OAR 150-314-0353
Apportionment for Long-Term Construction Contracts

(1)

This rule adopts a model regulation recommended by the Multistate Tax Commission to promote uniform treatment of this item by the states. If a taxpayer elects to use the percentage of completion method of accounting, or the completed contract method of accounting for long-term contracts, and has income from sources both within and without this state, the amount of apportionable income derived from sources within this state, including income from such long-term contracts, is determined pursuant to this rule. In such cases, the first step is to determine what portion of the taxpayer’s income constitutes apportionable income and nonapportionable income under ORS 314.610 (Definitions for ORS 314.605 to 314.675) and the rules thereunder. Nonapportionable income is directly allocated to specific states pursuant to the provisions of ORS 314.625 (Certain nonapportionable income to be allocated) to 314.645 (Allocation to this state of patent and copyright royalties). The apportionable income of the taxpayer is divided between or among the states in which the business is conducted pursuant to the property, payroll, and sales apportionment factors set forth in this rule. The sum of (1) the items of nonapportionable income directly allocated to this state, plus (2) the amount of apportionable income attributable to this state, constitutes the taxpayer’s entire net income that is subject to tax. For definitions, rules, and examples for determining apportionable and nonapportionable income, see ORS 314.610 (Definitions for ORS 314.605 to 314.675) and the rules thereunder.

(2)

Apportionment of Apportionable Income.

(a)

In General. Apportionable income is apportioned to this state by use of the formula provided in ORS 314.650 (Apportionment of income) as it applies to the tax year involved.

(b)

Percentage of Completion Method. Under this method of accounting for long-term contracts, the amount to be included each year as apportionable income from each contract is the amount by which the gross contract price that has been completed during the taxable year exceeds all expenditures made during the taxable year in connection with the contract. In so doing, account must be taken of the material and supplies on hand at the beginning and end of the taxable year for use in each such contract.
Example 1: A taxpayer using the percentage of completion method of accounting for long-term contracts, entered into a long-term contract to build a structure for $9,000,000. The contract allowed three years for completion and, as of the end of the second taxable year, the taxpayer’s books of account, kept on the accrual method, disclosed the following: [See PDF link below.]

(c)

Completed Contract Method. Under this method of accounting, apportionable income derived from long-term contracts is reported for the taxable year in which the contract is finally completed and accepted. Therefore, a special computation is required to compute the amount of apportionable income attributable to this state from each completed contract (see section (3) below). Thus, all receipts and expenditures applicable to such contracts, whether completed or not as of the end of the taxable year, are excluded from apportionable income derived from other sources. For example, income from short-term contracts, interest, rents, royalties, etc., is apportioned by the regular three-factor formula of property, payroll, and sales.

(d)

Property Factor. In general, the numerator and denominator of the property factor is determined as set forth in ORS 314.655 (Determination of property factor) and the rules thereunder. However, the following special rules are also applicable:

(A)

The average value of the taxpayer’s costs (including materials and labor) of construction in progress, to the extent such costs exceed progress billings (accrued or received depending on whether the taxpayer is on the accrual or cash basis for keeping its accounts) is included in the denominator of the property factor. The value of any such construction costs attributable to construction projects in this state are included in the numerator of the property factor.
Example 2: The taxpayer commenced a long-term construction project in this state as of the beginning of a given year. By the end of its second taxable year, its equity in the costs of production to be reflected in the numerator and denominator of its property factor for such year is computed as follows: [See PDF link below.]
Example 3: Same facts as in Example 2, except that progress billings exceeded construction costs. No value for the taxpayer’s equity in the construction project is shown in the property factor.

(B)

Rent paid for the use of equipment directly attributable to a particular construction project is included in the property factor at eight times the net annual rental rate, even though such rental expense may be included in the cost of construction.

(C)

The property factor is computed in the same manner regardless of which method of accounting for long-term contracts the taxpayer has elected and is computed for each taxable year, even though under the completed contract method of accounting, apportionable income is computed separately (see section (3) below).

(e)

Payroll Factor. In general the numerator and denominator of the payroll factor is determined as set forth in ORS 314.660 (Determination of payroll factor) and the rules thereunder. However, the following special rules are also applicable:

(A)

Compensation paid employees that is attributable to a particular construction project is included in the payroll factor, even though it is included in the cost of construction.

(B)

Compensation paid to employees engaged in performing services at a construction site are attributed to the state in which the services are performed. Compensation paid all other employees is governed by ORS 314.660 (Determination of payroll factor)(2).
Example 4: A taxpayer engaged in a long-term contract in state X assigns several key employees to that state to supervise the project. The taxpayer, for unemployment tax purposes, reports these employees to state Y where the main office is maintained and where the employees reside. For payroll factor purposes, such compensation is assigned to the numerator of state X.

(C)

The payroll factor is computed in the same manner regardless of which method of accounting for long-term contracts the taxpayer has elected and is computed for each taxable year, even though under the completed contract method of accounting, apportionable income is computed separately (see section (3) below).

(f)

Sales Factor. In general, the numerator and denominator of the sales factor is determined as set forth in ORS 314.665 (Determination of sales factor) and the rules thereunder. However, the following special rules are also applicable:

(A)

Gross receipts derived from the performance of a contract are attributable to this state if the construction project is located in this state. If the construction project is located partly within and partly without this state, the gross receipts attributable to this state are based upon the ratio that construction costs for the project in this state bear to the total of such construction costs for the entire project during the taxable year. Any other method, such as engineering cost estimates, may be used if it provides a reasonable apportionment.
Example 5: A construction project was undertaken in this state by a calendar-year taxpayer that had elected one of the methods of accounting for long-term contracts. The following gross receipts (progress billings) were derived from the contract during the three taxable years the contract was in progress. [See PDF link below.]
Example 6: A taxpayer contracts to build a dam on a river at a point that lies half within this state and half within state X. During the taxpayer’s first taxable year, construction costs in this state were $2,000,000. Total construction costs for the project during the taxable year were $3,000,000. Gross receipts (progress billings) for the year were $2,400,000. Accordingly, gross receipts of $1,600,000 ($2,000,000 ÷ $3,000,000 = 66 2⁄3% x $2,400,000) are included in the numerator of the sales factor.

(B)

If the percentage of completion method is used, the sales factor includes only that portion of the gross contract price that corresponds to the percentage of the entire contract completed during the taxable year.
Example 7: A taxpayer that elected the percentage of completion method of accounting entered into a long-term construction contract. At the end of its current taxable year (the first since starting the project) it estimated that the project was 30 percent completed. The bid price for the project was $9,000,000 and it had received $2,500,000 from progress billings as of the end of its current taxable year. The amount of gross receipts to be included in the sales factor for the current taxable year is $2,700,000 (30 percent of $9,000,000), regardless of whether the taxpayer uses the accrual method or the cash method for accounting for receipts and disbursements.

(C)

If the completed contract method of accounting is used, the sales factor includes the portion of the gross receipts (progress billings) received or accrued, whichever is applicable, during the taxable year attributable to each contract.
Example 8: A taxpayer that entered into a long-term construction contract elected the completed contract method of accounting. By the end of its current taxable year (the second since starting the project) it had billed and accrued on its books a total of $5,000,000. Of that amount, $2,000,000 accrued in the first year the contract was undertaken, and $3,000,000 accrued in the current year. The amount of gross receipts to be included in the sales factor for the current taxable year is $3,000,000.
Example 9: Same facts as in Example 8 except that the taxpayer keeps its books on the cash basis and, as of the end of its current taxable year, had received only $2,500,000 of the $3,000,000 billed during the current year. The amount of gross receipts to be included in the sales factor for the current taxable year is $2,500,000.

(D)

The sales factor, except as noted above in paragraphs (B) and (C), is computed in the same manner regardless of which method of accounting for long-term contracts the taxpayer has elected and is computed for each taxable year, even though under the completed contract method of accounting, apportionable income is computed separately.

(g)

Apportionment Percentage. The apportionment percentage provided in ORS 314.650 (Apportionment of income) is applied to apportionable income to establish the amount apportioned to Oregon.

(3)

Completed Contract Method — Special Computation. The completed contract method of accounting requires that the reporting of income (or loss) be deferred until the year the construction project is completed and accepted. Accordingly, a separate computation is made for each such contract completed during the taxable year regardless of whether the project is located within or without this state in order to determine the amount of income attributable to sources within this state. The amount of income apportioned to this state from each contract completed during the taxable year, plus other apportionable income (such as interest income, rents, royalties, income from short-term contracts, etc.) apportioned to this state by the regular three factor formula, plus all nonapportionable income allocated to this state, is the measure of tax for the taxable year. The amount of income (or loss) from each contract derived from sources within this state using the completed contract method of accounting is computed as follows:

(a)

In the taxable year the contract is completed, the income (or loss) therefrom is determined.

(b)

The income (or loss) determined in (a) is apportioned to this state by the following method:

(A)

A fraction is determined for each year the contract was in progress. The numerator is the amount of construction costs paid or accrued each year the contract was in progress, and the denominator is the total of all such construction costs for the project.

(B)

Each percentage determined in (A) is multiplied by the apportionment formula percentage for that particular year as determined in section (2)(g) of this rule.

(C)

The products determined at (B) for each year the contract was in progress are totaled. The amount of total income (or loss) from the contract determined in (a) is multiplied by the total percentage. The resulting income (or loss) is the amount of apportionable income from such contract derived from sources within this state.
Example 10: A taxpayer using the completed contract method of accounting for long-term contracts is engaged in three long-term contracts: Contract L in this state, Contract M in state X, and Contract N in state Y. In addition, it has other apportionable income (less expenses) during the taxable year 2016 from interest, rents, and short-term contracts amounting to $500,000, and nonapportionable income allocable to this state of $8,000. During 2016, it completed Contract M in state X at a profit of $900,000. Contracts L in this state and N in state Y were not completed during the taxable year. The apportionment percentages of the taxpayer as determined in subsection (g) of this rule and the percentages of contract costs as determined in subsection (b) above for each year Contract M in state X was in progress are as follows: [See PDF link below.]
Example 11: Same facts as in Example 10 except that Contract L was started in 2016 in this state, the first year the taxpayer was subject to tax in this state. Contract L in this state and Contract N in state Y are incomplete in 2016. The corporation’s net income subject to tax in this state for 2016 is computed as follows: [See PDF link below.]
Example 12: Same facts as in Example 10 except that the figures relate to Contract L in this state, and 2016 is the first year the corporation was taxable in another state (see ORS 314.615 (When allocation and apportionment of net income from business activity required) and 314.620 (When taxpayer is considered taxable in another state) and the rules thereunder). Contracts M and N in states X and Y were started in 2016 and are incomplete. The corporation’s net income subject to tax in this state for 2016 is computed as follows: [See PDF link below.]

(4)

Computation for Year of Withdrawal, Dissolution or Cessation of Business — Completed Contract Method. Use of the completed contract method of accounting for long-term contracts requires that income derived from sources within this state from incomplete contracts in progress outside this state on the date of withdrawal, dissolution, or cessation of business in this state be included in the measure of tax for the taxable year during which the corporation withdraws, dissolves or ceases doing business in this state. The amount of income (or loss) from each such contract to be apportioned to this state by the apportionment method set forth in section (3)(b) of this rule must be determined as if the percentage of completion method of accounting were used for all such contracts on the date of withdrawal, dissolution, or cessation of business. The amount of apportionable income (or loss) for each such contract is the amount by which that portion of the gross contract price of each such contract that corresponds to the percentage of the entire contract that has been completed as the date of withdrawal, dissolution, or cessation of business exceeds all expenditures made in connection with each such contract. In so doing, account must be taken of the material and supplies on hand at the beginning and end of the income year for use in each such contract.
Example 13: A construction contractor qualified to do business in this state elected the completed contract method of accounting for long-term contracts. It was engaged in two long-term contracts. Contract L was started in Oregon in 2014 and completed at a profit of $900,000 on December 16, 2016. The taxpayer withdrew on December 31, 2016. Contract M was started in state X in 2015 and was incomplete on December 31, 2016. The apportionment percentages of the taxpayer as determined in section (2) of this rule, and percentages of construction costs as determined in section (3)(b) of this rule for each year during which Contract M in state X was in progress are as follows: [See PDF link below.]
[ED. NOTE: To view attachments referenced in rule text, click here to view rule.]

Source: Rule 150-314-0353 — Apportionment for Long-Term Construction Contracts, https://secure.­sos.­state.­or.­us/oard/view.­action?ruleNumber=150-314-0353.

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 150-314-0353’s source at or​.us