Tax Administration Policy - Metro: Reporting of Income and Deduction for Previously Taxed Income Received from a Trust or Estate
An estate/trust pays the Metro Business Income Tax (METBIT) on its income to the extent the income is from “doing business” in the Metro jurisdiction. It does not pay METBIT on its portfolio income or income distributed to beneficiaries. Its portfolio income may include income received from a pass-through entity (PTE) where the PTE paid METBIT taxes.
Individual beneficiaries/trustees of an estate/trust pay tax on their share of its distributions. The estate/trust will issue a K-1 to its beneficiaries/trustees with information about distributions made. An estate’s/trust’s income retains it character for beneficiaries/trustees which includes the source of the income and related subjectivity to the METBIT.
Metro [MC §7.06.090] allows individuals a deduction for pass-through income subject to tax under their respective business income taxes. Since an estate/trust does not pay tax on income distributed to beneficiaries/trustees, this deduction is limited to that portion of a distribution from the estate/trust that it receives from a pass-through entity owned by the estate/trust. The amount is the distributive share of taxable income on a pass-through entity’s (PTE) business income tax return. The intent of this policy is to provide guidance for calculating the deduction according to Metro’s code and identify the information needed for that purpose.
An individual may only take this deduction if they have documentation from PTEs supporting the amount of income on which tax was paid and that the PTE paid the tax. Failure to provide this information in response to a request from the Revenue Division may result in the deduction being disallowed. PTEs subject to the METBIT must provide their owners, partners, beneficiaries, or trustees the following information with the Schedule K-1 in a statement:
- A statement that the business is subject to the METBIT,
- that it has filed the business income tax return(s) for the tax year of the Schedule K-1,
- the individual’s share of “income subject to tax” on the business income tax return(s),
- the name and employer identification number of all tiered PTEs the PTE owns from which distributions are reported in the distribution to the PTE’s owner(s),
- information from the tiered PTEs the PTE owns equivalent to the first three bullet points which may include tiered PTE K-1s, and
- the Metro apportionment percentage. If the business does not apportion income, the percentage is 100%. If the business does apportion income, this percentage is determined pursuant to the METBIT tax code and rules.
Metro’s personal income tax returns begin with Oregon Taxable Income. Oregon Taxable Income includes an individual’s distributive share of income from a fiscal year PTE in the individual’s tax year for which the PTE’s fiscal year ends. The distributive share of PTE income included in the Oregon return may be different from the share of income subject to tax on a PTE’s METBIT tax return.
The deduction is allowed for an individual’s distributive share of PTE income subject to tax on a METBIT tax return. If an individual receives a distributive share of income from more than one PTE, a deduction amount is computed separately for each PTE using the following approach.
The amount of the deduction is the individual’s share of income subject to tax on the business income tax return. This is the amount on the business income tax return after apportionment and application of net operating loss carryovers. The cumulative deductions of all beneficiaries/trustees will not exceed the total income subject to tax on the business income tax return. If a PTE’s METBIT tax is zero, there is no deduction. The deduction can’t be less than zero and can’t exceed the individual’s distributive share of income included in the individual income tax return.
05/11/2022 ______Thomas Lannom_____
Date Revenue Division Director