Tax Administration Policy – Credit for Taxes Paid to Another State
Multnomah County (County) and Metro allow a credit to a resident of their jurisdictions on mutually taxed income that is taxed by another state. A part-year resident is allowed a credit for the portion of the year they are a resident. The credit is authorized in Multnomah County Code §11.528 and Metro Code Section 7.06.101. The credit is not allowed if the other state allows a credit for nonresidents on mutually taxed income. This policy defines terms and explains how to calculate the credit when it is allowed.
For full-year residents, the credit is the smallest of:
- The County/Metro tax; or
- The tax the resident actually paid to the other state; or
- Modified Adjusted Gross Income (AGI) taxed by both the County/Metro and the other state divided by Modified AGI multiplied by the County/Metro tax.
For part-year residents, the credit is the smallest of:
- The County/Metro tax paid; or
- The County/Metro tax on mutually taxed income while they were a County/Metro resident after all other credits; or
- The tax actually paid to the other state on mutually taxed income while they were a County/Metro resident tax based on mutually taxed income.
Definitions for purposes of this credit:
“Adjusted gross income” means federal adjusted gross income as defined in the Internal Revenue Code section 62 and the corresponding regulations.
“Modified adjusted gross income” means adjusted gross income as modified under ORS Chapter 316, but only as to items related to federal adjusted gross income, and as modified under the County’s and/or Metro’s personal income tax code.
“Items related to federal adjusted gross income” means items of income, gain, loss, exclusion or deduction that are used to arrive at federal adjusted gross income. It does not include items that are unrelated to determining federal adjusted gross income, such as the federal income tax subtraction under ORS 316.695 or the additional medical expense deduction provided by ORS 316.695(1)(d)(B).
Example 1: Jon, a County/Metro resident, has $40,000 of adjusted gross income, including $10,000 of rental income taxed both by County/Metro and another state. Jon also receives a lump-sum distribution of $8,000 from a private pension plan. Because Jon chooses to use the 5-year averaging method to compute federal tax on the distribution, the $8,000 is not included in his adjusted gross income of $40,000. Jon computes modified adjusted gross income as follows:
$40,000 — Adjusted Gross Income
(5,000) — Less - U.S. Bond Interest
(2,000) — Less - Civil Service Retirement (pre 10/1/1991 service)
17,000 — Add - California Municipal Bond Interest
8,000 — Add - Pension distribution
$58,000 — Modified Adjusted Gross Income
“Mutually taxed income” means that portion of modified adjusted gross income that is both reported to and taxed by the County/Metro and another state.
Example 2: Matt, a County/Metro resident, reports adjusted gross income of $21,000, including gain on the sale of Hawaii property of $5,000. For Hawaii tax purposes, the $5,000 gain is increased by a basis adjustment of $250. For County/Metro tax purposes, the gain is reduced by a basis adjustment of $1,000. Matt’s modified adjusted gross income is $20,000, ($21,000 of adjusted gross income less the $1,000 County/Metro basis adjustment.) The mutually taxed income is $4,000 ($5,000 gain on sale of Hawaii property less the $1,000 County/Metro basis adjustment), which is the amount of modified adjusted gross income that is taxed by both Hawaii and County/Metro.
Example 3: Verne, a County/Metro resident, sold property that he owned in Colorado for a gain of $128,000. On Verne’s County/Metro resident return, County/Metro allowed $100,000 of losses against the $128,000 of income. Colorado did not allow the losses to be offset or deducted because the losses were not Colorado-sourced losses. Thus, Colorado taxed the entire $128,000 gain. The amount of mutually taxed income is $28,000 because that is the amount of gain which is actually taxed by both jurisdictions.
“Total income on the return of the other state” means the other state’s taxable income plus any amounts subtracted for itemized deductions, a standard deduction, or exemptions.
“Net tax” means state income tax liability (whether County/Metro or the other state) after all credits except the credit for taxes paid to another state.
“County/Metro tax based on mutually taxed income” means that portion of County/Metro net tax that is attributable to mutually taxed income. It is figured using this formula:
(A ÷ B) x C = D, where
A = mutually taxed income
B = modified adjusted gross income
C = County/Metro net tax
D = County/Metro tax based on mutually taxed income.
“Other state’s tax based on mutually taxed income” meansthat portion of net tax of the other state that is attributable to mutually taxed income. It is figured using this formula:
(A ÷ E) x F = G, where
A = mutually taxed income
E = total income on the return of the other state
F = other state’s net tax
G = other state’s tax based on mutually taxed income.
Computing the credit for a County/Metro resident.
A County/Metro resident figures the credit as the lesser of:
- The County/Metro tax paid; or
- The County/Metro tax based on mutually taxed income (Formula 1); or
- The tax actually paid to the other state after all other credits.
Example 4: Jim’s modified adjusted gross income of $40,000 includes rental income taxed to Idaho and County/Metro of $4,000. His County/Metro net tax is $2,000 and his Idaho net tax (not including the Idaho Building Fund tax) is $100. Jim figures his allowable credit as follows:
(Mutually taxed income ÷ modified adjusted gross income) x net County/Metro tax = County/Metro tax based on mutually taxed income.
($4,000 ÷ 40,000) x $2,000 = $200
Jim’s allowable credit is $100, which is the lesser of the County/Metro tax based on mutually taxed income or the income tax actually paid to Idaho of $100.
Computing the credit for a part-year County/Metro resident.
A part-year County/Metro resident figures the credit as the lesser of:
- The County/Metro tax paid; or
- The County/Metro tax on mutually taxed income while they were a County/Metro resident after all other credits; or
- The tax actually paid to the other state on mutually taxed income while they were a County/Metro resident tax based on mutually taxed income.
Example 5:Ezra moved from Idaho to the County on July 1. He sold County property on June 10, and sold Idaho property on October 18. He worked for an Idaho-based employer all year. However, he telecommuted from the County beginning July 1. His Idaho income tax after credits is $9,328; of this amount, $937 is on income he received when he was a County resident. His County income tax liability after other credits is $986. His income on his County and Idaho returns is:
County
Sale of County property June 10 $ 50,000
Wages July 1 to December 31 $ 100,000
Interest July 1 to December 31 $ 750
Sale of Idaho property October 18:
Idaho capital gain reported $ 40,000*
Modified AGI taxable to County $ 190,750
Idaho income
Sale of County property June 10 $ 50,000
Wages January 1 to June 30 $ 100,000
Interest January 1 to June 30 $ 750
Sale of Idaho property October 18:
Idaho capital gain reported. $ 40,000
Less Idaho capital gain exclusion* ($ 24,000)
Net capital gain taxed by Idaho $ 16,000
Modified AGI taxable to Idaho $ 166,750
*If the other state has any income exclusion that applies to the mutually-taxed income, the taxpayer must adjust the mutually-taxed income by the exclusion amount.
In this example, Ezra’s federal capital gain is $90,000. Idaho allows Ezra to exclude 60 percent, or $16,000, of his $40,000 capital gain from the sale of the Idaho property. Ezra’s mutually-taxed income while a County resident is $16,000.
CountyResidency period. Ezra had $16,000 in mutually-taxed income when he was an County resident. His total income while he was a resident was $140,750: the $100,000 in wages, $750 in interest, and $40,000 capital gain from the Idaho property.
His credit for the resident part of the year is $83, the smallest of:
- County tax after all other credits ($986); or
- County tax on mutually taxed income while a County resident ($83); or
- Tax paid to the Idaho on mutually taxed income while a County resident ($895).
08/23/2023 ______Tyler Wallace________
Date Revenue Division Director
Adopted: 08/23/2023