Oregon Composite Tax Return

# (1)

(1) A pass-through entity (PTE) doing business in or deriving income from sources within this state is required to file an Oregon composite tax return if requested by one or more nonresident owners.

(a) Computation of tax. Each PTE filing a composite return on behalf of electing nonresident owners must calculate the tax for each owner. The tax liability for each nonresident owner included on the composite return, determined without regard to the tax credits allowed under subsection (1)(b) of this rule, is calculated by applying the Oregon tax rates based on the owner's filing status to the difference between the owner's share of the entity's Oregon-source distributive income for the taxable year and, if applicable, the owner's self-employment tax deduction, as provided for in subsection (1)(b) of this rule. If distributive income is apportioned, the deduction must also be apportioned by multiplying the owner's federal deduction for one-half self-employment tax (attributable to the owner's share of the entity's net earnings from self-employment), if applicable, by the apportionment percentage provided in ORS 314.650 through 314.675. The PTE will report on the Oregon composite return the tax computed for each electing owner and total amounts for all electing owners.

(b) Credits and deductions. Below is a list of items that may or may not be allowed for the electing owners. [See PDF link below]

(c) Net operating losses for Oregon nonresidents subject to tax under ORS chapter 316 are computed under ORS 316.028. A PTE that has filed an Oregon composite tax return on behalf of nonresident individual owners may file amended returns to carry back the Oregon net operating losses incurred by the PTE. A schedule must be retained by the PTE indicating the taxpayers affected and calculations of the loss amounts and made available to the department upon request. These losses may also be carried forward. The allowed carryback and carryforward periods (including elections to forego the carryback period) are the same as provided under Internal Revenue Code section 172. The election to forego the carryback period must be made by attaching a statement to the Oregon composite return filed on or before the due date (including extensions) of the return for the loss year. Corporations are not allowed to carry back a net operating loss (ORS 317.476).

# (2)

(2) Election to participate in an Oregon composite tax return. The following provisions apply:

(a) The owner must make a separate election for each tax year;

(b) The owner must have been a nonresident of Oregon during the owner's entire tax year;

(c) The owner is considered to have made the election on the date the PTE files the composite return that includes the owner;

(d) By making the election, the owner elects to have the owner's Oregon tax liability on the owner's share of distributive income from Oregon sources paid and reported by the PTE;

(e) The owner is ultimately liable for tax, penalty and interest if the PTE fails to file a composite tax return or pay the tax on behalf of the owner; and

(f) The election to participate in an Oregon composite tax return is irrevocable after the due date of the composite return, including extensions.

# (3)

(3)(a) Disregarded entities. The PTE must look to the owner of a disregarded entity to determine whether the owner of the disregarded entity may choose to join in the composite filing.

(b) Corporate owners.

(A) A corporate owner's distributive income may be included in a composite return only when its distributive share is not required to be included in the corporate owner's apportionable income. A PTE filing a composite return should assume a corporate owner's distributive share is required to be included in the corporate owner's apportionable income unless the corporate owner notifies the PTE in writing that it is not.

(B) If it is determined by the department that the corporate owner's distributive share should be included in the corporation's apportionable income, the corporate owner's election to be included in the composite return is invalid. The corporate owner must notify the PTE, and the PTE may file an amended composite return for a refund of tax that was paid on the corporate owner's distributive share included in the composite return subject to the limitations provided in ORS 314.415. The PTE may file a transfer request to move the tax paid for the corporate owner to the owner's account instead of having the tax refunded to the PTE. In the absence of the amended return, the department may adjust the composite return subject to the limitations provided in ORS 314.415.

(C) The PTE must include an indirect corporate owner's share of distributive income in the composite return unless the PTE can reasonably determine that the indirect corporate owner's share of income is required to be included in the indirect corporate owner's apportionable income.

(D) Income includable in an indirect corporate owner's apportionable income may be considered as reasonably determined if the PTE has received written notice from the indirect corporate owner that the indirect corporate owner's distributive share of income is required to be included in the indirect corporate owner's apportionable income.

# (4)

(4) Filing and payment requirements.

(a) Due date. The Oregon composite tax return is due the 15th day of the fourth month after the close of the tax year of the majority of the number of electing owners.

(b) Payment of amounts due. Payment of the amount due is made by the PTE on the owner's behalf and must accompany the filing of the Oregon composite tax return. The payment must include the tax due plus any penalty or interest provided by Oregon law.

(c) Refund of tax made pursuant to a composite return filed after the due date, including extensions and filed under these provisions will be paid to the PTE, except as provided in Section 5, regardless of changes in ownership or changes in the identity of nonresidents participating in an Oregon composite filing.

(d) Extensions of time to file. If the entity is granted a federal or Oregon extension of time to file the entity's return (partnership return or S corporation return), an extension for filing the Oregon composite return is allowed. This is true even if the composite return reports the income in a different tax year than the entity's partnership or S corporation return. The entity must keep a copy of the federal extension with its tax records. The extension to file the composite return is 6 months from the composite return due date.

(e) A nonresident owner may file a separate tax return and elect to join in the filing of a composite return. The income reported on the composite return is subtracted on the owner's separate return and tax is paid only on the Oregon-source income not reported on the composite return.

# (5)

(5) Ineligibility or revoking an election to participate in a composite return.

(a) One or more owners may revoke the election to join in the Oregon composite tax return after the Oregon composite tax return has been filed and before the due date of the composite return, including extensions. To revoke a previous election and transfer tax paid:

(A) Upon notification of the revocation, the PTE must file an amended Oregon composite return removing the owner and request a transfer of any payment made on the owner's behalf to the revoking owner's account, and

(B) The revoking owner must file a separate return with the department showing all items of income and deduction from the PTE. If the owner did not previously file a return for the year, this separate return will be treated as an original return and, if filed after the due date, any tax liability shown on the return is subject to interest and penalties in the same manner as any other delinquently filed original return.

(b) If an owner becomes ineligible, revokes an election before the due date of the return, including extensions, or declines to participate in filing an Oregon composite return, and the PTE made tax payments on the owner's behalf with a composite return, the PTE may submit a written transfer request using forms and instructions provided by the department. The department will transfer the tax payment to the account of the owner only if the PTE submits such a written request to the department.

(c) An owner who does not or cannot elect to participate in an Oregon composite tax return is subject to withholding on the owner's share of the Oregon source distributive income under ORS 314.781 and OAR 150-314-0520.

# (6)

(6) Payment of tax on behalf of nonresident owners. Estimated tax payments are required for the composite return if the total Oregon tax due for any owner is expected to be $1,000 or more for an individual; or $500 or more for a corporation. The tax liability required to be paid is the sum of each owner's estimated tax liability for that quarter that is attributable to each owner's interest in the entity. In determining the electing owner's tax liability, the provisions of ORS 314.505 to 314.525 or 316.579 to 316.589 regarding calculation of estimated tax apply. The PTE must remit the tax payments to the department using forms and instructions provided by the department.

[Publications: Publications referenced are available from the agency.]

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