United States: Oregon Temporarily Disallows Use Of Credits To Pay Corporate Minimum Tax And Amends Tax Haven Provisions

Oregon Governor Kate Brown signed legislation on July 20, 2015 which specifies that, for tax years beginning on or after January 1, 2015 and before January 1, 2021, tax credits cannot be used to satisfy a corporate minimum tax (CMT) liability.1 The legislation was enacted in response to a 2013 Oregon Supreme Court decision which had allowed a taxpayer to utilize a business energy tax credit (BETC) to satisfy a CMT liability.2 The legislation also makes changes to various tax credits, including extending some expiration dates. Other legislation, signed July 21, 2015, prospectively modifies "tax haven" rules requiring inclusion of income and apportionment factors from entities incorporated in designated jurisdictions to be included in the computation of taxable income for members of an affiliated group.3

Credits

Background

The Oregon Supreme Court held in 2013 that a taxpayer could utilize a BETC to satisfy its obligation to pay a CMT4 of $75,000 on its Oregon corporate excise tax return.5 Specifically, the Supreme Court concluded that there was no language in the CMT statute that prevented a credit from being used to pay the tax. Also, unlike the statutory language for some other credits, there was nothing in the BETC statute that precluded applying the credit against the CMT.

This decision provided a refund opportunity to taxpayers that had a BETC in the same year(s) for which they paid their CMT liability. Similarly, taxpayers with credits under other Oregon statutes that did not explicitly disallow the use of the credit against the CMT were able to use this case to support refund claims and/or reduce their current liabilities.

The decision also made the purchase of credits an attractive option to corporations that wished to reduce their expected CMT obligations.

Changes to Use of Credits

The enacted legislation removes this option for taxpayers for tax years beginning on or after January 1, 2015, and before January 1, 2021.6 Specifically, the legislation provides that the CMT may not be reduced, paid or otherwise satisfied through the use of any tax credit.7 For tax years beginning on or after January 1, 2021, this language is redacted.8

Other Changes

The legislation extends availability of certain credits through tax years beginning prior to January 1, 2022 (previously set to expire for tax years beginning on or after January 1, 2016), including the additional personal exemption credit for personal income taxpayers with a severe disability,9 credit for early intervention services for a disabled child,10 and credit for contributions to the child care division.11 Other credits, including the credit for individuals providing rural medical care, and the credit for certified film production development contributions, were also extended.12 Finally, a credit against personal income tax for certain expenses relating to finding employment was enacted and is available for tax years beginning on or after January 1, 2016 and before January 1, 2022.13

The Oregon Department of Revenue is required to work with the Oregon legislature to prepare an analysis of options for restructuring Oregon's state and local revenue system, with an initial report due by December 1, 2015.14 Precise options to be analyzed include: (i) alternatives for restructuring the property tax system; (ii) alternative methods of taxing consumption in Oregon; (iii) alternative methods for taxing business in Oregon including taxes based on net income, and commercial activity and value-added taxes; and (iv) alternatives for restructuring the personal income tax.15

Tax Haven Rules

For purposes of computing Oregon taxable income for a member of an affiliated group of corporations filing a consolidated federal income tax return, an addback to federal taxable income is required based on the amount of taxable income or loss of any corporation that is a member of the unitary group and incorporated in a designated "tax haven" jurisdiction.16 Apportionment factors from these entities are also included in the calculation of the apportionment factor for the unitary group.17

For tax years beginning on or after January 1, 2016, the list of designated "tax haven" jurisdictions is modified.18 Specifically, the new legislation adds the following jurisdictions to the previously existing list of designated "tax havens:" Bonaire, Curacao, Guatemala, Saba, Saint Eustatius, Saint Maarten, and Trinidad and Tobago.19 Monaco and the Netherlands Antilles are removed from the list.20

Further, the legislation clarifies that corporations affected by this addback are eligible to petition the Department for alternative apportionment if the resulting tax burden does not fairly represent the extent of the taxpayer's activity in Oregon.21

Finally, the Department is required to adopt rules to determine the computation of income or loss for a corporate member of a unitary group that is not otherwise required to file an Oregon consolidated return and rules to prevent double taxation or double deduction of any amount included in the computation of income under Oregon's "tax haven" laws.22

Commentary

Enactment of legislation effectively closing the "loophole" provided by the Oregon Supreme Court's 2013 decision is not surprising. However, the expiration of the corrective language after a six-year period is somewhat curious. Perhaps the current legislative body recognized that, with many of the currently existing tax credits now set to expire near that deadline, more decisions surrounding credit use in general will be required by a future legislature and executive administration. This is in line with the general purpose of the legislation requiring that a fuller examination of the current Oregon tax system, along with consideration of potential prospective alternatives, be performed.

Due to the retroactive elimination of the opportunity to use certain credits to offset an Oregon CMT liability, taxpayers who had anticipated using the credits in 2015 should consider the impact of the legislation on their estimated tax payment requirements. Although the legislation was enacted in the third quarter of the calendar year for financial statement tax provision purposes, any first and second quarter tax estimates are now past due.

Enactment of a provision specifically allowing taxpayers affected by the "tax haven" addback requirements23 to request alternative apportionment to accurately reflect income is interesting. The provision implicitly acknowledges that there are limitations to Oregon's right to tax these foreign entities, but avoids a clear attempt to provide a consistent solution. Instead, the legislature simply places the burden on the Department to adopt rules to prevent a potential constitutional defect.

Footnotes

1 Ch. 701 (H.B. 2171), Laws 2015.

2 Con-Way Inc. & Affiliates v. Department of Revenue, 302 P.3d 804 (Or. 2013). For a discussion of this case, see GT SALT Alert: Oregon Supreme Court Holds Business Energy Tax Credit May Be Used to Satisfy the Corporate Minimum Tax.

3 Ch. 755 (S.B. 61), Laws 2015.

4 The CMT is based on the amount of total Oregon sales of the combined filing group. The amount of tax ranges from $150 for corporations with less than $500,000 in Oregon sales to $100,000 for corporations with Oregon sales of at least $100,000,000. See OR. REV. STAT. § 317.090(2).

5 Con-Way Inc. & Affiliates v. Department of Revenue, 302 P.3d 804 (Or. 2013).

6 OR. REV. STAT. § 317.090(3), as amended by Ch. 701 (H.B. 2171), Laws 2015, § 43. For effective date provision, see Ch. 701 (H.B. 2171), Laws 2015, § 45(1).

7 Id.

8 OR. REV. STAT. § 317.090(3), as amended by Ch. 701 (H.B. 2171), Laws 2015, § 44. For effective date provision, see Ch. 701 (H.B. 2171), Laws 2015, § 45(2).

9 Ch. 701 (H.B. 2171), Laws 2015, § 14.

10 Ch. 701 (H.B. 2171), Laws 2015, § 16.

11 Ch. 701 (H.B. 2171), Laws 2015, § 25.

12 Ch. 701 (H.B. 2171), Laws 2015, §§ 18, 42. The film production credit is extended through tax years beginning prior to January 1, 2024 and the credit for providing rural medical care is extended through tax years beginning prior to January 1, 2018.

13 Ch. 701 (H.B. 2171), Laws 2015, §§ 3, 5. The amount of this credit is based on an amount equal to a percentage of employment-related expenses allowable as a federal credit pursuant to IRC § 21. The employment-related expenses cannot exceed $12,000 for a taxpayer for which there is one qualifying individual or $24,000 for a taxpayer for which there are two or more qualifying individuals. The credit is not allowed for a taxpayer with federal adjusted gross income or Oregon adjusted gross income in excess of 300 percent of the federal poverty level.

14 Ch. 701 (H.B. 2171), Laws 2015, § 1.

15 Ch. 701 (H.B. 2171), Laws 2015, § 1(2).

16 Current OR. REV. STAT. § 317.715(2)(a).

17 Current OR. REV. STAT. § 317.715(4)(b).

18 Ch. 755 (S.B. 61), Laws 2015, §§ 1, 2, 6; OR. REV. STAT. § 317.715(2).

19 Ch. 755 (S.B. 61), Laws 2015, § 2(1)(b); OR. REV. STAT. § 317.715(2). Note that OR. REV. STAT. § 317.717 is amended to require the Department to review this list on a biannual basis in oddnumbered years. Specific criteria for determining which jurisdictions meet the definition of "tax haven" are provided and countries must be included on the list if they: (i) have laws or policies that prevent the effective exchange of tax-related information with other governments; (ii) have a tax regime which generally lacks transparency; (iii) facilitate the establishment of foreign-owned entities without the need for substantive local presence; (iv) allow benefits for foreign entities that are unavailable to domestic businesses; or (v) have created a tax regime deemed "favorable for tax avoidance."

20 Id.

21 Ch. 755 (S.B. 61), Laws 2015, § 2(2); OR. REV. STAT. § 317.715(2).

22 Ch. 755 (S.B. 61), Laws 2015, § 2(3).

23 Note that several other jurisdictions, including Alaska, the District of Columbia, Montana, Rhode Island and West Virginia, have similar laws requiring inclusion of certain income from tax haven jurisdictions in the computation of taxable income.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.