may issue a notice of liability to any officer, employee or member described in ORS 316.162 [(4)(b)] (3)(b) of such employer within three years from the time of assessment. Within 30 days from the date the notice of liability is mailed to the officer, employee or member, such officer, employee or member shall pay the assessment, plus penalties and interest, or advise the department in writing of objections to the liability and, if desired, request a conference. Any conference shall be governed by the provisions of ORS 305.265 pertaining to a conference requested from a notice of deficiency.

(b) After a conference or, if no conference is requested, a determination of the issues considering the written objections, the department shall mail the officer, employee or member a conference letter affirming, canceling or adjusting the notice of liability. Within 90 days from the date the conference letter is mailed to the officer, employee or member, such officer, employee or member shall pay the assessment, plus penalties and interest, or appeal to the tax court in the manner provided for an appeal from a notice of assessment.

(c) If neither payment nor written objection to the notice of liability is received by the department within 30 days after the notice of liability has been mailed, the notice of liability becomes final. In such event, the officer, employee or member may appeal the notice of liability to the tax court within 90 days after it became final in the manner provided for an appeal from a notice of assessment.

(4)(a) In the case of a failure to file a withholding tax report on the due date, governed by the provisions of ORS 305.265 (10) and 314.400, the department, in addition to the provisions of ORS 305.265 (10) and 314.400, may send notices of determination and assessment to any officer, employee or member described in ORS 316.162 [(4)(b)] (3)(b) any time within three years after the assessment of an employer described in ORS 316.162 [(4)(a)] (3)(a). The time of assessment against such officer, employee or member shall be 30 days after the date the notice of determination and assessment is mailed. Within 30 days from the date the notice of determination and assessment is mailed to the officer, employee or member, such officer, employee or member shall pay the assessment, plus penalties and interest, or advise the department in writing of objections to the assessment, and if desired, request a conference. Any conference shall be governed by the provisions of ORS 305.265 pertaining to a conference requested from a notice of deficiency.

(b) After a conference or, if no conference is requested, a determination of the issues considering the written objections, the department shall mail the officer, employee or member a conference letter affirming, canceling or adjusting the notice of determination and assessment. Within 90 days from the date the conference letter is mailed to the officer, employee or member, such officer, employee or member shall pay the assessment, plus penalties and interest, or appeal in the manner provided for an appeal from a notice of assessment.

(c) If neither payment nor written objection to the notice of determination and assessment is received by the department within 30 days after the notice of determination and assessment has been mailed, the notice of determination and assessment becomes final. In such event, the officer, employee or member may appeal the notice of determination and assessment to the tax court within 90 days after it became final in the manner provided for an appeal from a notice of assessment.

(5)(a) More than one officer or employee of a corporation may be held jointly and severally liable for payment of withheld taxes.

(b) Notwithstanding the provisions of ORS 314.835, 314.840 or 314.991, if more than one officer or employee of a corporation may be held jointly and severally liable for payment of withheld taxes, the department may require any or all of the officers, members or employees who may be held liable to appear before the department for a joint determination of liability. The department shall notify each officer, member or employee of the time and place set for the determination of liability.

(c) Each person notified of a joint determination under this subsection shall appear and present such information as is necessary to establish that person’s liability or nonliability for payment of withheld taxes to the department. If any person notified fails to appear, the department shall make its determination on the basis of all the information and evidence presented. The department’s determination shall be binding on all persons notified and required to appear under this subsection.

(d) If an appeal is taken to the Oregon Tax Court pursuant to ORS 305.404 to 305.560 by any person determined to be liable for unpaid withholding taxes under this subsection, each person required to appear before the department under this subsection shall be impleaded by the plaintiff and made a party to the action before the tax court and shall make available to the tax court such information as was presented before the department, as well as such other information as may be presented to the court. If any person required to appear before the court under this subsection fails or refuses to appear or bring such information in part or in whole, or is outside the jurisdiction of the tax court, the court shall make its determination on the basis of all the evidence introduced. All such evidence shall constitute a public record and shall be available to the parties and the court notwithstanding ORS 314.835, 314.840 or 314.991. The determination of the tax court shall be binding on all persons made parties to the action under this subsection.

(e) Nothing in this section shall be construed to preclude a determination by the department or the Oregon Tax Court that more than one officer, employee or member are jointly and severally liable for unpaid withholding taxes.

SECTION 43. ORS 316.298 is amended to read:

316.298. (1) A resident beneficiary of a trust whose adjusted gross income includes all or part of an accumulation distribution by such trust, as defined in section 665 of the Internal Revenue Code, shall be allowed a credit against the tax otherwise due under this chapter for all or a proportionate part of any tax, paid by the trust under this chapter for any preceding taxable year, that would not have been payable if the trust had in fact made distribution to its beneficiaries at the times and in the amounts specified in section 666 of the Internal Revenue Code.

(2) The credit under this section shall not reduce the tax otherwise due from the beneficiary under this chapter to an amount less than would have been due if the accumulation distribution or part thereof were excluded from the adjusted gross income of the beneficiary.

[(3) As used in this section and ORS 316.317, “Internal Revenue Code” means the federal Internal Revenue Code as amended and in effect on December 31, 1998.]

SECTION 44. ORS 316.557 is amended to read:

316.557. As used in ORS 316.557 to 316.589,[:]

[(1)] “estimated tax” means the amount of income tax imposed under this chapter for the taxable year, as estimated by the individual, minus the sum of any credits as estimated by the individual against tax provided by this chapter.

[(2) “Internal Revenue Code” means the federal Internal Revenue Code, as amended and in effect on December 31, 1998.]

SECTION 45. ORS 316.563 is amended to read:

316.563. (1) Except as provided in subsection (2) of this section, every individual shall declare an estimated tax for the taxable year if:

(a) The gross income for the taxable year can be reasonably expected to include more than $1,000 from sources other than wages as defined in ORS 316.162 [(3)] (2); or

(b) The gross income for the taxable year can be reasonably expected to exceed:

(A) $20,000 in the case of:

(i) A single individual, including a head of household as defined in section 2 (b) of the Internal Revenue Code, or a surviving spouse as defined in section 2 (a) of the Internal Revenue Code; or

(ii) A married individual entitled under ORS 316.567 to file a joint declaration with a spouse, but only if the spouse has not received wages, as defined in ORS 316.162 [(3)] (2) for the taxable year; or

(B) $10,000 in the case of a married individual entitled under ORS 316.567 to file a joint declaration with a spouse, but only if each spouse has received wages as defined in ORS 316.162 [(3)] (2) for the taxable year; or

(2) No declaration is required if the estimated tax as defined in ORS 316.557 is less than the amount established by rule of the Department of Revenue. The department shall consider the provisions of section 6654 of the Internal Revenue Code in determining the amount.

(3) An individual with a taxable year of less than 12 months shall make a declaration in accordance with rules adopted by the Department of Revenue.

(4) An individual may amend the declaration filed during the taxable year under rules prescribed by the department.

(5) The declaration shall contain information required by the department by rule.

SECTION 46. ORS 317.010 is amended to read:

317.010. As used in this chapter, unless the context requires otherwise:

(1) “Centrally assessed corporation” means every corporation the property of which is assessed by the Department of Revenue under ORS 308.505 to 308.665.

(2) “Department” means the Department of Revenue.

(3)(a) “Consolidated federal return” means the return permitted or required to be filed by a group of affiliated corporations under section 1501 of the Internal Revenue Code.

(b) “Consolidated state return” means the return required to be filed under ORS 317.710 (5).

(4) “Doing business” means any transaction or transactions in the course of its activities conducted within the state by a national banking association, or any other corporation; provided, however, that a foreign corporation whose activities in this state are confined to purchases of personal property, and the storage thereof incident to shipment outside the state, shall not be deemed to be doing business unless such foreign corporation is an affiliate of another foreign or domestic corporation which is doing business in Oregon. Whether or not corporations are affiliated shall be determined as provided in section 1504 of the Internal Revenue Code.

(5) “Excise tax” means a tax measured by or according to net income imposed upon national banking associations, all other banks, and financial, centrally assessed, mercantile, manufacturing and business corporations for the privilege of carrying on or doing business in this state.

(6) “Financial institution” or “financial corporation” means a bank or trust company organized under ORS chapter 707, national banking association or production credit association organized under federal statute, building and loan association, savings and loan association, mutual savings bank, and any other corporation whose principal business is in direct competition with national and state banks.

(7) “Internal Revenue Code” means:

(a) In the case of a reference relating to the definition of the income on, in respect to or by which the tax imposed by this chapter is imposed or measured, the laws of the United States relating to income taxes as they are in effect and applicable for the tax year of the taxpayer; or

(b) In the case of a reference for any other purpose, the laws of the United States relating to income taxes as they are amended and in effect on December 31, [1998] 2000, except where the Legislative Assembly has specifically provided otherwise.

(8) “Oregon taxable income” means taxable income, less the deduction allowed under ORS 317.476, except as otherwise provided with respect to insurers in subsection (11) of this section and ORS 317.650 to 317.665.

(9) “Oregon net loss” means taxable loss, except as otherwise provided with respect to insurers in subsection (11) of this section and ORS 317.650 to 317.665.

(10) “Taxable income or loss” means the taxable income or loss determined, or in the case of a corporation for which no federal taxable income or loss is determined, as would be determined, under chapter 1, Subtitle A of the Internal Revenue Code and any other laws of the United States relating to the determination of taxable income or loss of corporate taxpayers, with the additions, subtractions, adjustments and other modifications as are specifically prescribed by this chapter except that in determining taxable income or loss for any year, no deduction under ORS 317.476 or 317.478 and section 45b, chapter 293, Oregon Laws 1987, shall be allowed. If the corporation is a corporation to which ORS 314.280 or 314.605 to 314.675 (requiring or permitting apportionment of income from transactions or activities carried on both within and without the state) applies, to derive taxable income or loss, the following shall occur:

(a) From the amount otherwise determined under this subsection, subtract nonbusiness income, or add nonbusiness loss, whichever is applicable.

(b) Multiply the amount determined under paragraph (a) of this subsection by the Oregon apportionment percentage defined under ORS 314.280, 314.650 or 314.670, whichever is applicable. The resulting product shall be Oregon apportioned income or loss.

(c) To the amount determined as Oregon apportioned income or loss under paragraph (b) of this subsection, add nonbusiness income allocable entirely to Oregon under ORS 314.280 or 314.625 to 314.645, or subtract nonbusiness loss allocable entirely to Oregon under ORS 314.280 or 314.625 to 314.645. The resulting figure is “taxable income or loss” for those corporations carrying on taxable transactions or activities both within and without Oregon.

(11) As used in ORS 317.122 and 317.650 to 317.665, “ insurer” means any domestic, foreign or alien insurer as defined in ORS 731.082 and any interinsurance and reciprocal exchange and its attorney in fact with respect to its attorney in fact net income as a corporate attorney in fact acting as attorney in compliance with ORS 731.458, 731.462, 731.466 and 731.470 for the reciprocal or interinsurance exchange. However, “insurer” does not include title insurers or health care service contractors operating pursuant to ORS 750.005 to 750.095.

SECTION 47. ORS 317.097 is amended to read:

317.097. (1) A credit against taxes otherwise due under this chapter for the taxable year shall be allowed to a lending institution in an amount equal to the difference between:

(a) The amount of finance charge charged by the lending institution during the taxable year at an annual rate less than the market rate for a loan that is made before January 1, 2010, that complies with the requirements of this section; and

(b) The amount of finance charge that would have been charged during the taxable year by the lending institution for the loan for housing construction, development or rehabilitation measured at the annual rate charged by the lending institution for nonsubsidized loans made under like terms and conditions at the time the loan for housing construction, development or rehabilitation is made.

(2) The maximum difference between the amounts described in subsection (1)(a) and (b) of this section shall not exceed four percent of the average unpaid balance of the loan during the tax year for which the credit is claimed.

(3) Any tax credit otherwise allowable under this section that is not used by the taxpayer in a particular year may be carried forward and offset against the taxpayer’s tax liability for the next succeeding tax year. Any credit remaining unused in such next succeeding tax year may be carried forward and used in the second succeeding tax year, and likewise, any credit not used in that second succeeding tax year may be carried forward and used in the third succeeding tax year, and any credit not used in that third succeeding tax year may be carried forward and used in the fourth succeeding tax year, and any credit not used in that fourth succeeding tax year may be carried forward and used in the fifth succeeding tax year, but may not be carried forward for any tax year thereafter.

(4) In order to be eligible for the tax credit allowed under subsection (1) of this section, the loan shall be:

(a) Made to an individual or individuals who own the dwelling, participate in an owner-occupied community rehabilitation program and are certified by the local government or its designated agent as having an income level at the time the loan is made of less than 80 percent of the area median income; or

(b)(A) Made to a qualified borrower;

(B) Used to finance construction, rehabilitation or development of housing; and

(i) Housing created by the loan is or will be occupied by households earning less than 80 percent of the area median income; and

(ii) Full amount of savings from the reduced interest rate provided by the lending institution is or will be passed on to the tenants in the form of reduced housing payments, regardless of other subsidies provided to the housing project.

(5) A loan made to refinance a loan that meets the criteria stated in subsection (4) of this section shall be treated the same as a loan that meets the criteria stated in subsection (4) of this section.

(6) In order to be eligible for the tax credit allowed under subsection (1) of this section, the loan also shall be accompanied by a written certification by the Housing and Community Services Department that:

(a) Specifies the period, as determined by the Housing and Community Services Department, during which the loan is eligible for the tax credit under subsection (1) of this section; and

(b) States that the loan is within the limitation imposed by subsection (7) of this section.

(7)(a) The Housing and Community Services Department may certify loans that are eligible under subsection (4) of this section if the total credits attributable to all loans eligible for credits under subsection (1) of this section and then outstanding do not exceed $5 million for any year. In making loan certifications, the Housing and Community Services Department shall attempt to distribute the tax credits statewide, but shall concentrate the tax credits in those areas of the state that are determined by the State Housing Council to have the greatest need for affordable housing.

(b) The certification under subsection (6) of this section shall state the period for which the credit will be allowed, which shall not exceed 20 years.

(8) The credit allowed in this section shall not be affected by the applicant’s receipt of a credit under section 42 of the Internal Revenue Code (low-income housing tax credit program).

(9) A loan meeting the requirements of subsections (4) and (6) of this section may be sold to a qualified assignee with or without the lending institution’s retaining servicing of the loan so long as a designated lending institution maintains records annually verified by a loan servicer that establish the amount of tax credit earned by the taxpayer throughout each year of eligibility.

(10) As used in this section:

(a) “Annual rate” means the yearly interest rate specified on the note, and not the annual percentage rate, if any, disclosed to the applicant to comply with the federal Truth in Lending Act.

(b) “Finance charge” means the total of all interests, loan fees and other charges related to the cost of obtaining credit and includes any interest on any loan fees financed by the lending institution.

[(c) “Internal Revenue Code” means the federal Internal Revenue Code, as amended and in effect on December 31, 1998.]

[(d)] (c) “Lending institution” means any insured institution, as that term is defined in ORS 706.008, or any mortgage banking company that maintains an office in this state. “Lending institution” also includes any community development corporation that is organized under the Oregon Nonprofit Corporation Law.

[(e)] (d) “Qualified assignee” means any investor participating in the secondary market for real estate loans.

[(f)] (e) “Qualified borrower” means any borrower that is a sponsoring entity that has a controlling interest in the real property that is financed by the loan described in subsection (4) of this section. Such a controlling interest includes, but is not limited to, a controlling interest in the general partner of a limited partnership that owns the real property.

[(g)] (f) “Sponsoring entity” means a nonprofit corporation, state governmental entity, local unit of government as defined in ORS 466.706, housing authority or any person as defined in ORS 174.100, including, but not limited to, an employer making housing available to low-income employees and other low-income persons, provided that the person has agreed to restrictive covenants imposed by a nonprofit corporation, state governmental entity, local unit of government or housing authority.

(11) Notwithstanding any other provision of law, a lending institution that is a community development corporation organized under the Oregon Nonprofit Corporation Law may transfer any part or all of any tax credit arising under subsection (1) of this section to one or more other lending institutions that are stockholders or members of the community development corporation or that otherwise participate through the community development corporation in the making of one or more loans that generate the tax credit under subsection (1) of this section.

(12) The lending institution shall file an annual statement with the Housing and Community Services Department, specifying that it has conformed with all requirements imposed by law to qualify for this tax credit.

(13) The Housing and Community Services Department and the Department of Revenue may adopt rules to carry out the provisions of this section.

SECTION 48. ORS 317.097, as amended by section 4, chapter 857, Oregon Laws 1999, is amended to read:

317.097. (1) A credit against taxes otherwise due under this chapter for the taxable year shall be allowed to a lending institution in an amount equal to the difference between:

(4) In order to be eligible for the tax credit allowed under subsection (1) of this section, the loan shall be:

(b)(A) Made to a qualified borrower;

(B) Used to finance construction, rehabilitation or development of housing; and

(i) Housing created by the loan is or will be occupied by households earning less than 80 percent of the area median income; and

(a) Specifies the period, as determined by the Housing and Community Services Department, during which the loan is eligible for the tax credit under subsection (1) of this section; and

(b) States that the loan is within the limitation imposed by subsection (7) of this section.

(7)(a) The Housing and Community Services Department may certify loans that are eligible under subsection (4) of this section if the total credits attributable to all loans eligible for credits under subsection (1) of this section and then outstanding do not exceed $6 million for any year. In making loan certifications, the Housing and Community Services Department shall attempt to distribute the tax credits statewide, but shall concentrate the tax credits in those areas of the state that are determined by the State Housing Council to have the greatest need for affordable housing.

(b) The certification under subsection (6) of this section shall state the period for which the credit will be allowed, which shall not exceed 20 years.

(8) The credit allowed in this section shall not be affected by the applicant’s receipt of a credit under section 42 of the Internal Revenue Code (low-income housing tax credit program).

(10) As used in this section:

(a) “Annual rate” means the yearly interest rate specified on the note, and not the annual percentage rate, if any, disclosed to the applicant to comply with the federal Truth in Lending Act.

[(c) “Internal Revenue Code” means the federal Internal Revenue Code, as amended and in effect on December 31, 1998.]

[(e)] (d) “Qualified assignee” means any investor participating in the secondary market for real estate loans.

(13) The Housing and Community Services Department and the Department of Revenue may adopt rules to carry out the provisions of this section.

SECTION 49. ORS 317.151 is amended to read:

317.151. (1) A credit is allowed against the taxes otherwise due under this chapter. The amount of the credit shall equal 10 percent of the fair market value of certain qualified charitable contributions, as described in this section.

(2) To qualify for the credit allowed under subsection (1) of this section, the charitable contribution must:

(a) Be a charitable contribution of tangible personal property described in section [1221(1)] 1221(a)(1) of the Internal Revenue Code that has as its original use, use by the donee for education of students in this state, and that is a computer or other scientific equipment or apparatus; and

(b) Be a charitable contribution made during the tax year for which the credit is claimed to an educational organization that is located in this state and that is:

(A) An institution of higher education described in section 170 (b)(1)(A)(ii) of the Internal Revenue Code; or

(B) A public educational institution offering instruction in prekindergarten through grade 12 or any portion of that instruction.

(3) Notwithstanding subsection (2) of this section, a charitable contribution shall qualify for the credit allowed under subsection (1) of this section, if:

(a) The charitable contribution would otherwise qualify for the credit under subsection (2) of this section except that the charitable contribution is of a contract or agreement for the maintenance of the computer or other scientific equipment or apparatus; or

(b) The charitable contribution is a contribution of moneys made under a contract or agreement during the tax year for scientific or engineering research to an educational organization that is located in this state and that is:

(A) An institution of higher education described in section 170 (b)(1)(A)(ii) of the Internal Revenue Code; or

(B) A public educational institution offering instruction in prekindergarten through grade 12 or any portion of that instruction.

(4) The credit allowed under this section is in lieu of any deduction otherwise allowable under this chapter. No deduction shall be allowed under this chapter for any amount upon which the credit allowed under this section is based. However, nothing in this section shall affect the basis of the property in the hands of the donee or any other taxpayer. The basis of the property in the hands of the donee or other person shall be determined as if this section did not exist.

(5)(a) Except as provided in paragraph (b) of this subsection, the credit allowed under this section shall not exceed the tax liability of the taxpayer and shall not be allowed against the tax imposed under ORS 317.090. To qualify for a credit under this section, the charitable contribution must be made without consideration and be accepted by the donee institution or school.

(b) Any tax credit otherwise allowable under this section that is not used by the taxpayer in a particular year may be carried forward and offset against the taxpayer’s tax liability for the next succeeding tax year. Any credit remaining unused in that next succeeding tax year may be carried forward and used in the second succeeding tax year, and likewise any credit not used in that second succeeding tax year may be carried forward and used in the third succeeding tax year, and any credit not used in that third succeeding tax year may be carried forward and used in the fourth succeeding tax year, and any credit not used in that fourth succeeding tax year may be carried forward and used in the fifth succeeding tax year, but may not be carried forward for any tax year thereafter.

(6) For purposes of this section, “fair market value” shall be determined at the time the property or services are contributed and shall be substantiated by whatever information the Department of Revenue requires. A requirement for substantiation may be waived partially, conditionally or absolutely, as provided under ORS 315.063.

[(7) As used in this section, “Internal Revenue Code” means the federal Internal Revenue Code, as amended and in effect on December 31, 1998.]

SECTION 50. ORS 317.152 is amended to read:

317.152. (1) A credit against taxes otherwise due under this chapter shall be allowed to eligible taxpayers for increases in qualified research expenses and basic research payments. The credit shall be determined in accordance with section 41 of the Internal Revenue Code, except as follows:

(a) The applicable percentage specified in section 41(a) of the Internal Revenue Code shall be five percent.

(b) “Qualified research” and “basic research” shall consist of research in the fields of advanced computing, advanced materials, biotechnology, electronic device technology, environmental technology or straw utilization, but only to the extent that such research is conducted in Oregon.

(A) Section 41(c)(4) of the Internal Revenue Code (relating to the alternative incremental credit).

(B) Section 41(h) of the Internal Revenue Code (relating to termination of the federal credit).

(2) As used in this section:

(a) “Advanced computing” means leading edge technologies used in the design and development of computing hardware and software. This includes innovations in design of the full spectrum of hardware from hand-held calculators to super computers, including all peripheral equipment. It also includes innovations in design and development software executing on all computing hardware for any purpose.

(b) “Advanced materials” means high value metals, new and improved wood-based materials, composites and plastics.

(c) “Biotechnology” means biochemistry, molecular biology, genetics and engineering dealing with the transformation of biological systems into useful processes and products.

(d) “Electronic device technology” means the design and development of electronic materials and devices such as advances in integrated circuits and superconductivity.

(e) “Environmental technology” means environmental assessment, cleanup and alternative energy sources.

(f) “Straw utilization” means innovations in the use of straw and straw-based materials.

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

[(a)] “eligible taxpayer” means a corporation, other than corporations excluded under Internal Revenue Code section 41(e)(7)(E), that is engaged in research in the fields of advanced computing, advanced materials, biotechnology, electronic device technology or environmental technology.

[(b) “Internal Revenue Code” means the Internal Revenue Code as amended and in effect on December 31, 1998.]

(4) The Income Tax Regulations as prescribed by the Secretary of the Treasury under authority of section 41 of the Internal Revenue Code shall also apply for purposes of this section, except as modified by this section or as provided in rules adopted by the Department of Revenue.

(5) The maximum credit under this section shall not exceed $500,000.

(6) Any tax credit that is otherwise allowable under this section and that is not used by the taxpayer in that year may be carried forward and offset against the taxpayer’s tax liability for the next succeeding tax year. Any credit remaining unused in such next succeeding tax year may be carried forward and used in the second succeeding tax year, and likewise any credit not used in that second succeeding tax year may be carried forward and used in the third succeeding tax year, and any credit not used in that third succeeding tax year may be carried forward and used in the fourth succeeding tax year, and any credit not used in that fourth succeeding tax year may be carried forward and used in the fifth succeeding tax year, but may not be carried forward for any tax year thereafter.

SECTION 51. ORS 317.154 is amended to read:

317.154. (1) A credit against taxes otherwise due under this chapter shall be allowed for qualified research expenses that exceed 10 percent of Oregon sales.

(2) For purposes of this section:

[(a) “Internal Revenue Code” means the Internal Revenue Code as defined in ORS 317.152.]

[(b)] (a) “Oregon sales” shall be computed using the laws and administrative rules for calculating the numerator of the Oregon sales factor under ORS 314.665.

[(c)] (b) “Qualified research” has the meaning given the term under section 41(d) of the Internal Revenue Code and shall consist only of research in the fields of advanced computing, advanced materials, biotechnology, electronic device technology, environmental technology or straw utilization, all as defined under ORS 317.152, but only to the extent that such research is conducted in Oregon.

(3) The credit under this section is equal to five percent of the amount by which the qualified research expenses exceed 10 percent of Oregon sales.

(4) The credit under this section shall not exceed $10,000 times the number of percentage points by which the qualifying research expenses exceed 10 percent of Oregon sales.

(5) The maximum credit under this section shall not exceed $500,000.

SECTION 52. ORS 317.329 is amended to read:

317.329. A corporation shall have the same basis for state excise or income tax purposes as for federal income tax purposes for assets:

(1) If the corporation engages in a qualified stock purchase on or after August 31, 1982, and elects (or is treated as having elected) section 338 of the Internal Revenue Code [(as amended on and after September 3, 1982)]; or

(2) If the corporation, before August 31, 1982, engaged in the purchase of stock which was treated as a purchase of assets (a purchase and liquidation or similar transaction) resulting in the recognition of gain or loss for Oregon tax purposes. This subsection applies for purposes of determining gain or loss upon disposition only.

SECTION 53. (1) The amendments to statutes by sections 23 to 52 of this 2001 Act apply to transactions or activities occurring on or after January 1, 2001, in tax years beginning on or after January 1, 2001.

(2) The effective and applicable dates, and the exceptions, special rules and coordination with the Internal Revenue Code, as amended, relative to those dates, contained in the Tax Relief Extension Act of 1999 (P.L. 106-170) and the FSC Repeal and Extraterritorial Income Exclusion Act of 2000 (P.L. 106-519), apply for Oregon personal income and corporate excise and income tax purposes, to the extent they can be made applicable, in the same manner as they are applied under the Internal Revenue Code and related federal law.

(3)(a) If a deficiency is assessed against any taxpayer for a tax year beginning before January 1, 2001, and the deficiency, or any portion thereof, is attributable to any retroactive treatment under the amendments to statutes by sections 23 to 52 of this 2001 Act, then any interest or penalty assessed under ORS chapter 305, 314, 315, 316, 317 or 318 with respect to the deficiency or portion thereof shall be canceled.

(b) If a refund is due any taxpayer for a tax year beginning before January 1, 2001, and the refund or any portion thereof is due the taxpayer on account of any retroactive treatment under the amendments to statutes by sections 23 to 52 of this 2001 Act, then notwithstanding ORS 305.270 or 314.415 or other law, the refund or portion thereof shall be paid without interest.

(c) Any changes required on account of the amendments to statutes by sections 23 to 52 of this 2001 Act, for a tax year beginning before January 1, 2001, shall be made by filing an amended return within the time prescribed by law.

(d) If a taxpayer fails to file an amended return under paragraph (c) of this subsection, the Department of Revenue shall make any changes under paragraph (c) of this subsection on the return to which the changes relate within the period specified for issuing a notice of deficiency or claiming a refund as otherwise provided by law with respect to that return, or within one year after a return for a tax year beginning on or after January 1, 2001, and before January 1, 2002, is filed, whichever period expires later.

SECTION 54. ORS 671.540 is amended to read:

671.540. ORS 671.510 to 671.710 and 671.990 (2) do not apply to:

(1) Any federal or state agency or any political subdivision performing landscaping on public property.

(2) Any landscape architect registered pursuant to ORS 671.310 to 671.459 and practicing as provided therein.

(3) Any landscaping work for which the price of all contracts for labor, materials and other items for a given job site in a calendar year is less than $500 and the work is of a casual, minor or inconsequential nature. This subsection does not apply to a person who advertises or represents through any manner including a sign, card or other device which might indicate to the public that the person is a landscape contractor or a landscaping business or is qualified to so act.

(4) Any landscaping work that is a casual, minor or inconsequential incident of maintenance of grounds.

(5) Installation of fences, decks, arbors, driveways, walkways or retaining walls when performed by a person or business licensed with the Construction Contractors Board.

(6) Grading of plots and areas of land performed in conjunction with new or remodeling construction when performed by a person or business licensed with the Construction Contractors Board.

(7) Any owner of property who contracts for landscaping work to be performed by a landscape contractor. This subsection does not apply to a person who, in pursuit of an independent business, performs or contracts for the performance of landscaping work with the intent of offering for sale before, upon or after completion of the landscaping work, the property upon which the landscaping work is performed.

(8) Any landscaping work performed by a person on property that the person owns or in which the person has a legal interest. This subsection does not apply to a person who, in pursuit of an independent business, performs or contracts for the performance of landscaping work with the intent of offering for sale before, upon or after completion of the landscaping work, the property on which the landscaping work is performed.

(9) A general contractor licensed under ORS chapter 701 who performs landscaping work if the total value of the landscaping is less than $2,500 per residential dwelling and the landscaping work is performed on residential property for which the contractor is under contract for the construction of a new dwelling. The State Landscape Contractors Board shall revise the amount specified in this subsection every five years, beginning in 2003, based on changes in the Portland Consumer Price Index [as defined in ORS 316.085]. This subsection does not apply to a general contractor performing irrigation work unless the work is performed pursuant to a permit issued by the local building official.

(10) A general contractor licensed under ORS chapter 701 who performs landscaping work on residential property that is directly related to local building code requirements or occupancy ordinances including, but not limited to, the placement of street trees. This subsection does not apply to a general contractor performing irrigation work unless the work is performed pursuant to a permit issued by the local building official.

(11) As used in this section, “Portland Consumer Price Index” means the Consumer Price Index for All Urban Consumers (Portland -- all items) as published by the Bureau of Labor Statistics of the United States Department of Labor. For purposes of this subsection, the revision of the Consumer Price Index that is the most consistent with the Portland Consumer Price Index for 1986 shall be used.

SECTION 55. ORS 316.743 is repealed.

SECTION 56. ORS 315.266 is amended to read:

315.266. (1) In addition to any other credit available for purposes of ORS chapter 316, an eligible resident individual shall be allowed a credit against the tax otherwise due under ORS chapter 316 for the tax year in an amount equal to five percent of the earned income credit allowable to the individual for the same tax year under section 32 of the Internal Revenue Code.

(2) An eligible nonresident individual shall be allowed the credit computed in the same manner and subject to the same limitations as the credit allowed a resident by subsection (1) of this section. However, the credit shall be prorated using the proportion provided in ORS 316.117.

(5) The credit allowed under this section shall not exceed the tax liability of the taxpayer and may not be carried forward to a succeeding tax year.

(6) The Department of Revenue may adopt rules for purposes of this section, including but not limited to rules relating to proof of eligibility and the furnishing of information regarding the federal earned income credit claimed by the taxpayer for the tax year.

(7) Refunds attributable to the earned income credit allowed under this section shall not bear interest.

(8) Notwithstanding ORS 315.004, as used in this section, “Internal Revenue Code” means the federal Internal Revenue Code as amended and in effect on June 8, 2001.

SECTION 57. ORS 315.274 is amended to read:

315.274. (1) For purposes of this section, “qualified adoption expenses” has the meaning given that term in section 23 of the Internal Revenue Code.

(2) A taxpayer shall be allowed a credit against the taxes otherwise due under ORS chapter 316 in an amount determined under subsection (3) of this section for qualified adoption expenses paid or incurred by the taxpayer during the tax year.

(3) The amount of the credit allowed under this section shall be equal to the lesser of:

(a) The qualified adoption expenses paid or incurred by the taxpayer during the tax year less the credit allowed to the taxpayer under section 23 of the Internal Revenue Code;

(b) $1,500; or

(4) In the case of a credit allowed under this section:

(a) A nonresident shall be allowed the credit under this section in the proportion provided in ORS 316.117.

(5) Any tax credit otherwise allowable under this section that is not used by the taxpayer in a particular tax year may be carried forward and offset against the taxpayer’s tax liability for the next succeeding tax year. Any credit remaining unused in such next succeeding tax year may be carried forward and used in the second succeeding tax year, and likewise any credit not used in that second succeeding tax year may be carried forward and used in the third succeeding tax year, and any credit not used in that third succeeding tax year may be carried forward and used in the fourth succeeding tax year, but may not be carried forward for any tax year thereafter.

(6) Notwithstanding ORS 315.004, as used in this section, “Internal Revenue Code” means the federal Internal Revenue Code as amended and in effect on June 8, 2001.

SECTION 58. 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 June 28, 2001

Filed in the office of Secretary of State June 28, 2001

Effective date October 6, 2001

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