OAR 150-317-1200
Cost Input or Labor Cost Subtraction

(1) The subtraction provided in ORS 317A.119 (Subtraction) includes all labor costs or cost inputs of a taxpayer, whichever is greater, regardless of the place the labor cost or cost input is incurred, except for cost inputs or labor costs that are attributable to the taxpayer’s receipts from an item that is not commercial activity. For purposes of the subtraction, a unitary group, as determined pursuant to ORS 317A.106 (Unitary groups), must include the labor costs or cost inputs of all members of the unitary group, regardless where incurred, except for expenses from transactions among members of the group as provided in ORS 317A.119 (Subtraction)(2)(a) for which receipts are excluded under ORS 317A.106 (Unitary groups)
(2) Determining Costs Eligible for Subtraction. Costs described in ORS 317A.119 (Subtraction)(2)(a) and (b) (“ineligible costs”) are not eligible for subtraction. “Eligible costs” equals 35 percent of the greater of (A) the excess of total labor costs over the amount of labor costs that are ineligible costs or (B) the excess of total cost inputs over the amount of cost inputs that are ineligible costs.
(a) If a taxpayer can reasonably determine, from the taxpayer’s books and records maintained in the ordinary course of business, how much of its total labor costs or cost inputs are ineligible costs or that it has no ineligible costs, the taxpayer may calculate the subtraction using the appropriate method under section (3), unless otherwise permitted or required under this rule.
(b) A taxpayer who cannot reasonably determine how much of either its total labor costs or cost inputs are ineligible costs based on its books and records may use a reasonable method to approximate eligible costs. The taxpayer must document the approximation method used and retain the documentation in the taxpayer’s records. Documentation must be provided to the department upon request. The department may disallow the approximation method used under this section if it does not reasonably approximate the taxpayer’s eligible costs.
(3) General Rule. Computation of subtraction for eligible costs after reduction of ineligible costs.
(a) If all the taxpayer’s commercial activity is sourced to Oregon, the taxpayer’s subtraction equals its eligible costs.
(b) If the taxpayer has commercial activity both within and without Oregon, the taxpayer must apportion the taxpayer’s eligible costs as follows, unless the taxpayer elects to use the substitute rule under section (4).
(A) If the corporate activity taxpayer is identical to the entity or group of entities reporting on the apportionment schedule filed for purposes of Oregon income or excise tax under ORS chapters 314, 316, 317, or 318, that taxpayer must multiply its eligible costs by the apportionment factor percentage from the taxpayer’s Oregon apportionment schedule filed under ORS chapters 314, 316, 317, or 318 to calculate the subtraction amount. The taxpayer must use the apportionment schedule filed with the most recent return covering a 12-month period filed with the department.
(B) If a corporate activity taxpayer is not identical to the entity or group of entities reporting on the apportionment schedule filed for purposes of Oregon income or excise tax under ORS chapters 314, 316, 317, or 318, the taxpayer must compute its Oregon apportionment factor percentage using the applicable apportionment method under ORS chapters 314 or 317, except as otherwise required or permitted under this rule. The taxpayer must multiply its eligible costs by the computed apportionment factor percentage.
(c) Notwithstanding section (3)(b), unitary group taxpayers with members subject to multiple apportionment methods under ORS chapters 314 or 317 must compute the group’s eligible costs as follows, except as otherwise required or permitted under this rule.
(A) Separate the unitary group into subgroups. Each subgroup consists of members that use the same apportionment method under ORS chapter 314 or 317.
(B) Each subgroup must separately determine eligible costs as required under section (2) of this rule.
(C) Each subgroup must separately compute their apportionment factor using the applicable apportionment method under ORS chapter 314 or 317, except that transactions between all unitary group members must be eliminated, regardless of whether transactions are between or among unitary group members subject to sales factor apportionment under ORS 314.650 (Apportionment of income) or those subject to another apportionment method under ORS chapter 314 or 317.
(D) Each subgroup must multiply its eligible costs, as determined under section (2) of this rule, by the subgroup’s apportionment factor percentage determined under subsection (3)(c)(C).
(E) The unitary group’s subtraction is the sum of the apportioned eligible costs of each subgroup.
(4) Substitute Rule. A taxpayer may, in lieu of calculating and apportioning eligible costs as required in sections (2) and (3) of this rule, elect to approximate and apportion eligible costs by means of the commercial activity ratio.
(a) Costs for commercial activity ratio. A taxpayer’s costs under the commercial activity ratio (“applicable costs”) equal 35 percent of the greater of total cost of goods everywhere or total labor costs everywhere, as those costs are determined before application of ORS 317A.119 (Subtraction)(2)(b). Expenses from transactions among members of a unitary group must be excluded.
(b) Commercial Activity Ratio. The commercial activity ratio is a fraction, the numerator of which is the taxpayer’s commercial activity sourced to Oregon and the denominator of which is the sum of the taxpayer’s total commercial activity everywhere plus amounts excluded under ORS 317A.100 (Definitions)(1)(b)(Q), ORS 317A.100 (Definitions)(1)(b)(Y), ORS 317A.100 (Definitions)(1)(b)(AA), ORS 317A.100 (Definitions)(1)(b)(DD), ORS 317A.100 (Definitions)(1)(b)(EE), ORS 317A.100 (Definitions)(1)(b)(TT), and ORS 317A.100 (Definitions)(1)(b)(VV). Receipts from transactions among unitary group members are not included in either the numerator or denominator.
(c) Subtraction. For purposes of the substitute rule, the taxpayer’s subtraction is calculated by multiplying the applicable costs under subsection (a) by the taxpayer’s commercial activity ratio under subsection (b).
(5) Fiscal Year Election. For purposes of this rule, fiscal year means a period of 12 consecutive months ending on the last day of any month other than December or any taxpayer or unitary group that has made an election under IRC § 441 for a fiscal year which varies from 52 to 53 weeks. A taxpayer or unitary group may elect to use the taxpayer’s or unitary group’s most recent fiscal year information for purposes of determining the subtraction under this rule. An election under this section must be made on a timely filed, original return including extensions. An election under this section is binding for and applicable to the tax year in which it is made.
(6) Limitations.
(a) The subtraction may not exceed 95 percent of the taxpayer’s Oregon commercial activity.
(b) Labor costs may not include total compensation paid to a single employee in excess of $500,000.
(c) Expenses from transactions among members of a unitary group with respect to receipts that are excluded under ORS 317A.106 (Unitary groups) and ORS 317A.100 (Definitions)(1)(b)(FF) are not included in the calculation of the subtraction.
(d) A unitary group required to apportion the amount of the subtraction shall include all members of the unitary group for purposes of determining the group’s subtraction amount and apportionment ratio, except that the unitary group may not include members excluded from the unitary group pursuant to an election under ORS 317A.106 (Unitary groups)(2).
(7) Alternative Apportionment. A taxpayer may petition the department for alternative apportionment, or the department may require alternative apportionment if the application of sections (3) to (5) of this rule does not fairly represent the costs of taxpayer’s commercial activity in Oregon.
(a) A petition to use an alternative method of apportionment under section (7) of this rule must be filed in writing with the department. The request must be signed by the taxpayer or the taxpayer’s authorized representative and must be filed separately from the taxpayer’s return. The request must include a complete explanation of the alternative method as well as an explanation why the application of section (3) to (5) should not be used. Upon receipt of the request, the department will review the request and issue a letter either authorizing or denying the request. If denied, the taxpayer can appeal that action as provided in ORS 305.275 (Persons who may appeal due to acts or omissions). An alternative apportionment method may be used only after receiving written authorization from the department. The authorization may be revoked if, upon audit, the department determines that the alternative method does not fairly represent the costs of taxpayer’s commercial activity in Oregon. Once an alternative method has been authorized, that method must be used until a request to change is made and approved by the department or until the authorization is revoked after audit.
(b) Factors considered in approving alternative methods of apportionment include but are not limited to whether a modification:
(A) Will fairly and accurately reflect the taxpayer’s costs attributable to receipts from commercial activity in Oregon; and
(B) Will effectuate an equitable apportionment of the taxpayer’s costs attributable to receipts from commercial activity.

Source: Rule 150-317-1200 — Cost Input or Labor Cost Subtraction, https://secure.­sos.­state.­or.­us/oard/view.­action?ruleNumber=150-317-1200.

150–317–0010
Procedure for Handling State Surplus Refund 150–317–0020
Substantial Nexus Guidelines 150–317–0030
Definition: “Doing Business” 150–317–0040
Taxable Income of Regulated Investment Companies and Real Estate Investment Trusts 150–317–0050
Foreign Corporations Subject to Tax 150–317–0060
Capital Losses — Carrybacks and Carry-overs 150–317–0070
Administrative and Judicial Interpretations 150–317–0080
Adoption of Federal Law 150–317–0090
Policy — Application of Various Provisions of the Federal Internal Revenue Code 150–317–0100
Periods of Less than 12 Months Are Tax Years 150–317–0110
Tax Reform Act of 1984 Adjustments 150–317–0120
Farm Capital Gain 150–317–0130
Tax on Homeowner’s Association Income 150–317–0140
Imposition of the Tax: Mercantile, Manufacturing and Business Corporations 150–317–0150
Adoption of Federal Exempt Organizations 150–317–0160
Exemption and Return Requirements 150–317–0170
Minimum Tax 150–317–0190
Affordable Housing Credit 150–317–0200
Commercial Lending Institution Loans for Underground Storage Tanks or Soil Remediation 150–317–0210
Carryover of the Lender’s Credit for Weatherization Loans 150–317–0220
Lender’s Credit: Loans to Wood Heat and Fuel Oil Heat Customers 150–317–0230
Lender’s Credit: Computation 150–317–0240
Lender’s Credit: Definitions 150–317–0245
Commencement of Long Term Enterprise Zone Tax Credit 150–317–0250
Long Term Enterprise Zone Distributions 150–317–0260
Lender’s Credit for Agriculture Workforce Housing 150–317–0270
Credit for Contributions of Computers, Scientific Equipment, and Research 150–317–0280
Qualified Research Credit 150–317–0290
Research Tax Credit: Notice of Election 150–317–0300
Research Tax Credit: Alternative Computation 150–317–0310
Bad Debt Reserve of Financial Institutions Not Qualifying as Large Banks that Have Differences in Reserve for Federal and Oregon Tax Purposes 150–317–0320
Modification of Federal Taxable Income: Dividends from Certain Subsidiaries 150–317–0330
Modification for Dividends Received 150–317–0340
Modification of Federal Taxable Income: Internal Revenue Code Subpart F Income 150–317–0350
Oregon Subtraction Where Charitable Contribution Is Reduced Under Federal Law 150–317–0360
Definition of “State” 150–317–0370
Bad Debt Reserve of Financial Institutions that Have Changed From Reserve Method to Specific Charge-off Method 150–317–0380
Taxes on Net Income or Profits Imposed by any State or Foreign Country 150–317–0390
IRC Section 338: Application to Oregon 150–317–0400
Payments Received Under Federal Safe Harbor Lease Agreements For Transactions Entered Into in Tax Years Beginning on or After January 1, 1983 150–317–0410
Payments Received Under Federal Safe Harbor Lease Agreements for Transactions Entered Into in Tax Years Beginning Prior to 1983 150–317–0420
Modification of Federal Taxable Income: Difference Between Oregon and Federal Bases on Assets Sold, Exchanged or Otherwise Disposed Of 150–317–0430
Modification of Federal Taxable Income: Timber Cut but Unsold 150–317–0440
Depletion Allowance 150–317–0450
Depletion of Metal Mines 150–317–0460
Limitation on Oregon Net Loss Deduction 150–317–0470
Pre-change and Built-in Losses 150–317–0480
Definition of “Premiums” in the Insurance Sales Factor 150–317–0490
Insurers 150–317–0500
Applicable Date 150–317–0510
Unitary Business 150–317–0520
Direct or Indirect Relationships 150–317–0530
Corporations Doing Business Outside the United States 150–317–0540
Consolidated Oregon Return: Format and Information Required 150–317–0550
Consolidated Oregon Return: Affiliated Group 150–317–0560
Consolidated Oregon Return: Credits 150–317–0570
Different Apportionment Factors for Purposes of ORS 317.710(5)(b) 150–317–0580
Consolidated Oregon Return: Copy of Federal Return Required 150–317–0590
Interinsurance and Reciprocal Exchanges 150–317–0600
Limitations on Deduction of Group Losses 150–317–0610
Modified Federal Consolidated Taxable Income 150–317–0620
Modified Federal Consolidated Taxable Income — Contribution Deduction for the Oregon Consolidated Group 150–317–0630
Oregon Return: Apportionment Formula 150–317–0640
Member of a Unitary Group Incorporated in a Listed Foreign Jurisdiction 150–317–0650
Stakeholder feedback regarding listed jurisdictions 150–317–0651
Repatriation Tax Credit 150–317–0652
Modification for Listed Jurisdiction Amounts Previously Included in Income 150–317–0660
Computation of Taxable Income 150–317–0670
Application for Relief 150–317–0680
Tax Imposed on Unrelated Business Income of Certain Exempt Corporations 150–317–1000
Definition of Commercial Activity 150–317–1010
Substantial Nexus Guidelines for the Corporate Activity Tax (CAT) 150–317–1020
Corporate Activity Tax Unitary Business Factors, Common Ownership and Filing Requirements for Unitary Groups 150–317–1025
Corporate Activity Tax: Election to Exclude Non-U.S. Members from Unitary Group 150–317–1030
Sourcing Commercial Activity to Oregon from Sales of Tangible Personal Property 150–317–1040
Sourcing Commercial Activity to Oregon of Other than Sales of Tangible Personal Property 150–317–1050
Sourcing of Commercial Activity for Financial Institutions in This State 150–317–1060
Definition of Insurers’ Gross Premiums Receipts 150–317–1070
Sourcing of Motor Carrier Transportation Services 150–317–1100
Agent Exclusion 150–317–1120
Exclusion for subcontracting payments 150–317–1130
Property Brought into Oregon 150–317–1140
Wholesale Sale of Groceries Exclusion 150–317–1150
Retail Sale of Groceries Exclusion 150–317–1160
Farmer’s Sales to Agricultural Cooperatives 150–317–1170
Farming Operations: Clarifying Definitions for Agricultural Commodities, Farming Operations, Out of State Sales Based on Industry Averages 150–317–1200
Cost Input or Labor Cost Subtraction 150–317–1220
Employee Compensation: Labor Cost Subtraction 150–317–1300
Estimated Tax: When Estimated Payments Are Required 150–317–1310
Estimated Tax Payments: Delinquent or Underestimated Payment or Both, Constitutes Underpayment 150–317–1320
Estimated Tax: Unitary Groups and Apportioned Returns 150–317–1330
Extension of Time to File 150–317–1400
Determining Property Resold Out of State, and Methods of Determining 150–317–1410
Motor Vehicle Resale Certificate – Documentation Required 150–317–1420
Damages Received as the Result of Litigation 150–317–1500
Good Faith Effort
Last Updated

Jun. 8, 2021

Rule 150-317-1200’s source at or​.us