OAR 150-314-0345: Apportionment and Allocation of Income Generally

(1) If the business activity in respect to any trade or business of a taxpayer occurs both within and without this state, and if by reason of such business activity the taxpayer is taxable in another state, the portion of net income (or net loss) arising from such trade or business which is derived from sources within this state must be determined by apportionment in accordance with ORS 314.615 to 314.675. In such cases, the first step is to determine which portion of the taxpayer’s entire net income constitutes apportionable income and which portion constitutes nonapportionable income. The various items of nonapportionable income are then directly allocated to specific jurisdictions pursuant to the provisions of ORS 314.625 to 314.645. The apportionable income (or loss) of the taxpayer is divided between the jurisdictions in which the business is conducted pursuant to the property, payroll, and sales apportionment factors set forth in ORS 314.650 to 314.665 and ORS 314.675. The sum of (1) the items of nonapportionable income (or loss) directly allocated to this state, plus (2) the amount of apportionable income (or loss) attributable to this state by the apportionment formula constitutes the amount of the taxpayer’s entire net income which is subject to tax under the income tax laws of this state. (2) In filing returns with this state, if the taxpayer departs from or modifies the manner in which income has been classified as apportionable income or nonapportionable income in returns for prior years, the taxpayer must disclose in the return for the current year the nature and extent of the modification. If the returns or reports filed by a taxpayer for all states to which the taxpayer reports under Article IV of the Multistate Tax Compact or the Uniform Division of Income for Tax Purposes Act are not uniform in the classification of income as apportionable or nonapportionable income, the taxpayer must disclose in its return to this state the nature and extent of the variance. ORS 314.605 to 314.667 exclude financial organizations and public utilities (as defined in ORS 314.610). For financial institutions not excluded, such as production credit associations and small loan companies, the three factors ordinarily will be property, payroll, and gross revenue. The definitions of “property” and “gross revenue” that appear in OAR 150-314-0070 are incorporated herein by reference.