Tax Administration Policy – Deduction for Previously Taxed Income Received from a Pass-Through Entity
Multnomah County [MCC §11.524] and Metro [MC §7.06.090] allow individuals a deduction for pass-through income subject to tax under their respective business income taxes. The amount is the owner’s 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 Multnomah County’s and Metro’s codes 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 County and/or Metro business income tax laws must provide their owners or partners the following information with the Schedule K-1 in a statement:
- A statement that the business is subject to the County and/or Metro business income tax,
- that it has filed the business income tax return(s) for the tax year of the Schedule K-1,
- the owner’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 County and/or Metro apportionment percentage(s). If the business does not apportion income, the percentage is 100%. If the business does apportion income, this percentage is determined pursuant to the County or Metro business income tax code and rules.
Multnomah County’s and 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 County or Metro business income tax return. Differences between the County and Metro business income tax law may result in a different deduction amount for each jurisdiction. Examples include differences in apportionment, residency, etc.
The deduction is allowed for an individual’s distributive share of PTE income subject to tax on a County or Metro business income 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 owner’s or partner’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 owners will not exceed the total income subject to tax on the business income tax return. If a PTE’s County and/or Metro business income 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.
If the preceding allocation of a PTE’s income subject to tax results in an unfair allocation of the cumulative deductions of all the owners, the Revenue Division will consider and may approve a proposed alternative allocation. All owners must agree to the proposed alternative.
Example: Where compensation is paid to owners exceeding the owners compensation allowed on a Multnomah County business income tax return and compensation paid to each owner is materially disproportionate compared to each owner’s distributive share of income subject to tax.
03/09/2022 ______Thomas Lannom_____
Date Revenue Division Director
Adopted: 03/09/2022