OAR 150-316-0080: Credit for Income Taxes Paid to Another State

(1) General: A taxpayer may claim a credit against income tax imposed under Chapter 316 when: (a) Another state has jurisdiction to impose an income tax; and (b) The other state imposes an income tax on an item of income that is also subject to Oregon tax. (2) The credit may only be used to reduce tax and cannot be claimed as an offset against interest or penalty charges imposed by Oregon. (3) The credit is limited to taxes imposed upon income, but may be claimed with respect to gross income taxes as well as net income taxes. (4) Definitions. For purposes of ORS 316.082 and ORS 316.131: (a) “Income tax” means either a gross income tax, a net income tax, or an excise tax or franchise tax that is measured by income of an S corporation. (b) “Gross income tax” means a tax imposed on gross income. (c) “Gross income” generally means gross receipts less cost of goods sold, and is further defined in U.S. Treasury Regulation Section 1.61-3. (d) “State” includes the Commonwealth of Puerto Rico, and a territory or possession of the United States. (5) Payments for which a credit is not allowed include, but are not limited to: (a) Taxes imposed on gross receipts, gross revenue, or gross sales (e.g. Washington Business and Occupation Tax); (b) Property, transactions, sales or consumption taxes; (c) Amounts paid for the privilege of doing business unless imposed upon income or measured by an S corporation’s income; (d) Interest or penalties paid in connection with a law imposing an income tax; (e) Amounts paid as a minimum tax unless imposed upon or measured by income. Idaho’s Permanent Building Fund tax is an example of a minimum tax that is not imposed upon or measured by income. Example 1: An Oregon S corporation with net income of $5,000 paid California franchise tax of $800, the minimum tax amount for a corporation doing business in California. If the California franchise tax rate were 9.3%, $465 ($5,000 x .093) would qualify as other state income tax for purposes of this credit. The balance of $335 ($800-445) is not an income tax paid to another state, because it is a minimum tax that is imposed without regard to income of the corporation. (f) The Texas franchise tax to the extent the tax is based on net taxable capital. Credit may be allowed on the portion of the total franchise tax that is considered imposed on net taxable earned surplus. Example 2: Ivan is a shareholder in Ronco, an Oregon S Corporation. Ronco pays a Texas franchise tax of $3,600. The franchise tax is composed of a tax on net taxable capital of $500 ($200,000 of net taxable capital times 0.25 percent) and a tax on net taxable earned surplus of $3,100 ($80,000 of net taxable earned surplus times 4.5 percent, less the amount of the tax on net taxable capital). Only the $3,100 qualifies as a tax based on income for purposes of figuring the credit for taxes paid to another state. (6) A minimum tax is not considered imposed on or measured by income solely because income must rise to a certain level for the tax to apply. Example 3: Assume State X allows a deduction for capital gains equal to 50% of such gains. If a taxpayer’s adjusted gross income exceeds $250,000, then State X imposes a minimum tax equal to 3% of the deduction. State X’s minimum tax is not considered a tax imposed on or measured by income for purposes of ORS 316.082. (7) The burden of proving that credit is due must be assumed by the taxpayer.