Chapter 793 Oregon Laws 2001

AN ACT

HB 2281

Relating to taxation; creating new provisions; and amending ORS 314.615, 314.650, 314.655, 314.660 and 314.665.

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

SECTION 1. ORS 314.650 is amended to read:

314.650. [(1)] All business income shall be apportioned to this state by multiplying the income by a [fraction, the numerator of which is the property factor plus the payroll factor plus two times the sales factor, and the denominator of which is four] multiplier equal to 80 percent of the sales factor plus 10 percent of the property factor plus 10 percent of the payroll factor.

[(2) If the denominator of the property factor, payroll factor or sales factor, as determined under ORS 314.650 to 314.665, is zero, then the denominator specified in subsection (1) of this section shall be reduced by the number of factors with a denominator of zero.]

SECTION 2. The amendments to ORS 314.650 by section 1 of this 2001 Act apply to tax years beginning on or after May 1, 2003.

SECTION 3. ORS 314.655 is amended to read:

314.655. (1) As used in ORS 314.650 and section 9 of this 2001 Act, the property factor is a fraction, the numerator of which is the average value of the taxpayer’s real and tangible personal property owned or rented and used in this state during the tax period and the denominator of which is the average value of all the taxpayer’s real and tangible personal property owned or rented and used during the tax period.

(2) Property owned by the taxpayer is valued at its original cost. Property rented by the taxpayer is valued at eight times the net annual rental rate. Net annual rental rate is the annual rental rate paid by the taxpayer less any annual rental rate received by the taxpayer from subrentals.

(3) The average value of property shall be determined by averaging the values at the beginning and ending of the tax period but the Department of Revenue may require the averaging of monthly values during the tax period if reasonably required to reflect properly the average value of the taxpayer’s property.

SECTION 4. ORS 314.660 is amended to read:

314.660. (1) As used in ORS 314.650 and section 9 of this 2001 Act, the payroll factor is a fraction, the numerator of which is the total amount paid in this state during the tax period by the taxpayer for compensation, and the denominator of which is the total compensation paid everywhere during the tax period.

(2) Compensation is paid in this state if:

(a) The individual’s service is performed entirely within the state; or

(b) The individual’s service is performed both within and without the state, but the service performed without the state is incidental to the individual’s service within the state; or

(c) Some of the service is performed in the state and (A) the base of operations or, if there is no base of operations, the place from which the service is directed or controlled is in the state, or (B) the base of operations or the place from which the service is directed or controlled is not in any state in which some part of the service is performed, but the individual’s residence is in this state.

SECTION 5. ORS 314.665 is amended to read:

314.665. (1) As used in ORS 314.650 and section 9 of this 2001 Act, the sales factor is a fraction, the numerator of which is the total sales of the taxpayer in this state during the tax period, and the denominator of which is the total sales of the taxpayer everywhere during the tax period.

(2) Sales of tangible personal property are in this state if:

(a) The property is delivered or shipped to a purchaser, other than the United States Government, within this state regardless of the f.o.b. point or other conditions of the sale; or

(b) The property is shipped from an office, store, warehouse, factory, or other place of storage in this state and (A) the purchaser is the United States Government or (B) the taxpayer is not taxable in the state of the purchaser.

(3) Subsection (2)(b) of this section shall not apply to sales of tangible personal property if:

(a) The sales are included in the numerator of a formula used to apportion business income to another state of the United States, a foreign country or the District of Columbia; and

(b) The other state, a foreign country or the District of Columbia has imposed a tax on or measured by the apportioned business income.

(4) Sales, other than sales of tangible personal property, are in this state if (a) the income-producing activity is performed in this state; or (b) the income-producing activity is performed both in and outside this state and a greater proportion of the income-producing activity is performed in this state than in any other state, based on costs of performance.

(5) Where the sales apportionment factor is determined by administrative rule pursuant to ORS 314.682, 314.684, 317.660 or other law, the Department of Revenue shall adopt rules that are consistent with the determination of the sales factor under this section.

(6) For purposes of this section, “sales”:

(a) Excludes gross receipts arising from the sale, exchange, redemption or holding of intangible assets, including but not limited to securities, unless those receipts are derived from the taxpayer’s primary business activity.

(b) Includes net gain from the sale, exchange or redemption of intangible assets not derived from the primary business activity of the taxpayer but included in the taxpayer’s business income.

(c) Excludes gross receipts arising from an incidental or occasional sale of a fixed asset or assets used in the regular course of the taxpayer’s trade or business if a substantial amount of the gross receipts of the taxpayer arise from an incidental or occasional sale or sales of fixed assets used in the regular course of the taxpayer’s trade or business. Insubstantial amounts of gross receipts arising from incidental or occasional transactions or activities may be excluded from the sales factor unless the exclusion would materially affect the amount of income apportioned to this state.

SECTION 6. ORS 314.615 is amended to read:

314.615. Any taxpayer having income from business activity which is taxable both within and without this state, other than activity as a financial organization or public utility or the rendering of purely personal services by an individual, shall allocate and apportion the net income of the taxpayer as provided in ORS 314.605 to 314.675. Taxpayers engaged in activities as a financial organization or public utility shall report their income as provided in ORS 314.280 and 314.675. A taxpayer engaged in activities as a public utility may report the taxpayer’s income, at the election of the taxpayer, as provided in ORS 314.650 or section 9 of this 2001 Act.

SECTION 7. The amendments to ORS 314.615 by section 6 of this 2001 Act apply to tax years beginning on or after May 1, 2003.

SECTION 8. Sections 9 and 10 of this 2001 Act are added to and made a part of ORS 314.650 to 314.665.

SECTION 9. (1) If a public utility elects to apportion business income under this section, all business income of the utility shall be apportioned to this state by multiplying the income by a multiplier equal to 50 percent of the sales factor plus 25 percent of the property factor plus 25 percent of the payroll factor.

(2) The election shall be made as prescribed in section 10 of this 2001 Act.

SECTION 10. (1) A public utility may elect to apportion the business income under ORS 314.650 or under section 9 of this 2001 Act in lieu of reporting the income as provided in ORS 314.280 and 314.675.

(2) The election shall be made in the time and manner prescribed by the Department of Revenue by rule. The election shall continue in force and effect for the tax year for which the election is made and for each subsequent tax year until the year in which the public utility revokes the election.

(3) A public utility may revoke the election by filing a revocation of election in the time and manner prescribed by the department. The revocation shall apply to the tax year following the year in which the election is made and to each subsequent tax year.

(4) Upon revocation, a public utility shall report income as provided in ORS 314.280 and 314.675.

SECTION 11. Sections 9 and 10 of this 2001 Act apply to tax years beginning on or after May 1, 2003.

SECTION 12. The Legislative Assembly finds and declares it to be the policy of this state to carry out a comprehensive review of business income apportionment whenever federal legislation changes the nexus standard for state imposition of taxes based on business activity within state borders.

Approved by the Governor July 18, 2001

Filed in the office of Secretary of State July 18, 2001

Effective date January 1, 2002

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