OAR 150-316-0088: Addition of Taxes Paid to Another State Claimed as an Itemized Deduction

(1) If a taxpayer claims a credit for taxes paid to another state and the tax is also included as an itemized deduction, the taxpayer must restore to Oregon income the lesser of: (a) The amount of the other state’s net tax liability for the year in which the Oregon credit is claimed; or (b) The amount of the other state’s tax for that year that is included in itemized deductions. Example 1: On his Oregon tax return, Joe claims a credit for taxes paid to Idaho of $100. His tax liability to Idaho for the same year is $150. He also claims an itemized deduction of $200 for taxes that Idaho withheld from his wages. Joe must add $150 to Oregon income, which is the lesser of his Idaho tax liability or the amount claimed as an itemized deduction for that year. (2) If the credit for taxes paid to another state is based on a tax liability that is paid in two different tax years, the taxpayer may be required to restore the deduction to Oregon income in two different tax years. Example 2: Jim claims a credit of $250 on his Oregon tax return. His net tax liability to Idaho is $250. Jim deducts $200 tax withheld by Idaho as an itemized deduction on his Oregon return. He must add $200 to Oregon income, which is the lesser of his Idaho liability or the amount claimed as an itemized deduction that year. If Jim claims the $50 balance owing to Idaho as an itemized deduction for Oregon in the year he pays it, he must add that amount to Oregon income in that same year. Example 3: Lois makes her fourth quarter estimated tax payment of $400 for 1999 to Montana on January 18, 2000. Her 1999 Montana tax liability is $350 and she claims a credit of $350 on her 1999 Oregon return. In 2000, Lois made $700 of estimated payments to Montana for tax year 2000. Her 2000 Montana tax liability is $950 and she claims a credit of $950 on her 2000 Oregon return. For tax year 2000, Lois claims $1,100 in Montana tax as an itemized deduction ($400 plus $700). Lois’s addition on the 2000 Oregon return is $1,050: $350 tax liability for 1999 plus $700 of estimated payments for 2000. Example 4: Same facts as in Example 3, with the following additional facts: Lois makes her 2000 fourth quarter estimated tax payment of $250 on January 16, 2001. During 2001, Lois pays $1,500 in estimated tax. She claims $1,750 as an itemized deduction ($250 plus 1,500). Her 2001 Montana tax liability is $1,400 and she claims a credit of $1,400 on the 2001 Oregon return. Lois’s addition to income for 2001 is $1,650: $250 from tax year 2000 and $1,400 from tax year 2001.