Understanding Oregon s Throwback Rule for Apportioning Corporate Income Senate Interim Committee on Finance and Revenue January 12, 2018
2 Apportioning Corporate Income Apportionment is a method of dividing up the income of a multi-state corporation among the states in which it is doing business. UDITPA Uniform Division of Income for Tax Purposes Act Model law for apportioning income among states. Created in 1957 by state taxing officials. Oregon adopted UDITPA into statute in 1965.
3 Apportioning Corporate Income 1957 UDITPA called for an equal weighted threefactor formula consisting of a: Sales factor, Payroll factor, and Property factor. The majority of states, including Oregon, have shifted from equal weighted three-factor apportionment to a heavier weighted sales factor, or a single sales factor apportionment method.
4 Oregon s Apportionment Formula Applies only to multi-state corporations. One exception to the single sales factor method: Utilities and Telecommunication companies can elect a doubleweighted sales method.
5 UDITPA Identifies Two Categories of Receipts for the Sales Factor 1. Receipts from the sale of tangible personal property, and 2. All other receipts (everything else) Services and Intangibles, Sale, rental, lease or license of real property, and Rental, lease or license of tangible personal property.
6 Oregon s Throwback Rule ORS 314.665(2)(b) Throwback applies only to receipts from the sale of tangible personal property (TPP). UDITPA requires receipts from the sale of TPP to be sourced on a market approach to the state where the TPP is delivered, with two throwback exceptions. Receipts from the sale will be thrown back and sourced to the state from which the property was shipped if: The purchaser is the United States Government, or The taxpayer is not taxable in the state to where the property is delivered.
7 Oregon s Throwback Rule ORS 314.665(2)(b) The not taxable throwback was designed to ensure all of a taxpayer s receipts from sales of TPP are sourced to a state in which the taxpayer is taxable (and prevent no-where sales). No-where sales are receipts that do not get sourced to any state; receipts included in the denominator of the sales factor but not in the numerator of the taxpayer s sales factor for any state in which it does business. Results in taxation of less than 100% of a taxpayer s taxable income.
8 Throwback Rule Impact The throwback rule impacts only the Oregon sales factor of Oregon corporations that ship goods to customers outside the state. The Oregon sales factor of Oregon corporations are increased when sales are thrown back to Oregon and included in the sales factor numerator. The Oregon sales factor of out-of-state corporations (included in an Oregon consolidated return) is not impacted by a throwback rule.
9 Examples Oregon corporation receipts from sales of TPP = $1M Sales delivered to Oregon customers = $600K Sales delivered to states where not taxable = $400K With throwback, Oregon sales factor = 100% No-where sales = $0* *$400K thrown back to Oregon Without throwback, Oregon sales factor = 60% No-where sales = $400K* *$400K not sourced to any state
10 Other States? 21 states have a throwback rule for receipts from sales of TPP: Alabama, Alaska, Arkansas, California, Colorado, Hawaii, Idaho, Illinois, Kansas, Massachusetts, Mississippi, Missouri, Montana, New Hampshire, New Mexico, North Dakota, Oklahoma, Oregon, Utah, Vermont, and Wisconsin. 24 states do not have a throwback rule: Arizona, Connecticut, Delaware, Florida, Georgia, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Nebraska, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Virginia, and West Virginia. Maine, New Jersey, and West Virginia have a throwout rule. 5 states do not impose a corporate income tax: Nevada, Ohio, South Dakota, Washington, and Wyoming.
11 Questions? If you have additional questions after today please contact: Jeff Henderson Deanna Mack Corporation Section Director s Office jeffrey.s.henderson@oregon.gov deanna.d.mack@oregon.gov (503) 947-2124 (503) 947-2082