Two-track corporate tax system: excise vs. income
Oregon imposes corporate tax through two distinct statutes that apply to different categories of taxpayers. Corporations "doing business" in Oregon are subject to the corporate excise tax under ORS Chapter 317, measured by net income and imposed "for the privilege of carrying on or doing business in this state." Corporations not doing business in Oregon but with income from Oregon sources are instead subject to the corporate income tax under ORS Chapter 318, at the same rates but without a minimum tax. "Doing business" means "any transaction or transactions in the course of its activities conducted within the state," excluding foreign corporations whose activities are limited to purchasing and storing personal property for out-of-state shipment (unless they are affiliated with another corporation doing business in Oregon). The same income cannot be taxed under both chapters; the facts determine which statute applies, and there is no election. Most active Oregon corporations file under the excise tax (Chapter 317).
Source: ORS 317.070; ORS 317.010(4)-(5); ORS 318.020; OAR 150-318-0030
Corporate excise and income tax rate
Oregon imposes a two-tiered corporate tax rate structure under ORS 317.061. The tax rate is 6.6% on the first $1 million of taxable income, and 7.6% on taxable income exceeding $1 million. These rates apply to both the corporate excise tax (Chapter 317) and the corporate income tax (Chapter 318). The $1 million threshold is not indexed for inflation.
Source: ORS 317.061; Oregon Corporate Excise and Income Tax: 2023 Update, Oregon Legislative Revenue Office
Minimum tax graduated by Oregon sales
Oregon corporations doing business in the state must pay a minimum excise tax graduated by Oregon sales, regardless of net income or loss. The minimum tax schedule under ORS 317.090(2) includes: $150 for Oregon sales under $500,000; $500 for sales of $500,000 to under $1 million; $1,000 for sales of $1 million to under $2 million; $15,000 for sales of $10 million to under $25 million; and $100,000 for sales of $100 million or more. The statute establishes eleven brackets in total. The minimum tax is not apportionable (except for accounting period changes), is payable in full for any part of the year a corporation is subject to tax, and may not be reduced by tax credits. For consolidated returns, only one minimum tax applies per return, regardless of the number of affiliated corporations doing business in Oregon.
Source: ORS 317.090; OAR 150-317-0170
Single sales factor apportionment formula
For tax years beginning on or after July 1, 2005, Oregon apportions corporate income using only the sales factor. Under ORS 314.650, all apportionable income is multiplied by a fraction: Oregon sales in the numerator divided by total sales everywhere in the denominator. The regulation defines "sales" as all gross receipts and revenues included in apportionable income. This single-factor method replaced the prior weighted three-factor formula (property, payroll, and sales). Certain industries—including financial organizations, public utilities, and carriers of freight or passengers—may use modified apportionment factors under separate statutes and regulations.
Source: ORS 314.650; OAR 150-314-0385
Substantial nexus standard: economic presence without physical presence requirement
Oregon asserts jurisdiction to impose corporate excise or income tax when a taxpayer has "substantial nexus" with the state, and physical presence is not required. Under OAR 150-317-0020(2), substantial nexus exists "where a taxpayer regularly takes advantage of Oregon's economy to produce income for the taxpayer and may be established through the significant economic presence of a taxpayer in the state." The regulation explicitly states that substantial nexus "does not require a taxpayer to have a physical presence in Oregon."
The statutory foundation is ORS 317.010(4), which defines "doing business" as "any transaction or transactions in the course of its activities conducted within the state." Foreign corporations whose activities are confined solely to purchasing and storing personal property incident to out-of-state shipment are excluded from the "doing business" definition, unless the corporation is an affiliate of another corporation doing business in Oregon (with affiliation determined under IRC § 1504).
Factors Oregon considers
OAR 150-317-0020(3) lists non-exclusive factors the Department of Revenue may consider in determining whether substantial nexus exists:
- Filing or being required to file reports or returns with Oregon regulatory bodies
- Receiving significant gross receipts attributable to customers in Oregon
- Receiving significant gross receipts attributable to use of the taxpayer's intangible property in Oregon
- Receiving benefits from the state, including: laws protecting business interests or regulating consumer credit; access to courts for debt collection or intellectual property enforcement; highway or transportation system access; police and fire protection for property displaying the taxpayer's intellectual or intangible property
The regulation emphasizes that this list is "meant to be nonexclusive," and the Department "may consider any other relevant facts and circumstances."
Regulatory examples
The regulation provides four examples illustrating when nexus exists or does not exist:
- Example 1 (nexus exists): A credit card company providing services over the internet and by mail to over 25,000 Oregon customers, with three or four annual solicitation mailings to Oregon customers in six Oregon cities, has substantial nexus.
- Example 2 (no nexus): A San Francisco internet sales company making approximately 50 sales at $6.95 per sale to Oregon residents during the tax year, contracting with an Oregon mailing service for deliveries, does not have substantial nexus because the sales volume is de minimis.
- Example 3 (nexus exists): A wine and beer distributor that must obtain and maintain an Oregon wholesaler's license from the Oregon Liquor Control Commission and file monthly sales reports has substantial nexus.
- Example 4 (nexus exists): A Delaware intellectual property company that licenses trademarks to a related retail company operating Oregon stores (the royalty is 5% of gross sales) has substantial nexus through the use of its property in Oregon.
P.L. 86-272 protection
Oregon's nexus jurisdiction is subject to the limitations of federal Public Law 86-272, which protects corporations whose in-state activities are limited to solicitation of sales of tangible personal property for delivery outside the state. OAR 150-317-0020(1) expressly states that Oregon imposes tax "to the extent allowed under state statutes, federal Public Law 86-272, and the Oregon and U.S. Constitutions."
Threshold for filing
Oregon does not publish a bright-line dollar threshold for substantial nexus. The determination is fact-specific and turns on whether the taxpayer "regularly takes advantage of Oregon's economy." The regulatory examples show that 50 sales totaling approximately $347.50 is de minimis and does not create nexus, while 25,000 credit card customers receiving multiple annual solicitations does.
Source: OAR 150-317-0020; ORS 317.010(4); Oregon Department of Revenue, Foreign Corporations
Market-based sourcing for sales of services and intangibles
For tax years beginning on or after January 1, 2018, Oregon assigns sales of services and intangibles to Oregon using market-based sourcing. Under OAR 150-314-0435, receipts other than sales of tangible personal property "are in Oregon within the meaning of ORS 314.665(4) and this rule if and to the extent that the taxpayer's market for the sales is in Oregon." This rule replaced Oregon's prior cost-of-performance method, which sourced receipts to the state where the taxpayer performed the income-producing activity.
The regulation adopts a model regulation recommended by the Multistate Tax Commission and applies to all receipts other than sales of tangible personal property, including sales of services, rentals or licenses of real or tangible personal property, sales or licenses of intangible property, and sales of digital products.
Professional services sourcing hierarchy
For professional services—services requiring specialized knowledge and in some cases a professional certification, license, or degree—OAR 150-314-0435(4)(c) establishes a three-tier sourcing hierarchy. Professional services include management services, financial services, tax preparation, payroll and accounting services, data processing services, legal services, consulting services, video production services, graphic and other design services, engineering services, and architectural services.
Services to business customers: Sales are assigned to Oregon based on the following hierarchy:
- First: The state where the contract of sale is principally managed by the customer—the primary location where an employee or other representative of the customer serves as the primary contact person with respect to day-to-day execution and performance of the contract.
- Second (if first not reasonably determinable): The customer's place of order—the location from which the customer places the order for the services, as determined by the address of the individual signing the contract on behalf of the customer.
- Third (if first and second not reasonably determinable): The customer's billing address.
Services to individual customers: Sales are assigned first to the individual's state of primary residence. If the state of primary residence cannot be determined, sales are assigned to the customer's billing address.
Materiality threshold for large customers: If a taxpayer derives more than five percent of its gross receipts from one business customer, the taxpayer must identify the state in which the contract is principally managed by that customer. For individual customers contributing more than five percent of receipts, the taxpayer must identify the customer's state of primary residence.
Safe harbor for high-volume service providers: If a taxpayer engages in substantially similar services with more than 250 customers (either individuals or businesses) in a taxable year, the taxpayer may assign all sales receipts based on the customer's billing address, bypassing the higher tiers of the hierarchy.
Real and tangible personal property
Sales, rentals, leases, or licenses of real property are in Oregon if and to the extent the property is in Oregon. Sales, rentals, leases, or licenses of tangible personal property are in Oregon if and to the extent the property is in Oregon. For mobile tangible personal property located both inside and outside Oregon during the contract period, receipts are apportioned using a fraction based on the property's time or mileage in Oregon.
Software transactions
A license or sale of pre-written software for purposes other than commercial reproduction, when transferred on a tangible medium, is treated as a sale of tangible personal property rather than as a license of intangible property or performance of a service. Those receipts are sourced under the tangible personal property rules of ORS 314.665(2)—generally, to the state where the property is delivered or shipped.
Intangible property exclusions
Certain receipts from the sale of intangible property are excluded from both the numerator and denominator of the sales factor. ORS 314.665(3)(a) excludes gross receipts from the sale, exchange, redemption, or holding of intangible assets (including securities) unless those receipts are derived from the taxpayer's primary business activity. ORS 314.665(3)(b) includes net gains from the sale, exchange, or redemption of intangible assets not derived from the primary business activity but included in the taxpayer's business income. The regulation specifies that sales of partnership interests, business goodwill, agreements not to compete, and similar intangible property are excluded from the sales factor under Oregon Laws 2017, chapter 549, section 2(3)(c).
Related-party information imputation
Where a taxpayer has receipts from transactions with a related-party customer (as defined by the attribution rules of IRC § 267 or § 1504), information that the customer has that is relevant to the sourcing of receipts is imputed to the taxpayer. This prevents taxpayers from claiming inability to determine sourcing information when dealing with controlled entities.
Contemporaneous records requirement
A taxpayer's assignment of receipts must be supported by the taxpayer's books and records kept in the normal course of business. Where a taxpayer has sufficient information in its books and records to assign receipts to a specific state under the applicable hierarchy, the taxpayer must assign the receipts to that state. A taxpayer may not avoid the assignment rules by failing to maintain records in the normal course of business or by failing to gather information that would reasonably be available.
Effective date and transition
OAR 150-314-0435 applies to tax years beginning on or after January 1, 2018. For tax years beginning before January 1, 2018, Oregon sourced service receipts under cost-of-performance principles, assigning receipts to the state where the income-producing activity was performed.
Source: OAR 150-314-0435; ORS 314.665