Or. Admin. R. 150-314-0337 - Apportionable and Nonapportionable Income; Application of Definitions
(1) This rule
adopts a model regulation recommended by the Multistate Tax Commission to
promote uniform treatment of this item by the states. This rule is applicable
to tax years beginning on or after January 1, 2018, and applies the principles
provided in OAR 150-314-0335 for determining whether particular income is
apportionable or nonapportionable income. (The examples used throughout this
rule are illustrative only and are limited to the facts they
contain.)
(2) Rents from real and
tangible personal property. Rental income from real and tangible property is
apportionable income if the property with respect to which the rental income
was received is or was used in the taxpayer's trade or business and therefore
is includable in the property factor under OAR 150-314-0390.
Example 1:The taxpayer operates
a multistate car rental business. The income from car rentals is apportionable
income.
Example 2:The
taxpayer is engaged in the heavy construction business in which it uses
equipment such as cranes, tractors, and earth-moving vehicles. The taxpayer
makes short-term leases of the equipment when particular pieces of equipment
are not needed on any particular project. The rental income is apportionable
income.
Example 3:The
taxpayer operates a multistate chain of men's clothing stores. The taxpayer
purchases a five-story office building for use in connection with its trade or
business. It uses the street floor as one of its retail stores and the second
and third floors for its general corporate headquarters. The remaining two
floors are held for future use in the trade or business and are leased to
tenants on a short-term basis in the meantime. The rental income is
apportionable income.
Example
4:The taxpayer operates a multistate chain of grocery
stores. It purchases as an investment an office building in another state with
surplus funds and leases the entire building to others. The net rental income
is not apportionable income of the grocery store trade or business. Therefore,
the net rental income is nonapportionable income.
Example 5:The taxpayer operates
a multistate chain of men's clothing stores. The taxpayer invests in a 20-story
office building and uses the street floor as one of its retail stores and the
second floor for its general corporate headquarters. The remaining 18 floors
are leased to others. The rental of the 18 floors is not done in furtherance of
but rather is separate from the operation of the taxpayer's trade or business.
The net rental income is not apportionable income of the clothing store trade
or business. Therefore, the net rental income is nonapportionable
income.
Example 6:The
taxpayer constructed a plant for use in its multistate manufacturing business
and 20 years later the plant was closed and put up for sale. The plant was
rented for a temporary period from the time it was closed by the taxpayer until
it was sold 18 months later. The rental income is apportionable income and the
gain on the sale of the plant is apportionable income.
(3) Gains or losses from sales of assets.
Gain or loss from the sale, exchange or other disposition of real property or
of tangible or intangible personal property constitutes apportionable income if
the property while owned by the taxpayer was related to the operation of the
taxpayer's trade or business, or was otherwise properly included in the
property factor of the taxpayer's trade or business.
Example 7:In conducting its
multistate manufacturing business, the taxpayer systematically replaces
automobiles, machines, and other equipment used in the trade or business. The
gains or losses resulting from those sales constitute apportionable
income.
Example 8:The
taxpayer constructed a plant for use in its multistate manufacturing business
and 20 years later sold the property at a gain while it was in operation by the
taxpayer. The gain is apportionable income.
Example 9: Same as Example 8
except that the plant was closed and put up for sale but was not in fact sold
until a buyer was found 18 months later. The gain is apportionable
income.
Example
10:Same as Example 8 except that the plant was rented
while being held for sale. The rental income is apportionable income and the
gain on the sale of the plant is apportionable income.
(4) Interest. Interest income is
apportionable income where the intangible with respect to which the interest
was received arose out of or was created in the regular course of the
taxpayer's trade or business, or the purpose of acquiring and holding the
intangible is related to the operation of the taxpayer's trade or business.
Example 11:The taxpayer operates
a multistate chain of department stores, selling for cash and on credit.
Service charges, interest, or time-price differentials and the like are
received with respect to installment sales and revolving charge accounts. These
amounts are apportionable income.
Example
12:The taxpayer conducts a multistate manufacturing
business. During the year the taxpayer receives a federal income tax refund
pertaining to the taxpayer's trade or business and collects a judgment against
a debtor of the business. Both the tax refund and the judgment bear interest.
The interest income is apportionable income.
Example 13:The taxpayer is
engaged in a multistate manufacturing and wholesaling business. In connection
with that business, the taxpayer maintains special accounts to cover such items
as worker's compensation claims, rain and storm damage, machinery replacement,
etc. The funds in those accounts earned interest. Similarly, the taxpayer
temporarily invests funds intended for payment of federal, state and local tax
obligations pertaining to the taxpayer's trade or business. The interest income
is apportionable income.
Example
14:The taxpayer is engaged in a multistate money
order and traveler's check business. In addition to the fees received in
connection with the sale of the money orders and traveler's checks, the
taxpayer earns interest income by the investment of the funds pending their
redemption. The interest income is apportionable income.
Example 15:The taxpayer is
engaged in a multistate manufacturing and selling business. The taxpayer
usually has working capital and extra cash totaling $200,000 which it regularly
invests in short-term interest bearing securities. The interest income is
apportionable income.
Example
16:In January the taxpayer sold all the stock of a
subsidiary for $20,000,000. The funds are placed in an interest-bearing account
pending a decision by management as to how the funds are to be utilized. The
funds are not pledged for use in the business. The interest income for the
entire period between the receipt of the funds and their subsequent utilization
or distribution to shareholders is non-apportionable
income.
(5) Dividends.
Dividends are apportionable income where the stock with respect to which the
dividends was received arose out of or was acquired in the regular course of
the taxpayer's trade or business or where the acquiring and holding the stock
is or was related to the operation of the taxpayer's trade or business, or
contributes to the production of apportionable income of the trade or business.
Example 17:The taxpayer operates
a multistate chain of stock brokerage houses. During the year the taxpayer
receives dividends on stock it owns. The dividends are apportionable
income.
Example 18:The
taxpayer is engaged in a multistate manufacturing and wholesaling business. In
connection with that business, the taxpayer maintains special accounts to cover
such items as worker's compensation claims, etc. A portion of the funds in
those accounts is invested in interest-bearing bonds. The remainder is invested
in various common stocks listed on national stock exchanges. Both the interest
income and any dividends are apportionable income.
Example 19:The taxpayer and
several unrelated corporations own all of the stock of a corporation whose
business consists solely of acquiring and processing materials for delivery to
the corporate owners. The taxpayer acquired the stock in order to obtain a
supply source of materials used in its manufacturing trade or business. The
dividends are apportionable income.
Example
20:The taxpayer is engaged in a multistate heavy
construction business. Much of its construction work is performed for agencies
of the federal government and various state governments. Under state and
federal laws applicable to contracts for these agencies, a contractor must have
adequate bonding capacity, as measured by the ratio of its current assets (cash
and marketable securities) to current liabilities. In order to maintain an
adequate bonding capacity the taxpayer holds various stocks and
interest-bearing securities. Both the interest income and any dividends
received are apportionable income.
Example
21:The taxpayer receives dividends from the stock of
its subsidiary or affiliate which acts as the marketing agency for products
manufactured by the taxpayer. The dividends are apportionable income.
Example 22: The taxpayer is
engaged in a multistate glass manufacturing business. It also holds a portfolio
of stock and interest-bearing securities, the acquisition and holding of which
are unrelated to the manufacturing business. The dividends and interest income
received are nonapportionable income.
(6) Patent and copyright royalties. Patent
and copyright royalties are apportionable income where the patent or copyright
with respect to which the royalties were received arose out of or was created
in the regular course of the taxpayer's trade or business or where the
acquiring and holding the patent or copyright is or was related to the
operation of the taxpayer's trade or business, or contributes to the production
of apportionable income of the trade or business.
Example
23: The taxpayer is engaged in the multistate
business of manufacturing and selling industrial chemicals. In connection with
that business, the taxpayer obtained patents on certain of its products. The
taxpayer licensed the production of the chemicals in foreign countries, in
return for which the taxpayer receives royalties. The royalties received by the
taxpayer are apportionable income.
Example
24: The taxpayer is engaged in the music publishing
trade or business and holds copyrights on numerous songs. The taxpayer acquires
the assets of a smaller publishing company, including music copyrights. These
acquired copyrights are thereafter used by the taxpayer in its trade or
business. Any royalties received on these copyrights are apportionable
income.
Notes
Statutory/Other Authority: ORS 305.100
Statutes/Other Implemented: ORS 314.610
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