Tax Hearings Focus on Corporate Sales Apportionment

Published Thursday, February 9, 2017

The House and Senate Revenue Committees began their work in earnest this week with presentations from the Department of Revenue and public hearings on the various issues surrounding apportionment of corporate sales. Of particular interest to Associated Oregon Industries (AOI) members:

SB 28 would change Oregon from a Joyce state to a Finnigan state for purposes of apportioning the income of multistate corporations doing business in Oregon. The Oregon Department of Revenue (DOR) is advocating for the change, presumably to ease their administrative burdens.

The Joyce method of apportionment, which Oregon currently employs, means that the taxable status of each member of a unitary group is determined individually. Under the Finnigan approach, if one member of a unitary group is taxable, then the entire unitary group is taxable.

HB 2274 replaces the income-producing activity 'cost of performance' sourcing method with a market-based approach for assigning sales other than the sales of tangible personal property (e.g., services and intangibles) to the sales factor numerator. This discussion started in 2015 as lawmakers were exploring this concept to help export our state's current tax burden to out-of-state companies.

SB 30 would expand the reach of Oregon's 'tax haven' law by allowing "any corporation that is owned or controlled directly or indirectly" to be considered to determine whether there is a unitary relationship.

And speaking of 'tax havens,' the Oregon Department of Revenue released its 2017 Tax Haven Recommendation Report. The DOR is recommending that Ireland, Jordan, Macau, Lebanon, and the United Arab Emirates be classified as 'tax havens' in Oregon law.

AOI opposes the state's approach of blacklisting countries as tax havens. AOI believes Oregon's approach harms our potential for international investment, particularly for nations that are key trading partners.

None of this legislation passed committee. Rather, it was the start of what promises to be a session-long discussion on each of the concepts.

Additional information on these bills can be found on the Oregon Legislature Information System.