Chapter 143 Oregon Laws 1999

Session Law

AN ACT

SB 410

Relating to taxation; creating new provisions; and amending ORS 314.625, 314.665, 314.670, 316.127, 316.194, 317.660 and 461.560.

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

SECTION 1. ORS 314.625 is amended to read:

314.625. Rents and royalties from real or tangible personal property, capital gains, interest, dividends, [or] patent or copyright royalties, or prizes awarded by the Oregon State Lottery, to the extent that they constitute nonbusiness income, shall be allocated as provided in ORS 314.625 to 314.645.

SECTION 2. (1) Prizes awarded by the Oregon State Lottery are allocable to this state.

(2) A prize awarded by a multistate lottery association of which the Oregon State Lottery is a member is allocable to this state if the ticket upon which the prize is awarded was sold in this state.

SECTION 3. Section 2 of this 1999 Act is added to and made a part of ORS 314.625 to 314.645.

SECTION 4. ORS 316.127 is amended to read:

316.127. (1) The adjusted gross income of a nonresident derived from sources within this state is the sum of the following:

(a) The net amount of items of income, gain, loss and deduction entering into the nonresident's federal adjusted gross income that are derived from or connected with sources in this state including:

(A) Any distributive share of partnership income and deductions; and

(B) Any share of estate or trust income and deductions; and

(b) The portion of the modifications, additions or subtractions to federal taxable income provided in this chapter that relate to adjusted gross income derived from sources in this state, including any modifications attributable to the nonresident as a partner.

(2) Items of income, gain, loss and deduction derived from or connected with sources within this state are those items attributable to:

(a) The ownership or disposition of any interest in real or tangible personal property in this state; [and]

(b) A business, trade, profession or occupation carried on in this state; and

(c) A taxable lottery prize awarded by the Oregon State Lottery, including a taxable lottery prize awarded by a multistate lottery association of which the Oregon State Lottery is a member if the ticket upon which the prize is awarded was sold in this state.

(3) Income from intangible personal property, including annuities, dividends, interest and gains from the disposition of intangible personal property, constitutes income derived from sources within this state only to the extent that such income is from property employed in a business, trade, profession or occupation carried on in this state.

(4) Deductions with respect to capital losses, net long-term capital gains, and net operating losses shall be based solely on income, gains, losses and deductions derived from or connected with sources in this state, under regulations to be prescribed by the Department of Revenue, but otherwise shall be determined in the same manner as the corresponding federal deductions.

(5) Notwithstanding subsection (3) of this section, the income of an S corporation for federal income tax purposes derived from or connected with sources in this state does constitute income derived from sources within this state for a nonresident individual who is a shareholder of such a corporation, and a net operating loss of such corporation derived from or connected with sources in this state does constitute a loss or deduction connected with sources in this state for such a nonresident individual.

(6) If a business, trade, profession or occupation is carried on partly within and partly without this state, the determination of net income derived from or connected with sources within this state shall be made by apportionment and allocation under ORS 314.605 to 314.675.

(7) Compensation paid by the United States for service in the Armed Forces of the United States performed by a nonresident does not constitute income derived from sources within this state.

(8) Compensation paid by the United States to a nonresident for services performed by the nonresident as an employee of the United States at a hydroelectric facility does not constitute income derived from sources within this state if the hydroelectric facility:

(a) Is owned by the United States;

(b) Is located on the Columbia River; and

(9)(a) Retirement income received by a nonresident does not constitute income derived from sources within this state.

(b) As used in this section, "retirement income" means retirement income as that term is defined in section 114, Title 4 of the United States Code, as amended and in effect for the tax period.

SECTION 5. ORS 316.194 is amended to read:

316.194. (1) The Oregon State Lottery Commission shall withhold from a lottery prize payment for a [net] prize that exceeds $5,000 an amount equal to eight percent of the lottery prize payment.

(2) The commission shall pay to the Department of Revenue any amounts withheld under this section in the time and manner provided by the department by rule.

(3) If a [net] prize exceeds $600 but is less than $5,000, the commission shall provide the prize recipient a notice of potential tax liability for each prize payment that is made with respect to the prize. Following the conclusion of a year in which a prize payment is made with respect to a [net] prize described in this subsection, the commission shall send to the prize recipient an income reporting form indicating the amount of the payment. A copy of the form shall be provided to the department.

[(4) As used in this section, "net prize" means the total amount of the lottery prize minus the purchase price of the lottery ticket or share entitling the prize recipient to payment.]

SECTION 6. ORS 461.560 is amended to read:

461.560. (1) No state or local taxes shall be imposed upon the sale of lottery tickets or shares of the Oregon State Lottery established by this chapter or any [net] prize awarded by the state lottery established by this chapter that does not exceed $600. A [net] prize awarded by the state lottery that is greater than $600 shall be subject to tax under ORS chapters 314 to 318 and any other applicable state or local tax. For purposes of this section, "prize awarded by the state lottery" includes a prize awarded by a multistate lottery association of which the Oregon State Lottery is a member if the ticket upon which the prize is awarded was sold in this state.

(2) A city, county or other political subdivision in this state may not impose, by charter provision or ordinance, or collect a tax that is imposed on lottery game retailers only and that is measured by or based upon the amount of the commissions or other compensation received by lottery game retailers for selling tickets or shares in lottery games. However, if a city, county or other political subdivision levies or imposes generally on a nondiscriminatory basis throughout the jurisdiction of the taxing authority an income, gross income or gross receipts tax, as otherwise provided by law, such tax may be levied or imposed upon lottery game retailers.

[(3) As used in this section, "net prize" means the total amount of the lottery prize minus the purchase price of the lottery ticket or share entitling the prize recipient to payment.]

SECTION 7. Section 2 of this 1999 Act and the amendments to ORS 314.625, 316.127, 316.194 and 461.560 by sections 1, 4, 5 and 6 of this 1999 Act apply to prize payments made in tax years beginning on or after January 1, 1999.

SECTION 8. ORS 314.665 is amended to read:

314.665. (1) 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" [excludes]:

(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.

[(b)] (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 9. ORS 314.670 is amended to read:

314.670. (1) If the application of the allocation and apportionment provisions of ORS 314.605 to 314.675 do not fairly represent the extent of the taxpayer's business activity in this state, [and result in the violation of the taxpayer's rights under the Constitution of this state or of the United States,] the taxpayer may petition for and the Department of Revenue may permit, or the department may require, in respect to all or any part of the taxpayer's business activity:

[(1)] (a) Separate accounting;

[(2)] (b) The exclusion of any one or more of the factors;

[(3)] (c) The inclusion of one or more additional factors which will fairly represent the taxpayer's business activity in this state; or

[(4)] (d) The employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer's income.

(2) The department may adopt rules to promote uniformity and consistency with other states in the application of the Uniform Division of Income for Tax Purposes Act.

SECTION 10. The amendments to ORS 314.665 and 314.670 by sections 8 and 9 of this 1999 Act apply to tax years beginning on or after January 1, 1999.

SECTION 11. ORS 317.660 is amended to read:

317.660. In lieu of the provisions of ORS 314.280, if the income of an insurer is derived from business done both within and without this state, the determination of Oregon taxable income shall be arrived at by apportionment based upon an averaging of the following three factors:

(1) Insurance sales factor: The percentage obtained by dividing (a) the direct premiums (excluding reinsurance accepted and without deduction of reinsurance ceded) received by the insurer during the taxable year on policies and contracts which are allocated to this state and to other jurisdictions in which the insurer is not authorized to do business by (b) the total of such premiums received by the insurer during the taxable year on policies and contracts that had been sold within and without this state. For purposes of this subsection, "premiums" means sums properly included in appropriate schedules of the annual statement filed by the insurer with the Director of the Department of Consumer and Business Services, which allocate premiums by jurisdiction. If the exclusion of reinsurance premiums results in an apportionment formula that does not fairly represent the extent of the taxpayer's activity in this state, the taxpayer may petition for and the Department of Revenue may permit, or the Department of Revenue may require, the inclusion of reinsurance premiums in the insurance sales factor.

(2) Wage and commission factor: The percentage obtained by dividing (a) the total of wages, salaries, commissions and other compensation for personal services paid in this state during the tax period to employees and insurance salesmen in connection with the business of the insurer, by (b) the total wages, salaries, commissions and other compensation for personal services paid everywhere during the tax period to employees and insurance salesmen in connection with the business of the insurer. For determining the place of payment, the procedure set forth in ORS 314.660 (2) shall apply.

(3) Real estate income and interest factor: The percentage obtained by dividing (a) the total net income (after deducting from gross rental income real estate expenses, property taxes and depreciation attributable thereto, which are included in appropriate schedules of the annual statement filed by the insurer with the Department of Consumer and Business Services) received from real property within this state plus gross interest received on loans secured by real property within this state during the taxable year, by (b) the total net income received from real property within and without this state plus gross interest received on loans secured by real property within and without this state during the taxable year.

SECTION 12. The amendments to ORS 317.660 by section 11 of this 1999 Act apply to tax years beginning on or after January 1, 1997.

Approved by the Governor May 3, 1999

Filed in the office of Secretary of State May 3, 1999

Effective date October 23, 1999

__________