Credit for Income Taxes Paid to Another State — Computation

# (1)

(1) General: This rule explains the computation of the credit for taxes paid to another state on mutually taxed income.

(a) Residents: An Oregon resident is allowed a credit for taxes paid to another state on mutually taxed income if the other state does not allow the credit. See section (3) of this rule for information on calculating the credit for an Oregon resident.

(b) Nonresidents: Under ORS 316.131, an Oregon nonresident is allowed the credit if the state of residence allows Oregon residents to claim a credit for mutually taxed income on the nonresident return filed with that state. See section (4) of this rule for information on calculating the credit for an Oregon nonresident.

(c) Part-year residents: A person who is a resident for a part of the taxable year and a nonresident for the rest of the year figures the credit under section (3) of this rule for the portion of the year the individual was a resident and under section (4) of this rule for the nonresident portion of the year.

# (2)

(2) Definitions. For purposes of this rule, the following definitions apply:

(a) "Adjusted gross income" means federal adjusted gross income as defined in the Internal Revenue Code section 62 and the corresponding regulations.

(b) "Modified adjusted gross income" means adjusted gross income as modified under ORS Chapter 316, but only as to items related to federal adjusted gross income.

(c) "Items related to federal adjusted gross income" means items of income, gain, loss, exclusion or deduction that are used to arrive at federal adjusted gross income. It does not include items that are unrelated to determining federal adjusted gross income, such as the federal income tax subtraction under ORS 316.695 or the additional medical expense deduction provided by ORS 316.695(1)(d)(B).

(d) "Mutually taxed income" means that portion of modified adjusted gross income that is both reported to and taxed by Oregon and another state.

(e) "Total income on the return of the other state" means the other state's taxable income plus any amounts subtracted for itemized deductions, a standard deduction, or exemptions.

(f) "Net tax" means state income tax liability (whether Oregon or the other state) after all credits except the credit for taxes paid to another state, the surplus refund under ORS 291.349, the claim of right income repayment credit, the credit for taxes imposed by another jurisdiction on gain from the sale of a personal residence, and the pass-through entity elective tax credit.

(g) "Oregon tax based on mutually taxed income" means that portion of Oregon net tax that is attributable to mutually taxed income. It is figured using this formula:

(h) "Other state's tax based on mutually taxed income" means that portion of net tax of the other state that is attributable to mutually taxed income. It is figured using this formula:

# (3)

(3) Computing the credit for an Oregon resident. An Oregon resident figures the credit as the lesser of:

(a) The Oregon tax based on mutually taxed income; or

(b) The tax actually paid to the other state.

# (4)

(4) Computing the credit for a nonresident. The credit allowed to a nonresident is the lesser of the following amounts:

(a) Oregon tax based on mutually taxed income (as defined under (2)(g));

(b) The other state's tax based on mutually taxed income (as defined under (2)(h));

(c) The tax actually paid to the other state; or

(d) Oregon net tax.

# (5)

(5) Special Filing Status. Filing status may affect the computation of the credit allowed by ORS 316.082. If a husband and wife file separate returns for Oregon and also file separate returns for another state, the credit is limited. Each spouse may claim only his or her portion of the actual taxes he or she paid to the other state (subject to all other limitations provided under this rule) in computing the allowable credit.

# (6)

(6) If one spouse is a resident of Oregon and the other is a resident of a community property state and files a separate return in that state, the Oregon resident may be entitled to a credit for taxes paid to the other state on mutually taxed income. For purposes of this rule, the mutually taxed income is that which is earned and reported to the other state by the nonresident but included in the income of the Oregon resident by virtue of the laws of the community property state. The amount of the other state's tax paid on mutually taxed income is determined using the following ratio:

# (7)

(7) If a husband and wife file a joint return for Oregon, the entire amount of taxes either or both spouse paid to the other state (subject to all other limitations provided under this rule) may be claimed for purposes of computing the credit allowed under this statute. It does not matter which filing status the taxpayers use for the other state.

# (8)

(8) If a husband and wife file separate returns for Oregon but file a joint return for another state, the allowable credit is limited as follows. Each spouse may claim a credit for taxes paid to another state (subject to all other limitations provided under this rule) based on the following ratio: