7.02.600 Income Determinations.

City Code Section

(Amended by Ordinances 183727, 185781, 186331, 187339, 189017, 189389, 190129 and 191010, effective October 28, 2022.)

  1. This Section applies to tax years beginning prior to January 1, 2023. For Tax years beginning on or after January 1, 2023, see Section 7.02.601.
  2. A. Owners Compensation Deductions.  “Owners Compensation Deduction” is defined as the additional deduction allowed in Subsections B., C. and D. below.  The owners compensation deduction is indexed (beginning in January 1999) by the Consumers Price Index - All Urban Consumers (CPI-U) US City Average as published by the US Department of Labor, Bureau of Labor Statistics, using the September to September index, not seasonally adjusted (unadjusted index).  The Division determines the exact deduction amount and publishes the amount on forms.  Any increase or decrease under this paragraph that is not a multiple of $500 will be rounded up or down to the next multiple of $500 at the Division’s discretion.
    1. 1. For tax years beginning on or after January 1, 2007, the Owners Compensation Deduction cannot exceed $80,000 per owner as defined in Subsections B., C. and D. below.  For tax years beginning on or after January 1, 2008, the Owners Compensation Deduction will be indexed as described above.
    2. 2. For tax years beginning on or after January 1, 2013, the Owners Compensation Deduction cannot exceed $90,500 per owner as defined in Subsections B., C. and D. below.
    3. 3. For tax years beginning on or after January 1, 2014, the Owners Compensation Deduction cannot exceed $100,000 per owner as defined in Subsections B., C. and D. below.  For tax years beginning on or after January 1, 2015, the Owners Compensation Deduction will be indexed as described above.
    4. 4. For tax years beginning on or after January 1, 2018, the Owners Compensation Deduction cannot exceed $125,000 per owner as defined in Subsections B., C. and D. below.  For tax years beginning on or after January 1, 2019, the Owners Compensation Deduction will be indexed as described above.
  3. B. Sole Proprietorships.  In determining income, no deduction is allowed for any compensation for services rendered by, or interest paid to, owners.  However, 75 percent of income determined without such deductions is allowed as an additional deduction, not to exceed the amounts listed in Subsection A. per owner.
  4. C. Partnerships.  In determining income, no deductions are allowed for any compensation for services rendered by, or interest paid to, owners of partnerships, limited partnerships, limited liability companies, limited liability partnerships, or family limited partnerships.  Guaranteed payments to partners or members are deemed compensation paid to owners for services rendered.  However:
    1. 1. For general partners or members, 75 percent of income determined without such deductions is allowed as an additional deduction, not to exceed the amounts listed in Subsection A. per general partner or member.
    2. 2. For limited partners or members of LLCs who are deemed limited partners by administrative rule or policy, 75 percent of income determined without such deductions is allowed as an additional deduction, not to exceed the lesser of actual compensation and interest paid or the amounts listed in Subsection A. per compensated limited partner.
  5. D. Corporations.  In determining income, no deduction is allowed for any compensation for services rendered by, or interest paid to, controlling shareholders of any corporation, including but not limited to, C and S corporations and any other entity electing treatment as a corporation, either C or S.  However, 75 percent of the corporation’s income, determined without deduction of compensation or interest, is allowed as a deduction in addition to any other allowable deductions, not to exceed the lesser of the actual compensation and interest paid or the amounts listed in Subsection A. for each controlling shareholder.
    1. 1. For purposes of this Subsection, to calculate the compensation for services rendered by or interest paid to controlling shareholders that must be added back to income, wages, salaries, fees or interest paid to all persons meeting the definition of a controlling shareholder must be included.
    2. 2. For purposes of this Subsection, in determining the number of controlling shareholders, a controlling shareholder and that person’s spouse, parents and children count as one owner, unless such spouse, parent or child individually control more than five (5) percent ownership of outstanding stock or securities in their own name.  In that case, each spouse, parent or child who owns more than five (5) percent of stock is deemed to be an additional controlling shareholder.
    3. 3. For purposes of this Subsection, joint ownership of outstanding stock or securities is not considered separate ownership.
  6. E. Estates and Trusts.  In determining income for estates and trusts, income is measured before distribution of profits to beneficiaries.  No additional deduction is allowed.
  7. F. Non-business Income.  In determining income under this Section, an allocation is allowed for non-business income as reported to the State of Oregon.  However, income treated as non-business income for State of Oregon tax purposes may not necessarily be defined as non-business income under the Business License Law.  Interest and dividend income, rental income or losses from real and personal business property, and gains or losses on sales of property or investments owned by a trade or business is treated as business income for purposes of the Business License Law.  Income derived from non-unitary business functions reported at the State of Oregon level may be considered non-business income.  Non-unitary income will not be recognized at an intrastate level.  The taxfiler has the burden of showing that income is non-business income.
  8. G. Nondeductible Taxes and Surcharges.  In determining income, no deduction is allowed for taxes based on or measured by net income.  No deduction is allowed for the federal built-in gains tax.  No deduction is allowed for the Clean Energy Surcharge.
  9. H. Ordinary Gain or Loss.  In determining income, gain or loss from the sale, exchange or involuntary conversion of real property or tangible and intangible personal property not exempt under Subsections 7.02.400 G. and H. must be included as ordinary gain or loss.
  10. I. Net Operating Loss.  In determining income, a deduction is allowed equal to the aggregate of the net operating losses incurred in prior years, not to exceed 75 percent of the income determined for the current license tax year before this deduction, but after all other deductions from income allowed by this Section and apportioned for business activity both within and without the City of Portland.
    1. 1. When the operations of the taxfiler from doing business both within and without the City result in a net operating loss, such loss will be apportioned in the same manner as the net income under Section 7.02.610.  A net operating loss may not be carried forward from any license tax year during which the taxfiler conducted no business within the City or the taxfiler was otherwise exempt from payment of the business license tax unless specifically provided for by administrative rule or written policy.
    2. 2. In computing the net operating loss for any license tax year, the net operating loss of a prior year is not allowed as a deduction.
    3. 3. In computing the net operating loss for any license or tax year, no compensation allowance deduction is allowed to increase the net operating loss.  “Compensation allowance deduction” is defined in Subsection 7.02.600 A.
    4. 4. The net operating loss of the earliest license tax year available must be exhausted before a net operating loss from a later year may be deducted.
    5. 5. The net operating loss in any license tax year is allowed as a deduction in the five (5) succeeding license tax years until used or expired.  Any partial license tax year will be treated the same as a full license tax year in determining the appropriate carry-forward period.

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