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Business Tax Policies

Information
Business Tax Policies related to the City of Portland Business License and Multnomah County Business Income Tax Laws
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Introduction

policy is a written guideline provided to taxpayers to explain procedures or provide guidance in particular fact situations. 

The terms "City" or "County", as used in policy examples, shall include and may be substituted for the other jurisdiction, unless the policy only interprets a code section unique to one jurisdiction.

Policies are not law nor are they subject to public hearing as are the administrative rules. However, in some cases, the policy is referred to and supported by the Business License Law and the Business Tax Law (e.g., 7.02.600 C. 2. regarding LLC members).

All official policies adopted by the Revenue Division are reviewed internally before formal adoption by signature of the Director of the Revenue Division. 


Business Tax Policy: Application of Payments

Portland City Code Section 7.02.715 and Multnomah County Code § 12.715 (Codes) state that payments received shall first be applied to any penalty accrued, then to interest accrued, then to taxes due. The Codes anticipate a single tax year being due and are silent as to application of payments when more than one tax year has an outstanding receivable.

In order to accommodate both multiple year payment plans and the Division’s automation needs, payments need to be applied by tax year to allow proper recording of payment information. Therefore, payments will be applied on multiple year receivables as follows:

  1. Late/Underpayment Penalty for the oldest tax year; then
  2. Interest for the oldest tax year; then
  3. Business Taxes for the oldest tax year. 

This pattern will repeat until all penalties, interest, and tax accrued have been paid. If any interest accrues between payments, interest will be paid prior to any payments against taxes.

Payments received by the Division designated as a Quarterly Estimated Payment, Extension Payment or a payment with a Combined Tax Return will not be applied to outstanding receivables due unless directed by the taxpayer. If a Combined Tax Return indicates that a refund is due the taxpayer and there are one or more outstanding receivables, the Division shall transfer part, or all, of the refund to the tax year(s) with the balances due. If such a transfer takes place, the Division will notify the taxpayer in writing.

If a payment plan exists on one or more receivables, unless designated otherwise, any monies received will be used to pay off balances due on the payment plan first.

9/29/2020                                   Thomas Lannom
Date                                             Director

Adopted: 3/2/2005
Revised: 2009, May 2019, September 2020


Business Tax Policy: Apportionment of Royalty Income

Royalties and residuals are considered to be business income under both the City of Portland Business License Tax Law and Multnomah County Business Income Tax Law. Royalties are payments made by one entity (the licensee or payer) to another entity (the licensor or payee) in exchange for the use of certain physical assets or intellectual or intangible property owned by the licensor. Situations in which royalty, residual, or license payments might be made include:

  • Payments to the authors of books printed and distributed by publishing houses.
  • Payments to recording artists, songwriters, music publishers, and recording companies, including for print rights and royalties.
  • Payments to principal performers for movies or television programs after the initial use of the movie or TV program.
  • Screenwriters and performers receive residual payments for their work.
  • Artists license their artwork to others, rather than assigning or selling it outright, receive license or royalty payments.
  • Fashion designers receive royalties for allowing the use of their names on clothing made by other companies.
  • Mining companies pay royalties to landowners for the right to extract natural resources from their land.
  • Patent holders receive royalties for the right to use the patented process, formula, design, etc.
  • License payments to a software company for the use of their proprietary product.

Royalty, residual, or license income should be included in the numerator of the City and/or County apportionment fraction under certain circumstances:

  1. Royalties related to real property are apportioned to the City / County if the real property is located in the City and/or County.
  2. Royalties from tangible personal property are apportionable to the City and/or County:
    • If and to the extent that the property is utilized in the City/County, or
    • In their entirety if the taxpayer’s commercial domicile is in the City/County AND the taxpayer is not organized under the laws of or taxable in the jurisdiction in which the property is utilized.1
  3. Patent and copyright royalties are apportionable to the City / County if the patent or copyright is utilized by the licensee (payer) in the City/County, OR the patent or copyright is utilized by the licensee (payer) in a State in which the licensor (payee) is not taxable, AND the licensor’s commercial domicile is in the City/County.
    • A patent is considered to be utilized in the City/County to the extent that it is employed in production, fabrication, manufacturing, or other processing in the City/County, or to the extent that a patented product is produced in the City/County. If the basis of receipts from patent royalties does not permit apportionment to a State, or if the accounting procedures do not reflect the States of utilization, the patent is utilized in the State in which the licensor (payee) is commercially domiciled.
    • A copyright is utilized in the City/County to the extent that printing or other publication2 originates here. If the basis of receipts from copyright royalties does not permit apportionment to a State, or if accounting procedures do not reflect the States of utilization, the copyright is utilized in the State in which the licensor (payee) is commercially domiciled.3

6/28/2011                                   Thomas Lannom
Date                                             Director

Adopted: 6/28/2011

1 ORS 314.630.

2 Publication is defined as: “…the distribution of copies or phonorecords of a work to the public by sale or other transfer of ownership, or by rental, lease, or lending. The offering to distribute copies or phonorecords to a group of persons for purposes of further distribution,
public performance, or public display constitutes publication.” 1976 Copyright Act.

3 ORS 314.645.


Business Tax Policy: Combined Tax Return Due Dates

Portland City Code Section 7.02.510 A.2 and Multnomah County Code § 12.510(A) require Combined Tax Returns to be filed by the fifteenth day of the fourth month following the end of the tax year.

Since the Combined Tax Returns rely on information reported on federal and/or Oregon tax returns, it is the policy of the Revenue Division to change the due date for the Combined Tax Return when there is a change to the federal or State of Oregon due dates.

For tax years beginning on or after January 1, 2016, the Internal Revenue Service changed the due date of Form 1120 (C-corporation Returns) to the fifteenth day of the fourth month following the close of the tax year for most C-corporation taxfilers. The State of Oregon due date for Form 20 (Corporate Excise Tax Return) and Form 20-INC (Corporate Income Tax Return) is due the fifteenth day of the month following the IRS due date, which is one month later than the due date for the Combined Tax Return.

Since the C-corporation Combined Tax Return relies on the Oregon Form 20/Form 20-INC tax return filing, the due date for the Combined Tax Return for C-corporations is granted an automatic one-month extension to match the due date for the Oregon corporate return filing. This also applies to the extended filing due date.

If a C-corporation is assessed a penalty under these circumstances, it will be waived upon request. However, the due date for paying the C-corporation taxes has not been extended and are still due on the fifteenth day of the fourth month following the end of the tax year. No waiver or reduction of interest will be allowed for late payment of the tax liability.

9/29/2020                                   Thomas Lannom
Date                                             Director

Adopted: 9/29/2020


Business Tax Policy: Compensation Allowance for Sole Proprietor Spouses

A second compensation allowance deduction may be available under the Business License Law and Business Income Tax Law to spouses who file a joint income tax return for both federal and state individual income tax purposes. When a joint filer (spouses) pays tax on the rental of jointly held rental property or a combination of property owned in each one’s name as separate property, each spouse is considered an owner and each spouse can claim a compensation allowance deduction.

Example 1: Kelly Smith and Eva Johnston are married and file joint federal and state income tax returns. Kelly owns a four-plex and Eva owns a commercial office rental in Portland. Since both Kelly and Eva meet the requirements of ownership and filing status, each qualify as an owner for the compensation allowance deduction.

Example 2: Frank and Chris Sparks file a joint return. Chris owns 12 residential dwelling units while Frank is employed as a stockbroker. Chris is the only owner for City and County tax purposes, and therefore, only one compensation allowance deduction is allowed.

In instances where one spouse owns a business and the other spouse works in the business, a second compensation allowance deduction may be allowed for both the Business License Law and the Business Income Tax Law in limited circumstances. If the non-owner spouse works more than half-time (1,000 hours per tax year), the non-owner spouse is also allowed a compensation allowance deduction. Any salary paid to the non-owner spouse is required to be added back to determine net income in this case. If the non-owner spouse works less than 1,000 hours, but that individual’s participation in the activity for the taxable year is not less than the participation in the activity of any other individual (including individuals who are not owners of interests in the activity) for such year, the non-owner spouse will be allowed a compensation allowance deduction.

Example 3: Sam Andrews is a part-time real estate appraiser. Sam’s spouse, Ann, works for Sam as a secretary/bookkeeper. Both Sam and Ann each work approximately 650 hours during the taxable year. There are no other employees in the business. Since no one else in the business participates to a greater extent than Ann does (not even Sam), Ann would be allowed a compensation deduction even though Ann works less than half-time.

Example 4: Faith Simpson owns and operates an art gallery in Portland and employs 11 full-time staff. Faith also owns commercial rental property. Faith’s spouse, Dan, works two days a week in the gallery as a salesman. Since Dan does not work more than half-time and since others in the gallery participate to a greater extent than Dan, Dan is not allowed a compensation allowance deduction.

4/18/2017                                    Thomas Lannom
Date                                              Director

Adopted: 4/11/1995
Revised: 2009, April 2017


Business Tax Policy: De Minimus Exemption Policy

Individuals (including joint filers) with gross business income everywhere totaling less than $20,000 will have simplified filing and reporting requirements available to them. Under the simplified reporting requirements, individuals would be able to file a De Minimus Exemption Form (and include supporting tax pages for the last three most recently completed tax years) instead of filing the business registration form and continued filing of the Annual Exemption Request Form that is generally required by the Division each year. Individuals may file the De Minimus Exemption Form one time and have no other filing requirement until:

  1. the activity exceeds the de minimus exemption threshold of gross business income everywhere totaling less than $20,000; or
  2. verification of the exemption is specifically requested by the Division.

Please note: If gross business income is $20,000 or more in a tax year, the de minimus exemption no longer applies for that tax year. An Annual Exemption Request Form will be required to be filed if gross business income is under $50,000 for that tax year. If gross business income is $50,000 or more, a Combined Tax Return will be required to be filed for that tax year.

Example 1: Individual A is married and is a joint filer (Married Filing Jointly on their federal tax return). Individual A and their spouse each report business income on federal Schedule C. The total gross business income for both Schedule Cs is less than $20,000 in each of the last three tax years. A De Minimus Exemption form may be filed. This will create an account with the Division and annual filings will not be required unless requested by the Division. 

Example 2: Individual B conducts business activity in Portland and Multnomah County. Individual B files one Schedule C with no other business income. For Year 1, Year 2 and Year 3, Individual B’s total gross business income was $19,000. Individual B filed a De Minimus Exemption form and did not have any filing requirements for Year 4, Year 5 or Year 6.

In Year 7, Individual B reported $45,000 in gross business income on their Schedule C. Individual B no longer qualifies for the de minimus exemption and must file an Annual Exemption request form because their total gross business income was still less than $50,000.

Example 3: Assume the same facts as Example 2, except in Year 7, Individual B reported $60,000 in gross business income on their Schedule C. Individual B is required to file a Combined Tax Return and pay any tax due.

7/15/2019                                    Thomas Lannom
Date                                              Director

Adopted: 1/14/2013
Revised: July 2019


Business Tax Policy: Entity Level Assessment of Tax Liability

This Business Tax Policy will no longer be applicable for tax years beginning on or after January 1, 2020.

The City of Portland Business License Law and the Multnomah County Business Income Tax Law both assess tax at the entity level. However, when two or more individuals or other persons combine to conduct business in the jurisdiction as a joint venture, or for ownership of rental property as tenants in common, both programs will look to the total gross and net incomes of the combining entities to measure net income, calculate apportionment and determine the gross receipts exemption status. In these cases, the substance of the combined entity is that of a partnership even though, in form, the entity(ies) may not be required to file as one.

Example 1: Sarah, Tom, and Adam Roirdan are equal owners in a commercial rental in the City as tenants in common. The income (loss) from the rental activity is reported on each owner's Schedule E as part of the individual's form 1040. No partnership return is filed for the entity. The gross income from the rental is $120,000 and the net income is $60,000. The Combined Tax Return will be filed as though it is a partnership showing net income of $60,000. If any owner is required to be taxed for another business activity, the Schedule E income will be treated as currently taxed pass-through income as described in Business Tax Administrative Rule 600.94-1.

Occasionally, circumstances occur that makes the determination of net income at the entity level unfeasible. This situation can occur when there are numerous individuals or persons involved in a business activity and depreciation and other deductions are calculated differently by each owner on his/her Schedule E. If the person responsible for filing the tax return at the entity is unable to determine the net income and is unwilling or unable to contact all owners to gather the required information, the Revenue Division (Division) may allow each owner to file a return on their own behalf. The gross receipts exemption does not apply to the individual owners if the gross income from the entity itself is $50,000 or greater. Gross income for the gross receipts exemption is determined at the entity or joint activity level, not at the pass-through level.

Example 2: The Commerce Building which generates annual losses in excess of $500,000 is owned by 14 individuals. The person responsible for filing the Combined Tax Return determined that it was impossible to gather the information necessary to file a correct return. The Division granted the petition request that all owners file their own Combined Tax Returns. Therefore, in this example, the rental of the Commerce Building requires fourteen returns be filed each year, each paying at least the minimum tax.

9/29/2020                                    Thomas Lannom
Date                                              Director

Adopted: 4/11/1995
Revised: 1998, July 2009, September 2020


Business Tax Policy: Exemption for Certain Foster Care Payments

Certain foster care providers are exempt from filing returns under the Business License Tax and Business Income Tax Laws ONLY when the provider's entire gross income arises solely from certain foster care payments defined in Internal Revenue Code Section 131. The foster care provider loses this filing exemption if the provider has gross income from non-qualifying foster care payments or any other business activity subject to Business License or Business Income Tax Laws. Gross incomes from qualified foster care payments are considered with other business gross receipts to qualify for the exemption based upon gross receipts. The net income as reported in the Federal Schedule C has already excluded qualifying payments. This net income is taxable income for both the City of Portland and Multnomah County if the total gross income of both qualified and non-qualified gross receipts is equal to or exceeds $50,000.

Example: Paul Green, a foster care provider has gross income from qualified foster care payments $56,400 a year and also receives $23,600 in gross foster care payments that are not qualified under Internal Revenue Code Section 131. He has expenses of $15,000 resulting in a net income of $8,600 ($23,600 less $15,000). The foster care facility is located within the County and City.

Mr. Green is not exempt from payment of the City Business License Tax and County Business Income Tax because his gross receipts from all business activity exceed $50,000. He will be required to pay City and County tax upon the $8,600 net income of his foster care business.

6/28/2011                                    Thomas Lannom
Date                                              Director

Adopted: 4/11/1995
Revised: 2010, June 2011


Business Tax Policy: Exemptions for Certain Farming Activities

A person is exempt from taxation under the Business License Law and the Business Income Tax Law if that person's only transactions within the City and County are exclusively limited to the raising, harvesting and selling of the person's own crops, or the feeding, management and sale of the person's own livestock, poultry, furbearing animals or honeybees. These activities must be conducted only on that person's behalf; they cannot be conducted on behalf of others. Exempt activities do not include the processing of the products beyond those activities which are normally incidental to the growing, raising, or harvesting of such products. If a person conducts non-exempt activities, the exemption for the farming activities is lost and the income from all activities, including the farming activities, become subject to the Business License and Business Income Tax laws.

Example 1: Local Nursery raises flowering plants and trees and sells them from its farm in the County. Along with its own products, Local Nursery also sells plant foods, fertilizers, potting soils and pottery. Local Nursery falls outside the protection of the farming activities exemption since it sells products other than its own agricultural crops, and is therefore required to file a County tax return and assess the tax against all activities conducted by the entity.

Example 2: White Corporation is in the business of growing and harvesting wheat and other grains. White Corporation grinds the grains that it has harvested in order to produce flour, which it then sells to customers in the course of its business. Although the growing and harvesting of the grains is a farming activity, White Corporation is not exempt from taxation. Milling the grain into flour is processing activity that is not exempt, and therefore, all the activities are subject to taxation by the City and County.

Example 3: Amy Storm raises fruits and vegetables on her farm in the County. When the fruits and vegetables are ready to be harvested, Amy's crews pick, wash, inspect, and sort the crops. Amy Storm is exempt from taxation since washing, inspecting and sorting the crops are incidental to the raising of her crops.

Example 4: Stevenson Chickens is in the business of raising poultry. Stevenson Chickens uses the chickens in its meat processing operation in which the chickens are slaughtered, processed, and packaged or canned in preparation for sale to the consumer. Although raising the chickens is a farming activity, it is not exempt from taxation since the processing of the chickens is beyond that which is incidental to the growing, raising, or harvesting of the chickens.

7/8/2009                                 Sue Klobertanz
Date                                        Director

Adopted: 4/11/1995
Revised: July 2009


Business Tax Policy: Federal Health Care Premium Credit

According to Revenue Bureau Administrative Rule 600.93-4A (Self-Employment Tax Deduction and Health Care Premium Deduction), self-employed individuals who are allowed a federal adjustment for a portion of their health insurance expenses may take a deduction which equals the federal deduction as an adjustment to net income for business license and business income tax purposes.

In certain circumstances, a federal credit (such as the Health Coverage Tax Credit) can be claimed in lieu of the federal deduction. In cases where this credit is taken by self-employed individuals and there is a corresponding modification (subtraction) allowed by the State of Oregon, the City of Portland and Multnomah County will allow a subtraction on line 4 of Form SP for the amount of the health insurance premiums allowed as a subtraction by Oregon.

2/28/2012                                    Thomas Lannom
Date                                              Director

Adopted: 2/28/2012


Business Tax Policy: Filing Exemption for Ministers

The dual tax status for federal tax reporting purposes of ministers of religion has resulted in different denominations reporting remuneration for ministerial (pastoral) services either as W2 wages or Form 1099 income.

For business license tax and business income tax reporting purposes, duly ordained, commissioned or licensed ministers of a church may be exempt by reason of gross receipts from the filing requirements of both programs. The exemption may apply whether or not the minister is an employee of the church or is a self-employed person under the common law rules or the 7-factor test*. Regardless of employment status, the minister must have the authority to conduct religious worship, perform sacerdotal functions, and administer ordinances or sacraments according to the prescribed tenets and practices of the church or denomination in which she or he is duly ordained, commissioned or licensed (Revenue Ruling 65-124, 1965 CB 60; Publication 517.)

The exemption may be requested when a minister's remuneration is reported for federal tax purposes on Form 1099 and subsequently on Form 1040, Schedule C - Profit and Loss from Business Activities. For business license tax and business income tax purposes, remuneration for ministerial services reported on Form 1099 is excluded in the calculation of gross receipts. Therefore, an exemption by reason of gross receipts may result.

To determine whether or not a minister is exempt by reason of gross receipts, subtract Form 1099 remuneration from the total Schedule C gross receipts. If the remainder is $50,000 or less, the minister is exempt from licensing and filing requirements. However, if the remainder is greater than $50,000, the following apportionment formula must be used. All remuneration, excluding W2 wages but including Form 1099 income for ministerial services, is totaled together in the denominator. Form 1099 income for ministerial services is not included in the numerator. Taxes are then calculated using this percent multiplied by the subject net income on the Combined Tax Return.

Remuneration for honoraria (weddings, funerals, etc.) or other business activity, both within and without the city and county, must be less than $50,000 to qualify for an exemption by reason of gross receipts.

Example 1: Pastor Tom Christopher is a duly ordained minister of religion. His church reports his remuneration of $50,000 for federal tax purposes on Form 1099. During the course of the year he officiated at weddings and funerals receiving $1,200 in total honoraria for these services. Both his Form 1099 remuneration and honoraria are reported on Form 1040, Schedule C - Profit and Loss from Business Activities resulting in total gross receipts of $51,200. For business license tax and business income tax purposes, the $50,000 of Form 1099 remuneration for pastoral services may be deducted from the total Schedule C gross receipts to determine exemption by reason of gross receipts. The remaining $1,200 is less than the $50,000 threshold amount. Therefore, Pastor Christopher is exempt from the filing requirements for both business license tax and business income tax purposes.

Example 2: Pastor Joan Sorenson is a duly ordained minister of religion. Her church reports her remuneration of $30,000 for federal tax purposes as wages on Form W2. She received $2,500 in honoraria and $48,000 in Form 1099 income for business activities unrelated to the performance of pastoral services. The $30,000 is reported as wages on Form 1040; the remaining $50,500 is reported on Schedule C - Profit and Loss from Business Activities. She is not exempt from the filing requirements for both business license tax and business income tax purposes.

Example 3: Peter Lewis is the minister of music at Peace Church. He is not ordained, commissioned, or licensed by his church or denomination. His duties relate specifically to the music program of the church. He is remunerated $5,000 for his duties and receives a Form 1099. His total Schedule C income from business activities is $54,000 including the $5,000 for his duties as minister of music. He is not exempt from the filing requirements by reason of gross receipts since he does not meet the definition of a minister as defined by this policy.

7/15/2009                              Sue Klobertanz
Date                                        Director

Adopted: 4/12/1996
Revised: July 2009

* Weber V Commissioner, 103 T.C. (1994) [PCL1B]


Business Tax Policy: Limited Liability Company (LLC) and Limited Liability Partnership (LLP) Owners Compensation Deduction

Business License Tax Law and Multnomah County Business Income Tax Law provides for different owners compensation deductions for general partners or LLC members and limited partners and LLC members deemed to be limited partners. The Bureau has reviewed both the historical intent of defining a different deduction for general and limited partners and Temporary IRS Regulation Section 1.469-5T (e)(3). Based on this review, the Bureau believes that those partners and LLC members who are involved in the day to day business activity of the partnership or LLC should be treated as general partners.

The Bureau will consider all LLC members and LLP partners who receive partnership or LLC income taxable as self-employment income as defined in IRC Section 1402(b) to be general partners or members for calculating the owner’s compensation deduction.

In cases where the activity of an LLC or LLP does not require the income of the activity to be designated as self employment income (such as rental activity), the Bureau will deem the LLC members or LLP partners to be general partners for purposes of the compensation deduction if all three of the following facts are true:

  1. The member or limited liability partner is granted “control” which is equivalent to a general partner. Such control is defined as control over the day to day activities of the partnership or LLC that would be equivalent to a general partner. For an LLC member to be deemed a general partner who is granted “control” over the day to day activities of the LLC, such members are generally required to be designated “member-managers” by the LLC.
  2. The member or limited liability partner must participate materially in the business activity. Such material participation may not be less than 100 hours within any taxable year.
  3. The LLC member or limited liability partner is an owner of capital. If the LLC member or limited liability partner is an owner of capital for only a partial year, the owner’s compensation deduction will be limited to a prorated compensation deduction as discussed in Administrative Rule 600.93-6.

If any of the above conditions are not met, the LLC member or limited liability partner shall be deemed a limited partner for purposes of the Business License Tax and the Multnomah County Business Income Tax.

Generally, if an LLC member is designated in the U.S. Partnership Return of Income Tax (Form 1065 K-1) as a “General partner or LLC member-manager”, it will be presumptive evidence that the member is to be deemed a general partner for purposes of the owner’s compensation allowance deduction – unless evidence shows that the limited activity of the member is not sufficient to warrant the owner’s compensation deduction. Contrarily, if an LLC member is designated in the Form 1065 K-1 as a “Limited partner or other LLC member”, such member will be deemed a limited partner for purposes of the owner’s compensation allowance deduction unless the substantial activities of the member warrant the owner’s compensation deduction.

The authority for certain LLC members and LLP partners to be deemed general partners for purposes of the Business License Tax Law and the Business Income Tax Law rests with the Revenue Bureau. If a dispute arises as to whether an LLC member or other limited partner may be deemed a general partner under this policy, the Revenue Bureau’s final determination signed by the Bureau Director shall be the final
representation of such authority.

Example 1: Columbia Collective LLC is a five member LLC with all members having equal ownership and equal vote on business issues. The LLC owns a large commercial building. The members hire a non-member business manager to operate the rental activity. The business manager ensures that the property is maintained and collects rents due the LLC. All routine business activities are the responsibility of the business manager. The LLC members meet annually and occasionally vote via email on specific non-routine matters during the year. No member participates materially in the business activity. In this case, the Bureau will deem all members to be limited partners because they are not routinely engaged in the day to day business activity of the LLC.

Example 2: Rama Residential LLC is a three member family LLC with 50% of ownership in the father and 25% respective ownership by the mother and child. The LLC owns a 20 unit apartment complex. The father spends more than 100 hours per year repairing the apartments and collecting delinquent rents. The mother and child have no direct activity regarding the apartment complex. In this case, the Bureau will deem the father to be a general partner due to his activity and control. The other members will be deemed limited partners.

Example 3: Chuck’s Auto Repair LLC is a two member LLC with two 50% owners. Chuck Smith is the manager of the business and actively engages in auto repair. The second member has provided funds for Chuck to operate the business. Of the $150,000 net income of the LLC, $75,000 is designated as “Self Employment” income. In this case, the Bureau will deem Chuck Smith to be a General Partner. The other member will be deemed a limited partner.

8/23/2011                                    Thomas Lannom
Date                                              Director

Adopted: 8/18/1998
Updated: 2009, August 2011


Business Tax Policy: Net Operating Loss Carryforwards Disallowance and Allowance for Entity Changes

In the determination of taxable income, both Portland City Code (PCC) 7.02.600 (I) and Multnomah County Code (MCC) § 12.600 (I) allow apportioned net operating losses incurred in the five consecutive prior tax years to be used as an additional deduction limited to 75% of apportioned net income. The Business License Tax Law, prior to taxable year 2008, allowed net operating losses to transfer from one taxpayer to another when an entity change did not change “the substance of the business” This language was eliminated from the PCC 7.02 in 2008. Currently, neither law provides for the transfer of net operating losses when the original taxpayer changes tax entities or merges into another entity. Absent such express allowance, the net operating loss may not be transferred to a surviving or transferred entity unless Oregon tax law and regulations support such a transfer.

Generally, if a corporation merges with a loss corporation, the surviving consolidated entity may take net operating loss deductions only to the lesser of 75% of apportioned net income or limitations imposed by “SRLY” rules (“Separate Return Limitation Year” – See IRS Regulations Section 1.1502-21(c)). No net operating losses may be carried back and all net operating losses are limited to a maximum of 5 year carryforward—even if the use of such losses have been limited by “SRLY” rules.

An S-Corporation that is merged into another corporation (as a “Q-Sub”) or a C-corporation that is merged into an S-Corporation as a subsidiary of the S-Corporation will not carry forward net operating losses for federal or state tax purposes. Prior tax attributes such as net operating loss remain trapped within the subsidiary. Therefore, in such cases, no net operating loss carryforward deduction may be taken without evidence that such net operating loss carryforward is directly available for federal and state tax purposes.

Generally, the “person” (individual, corporation, partnership, etc.) taking a net operating loss deduction must be the same “person” (i.e., the same tax entity) that generated the net operating loss originally. Changes of corporation name or minor restructuring will generally not result in disallowance of net operating loss carryforward. In such cases, if the tax entity retains the same federal identification number, the Revenue Bureau will allow deduction of prior net operating losses as though no changes have been made. If the federal identification number has changed, the burden will be upon the taxpayer to prove to the Revenue Bureau that such changes have not invalidated their use of net operating loss carryforward for federal and state tax purposes. If the deduction is allowable under federal and state tax laws and regulations, the deduction will be allowed to the same relative extent for the City of Portland Business License Tax and the Multnomah County Business Income Tax.

6/28/2011                                    Thomas Lannom
Date                                              Director

Adopted: 6/28/2011


Business Tax Policy: Partnership Basis Adjustments

For both the City of Portland Business License Tax and the Multnomah County Business Income Tax, the tax is assessed at the entity level per Portland City Code 7.02.110 (A) and Multnomah County Code § 12.110 (A). Partnerships that acquire assets have basis in the assets (inside basis), while the partners have basis in their individual interest in the partnership (outside basis). Sales of partnership interests can create disparity between inside and outside basis. IRS Section 754 allows some remedy for this disparity at the partnership level by allowing the partnership to increase its basis and related depreciation. However, this allowance is allocated (through Schedule K and K-1) to only the involved partner(s). While the form of the Section 754 election is a partnership transaction, in substance it is deemed to be a partner-level transaction because it relates directly to the calculation of outside basis.

A deduction for the step up in basis for partnership assets related to an Internal Revenue Code (IRC) Section 754 election (which allows IRC Section 743 adjustments) is not allowed for the City of Portland Business License Tax or the Multnomah County Business Income Tax. The stepped up basis applies to an individual partner only and is reflected on the partner’s Schedule K-1, regardless of the fact that it may have also been reported on Schedule K of the partnership’s return.

Example: Individuals A, B, and C form Partnership Z as equal partners (each owning 33.3%). The partnership purchases a building for $600,000. Over the next five years, the partnership has depreciated the building by $60,000 and now has a remaining basis of $540,000. This depreciation deduction was used to reduce the City/County taxable income of Partnership Z. Each of the three partners now has a basis of $180,000.

Individual A then sells their interest in Partnership Z to Individual D for $500,000. The gain on the sale of the partnership interest recognized by Individual A of $320,000 would generally not be subject to the City of Portland Business License Tax or the Multnomah County Business Income Tax as it is the investment income of an individual. Individual D now has a $500,000 depreciable basis in the building through their partnership interest. If Partnership Z makes an IRC Section 754 election, Individual D may take an additional depreciation deduction on their federal tax return based on the increase in the “outside basis” of Individual D’s purchased asset. However, this deduction is not allowed on the City/County tax return of Partnership Z.

10/11/2017                                  Thomas Lannom
Date                                              Director

Adopted: 10/11/2017


Business Tax Policy: Passive Activity Loss Limitations

In certain situations, the deduction for rental losses is limited under the federal passive loss rules. The State of Oregon follows the federal passive loss rules. As described in Portland City Code section 7.02.100 (K) and Multnomah County Code § 12.100, “income” means the net income arising from any business, as reportable to the State of Oregon for personal income, corporation excise or income tax purposes, before any allocation or apportionment for operation out of state, or deduction for a net operating loss carry-forward or carry-back.

Therefore, the City and County would limit the passive losses in the same manner that they were limited on the Federal and Oregon Returns. Unused passive losses can be carried forward in the same manner as on the Federal and Oregon Returns.

Example: On their 2010 Federal Form 1040, Schedule E, an individual reports a rental loss on line 22 of $100,000. They report a deductible rental loss of $10,000 on line 23. Line 23 (line 26, if multiple properties exist) represents the City/County loss allowed in the current year and would be included on line 3 of the Combined Tax Return (SP-2010). The unused passive loss (if any) would be carried forward.

Note: Only losses that are reported on line 9 or line 19 of the Combined Tax Return can be treated as net operating losses for City/County purposes (and potentially deducted on line 10 and 20 of subsequent year returns).

6/28/2011                                    Thomas Lannom
Date                                              Director

Adopted: 6/28/2011


Business Tax Policy: Payment Plan

The Revenue Bureau recognizes that at times it may not be possible for a taxpayer to pay their tax liability in full. To encourage payment of all amounts due, the Bureau will consider entering into a payment plan to ensure collection. Taxpayers are not eligible for a payment plan if the taxpayer fits into one of the following categories:

  • The taxpayer has defaulted on a payment plan with the Bureau in the last 2 years.
  • The taxpayer has been referred to the City Attorney for legal action; they must enter into a
    confession of judgment instead.

A payment plan may be approved when the taxpayer has no other method of financing this debt (such as a credit card cash advances, home equity loan proceeds, business loans, etc). The taxpayer must be in compliance with the City and County tax codes during the term of the payment plan.

Payment Plan Setup

There is a $25 setup fee for a payment plan. This fee must be added to the first payment amount. A Revenue and Tax Specialist may discuss payment plan options and give approval to the taxpayer provided the options meet the criteria established below. However, the taxpayer must sign and return the payment plan agreement and remit the $25 setup fee along with the first monthly payment or the payment plan will be cancelled.

In order for a payment plan to be approved, the balance due the Bureau must be at least $300. Minimum monthly payment will be at least $25 and the number of payments will not exceed 12, unless the balance due exceeds $10,000. In this case, the number of payments will not exceed 24. If terms outside these are requested, a Bureau supervisor or manager must approve the payment plan. The payment plan due date is the 10th or the 25th of the month, at least 16 days after the date the payment plan was set up. All payments must be made by the due date, otherwise penalties will be assessed as described below and the payment plan will be considered in default and any outstanding balance will become immediately payable.

Penalty and Interest Assessments

Interest is assessed during the payment plan in accordance with PCC Section 7.02.710 and MCC Section 12.710.

If a payment is received late, a 5% penalty on the payment amount will be assessed and is immediately due. The Bureau will allow one late payment. A second late payment will cause the entire outstanding balance to be immediately due. Additionally, any penalty waiver granted under the Bureau’s penalty assessment policy would be immediately reinstated to the outstanding balance.

7/8/2009                                Sue Klobertanz
Date                                        Director

Adopted: 3/15/2004
Revised: December 2004, July 2009


Business Tax Policy: Penalty Assessment

Under Portland City Code (“PCC”) Sections 7.02.700 A through C and Multnomah County Code (“MCC”) § 12.700(A) through (C), penalties will be assessed for two instances of late filing or payment and one instance of underpayment. A taxfiler could face all three penalties at once if deadlines are not met and insufficient payments are made.

Under PCC Section 7.02.700 F and MCC § 12.700(F), the Revenue Division (Division) may waive or reduce any penalty determined under PCC Sections 7.02.700 A through C and MCC § 12.700(A) through (C), for good cause and consistent with written policies. Under this authority, penalties will be assessed in the following order:

  1. Late payment/filing penalty for filing/paying after the original due date (up to 25% of the total tax liability)
  2. Late payment/filing penalty for filing/paying after the extended due date (up to 25% of the total tax liability)
  3. Underpayment penalty (5% of underpaid tax)

Penalties are cumulative. A taxfiler who violates all penalty provisions will be assessed the penalty for each violation. However, it is not the City or the County's desire to assess penalties equal to 55% of the tax. Penalties will be assessed in the above order. Once a penalty is assessed at 25% (5% plus 20%), all subsequent penalties that are due for the tax year are limited to 5% each. The minimum amount per penalty assessment is $5.

For the purposes of the late payment penalty assessed under PCC Section 7.02.700 A.2 and B.2 and MCC § 12.700(A)(1)(b) and (B)(1)(b), this penalty will be assessed on the total underpaid tax liability.

This policy does not limit the 100% penalty for a failure to file for three or more consecutive years. The 100% penalty is a part of the initial penalty calculation, which will be assessed without limitation. Additionally, this policy does not limit penalties assessed on separate tax years, even if returns for multiple tax years are filed at the same time.

An amended Combined Tax Return received by the Division will not be subject to a late payment penalty, if the payment for any additional tax is paid with the amended return. Any changes in tax due to an amended return or an audit that affect “safe harbor” underpayment penalty and/or underpayment interest provisions for other periods may result in the recalculation of underpayment penalties or underpayment interest for those periods.

Example 1: ABC Inc. fails to file an extension and pay their tax liability on 4/15/19. On March 30, 2020, the Combined Tax Return is filed with a Multnomah County Business Income Tax liability of $650 due and a Portland Business License Tax liability of $900 due, for a combined amount due of $1,550. This return will be assessed a late filing penalty for filing after the original due date. There is no penalty assessment for filing after an extended due date, since an extended due date was never granted. Since the delinquency is for four months or more, a total of 25% of the total tax will be assessed. The total late filing penalty is $387.50 (Total tax liability: $1,550 x 25%).

Additionally, an underpayment penalty is due for both programs since 90% of the current tax liability or 100% of the prior year's tax liability was not paid by the original due date of the Combined Tax Return. The underpayment penalty is 5%, so the total penalty will be 30%. In this example, the underpayment penalty is $77.50 (Total underpaid tax: $1,550 x 5% underpayment penalty)

Note that the late filing penalty is based on the total tax liability and the underpayment penalty is based on the underpaid tax liability. There may be a different tax base to be used to calculate these penalties. In this example, however, the late filing penalty and underpayment penalty are assessed against the same amount, since no prepayments were received.

9/29/2020                                    Thomas Lannom
Date                                              Director

Adopted: 3/29/1994
Revised: 1998, 2004, July 2009, September 2020


Business Tax Policy: Penalty Waiver Requests

It is the policy of the Revenue Division (“Division”) to assist businesses with compliance and to encourage future voluntary compliance with Portland City Code (PCC) Chapter 7.02 and Multnomah County Code (MCC) § 12. A waiver or reduction of a penalty amount may be appropriate in order to accomplish this objective.

The Division is authorized to assess, waive, or reduce assessed penalties consistent with written policy.

Waiver of a penalty for late filing/payment or underpayment may be granted for reasonable cause upon receipt of a written request. All taxes and interest must be paid for a penalty to be waived. Examples of reasonable cause include:

  • Death or serious illness of the taxpayer or in the taxpayer’s immediate family,
  • Unavoidable and unforeseen absence of the taxpayer from the State of Oregon in the two weeks prior to the due date of the return;
  • Destruction by fire, a natural disaster or other casualty (including theft) of the taxpayer’s records needed to prepare the return;
  • Reliance upon incorrect, written information from an employee of the Division, provided the taxfiler gave complete information about the matter to the Division and the taxfiler could not be reasonably expected to be knowledgeable in the subject matter. This would not include the filing due date of a return, unless the return is for a short tax period and there is a discrepancy between the due date for state/federal purposes and City/County purposes;
  • An action by a taxfiler that resulted in the penalty assessment on a single tax year which constitutes a first-time offense on the part of the taxfiler. This circumstance is only available to a previously compliant taxfiler and does not apply to a taxfiler with penalty assessments on multiple years;
  • Payment in full of the entire tax due (via credit carryforward or quarterly payments) by the original due date of the return and a federal extension request was filed with the Internal Revenue Service, but not separately filed with the Division; or
  • Any other extraordinary circumstance that prevented the taxpayer from complying with the City and County Codes. The determination that an event was extraordinary and entitles the taxpayer to a penalty waiver is solely up to the Division.

The Division may require proof and/or third-party substantiation in order to approve the penalty waiver request.

A penalty waiver will be granted one time only. The Director of the Revenue Division or his/her management designee may approve a penalty waiver request. The Director’s designee may determine that it is appropriate to offer a reduction in penalty. Any reduction in penalty is at the sole discretion of the designee based upon the compliance history of the business and the circumstances resulting in the assessment of penalty. Generally, no penalty will be reduced below the initial penalty assessment of 5% of the tax liability.

9/29/2020                                    Thomas Lannom
Date                                              Director

Adopted: 1/26/1994
Revised: 1999, March 2004, October 2004, July 2006, July 2009, April 2020, September 2020


Business Tax Policy: Real Estate Brokers with Separate Business Activity (Including Residential Rentals)

According to ORS 696.365: “A city or county may not impose a business license tax on or collect a business license tax from an individual licensed as a real estate broker who engages in professional real estate activity only as an agent of a principal real estate broker.”

This exemption will only apply if the agent of the principal real estate broker has no other separate business activities. If the individual with exempt business activity as a real estate broker has receipts from other business activity within the City of Portland (including rents from residential rentals within Portland) such person must pay the City of Portland Business License Tax if the combined business activities generate $50,000 or more in gross receipts in any tax year. However, in calculating the City of Portland Business License Tax for the separate business activity, gross and net incomes from the real estate broker activity are not included.

Example:

A real estate broker:

  1. Receives gross real estate commissions of $45,000 (with a net income of $12,000).
  2. Has a residential duplex located in the City of Portland with a total of $20,000 in rents.
  3. Reports a net loss from the duplex of ($2,000).

The real estate broker would file and pay both the Multnomah County Business Income Tax and the City of Portland Business License Tax on the following incomes:

I. Multnomah County Business Income Tax (determined on all business incomes)

Gross Income: $65,000 ($45,000 + $20,000)

Net Income subject to Multnomah Tax: $10,000 ($12,000 - $2,000)

II. City of Portland Business License Tax (determined only on business incomes other than real estate commissions received as a broker)

Gross Income: $20,000 1

Net Income subject to Portland Business License Tax: ($2,000)

1 The gross receipts exemption only applies if business activity from all sources is less than $50,000. Additionally, the separate exemption for less than 10 residential units does not apply if any other business activity occurs, regardless of the otherwise exempt nature of the business activity.

5/15/2012                                    Thomas Lannom
Date                                              Director

Adopted: 5/15/2012


Business Tax Policy: Refunds

It is the policy of the Revenue Division (Division) to timely process all requested refunds of overpayment for the City of Portland Business License Tax and Multnomah County Business Income Tax. If the Division determines that a taxpayer is entitled to a refund and fails to approve the refund by the dates outlined in Portland City Code Chapter 7.02.720 and Multnomah County Code § 12.720, the taxfiler is entitled to simple interest on their refund as prescribed in the aforementioned codes.

In determining the timing for refund interest eligibility, the Division defines one month as equal to 30 calendar days. For determining the date of when the return is filed or the refund was otherwise requested, the taxfiler must provide all required supporting tax pages and requested documentation for the filing to be complete. A tax return or refund request will not be considered valid until the Division has received a complete tax return for the tax period for which a refund is being requested.

If the requested information has not been provided to support a refund claim, the four-month refund interest period does not begin until the information is received. If the taxfiler does not respond to any requests for information within the timeframe listed in the Division’s written correspondence or by the date agreed upon by the Division and the taxfiler, the Division will deny the refund and the taxfiler will need to resubmit their refund request for the tax period.

Example 1: A calendar-year taxfiler files their combined tax return, with all required supporting tax pages, requesting a refund on February 17. The Division issues the refund on August 1. The taxfiler is not entitled to any refund interest because the refund was issued within four months of the original due date of the return.

Example 2: A calendar-year taxfiler files their timely combined tax return requesting a refund but fails to include supporting tax pages with their return. Three months later, on July 10, the taxfiler submits the required supporting tax pages. The refund interest calculation window would not begin until July 10, when the taxfiler provided the required supporting tax pages.

Example 3: A partnership files a timely combined tax return, with no supporting tax pages, requesting a refund. The partnership does not respond to any requests for information to verify the refund claim. The Division denies their refund request. The partnership would need to resubmit a refund claim with the required information. Since the refund was originally denied, the refund interest window will restart with the newly filed refund claim.

9/29/2020                                    Thomas Lannom
Date                                              Director

Adopted: 9/29/2020


Business Tax Policy: Reporting of Income from Pass-through Entities

Generally, pass-through entities include partnerships and S corporations and the tax attributes (income, deductions, etc.) of these entities are reported on the tax returns of their owners. For the direct and indirect owners (i.e., partners or shareholders) of pass-through entities, the City/County reporting of the income and deductions from these pass-through entities depends on several factors, including the tax entity of the owner.

INDIVIDUALS

Generally, pass-through income and deductions from partnerships (including joint ventures and tenants-in-common arrangements) and S corporations will not be included on the owner’s Combined Tax Return. The owner will not include the gross income from the pass-through entity in either the numerator or denominator of the apportionment factor. The owner will also exclude this gross income when determining whether the gross receipts exemption is available to them.

PARTNERSHIPS, CORPORATIONS AND S CORPORATIONS

If the owner of the pass-through entity is domiciled in the City/County or otherwise doing business in the City/County, it is required to file a Combined Tax Return unless it is exempt under the Business License Tax or Business Income Tax Law.

If the pass-through incomes/deductions are from a partnership or an S corporation that is doing business in the City and/or County, the gross and net incomes are not included on the owner’s Combined Tax Return pursuant to Administrative Rule 600.94-1 (Treatment of Currently Taxed Pass-Through Income). A schedule should be attached to the owner’s Combined Tax Return to reconcile the variance between the City/County report and the federal tax return.

All other pass-though incomes (gross and net) must be included on the Combined Tax Return of the owner. The owner must include the gross incomes from any pass-through entities in the denominator of the apportionment fraction. They must also include this gross income when determining whether the gross income exemption is available to them. This gross income would generally* not be included in the numerator of the apportionment fraction as it is not derived from Portland/Multnomah County source activity.

*An exception would be gross income from publicly-traded partnerships and similar investments. This type of “portfolio” income would generally be apportioned to commercial domicile pursuant to Administrative Rule 610.93- 4A (Apportionment of Gross Income from Business Activities Other than Sales of Tangible Personal Property).

6/28/2011                                    Thomas Lannom
Date                                              Director

Adopted: 6/28/2011


Business Tax Policy: Returned Check Charge

ORS 30.701(5) allows a payee to recover from the maker of a dishonored check a reasonable fee representing the costs of handling and collecting on the check. The total fee for any single check may not exceed $35.

The Revenue Division (“Division”) will charge a returned check fee of $35 on every check that is returned by a bank as unpaid. The check may be unpaid for any number of reasons, including, but not limited to, insufficient funds or the account was closed. This fee represents the costs of handling and collecting the dishonored check.

This returned check charge will not be waived unless the reason for the return from the bank was that the account was closed and the Division did not cash the check within 60 days of the postmark of the check and accompanying document(s).

If remedy through the courts is required to obtain payment of a returned check, additional charges as allowed by ORS 30.701(1) will be included in the total amount sought from the payee of the dishonored check. Any returned check charge paid will be credited against these additional charges as required by law.

9/29/2020                                    Thomas Lannom
Date                                              Director

Adopted: 6/11/1997
Revised: 2004, July 2009, September 2020


Business Tax Policy: Short Tax Year Quarterly Estimated Payment

PCC Section 7.02.530 and MCC § 12.530 provides a schedule for payment of estimated tax for tax filers required to make these payments. This schedule was designed under the assumption that the length of the tax year is a full year. Estimated payments are required for short tax years when the tax for the short year exceeds $1,000. The following schedule is provided as guidance for tax filers with a tax year of less than one year.

If the length of your tax year is 1 month:

  • 1 payment equal to 100% of the prior year’s tax or 90% of the current year’s tax is due by the last day of the 1st month.

If the length of your tax year is 2 months:

  • 1 payment equal to 100% of the prior year’s tax or 90% of the current year’s tax is due by the 15th day of the 2nd month.

If the length of your tax year is 3 months:

  • 1 payment equal to 100% of the prior year’s tax or 90% of the current year’s tax is due by the 15th day of the 3rd month.

If the length of your tax year is 4 months:

  • 1 payment equal to 100% of the prior year’s tax or 90% of the current year’s tax is due by the 15th day of the 4th month.

If the length of your tax year is 5 months:

  • 1 payment equal to 25% of the prior year’s tax or 22.5% of the current year’s tax is due by the 15th day of the 4th month.
  • 1 payment equal to 75% of the prior year’s tax or 67.5% of the current year’s tax is due by the 15th day of the 5th month.

If the length of your tax year is 6 months:

  • 1 payment equal to 25% of the prior year’s tax or 22.5% of the current year’s tax is due by the 15th day of the 4th month.
  • 1 payment equal to 75% of the prior year’s tax or 67.5% of the current year’s tax is due by the 15th day of the 6th month.

If the length of your tax year is 7 months:

  • 1 payment equal to 25% of the prior year’s tax or 22.5% of the current year’s tax is due by the 15th day of the 4th month.
  • 1 payment equal to 25% of the prior year’s tax or 22.5% of the current year’s tax is due by the 15th day of the 6th month.
  • 1 payment equal to 50% of the prior year’s tax or 45% of the current year’s tax is due by the 15th day of the 7th month.

If the length of your tax year is 8 months:

  • 1 payment equal to 25% of the prior year’s tax or 22.5% of the current year’s tax is due by the 15th day of the 4th month.
  • 1 payment equal to 25% of the prior year’s tax or 22.5% of the current year’s tax is due by the 15th day of the 6th month.
  • 1 payment equal to 50% of the prior year’s tax or 45% of the current year’s tax is due by the 15th day of the 8th month.

If the length of your tax year is 9 months:

  • 1 payment equal to 25% of the prior year’s tax or 22.5% of the current year’s tax is due by the 15th day of the 4th month.
  • 1 payment equal to 25% of the prior year’s tax or 22.5% of the current year’s tax is due by the 15th day of the 6th month.
  • 1 payment equal to 50% of the prior year’s tax or 45% of the current year’s tax is due by the 15th day of the 9th month.

If the length of your tax year is 10 months:

  • 1 payment equal to 25% of the prior year’s tax or 22.5% of the current year’s tax is due by the 15th day of the 4th month.
  • 1 payment equal to 25% of the prior year’s tax or 22.5% of the current year’s tax is due by the 15th day of the 6th month.
  • 1 payment equal to 25% of the prior year’s tax or 22.5% of the current year’s tax is due by the 15th day of the 9th month.
  • 1 payment equal to 25% of the prior year’s tax or 22.5% of the current year’s tax is due by the 15th day of the 10th month.

If the length of your tax year is 11 months:

  • 1 payment equal to 25% of the prior year’s tax or 22.5% of the current year’s tax is due by the 15th day of the 4th month.
  • 1 payment equal to 25% of the prior year’s tax or 22.5% of the current year’s tax is due by the 15th day of the 6th month.
  • 1 payment equal to 25% of the prior year’s tax or 22.5% of the current year’s tax is due by the 15th day of the 9th month.
  • 1 payment equal to 25% of the prior year’s tax or 22.5% of the current year’s tax is due by the 15th day of the 11th month.

Note: Any portion of a month is considered a full month.

7/8/2009                                Sue Klobertanz
Date                                        Director

Adopted: 4/12/1996
Revised: July 2009


Business Tax Policy: Tenants in Common (TIC), Joint Ventures (JV) and Other Forms of Joint Ownership Tax Assessment

This Business Tax Policy will no longer be applicable for tax years beginning on or after January 1, 2020. For the tax years beginning on or after January 1, 2020, the business income from these activities will be required to be reported to the Revenue Division (Division) at the owner level only.

Prepayments made for tax year 2020 on Tenants in Common (TIC), Joint Ventures (JV), and other forms of joint ownership accounts will be applied to the account of the taxfiler who made the payments, unless notified by the account representative in writing of how the payment should be applied. If the Division cannot determine the specific account that made the payment and no information is provided by the account representative, the Division will use the best information available to it to determine how to apply the prepayments.

Example 1: Three taxpayers (Taxpayers A, B, and C) all own equal portions of 4 Residential Rental Units in the City of Portland. Prior to tax year 2020, they had been reporting the income from these Residential Rental Units as a Tenants in Common (TIC) arrangement in accordance with this policy. Beginning January 1, 2020, Taxpayers A, B, and C are now required to file their own individual returns to report their individual portions of the rental income. For tax year 2020, the gross income received from the rental activity is $120,000. Each taxpayer’s portion of the rental income is $40,000 ($120,000 gross rental income times 1/3 interest) The filing requirements for the three taxpayers will be as follows:

  • Taxpayer A: This taxpayer conducts no other business activity anywhere. For tax year 2020, their only business income received is $40,000 from the rental activity, as reported on their personal Schedule E. Taxpayer A would be exempt from the City and County business taxes. They would need to register with the Division and file a 2020 Combined Tax Return and request a gross receipts exemption.
  • Taxpayer B: This taxpayer was previously exempt from the City and County business taxes for their Schedule C activity because they previously would gross $40,000 annually. For tax year 2020, they would need to include the $40,000 in rental income from the former TIC property with their other business income. For tax year 2020, Taxpayer B would have $80,000 in gross receipts, which would make them subject to the Portland Business License Tax (due to the increase in the gross receipts exemption to $100,000 for Multnomah County, they would remain exempt for the Multnomah County Business Income Tax). They would owe at least the minimum tax of $100 for the City of Portland Business License Tax.
  • Taxpayer C: This taxpayer was previously registered with the Division for their other business activities and regularly paid the City and County business taxes. Taxpayer C will now include the $40,000 in gross rental income from the former TIC property with their other business income.

Note: While the income from the 4 Residential Rental Units is being reported by the individuals now, only one Residential Rental Fee is due per unit. The three taxpayers would attach statements to their Combined Tax Return indicating which taxpayer(s) is/are paying the fees for the four units when they file the return.

For tax years beginning on or before December 31, 2019, this policy applies to multi-owner entities that are allowed to report income directly at the owner’s level for federal taxes. Real property ownership is the most common, but not the only, business activity this policy applies to.

The City of Portland Business License Tax (BLT) and Multnomah County Business Income Tax (MCBIT) laws generally require filing at the entity level (the property level in the case of real property ownership). However, as a practical matter, the City of Portland’s Revenue Division (“Division”) recognizes that most multi-owner entities will elect to report their tax liability to the City of Portland and Multnomah County at the same entity level as that reported on the federal return. This policy seeks to clarify the requirements of the two most common filing choices.

I. Setting up one account for the business activity.

A completed registration form for each business entity or real property establishes a tax account. The account name may use the address of the rental property with entity type in parentheses. An example might be “101 SW Main (TIC)”. The registration form should include the name, federal identification number, and percentage ownership of each and every owner.

A federal identification number or Social Security number and name must be assigned to the account for purposes of issuing federal Form 1099s.

A person must be designated as the “tax contact” for the Revenue Division.

The entity will be treated as a tax partnership, consistent with IRC §761 and Rev. Proc. 2002-22. This tax treatment does not create a legal partnership where no intent to form a partnership exists.

The City/County “Residential Rental Exemption” will not apply because the tax entity is a partnership, not an individual.

The total gross income of the rental real property/business will be used to determine if the $50,000 gross receipts exemption applies.

Example 2: Taxpayers S, T and A are unmarried, equal-share TIC owners of a Portland residential rental property. Each owner reports their share of income on their Schedule E of federal Form 1040. The rental’s 20XX gross income is $60,000, and net income is $6,000. The property does not qualify for the gross receipts exemption because the property’s gross receipts exceed $50,000.

If the property (tax entity) does not qualify for exemption, a Combined Tax Return for Partnerships should be filed to report all income from the rental property (business). Required supporting tax pages may include profit/loss (P&L) statements for the property and any supporting statements and schedules. The checkbox on the Combined Tax Return must be checked to indicate the nature of the entity (i.e., “TIC”). The Division may request the federal Schedule E of individual owners to verify the amounts reported on the Combined Tax Return.

Example 3: Using the facts of Example 1, the TIC will open a tax account named for the property’s location: “405 SW Broadway (TIC).” For the 20XX tax year, the TIC will file a Combined Tax Return for Partnerships, check the TIC box, and report $6,000 net income. The return will allow three Owners’ Compensation Deductions on line six, but the deduction is limited to 75% of net income or $4,500.

II. Reporting the income share of the activity at the individual entity level for each of the owners. Reasons for electing this option include, but are not limited to:

  • The sale of an undivided fractional interest in rental real property, particularly when sold at different times than the other interests in the same property
  • Material expenses or depreciation of individual owners that cannot be included in an entity level return
  • Lack of cooperation or capacity of the person managing the finances of the property
  • Separate filing status requested by individuals who have multiple business interests in addition to the joint ownership of the tax entity
  • Inability to assign one federal tax identification number to the entity for federal Form 1099 purposes

In such cases, a representative of the property may be required to petition the Division in writing in order to allow separate filing for each owner. See attached form “Separate Filing Petition for Multiple Owners.”
If required, this petition must include the following information:

  • A description and address of the rental property or business
  • A list of owners, including name, address, telephone, federal tax identification number, percentage ownership, and any other necessary contact information
  • An explanation for the need to file separately

Regardless of the status of the petition, the gross receipts exemption will be determined at the entity level. Capital gains will be combined with gross receipts of the rental property or business to determine the exemption. The City/County “Residential Rental Exemption” will continue to be unavailable to an individual owner that files separately. If separate filings are accepted, the individual owners must comply with the following BLT/MCBIT filing requirements: 

  • Each owner must submit a completed Registration Form, including name, federal tax identification or social security number, mailing and location addresses, and description of rental properties.
  • Each owner must file a Combined Tax Return for Individuals for their percentage ownership of each rental real property or business income and include the following supporting tax pages:
    • Pages 1-2 of the federal Form 1040
    • Complete Schedule E with address and percentage ownership of each property
    • Schedules D and Forms 4797, 6252, and 8824 for all sales or installment sales, clearly indicating amounts and percentage ownership of each property
    • Schedule B if there are installment sales of real property
    • All schedules and statements relating the income from real rental property or other business, including statements from the financial or property manager

Any payments made to the owner that were deducted to arrive at net income or deducted on the individual Schedule E, must be added back to net income. An owner’s compensation deduction is allowed on line six.

  • Each owner is subject to at least the minimum County and City taxes.
  • Each owner must comply with the Division’s requests to furnish additional documents.
  • Each owner should report their individual share of income from the jointly held rental real property or business.
  • Each owner may combine such income on an existing tax account. Supporting tax documentation must indicate the percentage income and ownership of jointly held properties. Taxpayers must use a consistent reporting method throughout the life and sale of the jointly owned property.

Example 4: The Garden View Apartments in Portland are owned by three individuals (Taxpayers J, M, and L) as a TIC. In 20XX, gross receipts are $100,000, and net income is $10,000. The owners acquired their interests in the building at different points in time and have materially different amounts of depreciation. The Division allows the owners to report income at the owner’s level, requiring three returns, each paying at least the minimum tax to the City and County.

Income from the sale of assets of the activity (including real property) should be reported with the respective rental income from that activity or real property.

Example 5: The Garden View Apartments in Portland was acquired by three equal-owner individuals (Taxpayers J, M, and L) as a TIC. The apartment complex is sold 12/31/20XX for a capital gain of $60,000. The rental income for the year ended 12/31/20XX is $30,000 gross and $9,000 net. The property does not qualify for the gross receipts exemption because the gross receipts equal $90,000. The owners have chosen to file separately. On the return, each owner will include their individual share of rental income ($3,000) and gain ($20,000).

Occasionally a single owner may sell an interest in the activity or property of the TIC while the other owners’ interests remain intact. In this case, the capital gain of the single owner will be treated as an independent business of the taxpayer.

Example 6: The Garden View Apartments in Portland was acquired by three equal-owner individuals (Taxpayers J, M, and L) as a TIC. Taxpayer J sells their “undivided fractional interest” in the building on 12/31/20XX and recognizes a $45,000 capital gain. The rental income for the year ended 12/31/20XX is $40,000 gross and $9,000 net. The owners have chosen to file separately. Each owner is exempt from reporting the rental income on a Combined Tax Return because the property as a whole has gross receipts of $40,000. Taxpayer J’s capital gain qualifies for the gross receipts exemption because the capital gain equals $45,000. If Taxpayer J’s capital gain were $55,000 instead of $45,000, then a Combined Tax Return should be filed to report the $55,000 capital gain income.

9/29/2020                                    Thomas Lannom
Date                                              Director

Adopted: 6/28/2011
Revised: December 2011, September 2020

[ED. NOTE: Forms referenced are available from the Division.]


Business Tax Policy: Treatment of Business Income for Nonresident Individuals

In determining net income, PCC 7.02.100 K and MCC § 12.100 define income as “the net income arising from any business as reportable to the State of Oregon…before any allocation or apportionment…” When determining income for nonresident individuals, separate accounting is not allowed. This is consistent with the treatment of business income of nonresidents by the State of Oregon as prescribed by OAR 150-316-0169, which specifies “gross income of a nonresident…from a business, trade, profession or occupation…is determined in the same manner as is the gross income of a resident from a similar activity…”

The taxpayer will apportion net business income to determine tax liability for the Portland Business License Tax and Multnomah County Business Income Tax.

Example 1: Sierra is a resident of California who owns one residential rental property in downtown Portland from which she receives $24,000 in gross rents, annually. The net income from the Portland property is $12,000. Sierra also owns four residential rental properties in California from which she receives $96,000 in gross rents every year. Net income from the California properties is $48,000.

Total gross receipts: $24,000 + $96,000 = $120,000

Net income subject to Portland Business License Tax: $12,000 + $48,000 = $60,000

Apportionment calculation: $24,000 / $120,000 = 0.20

(Apportionment has been rounded to the second digit for these examples. The Revenue Division generally requires that apportionment to be rounded to the sixth digit on Combined Tax Returns.)

Note: Because Sierra’s rental properties were all residential rental properties and her only source of business income was derived from residential rental properties, Sierra would qualify to be exempt from Multnomah County Business Income Tax due to renting or leasing less than 10 residential rental units.

Example 2: Assume the same facts as in Example 1, except Sierra sells one of the California rental properties, resulting in a $50,000 gain. The gain on the sale is required to be included in net income as well as total gross receipts. The sale of the property would also disqualify Sierra from being exempt from Multnomah County Business Income Tax. Sierra’s income is now derived from residential rentals and gain from the sale of property.

Total gross receipts: $24,000 + $96,000 + $50,000 = $170,000

Net income subject to Portland Business License Tax and Multnomah County Business Income Tax: $12,000 + $48,000 + $50,000 = $110,000

Apportionment calculation: $24,000 / $170,000 = 0.14

If the sale of the California rental property had resulted in a loss, Sierra would include the loss in calculating net income. The amount to be included in apportionment is zero for the numerator and denominator in the event of a loss (as illustrated in Example 3 below).

Example 3: Assume the same facts as in Example 2, except the sale instead resulted in a $50,000 loss.

Total gross receipts: $24,000 + $96,000 = $120,000

Net income subject to Portland Business License Tax and Multnomah County Business Income Tax:  $12,000 + $48,000 + ($50,000) = $10,000

Apportionment calculation: $24,000 / $120,000 = 0.20

Example 4: Ken lives in Washington and has an independent consulting business and reports all of his income from his consulting business on Schedule C. Total gross receipts from his consulting business is $105,000. Net income from the consulting business is $50,000. He also owns one commercial rental property in downtown Portland, from which he receives $45,000 in gross rents. The net income from his rental property in Portland is $10,000.

Aside from owning the one rental property, Ken conducts no other business activity in Portland or Multnomah County.

Total gross receipts: $105,000 (from Schedule C) + $45,000 (from Schedule E) = $150,000

Net income subject to Multnomah County Business Income Tax and Portland Business License Tax: $50,000 + $10,000 = $60,000

Apportionment calculation:  $45,000 / $150,000 = 0.30

10/19/2018                                  Thomas Lannom
Date                                              Director

Adopted: 10/19/2018


Business Tax Policy: Voluntary Compliance

It is the policy of the Revenue Bureau to assist businesses with compliance and to encourage future compliance with Portland City Code 7.02 and Multnomah County Code Chapter 12. A limitation on the number of prior year tax payments with a new, unsolicited return is appropriate in order to accomplish this objective. The taxpayer seeking voluntary compliance for open years may do so using one of the two options below.

  1. Report and pay all taxes due, plus interest for all years of unreported business activity. Upon receipt of returns, taxes and interest, penalties will be waived upon written request.
  2. Report and pay all taxes, interest and penalties for the current year plus three prior years only. In this case, the penalty will be limited to 25% of the taxes and/or fees due each year. The “current year” shall be defined as the most recent return that would have been required to be filed as determined by the Revenue Bureau.

Example: An application submitted in July 2009, with a start date of business in Portland of 1992 shall be considered in compliance if returns and payments for 2005, 2006 and 2007 are received with payment of 25% penalty and interest from the original due dates of the respective returns, and the 2008 return is filed with the correct penalty and interest (or extension is requested with at least a minimum tax payment).

When it can be verified that notification has been sent to the business or business owner of the requirement for a tax filing prior to receipt of any return and payment, such return and payments are no longer qualified to take advantage of this voluntary compliance policy, and the business will be required to submit all open years, including all taxes, interest and penalties unless some other settlement is reached.

Note: This policy only limits the calculation of penalties and the number of years required to be filed. Nothing in this policy should be construed to limit or expand any other element in the tax calculation, including the owner’s compensation add back and deduction or net operating loss deductions. These calculations will be in accordance with provisions in the appropriate City and County codes.

7/8/2009                                Sue Klobertanz
Date                                        Director

Adopted: 5/25/94
Revised: 1999, 2001, 2003, July 2009


Business Tax Policy: Your Right To Appeal - Explanation

As described in Portland City Code Section 7.02.290 and Multnomah County Code § 12.290, you have the right to appeal any decision made by the Revenue Bureau under the Business License Law and/or the Multnomah County Income Tax Law. The following discusses the various steps and procedures of the appeals process.

File a Protest with the Bureau

Upon receipt of any tax billing, you have 30 days to file a protest with the Bureau. This protest must be in writing and should explain the reason for the protest, including evidence to support your position. Your protest will be reviewed by the Audit Section and Bureau management as quickly as possible. If the review will take more than 30 days, the Bureau will notify you of this in writing.

After review of your protest and evidence, the Bureau will do one of two things:

  • Issue a Revised Billing: If, as a result of the Bureau’s review, it is found that there were errors in the billing under protest, the Bureau will correct them and issue a revised billing. If you receive a revised billing that you still disagree with, you have 30 days to renew your protest in writing with supporting evidence. If you agree with the revised billing, you have 30 days to make payment before additional interest and/or penalties are assessed.
  • Issue a Final Letter of Determination: If, as a result of the Bureau’s review, the Bureau believes that no errors were made and the billing was in accordance with the Business License Law and/or the Multnomah County Business Income Tax Law, a final letter of determination will be issued by the Bureau Director. This letter will explain the sections of City and/or County Code that support the Bureau’s position, and reaffirm the previous billing. If you disagree with this determination, you have 30 days to file a written notice of appeal with the Business License Appeals Board. If you agree with the final letter of determination, you have 30 days to make payment before additional interest and/or penalties are assessed.
File an Appeal with the Business License Appeals Board

Any person may appeal a final letter of determination made by the Revenue Bureau by filing a written notice of appeal within 30 days of date the final determination was mailed. The written notice of appeal should be directed to the Business License Appeals Board and sent to the Bureau’s address.

You have 90 days from the date the final determination was mailed to file a written statement with the Appeals Board which should indicate:

  • The reasons the Bureau determination is incorrect.
  • What the correct determination should be.

If you fail to file this statement within the 90 days, it will be deemed that you have waived your objections and your appeal will be dismissed.

The Bureau has 150 days from the date the final determination was mailed to file its written statement with the Appeals Board. You will receive a copy of this statement.

The Appeals Board will hear the appeal on the basis of the written statements and any additional testimony as required. You will be given not less than 14 days prior written notice of the hearing date and shall have the opportunity to present relevant testimony and oral arguments.

You will be notified of the Appeals Board’s determination in writing. The decision of the Business License Appeals Board is the only administrative appeal and their decision is final.

NOTES:

The Revenue Bureau may extend the time for filing of statements upon petition by you, the appellant, for good cause. If the Bureau extends the time for filings on its own behalf, you will be notified in writing.

The filing of an appeal with the Business License Appeals Board temporarily suspends the obligation to pay any tax that is subject to the appeal, until such time as the appeal decision is issued.

12/27/2013                                  Thomas Lannom
Date                                              Director

Revised: 12/27/2013