Committee on State Taxation: Oregon Developments
By Robert T. Manicke
Robert T. ManickeLegislative Proposals
Peter R. Jarvis
Jaime M.W. Sanders
Stoel Rives LLP
900 SW Fifth Avenue, Suite 2600
Portland, Oregon 97204-1268
Oregon has a biennial legislative cycle, and the legislature generally meets only in odd-numbered years. However, as in some other states, the Oregon Governor called two special sessions of the Legislature in January and February 2002 to address projected shortfalls in state revenues. The Legislature rejected the Governor's proposals to delay a cut in personal income taxes previously approved by the voters and to raise taxes on cigarettes and alcohol. No tax measures resulted from the special sessions. The Governor has threatened to line-item veto several of the budget measures approved by the Legislature during the special sessions and is likely to call a third special session in June.
Oregon's initiative system continues to offer up proposed measures to lower or otherwise limit taxes, including personal income and corporate capital gains income taxes. Any income tax measures that the voters approve in May will be reported in the next developments outline.
Incentive Payments Constitute Taxable Income. In Couch v. Department of Revenue, 15 OTR 396 (2001), the Oregon Tax Court Regular Division ruled that an incentive payment to the taxpayer's single member LLC to rebrand a gasoline station as a Shell gasoline station constituted taxable income to the taxpayer. The court implicitly disregarded the LLC, as an LLC is classified the same way for Oregon tax purposes as for federal tax purposes pursuant to ORS 63.810. Noting that Oregon taxable income is governed by federal law pursuant to ORS 316.047, the court held that the advance payment was realized and received at the time the taxpayer rebranded the station as a Shell station. The taxpayer represented himself.
Taxpayer Appeals Inclusion of Cars Leased by Agents in Property Factor of Apportionment Formula. Mary Kay, Inc. has appealed the Oregon Tax Court Magistrate Division's decision in Mary Kay, Inc. v. Department of Revenue, No. 982184A, 2001 WL 1082415 (Or Tax Aug. 14, 2001). As reported in the Fall 2001 developments outline, the Oregon Tax Court Magistrate held that Mary Kay, Inc. must include "career cars" possessed and used by Mary Kay independent beauty consultants in the property factor for formulary apportionment as "real and tangible personal property owned or rented and used" in Oregon. The taxpayer has appealed to the Regular Division of the Oregon Tax Court, in Mary Kay, Inc. v. Department of Revenue, No. 4552.
Income of Nonresident Partners in Oregon Partnership Subject to Tax in Oregon. In Reeve v. Department of Revenue, 333 Or 190, 37 P3d 981 (2001), the Oregon Supreme Court held that Washington state residents were subject to tax in Oregon on income derived from an Oregon partnership. The taxpayers, Washington residents who practiced law exclusively in Washington, argued that because the Oregon tax code incorporates IRC § 707(c) their income from the partnership was sourced to Washington as "guaranteed payments" earned solely in Washington.
The Court observed that Oregon's provision incorporating IRC § 707(c) applies only if the taxpayer first engaged in a transaction with the partnership "other than in the partner's capacity as a member of the partnership." Id. at 195. The taxpayers could not show that the payments were for services other than as partners who provided legal services on behalf of clients or other services in their roles as partners and therefore could not establish that they met the condition that they acted as nonpartners.