Oregon Administrative Rules › Chapter 150 - DEPARTMENT OF REVENUE › Division 314 - INCOME TAXATION GENERALLY GENERAL PROVISIONS › Section 150-314-0435 - Sales Factor; Sales Other Than Sales of Tangible Personal Property in This State

Current through Register Vol. 63, No. 7, July 1, 2024
(1) This rule
			 adopts a model regulation recommended by the Multistate Tax Commission to
			 promote uniform treatment of this item by the states. This rule applies to tax
			 years beginning on or after January 1, 2018. In general, ORS
			 314.665(4)
			 provides for the inclusion of gross receipts arising from transactions other
			 than sales of tangible personal property in the numerator of the sales factor.
(a) Market-Based Sourcing. Receipts, other
			 than receipts described in ORS
			 314.665(2)
			 (from sales of tangible personal property) are in Oregon within the meaning of
			 ORS 314.665(4) and
			 this rule if and to the extent that the taxpayer's market for the sales is in
			 Oregon. In general, the provisions in this section establish uniform rules for
			 (1) determining whether and to what extent the market for a sale other than the
			 sale of tangible personal property is in Oregon, (2) reasonably approximating
			 the state or states of assignment where the state or states cannot be
			 determined, and (3) excluding receipts from the sale of intangible property
			 from the numerator and denominator of the sales factor pursuant to Oregon Laws
			 2017, chapter 549, section 2(3)(c).
(b) Outline of Topics.
(A) General Rules
(i) Market-Based Sourcing
(ii) Outline of Topics
(iii) Definitions
(iv) General Principles of Application;
			 Contemporaneous Records
(v) Rules
			 of Reasonable Approximation
(vi)
			 Rules with respect to Exclusion of Receipts from the Sales Factor
(B) Sale, Rental, Lease, or
			 License of Real Property
(C)
			 Rental, Lease, or License of Tangible Personal Property
(D) Sale of a Service
(i) General Rule
(ii) In-Person Services
(iii) Services Delivered to the Customer or
			 on Behalf of the Customer, or Delivered Electronically Through the Customer
(iv) Professional
			 Services
(E) License or
			 Lease of Intangible Property
(i) General
			 Rules
(ii) License of a Marketing
			 Intangible
(iii) License of a
			 Production Intangible
(iv) License
			 of a Mixed Intangible
(v) License
			 of Intangible Property where Substance of the Transaction Resembles a Sale of
			 Goods or Services
(F)
			 Sale of Intangible Property: Assignment of Receipts
(G) Special Rules
(i) Software Transactions
(ii) Sales or Licenses of Digital Goods and
			 Services
(c)
			 Definitions.
(A) "Billing address" means the
			 location indicated in the books and records of the taxpayer as the primary
			 mailing address relating to a customer's account as of the time of the
			 transaction as kept in good faith in the normal course of business and not for
			 tax avoidance purposes.
(B)
			 "Business customer" means a customer that is a business operating in any form,
			 including a sole proprietorship. Sales to a non-profit organization, to a
			 trust, to the U.S. Government, to a foreign, state, or local government, or to
			 an agency or instrumentality of that government are treated as sales to a
			 business customer and must be assigned consistent with the rules for those
			 sales.
(C) "Code" means the
			 Internal Revenue Code as currently adopted by ORS
			 314.011.
(D) "Individual customer" means a customer
			 that is not a business customer.
(E) "Intangible property" generally means
			 property that is not physical or whose representation by physical means is
			 merely incidental and includes, without limitation, copyrights; patents;
			 trademarks; trade names; brand names; franchises; licenses; trade secrets;
			 trade dress; information; know-how; methods; programs; procedures; systems;
			 formulae; processes; technical data; designs; licenses; literary, musical, or
			 artistic compositions; information; ideas; contract rights including broadcast
			 rights; agreements not to compete; goodwill and going concern value;
			 securities; and, except as otherwise provided in this rule, computer software.
(F) "Place of order" means the
			 physical location from which a customer places an order for a sale other than a
			 sale of tangible personal property from a taxpayer, resulting in a contract
			 with the taxpayer.
(G)
			 "Population" means the most recent population data maintained by the U.S.
			 Census Bureau for the year in question as of the close of the taxable period.
(H) "Related party" means:
(i) A stockholder who is an individual, or a
			 member of the stockholder's family set forth in section 318 of the Code if the
			 stockholder and the members of the stockholder's family own, directly,
			 indirectly, beneficially, or constructively, in the aggregate, at least 50
			 percent of the value of the taxpayer's outstanding stock;
(ii) A stockholder, or a stockholder's
			 partnership, limited liability company, estate, trust, or corporation, if the
			 stockholder and the stockholder's partnerships, limited liability companies,
			 estates, trusts, and corporations own directly, indirectly, beneficially or
			 constructively, in the aggregate, at least 50 percent of the value of the
			 taxpayer's outstanding stock; or
(iii) A corporation, or a party related to
			 the corporation in a manner that would require an attribution of stock from the
			 corporation to the party or from the party to the corporation under the
			 attribution rules of the Code if the taxpayer owns, directly, indirectly,
			 beneficially, or constructively, at least 50 percent of the value of the
			 corporation's outstanding stock. The attribution rules of the Code apply for
			 purposes of determining whether the ownership requirements of this definition
			 have been met.
(iv) The provisions
			 of this rule regarding sales between related parties do not apply to sales that
			 are treated as intercompany transactions between affiliated corporations filing
			 a consolidated Oregon return eliminated as provided in section (3) of OAR
			 150-314-0630.
(I) "State
			 where a contract of sale is principally managed by the customer" means the
			 primary location at which an employee or other representative of a customer
			 serves as the primary contact person for the taxpayer with respect to the
			 day-to-day execution and performance of a contract entered into by the taxpayer
			 with the customer.
(d)
			 General Principles of Application; Contemporaneous Records. In order to satisfy
			 the requirements of this rule, a taxpayer's assignment of receipts other than
			 receipts from sales of tangible personal property must be consistent with the
			 following principles:
(A) This rule provides
			 various assignment rules that apply sequentially in a hierarchy. For each sale
			 to which a hierarchical rule applies, a taxpayer must make a reasonable effort
			 to apply the primary rule applicable to the sale before seeking to apply the
			 next rule in the hierarchy (and must continue to do so with each succeeding
			 rule in the hierarchy, where applicable). For example, in some cases, the
			 applicable rule first requires a taxpayer to determine the state or states of
			 assignment, and if the taxpayer cannot do so, the rule requires the taxpayer to
			 reasonably approximate the state or states. In these cases, the taxpayer must
			 attempt to determine the state or states of assignment (i.e., apply the primary
			 rule in the hierarchy) in good faith and with reasonable effort before it may
			 reasonably approximate the state or states.
(B) A taxpayer's method of assigning its
			 receipts, including the use of a method of approximation, where applicable,
			 must reflect an attempt to obtain the most accurate assignment of receipts
			 consistent with the regulatory standards set forth in this rule, rather than
			 for tax avoidance purposes. A method of assignment that is reasonable for one
			 taxpayer may not necessarily be reasonable for another taxpayer, depending upon
			 the applicable facts.
(e) Rules of Reasonable Approximation.
(A) In General. In general, this rule
			 establishes uniform rules for determining whether and to what extent the market
			 for a sale other than the sale of tangible personal property is in Oregon. This
			 rule also sets forth rules of reasonable approximation, which apply if the
			 state or states of assignment cannot be determined. In some instances, the
			 reasonable approximation must be made in accordance with specific rules of
			 approximation prescribed in this rule. In other cases, the applicable rule
			 permits a taxpayer to reasonably approximate the state or states of assignment
			 using a method that reflects an effort to approximate the results that would be
			 obtained under the applicable rules or standards set forth in this rule.
(B) Approximation Based Upon Known
			 Sales. In an instance where, applying the applicable rules set forth in section
			 (4) of this rule (Sale of a Service), a taxpayer can ascertain the state or
			 states of assignment of a substantial portion of its receipts from sales of
			 substantially similar services ("assigned receipts"), but not all of those
			 sales, and the taxpayer reasonably believes, based on all available
			 information, that the geographic distribution of some or all of the remainder
			 of those sales generally tracks that of the assigned receipts, it must include
			 receipts from those sales which it believes tracks the geographic distribution
			 of the assigned receipts in its sales factor in the same proportion as its
			 assigned receipts. This rule also applies in the context of licenses and sales
			 of intangible property where the substance of the transaction resembles a sale
			 of goods or services. See sections (5)(e) and (6)(c) of this rule.
(C) Related-Party Transactions - Information
			 Imputed from Customer to Taxpayer. Where a taxpayer has receipts subject to
			 this rule from transactions with a related-party customer, information that the
			 customer has that is relevant to the sourcing of receipts from these
			 transactions is imputed to the taxpayer.
(f) Rules with Respect to Exclusion of
			 Receipts from the Sales Factor
(A) The sales
			 factor only includes those amounts defined as sales under ORS
			 314.610(7) and
			 applicable rules.
(B) Certain
			 receipts arising from the sale of intangibles are excluded from the numerator
			 and denominator of the sales factor pursuant to Oregon Laws 2017, chapter 549,
			 section 2(3)(c). See section (6)(d) of this rule.
(C) Receipts of a taxpayer from hedging
			 transactions, or from holding cash or securities, or from the maturity,
			 redemption, sale, exchange, loan, or other disposition of cash or securities,
			 must be excluded pursuant to ORS
			 314.610(7).