Chapter 674 Oregon Laws 2001

AN ACT

HB 2676

Relating to dependent care tax credits; creating new provisions; amending ORS 314.752, 315.204 and 318.031 and section 10, chapter 682, Oregon Laws 1987, and section 87, chapter 625, Oregon Laws 1989; and prescribing an effective date.

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

SECTION 1. Section 10, chapter 682, Oregon Laws 1987, as amended by section 3, chapter 929, Oregon Laws 1991, is amended to read:

Sec. 10. [Sections 2, 5 and 8, chapter 682, Oregon Laws 1987, apply] ORS 315.204 applies to tax years beginning on or after January 1, 1988, and prior to January 1, [2002] 2007. [For all prior taxable years, the law in effect and applicable for those years shall continue to apply.]

SECTION 2. Section 87, chapter 625, Oregon Laws 1989, as amended by section 4, chapter 929, Oregon Laws 1991, is amended to read:

Sec. 87. The amendments to ORS 316.134 and section 5, chapter 682, Oregon Laws 1987, by sections 10 and 20, chapter 625, Oregon Laws 1989, (relating to dependent care assistance credit) apply to tax years beginning on or after January 1, 1988[, and prior to January 1, 2002].

SECTION 3. As used in sections 3 to 8 of this 2001 Act:

(1) “Child care provider” means a provider, for compensation, of care, supervision or guidance to a child on a regular basis in a center or in a home other than the child’s home. “Child care provider” does not include a person who is the child’s parent, guardian or custodian.

(2) “Community agency” means a nonprofit agency that is:

(a) Located in a region, established under section 5 of this 2001 Act, in which it provides services related to child care, children and families, community development or similar services; and

(b) Eligible to receive contributions that qualify as deductions under section 170 of the Internal Revenue Code.

(3) “Qualified contribution” means a contribution made by a taxpayer to the Child Care Division of the Employment Department or a selected community agency for the purpose of promoting child care, and for which an application is submitted for a tax credit certificate under section 5 of this 2001 Act.

(4) “Tax credit certificate” means a certificate issued by the Child Care Division to a taxpayer to qualify the taxpayer for a tax credit under section 10 of this 2001 Act.

SECTION 4. (1) The Child Care Division of the Employment Department, in collaboration with an advisory committee established by the Child Care Division, shall establish a program to:

(a) Allocate tax credit certificates to taxpayers that make qualified contributions to the Child Care Division or a selected community agency; and

(b) Distribute to child care providers moneys from qualified contributions and other contributions.

(2) The purposes of the program are to:

(a) Encourage taxpayers to make contributions to the Child Care Division or a selected community agency by providing a financial return on qualified contributions and by soliciting other contributions.

(b) Achieve specific and measurable goals for targeted communities and populations by strategically allocating tax credit certificates.

(c) Set standards for the child care industry concerning the cost of providing quality, affordable child care.

(d) Strengthen the viability and continuity of child care providers while making child care more affordable for low and moderate income families.

SECTION 5. (1) For the purpose of implementing the program established under section 4 of this 2001 Act, the Child Care Division of the Employment Department, in collaboration with an advisory committee established by the Child Care Division, shall:

(a) Establish regions in this state by rule in a manner that facilitates the planning of the program, the allocation of tax credit certificates to taxpayers and the distribution to child care providers of moneys from contributions made to the Child Care Division and selected community agencies.

(b) Identify for each region contribution and child care goals that are consistent with the purposes provided in section 4 (2) of this 2001 Act. The goals identified under this paragraph shall take into account the resources and needs of the region.

(c) Develop by rule the application process a community agency must complete to represent a region, and any process for the renewal of such representation.

(d) Select a community agency in each region.

(e) Enter into an agreement with each community agency selected to represent a region to have the community agency perform the functions specified in section 7 of this 2001 Act.

(f) Determine the total value in tax credit certificates available to taxpayers in each region, based on goals identified under paragraph (b) of this subsection, and transmit those determinations to the selected community agencies by February 1 of each year. The total value in tax credit certificates available to all selected community agencies in this state may not exceed $500,000 per calendar year.

(g) Determine the total value of moneys to be available to each selected community agency to distribute to providers based on goals identified under paragraph (b) of this subsection, and distribute those moneys in the manner provided in section 6a of this 2001 Act to the selected community agencies by June 30 of the year following the year the application is made. The total value of moneys available to all selected community agencies in this state may not exceed the amount of contributions received from taxpayers during the tax year minus any reasonable administrative costs incurred by the Child Care Division and the selected community agencies.

(2) If a taxpayer makes a contribution to the Child Care Division or a selected community agency for child care but does not want to receive the tax credit available under section 10 of this 2001 Act, the taxpayer may receive only deductions and credits otherwise allowed for a charitable contribution. A contribution described in this subsection shall be deposited in the Child Care Fund established under ORS 657A.010.

(3)(a) If a taxpayer makes a contribution to the Child Care Division or to a selected community agency and wants to receive the tax credit available under section 10 of this 2001 Act, the taxpayer shall submit an application for a tax credit certificate with the contribution. If the contribution is made to a selected community agency, the selected community agency shall forward the application and contribution to the Child Care Division.

(b) The application for a tax credit certificate shall be available to taxpayers from the Child Care Division and from selected community agencies in a form prescribed by the Child Care Division. The application must be submitted by December 31 of each year and contain such information as the division requires.

(c) The Child Care Division shall consider applications for tax credit certificates in the chronological order in which the applications are received by the division and shall approve applications in an amount that does not exceed the limitations imposed by subsection (1)(f) of this section.

(d) The Child Care Division may not issue a tax credit certificate to a taxpayer to the extent the claim for credit in the application, when added to the total amount of claims for credit previously certified by the Child Care Division for distribution, exceeds the value of tax credit certificates available to the Child Care Division for the calendar year.

(e) The Child Care Division shall send a copy of all tax credit certificates issued under this section to the Department of Revenue.

(f) Contributions made under this subsection shall be deposited in the Child Care Fund.

(4) A taxpayer that receives a notice of denial of a tax credit certificate or that receives a tax credit certificate issued for an amount that is less than the amount contributed may request a refund for the amount contributed within 90 days of the Child Care Division’s denial or issuance of the certificate. The Child Care Division must send notice of a denial or changed amount and refund the amount for which a tax credit will not be granted within 30 days after receiving the request. The refund shall be made from the Child Care Fund.

(5) The Child Care Division may establish by rule any other provisions required to implement the program established under sections 3 to 8 of this 2001 Act.

SECTION 6. (1) In selecting a community agency for a region under section 5 of this 2001 Act, the Child Care Division of the Employment Department shall consider:

(a) A prospective agency’s financial soundness, net worth, cash flow and accounting capacity to manage the tax credit program;

(b) A prospective agency’s demonstrated ability to serve low and moderate income families;

(c) The degree to which the governing board of the prospective agency is representative of the region in which the agency is located, has a low turnover rate of board members, has experience with financial matters and has a demonstrated history of collaboration with other community agencies; and

(d) The experience and expertise of the executive or managing officer and staff of the prospective agency in child care business management and small business development.

(2) The division shall select the community agency that, in the judgment of the division and based on the criteria set forth in subsection (1) of this section, will best serve the interests of the region for which it is selected.

SECTION 6a. (1) On or before April 1 following each calendar year, the Child Care Division of the Employment Department shall distribute revenues in the Child Care Fund that are derived from contributions made in the calendar year, minus the amounts needed to make refunds under section 5 (4) of this 2001 Act and to cover expenses of the Child Care Division in administering sections 3 to 8 of this 2001 Act.

(2) Distributions shall be made to community agencies selected under section 5 of this 2001 Act in the proportion that the Child Care Division determines best promotes the provision of child care in this state.

(3) Moneys distributed to selected community agencies shall be disbursed to child care providers, consistent with rules adopted by the Child Care Division relating to the disbursement of moneys by selected community agencies. The Child Care Division shall consider the factors described in section 7 (3)(h) of this 2001 Act when adopting rules under this subsection.

SECTION 7. (1) Each community agency selected under section 5 of this 2001 Act shall encourage taxpayers to make contributions for child care and shall disburse moneys distributed to the community agency to child care providers located in the region that the selected community agency represents, pursuant to section 6a of this 2001 Act and rules adopted thereunder.

(2) A selected community agency shall encourage taxpayers to make contributions for child care by promoting the program established under section 4 of this 2001 Act and by soliciting other contributions.

(3) A selected community agency must:

(a) Coordinate an application process by which persons may apply to be participating providers;

(b) Enter into agreements with participating providers under which the duties and responsibilities of participating providers and the community agency are stated;

(c) Provide or coordinate required training for participating providers;

(d) Monitor participating providers, through visits to providers and otherwise;

(e) Oversee the process by which a participating provider verifies the income of a family and establishes the total child care fee charged to a family;

(f) Report on participating provider compliance with section 8 of this 2001 Act and other applicable requirements to contributors and the Child Care Division of the Employment Department;

(g) Establish a maximum family income level for the region for purposes of the child care fee limitation to which participating providers are subject under section 8 (1)(h) of this 2001 Act;

(h) Determine, consistently with rules adopted by the Child Care Division, the amount of moneys to be disbursed to a participating provider based on the incomes of the families the provider serves, the child care fees the provider charges and the actual cost to the provider of providing quality, affordable child care; and

(i) Forward applications and moneys it receives from taxpayers as contributions to the Child Care Division.

(4)(a) By the end of each calendar year, a selected community agency must distribute to participating child care providers all moneys that are available to the agency as a result of the determination made by the Child Care Division under section 5 (1)(g) of this 2001 Act. Each selected community agency shall distribute a substantial portion of the moneys to participating child care providers that are home-based businesses.

(b) Distributions shall be based on the actual costs of providing quality, affordable child care in the region for which distributions are being made, including training costs, operating costs and wages.

(5) For the purpose of making distributions to child care providers, a selected community agency shall identify child care providers in the region it represents that meet the requirements of section 8 of this 2001 Act. The selected community agency may develop a process through which child care providers apply to receive distributions of moneys from contributions made by taxpayers.

SECTION 8. (1) Each selected community agency shall select participating child care providers that meet the following requirements:

(a) If a home-based business, the provider must enter into an agreement with the community agency to continue to provide child care services for at least an additional two years.

(b) If a home-based business, the provider must serve at least two families that have incomes that are 80 percent or less of the median income for the region. If a center, at least 25 percent of the families the provider serves must have incomes that are 80 percent or less of the median income for the region.

(c) The provider must accept children for whom child care is paid for through an Adult and Family Services Division subsidy.

(d) The provider and the employees of the provider must provide high quality child care.

(e) The provider, if the provider is an individual, and the employees of the provider must have adequate training and must attend required training established by the Child Care Division.

(f) The provider must maintain adequate liability insurance, financial records and parent policies and contracts, and permit the selected community agency to conduct visits.

(g) If a home-based business, the provider must be registered with the Child Care Division. If a center, the provider must be certified by the Child Care Division.

(h) For care provided to children of families whose income does not exceed the level established by the selected community agency under section 7 (3)(g) of this 2001 Act, the provider must agree to limit the total child care fees charged to a family to a percentage established by the Child Care Division by rule.

(2) In selecting participating child care providers, selected community agencies must give preference to providers that provide child care to low and moderate income families.

SECTION 9. Section 10 of this 2001 Act is added to and made a part of ORS chapter 315.

SECTION 10. (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 is allowed to a taxpayer for certified contributions made to the Child Care Division or a selected community agency under section 5 of this 2001 Act.

(2) The amount of a tax credit available to a taxpayer for a tax year under this section shall equal the amount stated in the tax credit certificate received under section 5 of this 2001 Act.

(3) The credit allowed under this section may not exceed the tax liability of the taxpayer for the tax year in which the credit is claimed.

(4) A taxpayer shall include the tax credit certificate received under section 5 of this 2001 Act with the return filed with the Department of Revenue for the tax year to which the tax credit certificate applies.

(5) The credit allowed under this section is in addition to, and not in lieu of, any credit or deduction allowed under this chapter or ORS chapter 316, 317 or 318 for charitable contributions and contributions made in relation to child care.

(6) A credit under this section may be claimed by a nonresident or part-year resident without proration.

(7) 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 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, but may not be carried forward for any tax year thereafter.

(8) The definitions in section 3 of this 2001 Act apply to this section.

SECTION 11. ORS 314.752 is amended to read:

314.752. (1) Except as provided in ORS 314.740 (5)(b), the tax credits allowed or allowable to a C corporation for purposes of ORS chapter 317 or 318 shall not be allowed to an S corporation. The business tax credits allowed or allowable for purposes of ORS chapter 316 shall be allowed or are allowable to the shareholders of the S corporation.

(2) In determining the tax imposed under ORS chapter 316, as provided under ORS 314.734, on income of the shareholder of an S corporation, there shall be taken into account the shareholder’s pro rata share of business tax credit (or item thereof) that would be allowed to the corporation (but for subsection (1) of this section) or recapture or recovery thereof. The credit (or item thereof), recapture or recovery shall be passed through to shareholders in pro rata shares as determined in the manner prescribed under section 1377(a) of the Internal Revenue Code.

(3) The character of any item included in a shareholder’s pro rata share under subsection (2) of this section shall be determined as if such item were realized directly from the source from which realized by the corporation, or incurred in the same manner as incurred by the corporation.

(4) If the shareholder is a nonresident and there is a requirement applicable for the business tax credit that in the case of a nonresident that the credit be allowed in the proportion provided in ORS 316.117, then that provision shall apply to the nonresident shareholder.

(5) As used in this section, “business tax credit” means a tax credit granted to personal income taxpayers to encourage certain investment, to create employment, economic opportunity or incentive or for charitable, educational, scientific, literary or public purposes that is listed under this subsection as a business tax credit or is designated as a business tax credit by law or by the Department of Revenue by rule and includes but is not limited to the following credits: ORS 315.104 (forestation and reforestation), ORS 315.134 (fish habitat improvement), ORS 315.138 (fish screening, by-pass devices, fishways), ORS 315.156 (crop gleaning), ORS 315.164 (farmworker housing), ORS 315.204 (dependent care assistance), ORS 315.208 (dependent care facilities), ORS 315.234 (child development program contributions), ORS 315.254 (youth apprenticeship sponsorship), ORS 315.304 (pollution control facility), ORS 315.324 (plastics recycling), ORS 315.354 and ORS 469.207 (energy conservation facilities), ORS 315.504 (Oregon Capital Corporation), ORS 315.604 (bone marrow transplant expenses) and ORS 317.115 (fueling stations necessary to operate an alternative fuel vehicle) and section 10 of this 2001 Act (contributions for child care).

SECTION 12. ORS 318.031 is amended to read:

318.031. It being the intention of the Legislative Assembly that this chapter and the Corporation Excise Tax Law of 1929 shall be administered as uniformly as possible (allowance being made for the difference in imposition of the taxes and the operative date of this chapter), the provisions of ORS 305.140 and 305.150 and ORS chapter 314 and of the following sections of ORS chapter 315 or 317, as amended on or before August 3, 1955, and as they may thereafter be amended, are incorporated into this chapter by this reference and made a part hereof: ORS 315.104, 315.134, 315.156, 315.204, 315.208, 315.234, 315.254, 315.304, 315.504 and 315.604 and section 10 of this 2001 Act (all only to the extent applicable for a corporation) and ORS 317.010, 317.013, 317.018 to 317.022, 317.030, 317.035, 317.038, 317.080, 317.152 to 317.154, 317.259 to 317.303, 317.310 to 317.386, 317.476 to 317.485, 317.510 to 317.635 and 317.705 to 317.725 and section 40, chapter 835, Oregon Laws 1997, and section 4, chapter 358, Oregon Laws 1999.

SECTION 13. Section 10 of this 2001 Act applies to tax years beginning on or after January 1, 2002, and before January 1, 2007.

SECTION 14. ORS 315.204 is amended to read:

315.204. (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 resident employer or to a corporation that is an employer for amounts paid or incurred during the taxable year by the employer for dependent care assistance actually provided to an employee if the assistance is furnished pursuant to a program which meets the requirements of section 129(d) of the Internal Revenue Code and if the employer has received a certificate as provided in subsection (2) of this section.

(2)(a) Each employer that elects to receive a credit allowed under subsection (1) of this section must submit an application to the Child Care Division of the Employment Department each year the employer wishes to receive the credit. The Child Care Division shall prescribe by rule the form of the application and the information required to be given on the application.

(b) The Child Care Division shall issue a certificate to each employer that submits an application under this subsection.

[(2)] (3) The amount of the credit allowed under subsection (1) of this section shall be 50 percent of the amount so paid or incurred by the employer during the taxable year but shall not exceed $2,500 of dependent care assistance actually provided to the employee.

[(3)(a)] (4)(a) 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 resident employer, or to a corporation that is an employer, based upon amounts paid or incurred by the employer during the taxable year to provide information and referral services to assist employees of the employer employed within this state to obtain dependent care.

(b) The amount of the credit allowed under this subsection shall be 50 percent of the amounts paid or incurred during the taxable year.

[(4)] (5) No amount paid or incurred during the taxable year of an employer in providing dependent care assistance to any employee shall qualify for the credit allowed under subsection (1) of this section if the amount was paid or incurred to an individual described in section 129(c)(1) or (2) of the Internal Revenue Code.

[(5)] (6) No amount paid or incurred by an employer to provide dependent care assistance to an employee shall qualify for the credit allowed under subsection (1) of this section if the amount paid or incurred is paid or incurred pursuant to a salary reduction plan or is not paid or incurred for services performed within this state.

[(6)] (7) If the credit allowed under subsection (1) or [(3)] (4) of this section is claimed, the amount of any deduction allowed or allowable under ORS chapter 316, 317 or 318 for the amount that qualifies for the credit (or upon which the credit is based) shall be reduced by the dollar amount of the credit allowed. The election to claim a credit allowed under this section shall be made at the time of filing the tax return in accordance with any rules adopted by the Department of Revenue.

[(7)] (8) The amount upon which the credit allowed under subsection (1) of this section is based shall not be included in the gross income of the employee to whom the dependent care assistance is provided. However, the amount excluded from the income of an employee under this section shall not exceed the limitations provided in section 129(b) of the Internal Revenue Code. For purposes of ORS 316.162, with respect to an employee to whom dependent care assistance is provided, “wages” does not include any amount excluded under this subsection. Amounts excluded under this subsection shall not qualify as expenses for which a credit is allowed to the employee under ORS 316.078.

[(8)] (9) A nonresident shall be allowed the credit allowed under subsection (1) or [(3)] (4) of this section. The credit shall be computed in the same manner and be subject to the same limitations as the credit granted to a resident.

[(9)] (10) If a change in the taxable year of the taxpayer occurs as described in ORS 314.085, or if the department 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.

[(10)] (11) 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.

[(11)] (12) 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.

[(12)] (13) For purposes of the credit allowed under subsection (1) or [(3)] (4) of this section:

(a) The definitions and special rules contained in section 129(e) of the Internal Revenue Code shall apply to the extent applicable.

(b) “Employer” means an employer carrying on a business, trade, occupation or profession in this state.

[(13)] (14) In the case of an on-site facility, in accordance with any rules adopted by the department, the amount upon which the credit allowed under subsection (1) of this section is based, with respect to any dependent, shall be based upon utilization and the value of the services provided.

SECTION 15. The amendments to ORS 315.204 by section 14 of this 2001 Act apply to dependent care assistance credits taken in tax years beginning on or after January 1, 2002.

SECTION 16. 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 29, 2001

Effective date October 6, 2001

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