OAR 150-314-0335
Apportionable and Nonapportionable Income Defined


(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 applies to tax years beginning on or after January 1, 2018.

(2)

Apportionment and Allocation. ORS 314.610 (Definitions for ORS 314.605 to 314.675)(1) and (5) require that every item of income be classified either as apportionable income or nonapportionable income. Income for purposes of classification as apportionable or nonapportionable includes gains and losses. Apportionable income is apportioned among jurisdictions by use of a formula. Nonapportionable income is specifically assigned or allocated to one or more specific jurisdictions pursuant to express rules. An item of income is classified as apportionable income if it falls within the definition of apportionable income. An item of income is nonapportionable income only if it does not meet the definitional requirements for being classified as apportionable income.

(3)

Apportionable Income. Apportionable income means all income that is apportionable under the Constitution of the United States and is not allocated under the laws of this state, including:

(a)

Income arising from transactions and activity in the regular course of the taxpayer’s trade or business; and

(b)

Income arising from tangible and intangible property if the acquisition, management, employment, development or disposition of the property is or was related to the operation of the taxpayer’s trade or business; and

(c)

Any income that would be allocable to this state under the Constitution of the United States, but that is apportioned rather than allocated pursuant to the laws of this state. The classification of income by the labels occasionally used, such as manufacturing income, compensation for services, sales income, interest, dividends, rents, royalties, gains, income derived from accounts receivable, operating income, non-operating income, etc., is of no aid in determining whether income is apportionable or nonapportionable income.

(4)

“Trade or business,” as used in the definition of apportionable income and in the application of that definition means the unitary business of the taxpayer, part of which is conducted within Oregon.

(5)

Transactional Test. Apportionable income includes income arising from transactions and activity in the regular course of the taxpayer’s trade or business.

(a)

If the transaction or activity is in the regular course of the taxpayer’s trade or business, part of which trade or business is conducted within Oregon, the resulting income of the transaction or activity is apportionable income for Oregon. Income may be apportionable income even though the actual transaction or activity that gives rise to the income does not occur in Oregon.

(b)

For a transaction or activity to be in the regular course of the taxpayer’s trade or business, the transaction or activity need not be one that frequently occurs in the trade or business. Most, but not all, frequently occurring transactions or activities will be in the regular course of that trade or business and will, therefore, satisfy the transactional test. It is sufficient to classify a transaction or activity as being in the regular course of a trade or business, if it is reasonable to conclude transactions of that type are customary in the kind of trade or business being conducted or are within the scope of what that kind of trade or business does. However, even if a taxpayer frequently or customarily engages in investment activities, if those activities are for the taxpayer’s mere financial betterment rather than for the operations of the trade or business, such activities do not satisfy the transactional test. The transactional test includes, but is not limited to, income from sales of inventory, property held for sale to customers, and services which are commonly sold by the trade or business. The transactional test also includes, but is not limited to, income from the sale of property used in the production of apportionable income of a kind that is sold and replaced with some regularity, even if replaced less frequently than once a year.

(6)

Functional test. Apportionable income also includes income from tangible and intangible property, if the acquisition, management, employment, development, or disposition of the property is or was related to the operation of the taxpayer’s trade or business. “Property” includes any direct or indirect interest in, control over, or use of real property, tangible personal property and intangible property by the taxpayer. Property that is “related to the operation of the trade or business” refers to property that is or was used to contribute to the production of apportionable income directly or indirectly, without regard to the materiality of the contribution. Property that is held merely for investment purposes is not related to the operation of the trade or business. “Acquisition, management, employment, development or disposition” refers to a taxpayer’s activities in acquiring property, exercising control and dominion over property and disposing of property, including dispositions by sale, lease or license. Income arising from the disposition or other utilization of property which was acquired or developed in the course of the taxpayer’s trade or business constitutes apportionable income, even if the property was not directly employed in the operation of the taxpayer’s trade or business. Income from the disposition or other utilization of property which has been withdrawn from use in the taxpayer’s trade or business and is instead held solely for unrelated investment purposes is not apportionable. Property that was related to the operation of the taxpayer’s trade or business is not considered converted to investment purposes merely because it is placed for sale, but any property which has been withdrawn from use in the taxpayer’s trade or business for five years or more is presumed to be held for investment purposes.
Example 1: Taxpayer purchases a chain of 100 retail stores for the purpose of merging those store operations with its existing business. Five of the retail stores are redundant under the taxpayer’s business plan and are sold six months after acquisition. Even though the five stores were never integrated into the taxpayer’s trade or business, the income is apportionable because the property’s acquisition was related to the taxpayer’s trade or business.
Example 2: Taxpayer is in the business of developing adhesives for industrial and construction uses. In the course of its business, it accidentally creates a weak but non-toxic adhesive and patents the formula, awaiting future applications. Another manufacturer uses the formula to create temporary body tattoos. Taxpayer wins a patent infringement suit against the other manufacturer. The entire damages award, including interest and punitive damages, constitutes apportionable income.
Example 3: Taxpayer is engaged in the oil refining business and maintains a cash reserve for buying and selling oil on the spot market as conditions warrant. The reserve is held in overnight “repurchase agreement” accounts of U.S. treasuries with a local bank. The interest on those amounts is apportionable income because the reserves are necessary for the taxpayer’s business operations. Over time, the cash in the reserve account grows to the point that it exceeds any reasonably expected requirement for acquisition of oil or other short-term capital needs and is held pending subsequent business investment opportunities. The interest received on the excess amount is nonapportionable income.
Example 4: A manufacturer decides to sell one of its redundant factories to a real estate developer and transfers the ownership of the factory to a special purpose subsidiary, SaleCo (Taxpayer) immediately prior to its sale to the real estate developer. The parties elect to treat the sale as a disposition of assets under IRC 338(h)(10), resulting in Taxpayer recognizing a capital gain on the sale. The capital gain is apportionable income.

(a)

Under the functional test, income from the disposition or other utilization of property is apportionable if the property is or was related to the operation of the taxpayer’s trade or business. This is true even though the transaction or activity from which the income is derived did not occur in the regular course of the taxpayer’s trade or business.

(b)

Income that is derived from isolated sales, leases, assignments, licenses, and other infrequently occurring dispositions, transfers, or transactions involving property, including transactions made in the full or partial liquidation or the winding-up of any portion of the trade or business, is apportionable income, if the property is or was related to the taxpayer’s trade or business. Income from the licensing of an intangible asset, such as a patent, copyright, trademark, service mark, know-how, trade secrets, or the like, that was developed or acquired for use by the taxpayer in its trade or business, constitutes apportionable income whether or not the licensing itself constituted the operation of a trade or business, and whether or not the taxpayer remains in the same trade or business from or for which the intangible asset was developed or acquired.

(c)

Under the functional test, income from intangible property is apportionable income when the intangible property serves an operational function as opposed to solely an investment function.

(d)

If the acquisition, management, employment, development, or disposition of the property is or was related to the operation of the taxpayer’s trade or business, then income from that property is apportionable income even though the actual transaction or activity involving the property that gives rise to the income does not occur in Oregon.
Example 5: A manufacturer purchases raw materials to be incorporated into the product it offers for sale. The nature of the raw materials is such that the purchase price is subject to extreme price volatility. In order to protect itself from extreme price increases (or decreases), the manufacturer enters into future contracts pursuant to which the manufacturer can either purchase a set amount of the raw materials for a fixed price, within a specified time period, or resell the future contracts. Any gain on the sale of the future contracts would be considered apportionable income, regardless of whether the contracts were either made or resold in Oregon.
Example 6: A national retailer produces substantial revenue related to the operation of its trade or business. It invests a large portion of the revenue in fixed income securities which are divided into three categories; (a) short-term securities held pending use of the funds in the taxpayer’s trade or business; (b) short-term securities held pending acquisition of other companies or favorable developments in the long-term money market, and (c) long-term securities held as an investment. Interest income on the short-term securities held pending use of the funds in the taxpayer’s trade or business (a) is apportionable because the funds represent working capital necessary to the operations of the taxpayer’s trade or business. Interest income derived from the other investment securities (b) and (c) is not apportionable as those securities were not held in furtherance of the taxpayer’s trade or business.

(e)

If with respect to an item of property a taxpayer (i) takes a deduction from income that is apportioned to Oregon or (ii) includes the original cost in the property factor, it is presumed that the item or property is or was related to the operation of the taxpayer’s trade or business. No presumption arises from the absence of any of these actions.

(f)

Application of the functional test is generally unaffected by the form of the property (e.g., tangible or intangible property, real or personal property). Income arising from an intangible interest, as, for example, corporate stock or other intangible interest in an entity or a group of assets, is apportionable income when the intangible itself or the property underlying or associated with the intangible is or was related to the operation of the taxpayer’s trade or business. Thus, while apportionment of income derived from transactions involving intangible property may be supported by a finding that the issuer of the intangible property and the taxpayer are engaged in the same trade or business, i.e., the same unitary business, establishment of such a relationship is not the exclusive basis for concluding that the income is subject to apportionment. It is sufficient to support the finding of apportionable income if the holding of the intangible interest served an operational rather than an investment function.

(7)

Relationship of transactional and functional tests to U.S. Constitution. The Due Process Clause and the Commerce Clause of the U.S. Constitution restrict states from apportioning income that has no rational relationship with the taxing state. The protection against extra-territorial state taxation afforded by these Clauses is often described as the “unitary business principle.” The unitary business principle requires apportionable income to be derived from the same unitary business that is being conducted at least in part in Oregon. The unitary business that is conducted in Oregon includes both a unitary business that the taxpayer alone may be conducting and a unitary business the taxpayer may conduct with any other person or persons. Satisfaction of either the transactional test or the functional test complies with the unitary business principle, because each test requires that the transaction or activity (in the case of the transactional test) or the property (in the case of the functional test) be tied to the same trade or business that is being conducted within Oregon. Determination of the scope of the unitary business being conducted in Oregon is without regard to the extent to which Oregon requires or permits combined reporting.
(8) Nonapportionable income. Nonapportionable income means all income other than apportionable income.

Source: Rule 150-314-0335 — Apportionable and Nonapportionable Income Defined, https://secure.­sos.­state.­or.­us/oard/view.­action?ruleNumber=150-314-0335.

150–314–0005
Period of Computation of Taxable Income
150–314–0010
Mitigation of Effect of Limitations and Other Provisions
150–314–0012
Determination by Agreement
150–314–0025
Pollution Control Facilities: Revocation of Certificate
150–314–0027
Pollution Control Facilities: Facilities Not Eligible for Tax Credit
150–314–0035
Formula for Apportionment of Lobbying Expenses Subject to Proxy Tax
150–314–0040
Withholding on Real Property Conveyances
150–314–0045
REMIC Filing Requirements
150–314–0047
REMIC Income Taxable to Nonresidents
150–314–0055
Change in Methods of Accounting or Reporting
150–314–0060
Election to Use Alternative Apportionment Weightings by Taxpayers Engaged in Utilities or Telecommunications
150–314–0062
Apportionment and Allocation of Income of Financial Organizations and Public Utilities from Business Activities Within and Without Oregon
150–314–0064
Definitions
150–314–0066
Apportionment and Allocation of Income Generally
150–314–0068
Allocation of Income
150–314–0070
Apportionment Factors Generally
150–314–0072
Apportionment Factors
150–314–0074
Modified Factors for Carriers of Freight or Passengers: General Rule
150–314–0076
Modified Factors for Carriers of Freight or Passengers: Special Rules — Railroads
150–314–0078
Modified Factors for Carriers of Freight or Passengers: Special Rules — Airlines
150–314–0080
Modified Factors for Carriers of Freight or Passengers: Special Rules — Trucking Companies
150–314–0082
Modified Factors for Companies Engaged in Sea Transportation Service
150–314–0084
Modified Factors for Companies Involved in Interstate River Transportation Service
150–314–0086
Other Methods: Limited Application
150–314–0088
Modified Factors for Financial Institutions
150–314–0090
Public Utilities: Sale of Commodities
150–314–0100
Disallowance of Certain Intercompany Transactions Involving Intangible Assets
150–314–0105
Farm Income Averaging
150–314–0110
Allocation of Oregon Modifications to Passive Activity Losses
150–314–0115
Interest on Deferred Oregon Tax Liability with Respect to Installment Obligations
150–314–0120
Reduction of Tax Attributes after Discharge of Debt
150–314–0125
Listed Transaction Reporting Requirement
150–314–0130
Definition: Final Determination
150–314–0135
Returns When Accounting Period Changed
150–314–0140
Information Returns
150–314–0142
Brokers’ Information Returns
150–314–0150
Requirement to File Returns Electronically (Corporation E-file Mandate)
150–314–0152
Requirement to File Returns Electronically
150–314–0160
Report of Changes in Federal Taxable Income
150–314–0165
Filing Returns of Income: Due date
150–314–0167
Filing Returns of Income: Extensions, Chapters 316, 317 and 318
150–314–0169
Standards for Substitute Tax Forms
150–314–0171
Alternative Filing Methods
150–314–0173
Time Limitations Affected by Military Service
150–314–0175
Time Limitations for Persons Outside United States
150–314–0185
Payment of Tax
150–314–0187
Responsibility for Tax Payments
150–314–0195
Delinquency Penalty
150–314–0197
Failure to File Penalty
150–314–0199
Interest on Deficiencies and Delinquencies
150–314–0205
Substantial Understatement Penalty (SUP)
150–314–0207
Waiver of 20 Percent Substantial Understatement of Net Tax Penalty Imposed under ORS 314.402
150–314–0209
Substantial Authority, Adequate Disclosure and Reasonable Basis
150–314–0215
Listed Transaction Understatement
150–314–0220
Additional Assessments
150–314–0222
Five-Year Statute of Limitations
150–314–0224
Time Limit to Make Adjustment
150–314–0226
Notification of Gain Realized Upon the Sale or Exchange of a Principal Residence
150–314–0228
Extension of Period for Assessment
150–314–0230
Effect of Federal Extension of Period for Assessment
150–314–0240
Refunds Generally
150–314–0242
Refunds
150–314–0244
Minimum Offset Amount
150–314–0246
Interest Computation — Offset
150–314–0248
Refund Offset Priority
150–314–0250
Refunds
150–314–0252
Effect of Federal Extension of Period for Assessment
150–314–0254
Separate Refunds When a Joint Return Has Been Filed
150–314–0256
Refunds of Tax Overpayments to Spouse or Heirs
150–314–0265
Model Recordkeeping and Retention
150–314–0267
Requirement to Provide Copies of Documents
150–314–0275
Definition: Collection Charge
150–314–0277
Payment Secured by Bond, Deposit or Otherwise
150–314–0279
Statute of Limitation on Tax Collection
150–314–0285
Assessment of Withholding Tax Against Liable Officers
150–314–0290
Estimated Tax: When Estimates Are Required
150–314–0292
Estimated Tax: When Estimates Are Required For Tax Exempt Corporations
150–314–0294
Estimated Tax: Affiliated Corporations
150–314–0300
Estimated Tax: Due Dates of Payments for Short-Period Returns
150–314–0302
Estimated Tax: Application of Payments
150–314–0310
Requirement to Use Electronic Funds Transfer
150–314–0315
Corporation Estimated Tax: Delinquent or Underestimated Payment or Both, Constitutes Underpayment
150–314–0317
Estimated Tax: Consolidated Return Underpayments
150–314–0319
Estimated Tax: Apportioned Returns
150–314–0321
Estimated Tax: Application of Net Loss, Annualized Income Exception
150–314–0323
Estimated Tax: Interest on Underpayment
150–314–0325
Estimated Tax: Computation of Underpayment
150–314–0327
Underpayment of Estimated Tax
150–314–0335
Apportionable and Nonapportionable Income Defined
150–314–0337
Apportionable and Nonapportionable Income
150–314–0339
Proration of Deductions
150–314–0345
Apportionment and Allocation of Income Generally
150–314–0347
Application of ORS 314.610 to 314.667: Allocation
150–314–0349
Apportionment and Allocation for a Taxpayer Carrying on a Unitary Business
150–314–0351
Two or More Businesses of a Single Taxpayer
150–314–0353
Apportionment for Long-Term Construction Contracts
150–314–0355
Special Rules: Installment Sales
150–314–0357
Modified Factors for Motion Picture and Television Film Producers
150–314–0365
Taxable in Another State
150–314–0367
Taxable in Another State
150–314–0369
Taxable in Another State
150–314–0371
Taxable in Another State
150–314–0380
Allocation of Interest and Dividends
150–314–0385
Apportionment Formula
150–314–0390
Property Factor
150–314–0392
Property Factor
150–314–0394
Property Factor
150–314–0396
Property Factor
150–314–0398
Property Factor
150–314–0400
Property Factor
150–314–0402
Property Factor
150–314–0404
Property Factor
150–314–0406
Property Factor
150–314–0415
Payroll Factor
150–314–0417
Payroll Factor
150–314–0425
Sales Factor
150–314–0427
Sales Factor
150–314–0429
Sales Factor
150–314–0431
Sales Factor
150–314–0435
Sales Factor
150–314–0437
Gross Receipts Related to Deferred Gain or Loss
150–314–0455
Modified Factors for Publishing
150–314–0460
Apportionment of Net Loss
150–314–0465
Sales Factor for Interstate Broadcasters
150–314–0470
Interstate Broadcasters: Net Income Attributable to this State
150–314–0475
Consistent Treatment of Partnership Items
150–314–0480
Publicly Traded Partnerships Taxed as Corporations
150–314–0485
Partnership Information Returns
150–314–0487
Partnership Penalty
150–314–0495
Corporation Tax Credits — Converting a C Corporation to an S Corporation
150–314–0497
Corporation Tax Credits — Converting an S Corporation to a C Corporation
150–314–0510
Definitions for Composite Tax Returns and Pass-through Entity Withholding
150–314–0515
Oregon Composite Tax Return
150–314–0520
Pass-through Entity Withholding Requirements
150–314–0525
Exceptions to Pass-through Entity Withholding Requirements
150–314–0530
Divulging Particulars of Returns and Reports Prohibited
150–314–0535
Information That May Be Furnished
150–314–0540
Rewards for Information
150–314–0545
Combat Zone Benefits
150–314–0733
Partnership Pays Election After Federal Centralized Partnership Audit Adjustments
Last Updated

Jun. 8, 2021

Rule 150-314-0335’s source at or​.us