Corporate income and franchise taxes

Taxable income

How is taxable income determined in your state? To what extent is the state income tax base aligned with the federal income tax base?

Oregon’s general corporate income tax is referred to as the Oregon excise tax. For purposes of the Oregon excise tax, Oregon conforms to the Internal Revenue Code (IRC) on a rolling basis for purposes of determining “taxable income.” Oregon does include a portion of foreign-source income (i.e., subpart F and global intangible low taxed income (GILTI)), which is included at the federal level, in the Oregon excise tax base. Oregon provides a 70 or 80 per cent dividend received deduction (DRD) for such foreign-source income; thus, those amounts are generally required to be added back and then the Oregon DRD is taken.

Although Oregon does allow net operating losses to be carried forward, all corporations are subject to the Oregon minimum tax, ranging from $150 to $100,000 based on the company’s Oregon-sourced sales receipts. A taxpayer is unable to use any losses or credits to offset the Oregon minimum tax.

How is in-state income apportioned for multi-state businesses? Does your state regulate transfer pricing?

Oregon generally apportions income using a single-sales factor methodology and, starting in 2018, uses market-based sourcing for the sale of services and intangible property. Oregon does provide several industry-specific sourcing rules. In a recent case decided by the Regular Division of the Oregon Tax, a taxpayer was denied apportionment factor representation for subpart F income, which the Court determined was not an “actual receipt,” and, thus, not entitled to be included in the factor. Assuming the Department of Revenue applies this conclusion to other foreign source income, such as IRC §965 (the transition tax) and GILTI (global intangible low taxed income), Oregon would be among the first or possibly the first state to deny factor relief for the new foreign sourcing income provisions adopted in the TCJA (Tax Cuts and Jobs Acts). This position will undoubtedly result in litigation as the lack of factor representation raised significant constitutional questions.  

Because the Oregon corporate income/excise tax must be filed on a combined basis that often aligns with the federal filing group, transfer pricing is generally not an issue.

Nexus

How is nexus determined for corporate income tax purposes?

Oregon has, by regulation, imposed a “substantial nexus” standard without providing a specific dollar threshold for the last several years. Specifically, the definition of substantial nexus provides “for corporate excise and income tax jurisdiction purposes, under the Commerce Clause of the U.S. Constitution, does not require a taxpayer to have a physical presence in Oregon. Substantial nexus exists where a taxpayer regularly takes advantage of Oregon’s economy to produce income for the taxpayers and may be established through the significant economic presence of the taxpayer in the state.” OAR 150-317-0020(2). Some examples of a substantial nexus provided by rule include maintaining a continuous market, conducting deliberate marketing or solicitation of Oregon customers, filing with other Oregon regulatory bodies and receipt of significant gross receipts attributable to customers in Oregon or use of a taxpayer’s intangible property in Oregon.

In 2018, the Oregon Supreme Court upheld Oregon’s substantial nexus standard in Capital One Auto Financing Inc v. DOR (TC 5197) (SC S065803).

Is affiliate nexus recognized in your state? If so, to what extent? Has there been any notable case law in this area?

Because Oregon is a combined reporting state, this is not an issue.

Rates

What are the applicable corporate income tax rates?

Oregon’s corporate income tax rates are 6.6 per cent for taxpayers with $1 million or less in Oregon taxable income and 7.6 per cent for taxpayers with more than $1 million in Oregon taxable income. Oregon also imposes a corporate minimum tax.

Exemptions, deductions and credits

What exemptions, deductions, and credits are available?

Over the past 10 years, Oregon has eliminated most credits for corporate taxpayers. Oregon, however, continues to offer the following credits: Oregon Cultural Trust contributions, film, agricultural workforce housing, crop donation and employer scholarship.

Filing requirements

What filing requirements and procedures apply? Are there special filing requirements for groups of company?

Oregon requires combined filing for purposes of the Oregon excise tax return. Oregon refers to this as a consolidated filing, as the starting point for the Oregon return is the federal consolidated return, which imposes an 80 per cent ownership threshold. Considering that group, all “unitary” are required to be included on the Oregon consolidated return. It is of note that when Oregon applies the three unities, it only requires one of the three as opposed to all due to a 2017 legislative change. Certain taxpayers, insurance companies and their, however, are precluded from filing an Oregon consolidated return even where they are required to file a federal consolidated return. One such example is an insurance company and its non-insurance affiliates, but there are other situations where this is precluded as well. It is of note that in December 2020, the Department amended its unitary group regulation (OAR § 150-317-0510) by decreasing the ownership percentage for group members from 80 per cent to 50 per cent. This change, however, appears contrary to the statutory requirement, which requires an Oregon group start with the federal consolidated group. The federal rules require an 80 per cent ownership threshold.

For purposes of the Oregon CAT, combined filing is also required; however, the statutory ownership threshold for the Oregon CAT is 50 per cent as opposed to 80 per cent. A unitary relationship for purposes of the Oregon CAT, and non-corporate entities (i.e., pass-through entities and sole proprietorships) are also required to be included.

Corporate franchise tax

Does your state impose a corporate franchise tax? If so, is it imposed in lieu of or in addition to corporate income tax?

No.