74th OREGON LEGISLATIVE ASSEMBLY--2007 Regular Session
 
NOTE:  Matter within  { +  braces and plus signs + } in an
amended section is new. Matter within  { -  braces and minus
signs - } is existing law to be omitted. New sections are within
 { +  braces and plus signs + } .
 
LC 659
 
                         Senate Bill 177
 
Printed pursuant to Senate Interim Rule 213.28 by order of the
  President of the Senate in conformance with presession filing
  rules, indicating neither advocacy nor opposition on the part
  of the President (at the request of Governor Theodore R.
  Kulongoski for Department of Revenue)
 
 
                             SUMMARY
 
The following summary is not prepared by the sponsors of the
measure and is not a part of the body thereof subject to
consideration by the Legislative Assembly. It is an editor's
brief statement of the essential features of the measure as
introduced.
 
  Provides that person has substantial nexus with State of Oregon
if specified levels of property, payroll or sales in state are
exceeded. Provides special rules for commonly owned enterprises
and other entities engaged in certain activities.
  Applies to tax years beginning on or after January 1, 2008.
 
                        A BILL FOR AN ACT
Relating to substantial nexus for tax purposes.
Be It Enacted by the People of the State of Oregon:
  SECTION 1.  { + Section 2 of this 2007 Act is added to and made
a part of ORS chapter 314. + }
  SECTION 2.  { + (1) As used in this section:
  (a) 'Commonly owned enterprise' means two or more entities that
are under common control:
  (A) Through a common parent that owns or constructively owns
more than 50 percent of the voting power of the outstanding stock
or other ownership interests of the entities; or
  (B) Through five or fewer individuals, trusts or estates that
own or constructively own more than 50 percent of the voting
power of the outstanding stock or other ownership interests of
the entities, taking into account the entity ownership interests
of each individual, trust or estate that are identical with
respect to each entity.
  (b) 'Compensation' means wages, salaries or other remuneration
paid to employees that constitutes gross income under section 61
of the Internal Revenue Code.
  (c) 'Compensation in this state' means compensation that is
paid to an individual for service:
  (A) Performed entirely within this state;
  (B) Performed both within and without this state, but the
service performed without this state is incidental to the service
performed within this state; or
  (C) Performed both within and without this state and:
  (i) The service is directed or controlled within this state; or
  (ii) The place from which the service is directed or controlled
is not in any state in which some part of the service is
 
performed, and the individual who performs the service is a
resident of this state.
  (d) 'Net annual rental rate' means the annual rental rate paid
by the taxpayer less any annual rental rate received by the
taxpayer from subrentals.
  (e) 'Payroll' means the total amount paid by the taxpayer for
compensation in this state during the tax period.
  (f) 'Property' means the average value during the tax period of
real and tangible personal property owned or rented and used in
this state by the taxpayer during the tax period, determined as
follows:
  (A) The value of the property owned by the taxpayer shall be
the original cost basis of the property;
  (B) The value of the property rented by the taxpayer shall be
eight times the net annual rental rate; and
  (C) The average value of the values described in subparagraphs
(A) and (B) of this paragraph shall be calculated by averaging
the values at the beginning of the tax period and at the end of
the tax period, or the Department of Revenue may require the
averaging of monthly values during the tax period if the
averaging of monthly values is reasonably required by the
department to properly reflect the average value of the property
of the taxpayer.
  (g) 'Sales' means the total amount of the taxpayer's gross
receipts for the tax period, including gross receipts from other
entities that constitute a commonly owned enterprise, from all of
the following:
  (A) The sale, lease or license of real property located in this
state.
  (B) The lease or license of tangible personal property located
in this state.
  (C) The sale of tangible personal property that:
  (i) Is received at a business location of the seller that is
located in this state; or
  (ii) Is delivered to a purchaser in this state or another
person in this state at the direction of the purchaser, pursuant
to instructions that are known to the seller.
  (D) The sale of tangible personal property, if the seller does
not know where the tangible personal property will be received
and if:
  (i) Business records maintained by the seller in the ordinary
course of business indicate an address for the purchaser in this
state and use of the address does not constitute bad faith; or
  (ii) An address of the purchaser that is obtained during the
consummation of the sale between the seller and the purchaser,
including an address on the payment instrument of the purchaser,
is in this state, and:
  (I) No other address of the purchaser is available; and
  (II) Use of the address does not constitute bad faith.
  (E) The sale, lease or license of services, intangibles or
digital products for primary use by a purchaser that is known to
the seller to be located in this state, except that the gross
receipts from the sale, lease or license of services, intangibles
or digital products are to be apportioned among states according
to usage, if the seller knows that the services, intangibles or
digital products are to be used in two or more states because
there are separate charges for, or measured by, usage at
locations in different states.
  (F) The sale, lease or license of services, intangibles or
digital products if the seller does not know where the services,
intangibles or digital products will be used, if:
  (i) Business records maintained by the seller in the ordinary
course of business indicate an address for the purchaser in this
state and use of the address does not constitute bad faith; or
  (ii) An address of the purchaser that is obtained during the
consummation of the sale between the seller and the purchaser,
including an address on the payment instrument of the purchaser,
is in this state, and:
  (I) No other address of the purchaser is available; and
  (II) Use of the address does not constitute bad faith.
  (2) For purposes of ORS chapters 314 to 318:
  (a) Individuals who are residents under ORS 316.027 or who are
domiciled in this state have substantial nexus with this state.
  (b) Business entities that are organized under the laws of this
state or that are commercially domiciled in this state have
substantial nexus with this state.
  (c) Nonresident individuals and business entities that are
organized under laws outside of this state have substantial nexus
with this state if, for a tax period or portion of a tax period:
  (A) The property of the taxpayer in this state exceeds $50,000;
  (B) The payroll of the taxpayer in this state exceeds $50,000;
or
  (C) The sales of the taxpayer in this state exceeds $500,000.
  (d) Notwithstanding paragraph (c) of this subsection or the
location requirements of the definitions of 'property, ' '
payroll' and 'sales' in subsection (1) of this section, a
business entity organized outside of this state has substantial
nexus with this state if at least 25 percent of property, 25
percent of payroll or 25 percent of sales of the business entity
is in this state.
  (e)(A) The Department of Revenue shall make a cost of living
adjustment to the threshold amounts set forth in paragraph (c) of
this subsection for tax years that begin in a calendar year in
which the consumer price index has changed by five percent or
more from the later of the consumer price index:
  (i) On January 1, 2003; or
  (ii) For the last date on which the amounts were adjusted under
this paragraph.
  (B) The adjusted threshold amounts shall be rounded to the
nearest $1,000.
  (C) As used in this paragraph, '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.
  (3)(a) Notwithstanding subsection (2) of this section, a
commonly owned enterprise has substantial nexus with this state
if the enterprise meets or exceeds any threshold in subsection
(2)(c) or (d) of this section after both of the following
adjustments are made:
  (A) The enterprise shall aggregate the property, payroll and
sales of each entity of the enterprise that has combined
property, payroll and sales of at least $5,000 in this state,
including those entities that, if treated as independent
entities, would satisfy the substantial nexus thresholds in
subsection (2)(c) or (d) of this section.
  (B) The aggregate amount determined under subparagraph (A) of
this paragraph shall be reduced by any disclosed interentity
transactions that, if included, would constitute a double
counting of assets or receipts.
  (b) If the commonly owned enterprise has substantial nexus
under paragraph (a) of this subsection, the Department of Revenue
may by rule require the enterprise to file a joint information
return containing the information required by the department.
  (c) If the aggregate property, payroll or sales of the entities
that comprise a unitary business of the commonly owned enterprise
have substantial nexus under subsection (2) of this section, each
entity that is part of the unitary business shall be deemed to
have substantial nexus with this state and shall be subject to
tax under ORS chapters 314 to 318.
  (4) Notwithstanding subsections (1) to (3) of this section, if
the individual, business entity or other person is:
 
  (a) Subject to rules for allocation and apportionment of income
adopted by the Department of Revenue under ORS 314.280 or
314.670, the person shall determine property, payroll and sales
for purposes of determining substantial nexus under this section
the same way the person determines apportionment under the
applicable rules;
  (b) A financial organization that is subject to allocation and
apportionment under ORS 314.280 and 314.675, the organization
shall determine property, payroll and sales for purposes of
determining substantial nexus using the same methods used to
determine property, payroll and sales for apportionment purposes;
or
  (c) A pass-through entity, including but not limited to a
partnership, S corporation, limited liability company or trust,
and that is not otherwise described in paragraphs (a) or (b) of
this subsection, the entity shall determine substantial nexus
with this state as otherwise provided in subsections (1) to (3)
of this section, except determined at the entity level.
  (5) Notwithstanding subsections (1) to (4) of this section, a
person may not be considered to have substantial nexus with this
state if Public Law 86-272, 15 U.S.C. 381, prohibits this state
from imposing a tax on, or measured by, the net income of that
person.
  (6) The Department of Revenue may adopt rules to implement and
administer this section, including but not limited to rules
defining terms and prescribing standards that are consistent with
the provisions of this section. + }
  SECTION 3.  { + Section 2 of this 2007 Act applies to tax years
beginning on or after January 1, 2008. + }
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