Chapter 725 Oregon Laws 2001

AN ACT

HB 2033

Relating to the treatment of processing equipment for tax purposes.

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

SECTION 1. Sections 2 to 4 of this 2001 Act are added to and made a part of ORS chapter 315.

SECTION 2. The Legislative Assembly finds that farming and related agricultural activities make significant contributions to the economy of this state and that the contributions of family farms are important in maintaining the agricultural diversity upon which consistent economic performance is based. The Legislative Assembly further finds that changes in the marketplace and in the expectations of consumers of agricultural products have resulted in a need for greater vertical integration and on-farm processing of agricultural commodities. The Legislative Assembly declares that an income tax credit for property taxes paid on on-farm processing machinery and equipment encourages the continued operation and expansion of on-farm processing and results in a greater share of the value of agricultural products being retained by the farms in this state. The Legislative Assembly further declares that an incentive in the form of an income tax credit does not adversely impact the revenues of local governments in this state.

SECTION 3. (1) As used in this section:

(a) “Effective property tax rate” means:

(A) The ratio of the total amount of property taxes imposed on the account that contains the machinery and equipment for which a credit is being claimed (after application of ORS 310.150 but prior to discount under ORS 311.505) over the assessed value of the property tax account; and

(B) The ratio determined under subparagraph (A) of this paragraph for the property tax year that begins in the income tax year for which the credit is claimed.

(b) “Farm operator” means a person that operates a farming business as defined in section 263A of the Internal Revenue Code.

(c) “Machinery and equipment” means machinery and equipment that meets the definition of section 1245 property in section 1245 of the Internal Revenue Code.

(d) “Processing”:

(A) Means any activity that is directly related and necessary to clean, sort, grade, produce, prepare, manufacture, handle, package, store or ship a farm crop or livestock product after the point of harvest and before the point of sale, in a modified state or altered form.

(B) Does not include an activity primarily associated with the promotion or retail sale of a product for personal or household use that is normally sold through consumer retail distribution.

(e) “Qualified machinery and equipment” means machinery and equipment used in processing that meets the requirements of subsections (3) and (4) of this section for the tax year.

(2) A taxpayer who is a farm operator may claim a credit against the taxes that are otherwise due under ORS chapter 316 or, if the taxpayer is a corporation, under ORS chapter 317 or 318 for ad valorem property taxes paid or incurred on qualified machinery and equipment.

(3) A credit under this section may be claimed only if:

(a) The machinery and equipment is owned by the farm operator or by a person who is related to the farm operator under section 267 of the Internal Revenue Code;

(b) The machinery and equipment is used for processing primarily occurring on land described in subsection (4) of this section; and

(c)(A) The farm operator has grown or raised at least one-half of the total volume of farm crop or livestock products processed with the machinery and equipment for which the credit is being claimed in three of the five previous income tax years; or

(B)(i) The farm operator has grown or raised at least one-tenth of the total volume of farm crop or livestock products processed with the machinery and equipment for which the credit is being claimed in three of the five previous income tax years; and

(ii) The farm operator has used the machinery and equipment to process at least one-half of the volume of the applicable farm crop or livestock products grown or raised by the farm operator in three of the five previous income tax years.

(4) In addition to the requirements under subsection (3) of this section, a credit under this section may be claimed only if:

(a) The machinery and equipment is located on land that is specially assessed for farm use under ORS 308A.050 to 308A.128 and the machinery and equipment is owned or otherwise controlled by the farm operator; or

(b) The machinery and equipment is located on land that is contiguous to land that is specially assessed for farm use under ORS 308A.050 to 308A.128 and the machinery and equipment is owned or otherwise controlled by the farm operator.

(5) A credit may be claimed under this section only for qualified machinery and equipment that was subject to assessment and property taxation for the property tax year beginning in the income tax year for which the credit is being claimed.

(6) The amount of the credit shall be the lesser of:

(a) The effective property tax rate multiplied by the adjusted basis of the qualified machinery and equipment; or

(b) $30,000.

(7) The adjusted basis of the qualified machinery and equipment shall be the adjusted basis of the qualified machinery and equipment for personal income or corporate excise or income tax purposes as of the last day of the income tax year for which the credit is being claimed, except that the adjusted basis shall be increased by the cost of any qualified machinery and equipment that the taxpayer elected to expense under section 179 of the Internal Revenue Code, until the qualified machinery and equipment is fully depreciated for personal income or corporate excise or income tax purposes. The adjusted basis shall reflect any depreciation allowable for the current tax year. A credit under this section may not be allowed for a tax year in which the qualified machinery and equipment is fully depreciated for personal income or corporate excise or income tax purposes.

(8) The credit allowed under this section for any one tax year may not exceed the tax liability of the taxpayer.

(9) 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 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.

(10) The credit allowed under this section is not in lieu of any depreciation or amortization deduction to which the taxpayer otherwise may be entitled under ORS chapter 316, 317 or 318 for the tax year.

(11) The taxpayer’s adjusted basis for determining gain or loss may not be further decreased by any amount of credit allowed under this section.

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

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

(14) 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.

SECTION 4. (1) For the first three tax years in which a taxpayer claims a credit under section 3 of this 2001 Act, a taxpayer shall be deemed to have complied with the applicable minimum production and processing volume requirements of section 3 (3)(c) of this 2001 Act if the taxpayer has satisfied these requirements for the preceding tax year.

(2) For the fourth tax year in which a taxpayer claims a credit under section 3 of this 2001 Act, the taxpayer shall be deemed to have complied with the applicable minimum production and processing volume requirements of section 3 (3)(c) of this 2001 Act if the taxpayer has satisfied these requirements for the preceding tax year and at least one of the three tax years immediately prior to the preceding tax year.

(3) For each tax year in which a credit is claimed under section 3 of this 2001 Act, the taxpayer shall maintain records sufficient to determine the taxpayer’s production and processing volume for purposes of section 3 (3)(c) of this 2001 Act. A taxpayer shall maintain the records required under this subsection for at least 10 years.

SECTION 5. (1) Sections 3 and 4 of this 2001 Act apply to tax years beginning on or after January 1, 2002.

(2) Except as provided in section 3 (9) of this 2001 Act, credits allowed under section 3 of this 2001 Act apply to tax years beginning before January 1, 2008.

Approved by the Governor July 3, 2001

Filed in the office of Secretary of State July 3, 2001

Effective date January 1, 2002

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