Special Rules: Installment Sales

# (1)

(1) Income from installment sales is reported at least in part in a year other than the year in which the sale took place. Apportionment of installment sale income on the basis of the factors in the years other than the year of sale would result in such income being apportioned by activities which had no connection with the earning of the income.

# (2)

(2) This rule applies to taxpayers who use the installment method of reporting income from the sale of property and whose Oregon apportionment percentage for the year of the sale is different than that for any year in which proceeds from that sale are received by the taxpayer. A taxpayer shall apportion the income from the installment sale using the Oregon apportionment percentage of the year of sale.

Example: X is doing business in States A, B and C. During Year 1, the taxpayer sold a plant in State A and realized a $500,000 gain on the sale. The taxpayer elected to report the sale under the installment basis since two equal payments ($250,000 each) are to be received in years 2 and 3. The taxpayer's apportionment factors were as follows:

Year — Apportionment Factor

1 — 11%

2 — 1%

3 — 32%

State A would realize a taxable gain of $55,000 ($500,000 x 11%) if the sale was not reported under the installment method. Since the apportionment factors have changed to 1 percent and 32 percent in years 2 and 3 respectively, a taxable gain of $2,500 is reported to State A in year 2 and $80,000 in year 3.

Use of the year of sale factor results in $27,500 gain being reported to State A in years 2 and 3 (total: $55,000).