2015 ORS 316.043¹
Tax rates allowed for certain nonpassive income
  • conditions
  • election

(1) As used in this section:

(a) "Material participation" has the meaning given that term in section 469 of the Internal Revenue Code.

(b) "Nonpassive income" means income other than income from passive activity as determined under section 469 of the Internal Revenue Code. "Nonpassive income" does not include wages, interest, dividends or capital gains.

(c) "Nonpassive loss" means loss other than loss from passive activity as determined under section 469 of the Internal Revenue Code.

(2) If a taxpayer that meets the conditions of subsection (6) of this section has nonpassive income attributable to any partnership or S corporation after reduction for nonpassive losses, that portion of the taxpayer’s income that meets the conditions of subsection (6) of this section shall be taxed at:

(a) The rate applicable under ORS 316.037 (Imposition and rate of tax); or

(b) At the election of the taxpayer, a rate of:

(A) Seven percent of the first $250,000 of taxable income, or fraction thereof;

(B) Seven and two-tenths percent of taxable income exceeding $250,000 but not exceeding $500,000;

(C) Seven and six-tenths percent of taxable income exceeding $500,000 but not exceeding $1 million;

(D) Eight percent of taxable income exceeding $1 million but not exceeding $2.5 million;

(E) Nine percent of taxable income exceeding $2.5 million but not exceeding $5 million; and

(F) Nine and nine-tenths percent of taxable income exceeding $5 million.

(3) The reduced rates allowed under subsection (2)(b) of this section may be adjusted as provided in ORS 316.044 (Estimates by Legislative Revenue Officer).

(4) A taxpayer shall use the subtractions, deductions or additions otherwise allowed under this chapter in the calculation of income that is taxed at the rates otherwise applicable under ORS 316.037 (Imposition and rate of tax). The only addition or subtraction allowed in the calculation of nonpassive income for which the taxpayer uses the reduced rates allowed under subsection (2)(b) of this section shall be any depreciation adjustment directly related to the partnership or S corporation.

(5) The election under subsection (2)(b) of this section shall be irrevocable and shall be made on the taxpayer’s original return. If the taxpayer uses the reduced rates allowed under subsection (2)(b) of this section, the calculation of income shall be substantiated on a form prescribed by the Department of Revenue and filed with the taxpayer’s tax return for the tax year or at such other time and manner as the department may prescribe by rule. A taxpayer who uses the reduced rates available under subsection (2)(b) of this section may not join in the filing of a composite return under ORS 314.778 (Composite returns of pass-through entities).

(6) The rates listed in subsection (2)(b) of this section apply to nonpassive income attributable to a partnership or S corporation only if:

(a) The taxpayer materially participates in the trade or business;

(b) The partnership or S corporation employs at least one person who is not an owner, member or limited partner of the partnership or S corporation; and

(c) At least 1,200 aggregate hours of work in Oregon are performed, by the close of the tax year for which the reduced rate is allowed, by employees who meet the requirements of paragraph (b) of this subsection and who are employed by the partnership or S corporation. In determining whether this requirement is met, only hours worked in a week in which a worker works at least 30 hours may be considered.

(7)(a) A nonresident may apply the reduced rates allowed under subsection (2)(b) of this section only to income earned in Oregon.

(b) A part-year resident shall calculate the tax due using the reduced rates allowed under subsection (2)(b) of this section by first applying those rates to the taxpayer’s nonpassive income that meets the requirements of subsection (6) of this section, and then multiplying that amount by the ratio of the taxpayer’s nonpassive income in Oregon divided by nonpassive income from all sources. [2013 s.s. c.5 §11; 2014 c.114 §6]

Chapter 316

Notes of Decisions

Unless the divorce decree specifically designates that pay­ments are for child support, pay­ments will be treated as alimony. Henderson v. Dept. of Rev., 5 OTR 153 (1972)

The goal of this chapter is to incorporate all of the pro­vi­sions of the federal Internal Revenue Code; taxable income should be adjusted whenever the result of the adjust­ment is to give effect to the policies or principles of the federal Internal Revenue Code, even though no express authority for the adjust­ment is present in the statutes. Christian v. Dept. of Rev., 269 Or 469, 526 P2d 538 (1974); Smith v. Dept. of Rev., 270 Or 456, 528 P2d 73 (1974)

By its enact­ment of this chapter, the legislature intended to adopt §172 of the federal Internal Revenue Code allowing for the carryback and carryforward of net operating losses. Christian v. Dept. of Rev., 269 Or 469, 526 P2d 538 (1974)

Where plaintiff failed to ap­peal timely as re­quired by this sec­tion, ap­peal rights were not preserved so that cause could be considered on merits. Dela Rosa v. Dept. of Rev., 11 OTR 201 (1989), aff'd 313 Or 284, 832 P2d 1228 (1992)

Where taxpayers paid foreign income taxes on foreign income and claimed foreign taxes paid as federal tax credit and as state business expense deduc­tion, taxpayers who claim federal foreign tax credit are entitled only to foreign tax deduc­tion provided in ORS 316.690 (Foreign income taxes). Whipple v. Dept. of Rev., 309 Or 422, 788 P2d 994 (1990)

For purposes of claim preclusion, all issues re­gard­ing taxpayer's income tax liability for tax year constitute same claim. U.S. Bancorp v. Dept. of Revenue, 15 OTR 13 (1999)

Atty. Gen. Opinions

Political contribu­tions as credit against Oregon tax return, (1974) Vol 37, p 159

Law Review Cita­tions

57 OLR 309 (1978); 16 WLR 373 (1979)


1 Legislative Counsel Committee, CHAPTER 316—Income Tax, https://­www.­oregonlegislature.­gov/­bills_laws/­ors/­ors316.­html (2015) (last ac­cessed Jul. 16, 2016).
 
2 Legislative Counsel Committee, Annotations to the Oregon Revised Stat­utes, Cumulative Supplement - 2015, Chapter 316, https://­www.­oregonlegislature.­gov/­bills_laws/­ors/­ano316.­html (2015) (last ac­cessed Jul. 16, 2016).
 
3 OregonLaws.org assembles these lists by analyzing references between Sections. Each listed item refers back to the current Section in its own text. The result reveals relationships in the code that may not have otherwise been apparent.