Interest on Deferred Oregon Tax Liability with Respect to Installment Obligations

# (1)

(1) Corporations with income from business activity taxable both within and without this state must compute interest on deferred Oregon tax liability with respect to installment obligations using the relevant apportionment and allocation provisions of ORS Chapter 314.

# (2)

(2) Interest on deferred Oregon tax liability with respect to apportionable income from installment obligations must be computed using the Oregon apportionment factor for the year of the installment sale.

# (3)

(3) Interest on deferred Oregon tax liability with respect to nonapportionable income from installment obligations must be computed using the allocation provisions that apply to the income from the installment sale.

Example 1:

C Corp is a toy manufacturer doing business in Oregon and Washington. In 2016, C Corp sells a factory in Washington. The sales price is $11,000,000, the basis for Oregon tax purposes is $5,500,000, and the gross profit percentage is 50 percent. Under the terms of the sale, C Corp receives $1,000,000 in 2016 and a note for $10,000,000 (including $5,000,000 of unrecognized gain) to be paid in five equal annual installments. C Corp's Oregon apportionment percentage for its 2016 calendar year return is 25 percent. The interest rules under IRC 453A and ORS 314.302 apply because the face amount of installment obligations remaining unpaid at the end of 2016 is greater than $5,000,000. The interest to report as tax on the 2016 Oregon return is computed as follows: [See PDF link below.]

Example 2:

Assume the same facts as Example 1. In addition, during 2017, C Corp receives a payment of $2,000,000 on the 2016 installment obligation. This leaves an unpaid balance of $8,000,000 at the end of 2017, including unrecognized gain of $4,000,000. C Corp's Oregon apportionment percentage for 2017 is 34 percent. The interest to report as tax on C Corp's 2017 Oregon return is computed as follows: [See PDF link below.]

Example 3:

Assume the same facts as in Examples 1 and 2, except that the property sold by C Corp in 2016 is nonbusiness property located in Washington. No interest on deferred Oregon tax liability will be reported to Oregon in either 2016 or 2017.

Example 4:

Assume the same facts as in Example 3, except that the nonbusiness property sold is located in Oregon. The amount of interest to report as tax on the 2016 and 2017 Oregon tax returns is calculated as follows: [See PDF link below.]

[ED. NOTE: To view attachments referenced in rule text, click here for PDF copy.]