150-316-0600 Oregon Investment Advantage Apportionable Income Exemption (1) Definitions. For purposes of ORS 316.778 and this rule, “business firm’s income” has the meaning given the term “apportionable income” in ORS 314.610(1) and OAR 150-314-0335. (2) Computing exempt income. Any ratio contained in the formulas outlined in ORS 316.778 may not be greater than 100 percent or less than zero. (3) Method of determining the business firm’s income derived from the activities at the certified facility. A business firm’s income derived from the firm’s activities at a certified facility is determined by multiplying the total apportionable income of the business firm by a fraction, the numerator of which is the total sales from the certified facility during the tax period, and the denominator of which is the total sales of the business firm everywhere during the tax period. Example 1: Wee Company had sales of $2,250,000 from its certified facility. Total sales of Wee Company were $3,450,000. Apportionable income of Wee Company for the same fiscal year equaled $500,000. Wee Company computes its income derived from the certified facility as follows: $2,250,000 (Sales from certified facility) ÷ $3,450,000 (Total firm sales) = 65.2 percent. $500,000 (Apportionable income) x 0.652 = $326,000 (Business firm’s income derived from certified facility). (4) Intra-firm transfers. If a business firm transfers product from a certified facility to a non-certified facility without a sale actually occurring (intra-firm transfer), the business firm must impute sales to the product transferred from the certified facility to use the method prescribed in section 3 of this rule. (a) Imputing sales value for transferred production when part of total production is transferred. If a business firm transfers some of its production at the certified facility to a non-certified facility without a sale actually occurring (intra-firm transfer), the business firm needs to impute the sales value of the transferred production. This is necessary in order to determine sales from the certified facility. To impute the sales value, the taxpayer must first compute a ratio, the numerator of which is the total sales for all other items sold from the certified facility and the denominator of which is the cost of goods sold (COGS) for all other items sold from the certified facility. This ratio is then multiplied by the COGS of the transferred product to determine its imputed sales value. Example 2: Zee Company has two facilities in Oregon. One is a tackle box manufacturing facility in the Willamette Valley. The other is a new part-making facility that qualifies as a “certified facility” under ORS 316.778(6)(b). The part-making facility builds parts R, S, T, and U. Zee Company makes the R-Parts for internal use in building the tackle boxes. The part-making facility sold S, T, and U Parts for $675,000 to companies other than Zee Company. Zee Company’s total sales for the fiscal year were $2,175,000 ($1,500,000 from tackle box sales and $675,000 from S, T, and U Parts sales). Zee Company’s apportionable income for the same fiscal year was $1,250,000. To determine sales value derived from R-Parts produced at the certified facility, Zee Company computed the ratio of total sales from parts S, T, and U over the cost of goods sold (COGS) for parts S, T, and U and multiplied the result by the COGS for R-Parts to determine the value of tackle box sales attributable to R-Parts. Zee Company calculated that COGS for R-Parts was $200,000. COGS for S-Parts was $100,000 and sales were $200,000; COGS for T-Parts was $50,000 and sales were $75,000; and COGS for U-Parts was $300,000 and sales were $400,000. Sales value computed as follows: $675,000 (Total sales for parts S, T, and U) ÷ $450,000 (COGS for parts S, T, and U) = 1.5; $200,000 (COGS for part R) x 1.5 = $300,000 (Sales value attributed to R-Parts). Zee Company uses $300,000 of the total sales of the tackle boxes as sales value attributable to the certified facility for R-Parts. Zee Company uses $975,000 ($675,000 + $300,000) as the sales attributed to the certified facility to determine the amount of income that is exempt from tax. (b) Imputing sales for transferred production when all product is transferred. If a business firm transfers all of its production at the certified facility to a non-certified facility without a sale actually occurring (intra-firm transfer), the business firm must impute the sales value attributed to the production transferred in order to determine sales from the certified facility. To impute the sales value for product transferred, the taxpayer uses a ratio of COGS of the transferred production over COGS of all production. This ratio is then multiplied by total sales for the non-certified facility. Example 3: Tee Company operates a wholesale facility in Southern Oregon. It has a processing plant in Eastern Oregon that is a certified facility. The processing plant transfers all of its output to the wholesale facility. Tee Company’s total sales from all activities were $20,000,000. Cost of production at the processing plant was $4,000,000. The total cost of all goods sold (COGS) was $18,000,000. Tee will use $4,440,000 of total sales from the wholesale facility to determine the business firm’s income that is attributable to the certified facility computed as follows: $4,000,000 (Cost of processing plant output) ÷ $18,000,000 (Total COGS) = 22.2 percent $20,000,000 (Total sales) x 0.222 = $4,440,000 (Sales attributed to certified facility). (c) Alternate approach for imputing sales value. If a taxpayer's circumstances do not substantially meet the standards for imputing sales value in this rule, the taxpayer must consult with the department on an appropriate allocation approach based on that taxpayer’s facts and circumstances. Statutory/Other Authority: ORS 305.100 & 316.778 Statutes/Other Implemented: ORS 316.778 History: REV 9-2019, amend filed 12/11/2019, effective 01/01/2020 Renumbered from 150-316.778, REV 66-2016, f. 8-15-16, cert. ef. 9-1-16 REV 3-2006, f. & cert .ef. 7-31-06