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Measure 30

Proposed by referendum petition to be voted on at the Special Election, February 3, 2004.

Ballot Title

ENACTS TEMPORARY PERSONAL INCOME TAX SURCHARGE; INCREASES, CHANGES CORPORATE, OTHER TAXES; AVOIDS SPECIFIC BUDGET CUTS

RESULT OF "YES" VOTE: "Yes" vote enacts temporary personal income tax surcharge; increases Corporate Minimum Tax; makes other corporate, income, property, cigarette tax increases, changes; avoids specific budget cuts.

RESULT OF "NO" VOTE: "No" vote retains existing personal income, corporate and other tax laws; triggers $544.6 million in budget cuts to education, healthcare, senior services, public safety.

SUMMARY: Enacts personal income tax surcharge for 2003, 2004 (and 2005, depending on projected General Fund ending balance). Surcharge is percentage of Oregon income tax owed; surcharge rate progresses from one to nine percent, depending on taxpayer's federal adjusted gross income; no surcharge if that income is below $10,000. Increases $10 Corporate Minimum Tax to $250 or more, up to cap. Ends corporate extraterritorial income exclusion; temporarily reduces corporate dividend income deduction, tax credits. Restricts elderly medical expense deduction based on age, income. Reduces discount for full, eliminates discount for two-thirds, property tax payment by November 15. Extends 10 cent per pack cigarette tax through 2005. Avoids $544.6 million in budget cuts to education, healthcare, senior services, public safety. Other provisions.

ESTIMATE OF FINANCIAL IMPACT: Passage of this measure increases state revenues and avoids scheduled state and local spending cuts of $544.6 million in the budget for 2003-2005. It also prevents an additional projected state budget shortfall of $258.1 million.

The estimated revenue impact of this measure is as follows:

  2003-2005 2005-2007
State Revenue    

Personal income tax*

$591.3 million $205.5 million

Corporate income tax

$146.2 million $107.5 million

Cigarette tax (extends 10 cent tax through 2005)

$ 22.2 million $ 9.7 million

Property tax discount

$ 43.0 million $ 0
     

Local Revenue

   

Cigarette tax

-$300,000 -$140,000

Property tax discount

$ 0 $ 91.1million

Approximately $844 million of the revenues raised are temporary and $372 million are permanent.

*However, should certain economic conditions exist, $261 million of the temporary personal income tax revenues will not be collected.

The state and local spending cuts avoided by the passage of this measure are:

Education

$298.9 million

Kindergarten - 12th Grade

$284.6 million

Higher Education

$ 14.3 million
   

Healthcare and Human Services

$187.6 million

Children, Families, Seniors and Disabled Citizens

$187.6 million
   

Public Safety Services

$58.1 million

Prisons/Parole

$ 24.7 million

Courts

$ 23.7 million

Juvenile Corrections/State Police

$ 9.7 million

Total of scheduled state and local spending cuts

$544.6 million

Total state expenditures of $226,894 are required to implement the measure if enacted.

Text of Measure

Relating to taxation; creating new provisions; amending ORS 294.381, 311.392, 311.505, 311.676, 311.681, 311.780, 314.732, 316.695, 317.090, 317.267, 317.286 and 318.031 and section 3, chapter 385, Oregon Laws 1995; appropriating money; prescribing an effective date; and providing for revenue raising that requires approval by a three-fifths majority.

Be It Enacted by the People of the State of Oregon:

CIGARETTE TAXES

SECTION 1. Section 3, chapter 385, Oregon Laws 1995, as amended by section 1, chapter 589, Oregon Laws 1997, section 10, chapter 1077, Oregon Laws 1999, and section 1, chapter 982, Oregon Laws 2001, is amended to read:

Sec. 3. (1) Notwithstanding ORS 323.030 (2) and in addition to and not in lieu of any other tax, every distributor, as defined in ORS 323.015, shall pay a tax upon distributions of cigarettes at the rate of five mills for the distribution of each cigarette in this state occurring prior to January 1, [2004] 2006.

(2) Any cigarette with respect to which a tax has once been imposed under ORS 323.005 to 323.482 and this section shall not be subject upon a subsequent distribution to the taxes imposed by ORS 323.005 to 323.482 and this section.

(3) The moneys received under this section shall be paid over and credited to the General Fund and shall be used exclusively to fund medical assistance under the Oregon Health Plan [as described under ORS 414.019].

POLICY

SECTION 2. (1) The intent of the Legislative Assembly in enacting a temporary graduated income tax assessment and the other new provisions and amendments to statutes in sections 3 to 43a of this 2003 Act is to create a temporary source of revenues to maintain the levels of service that Oregonians expect in the areas of elementary and secondary school public education, senior services and public safety.

(2) The Legislative Assembly finds and declares that the revenues raised under the new provisions and amendments to statutes in sections 3 to 43a of this 2003 Act to be used:

(a) For kindergarten through grade 12 public education are needed to avoid teacher layoffs, to maintain an adequate number of school days in the school year and to maintain or reduce class size.

(b) For senior services and health care are needed to continue to provide prescription drug benefits on which elderly persons with fixed incomes rely, to continue Oregon Project Independence and to maintain urgent mental health care and Oregon Health Plan funding.

(c) For public safety are needed to maintain existing public safety programs.

(3) The Legislative Assembly finds and declares that the fairest way to distribute the financial responsibility for these services is to apply the financial responsibility to as broad a base of Oregonians as possible and that the new provisions and amendments to statutes in sections 3 to 43a of this 2003 Act accomplish this objective.

INCOME TAXES
(Temporary Graduated Income Tax Assessment)

SECTION 3. Sections 4 and 5 of this 2003 Act are added to and made a part of ORS chapter 316.

SECTION 4. (1) For tax years beginning on or after January 1, 2003, and before January 1, 2005, each person subject to tax under this chapter shall compute and pay an assessment. The assessment shall be a percentage of the tax liability of the taxpayer and shall be added to the tax otherwise imposed under this chapter for the tax year. The rate of the assessment is as follows:

(a) If the federal adjusted gross income of the taxpayer for the tax year is less than $10,000, an assessment may not be imposed.

(b) If the federal adjusted gross income of the taxpayer for the tax year is $10,000 or more, but less than $20,000, the assessment shall equal 1 percent of the tax liability of the taxpayer.

(c) If the federal adjusted gross income of the taxpayer for the tax year is $20,000 or more, but less than $25,000, the assessment shall equal 2 percent of the tax liability of the taxpayer.

(d) If the federal adjusted gross income of the taxpayer for the tax year is $25,000 or more, but less than $30,000, the assessment shall equal 3 percent of the tax liability of the taxpayer.

(e) If the federal adjusted gross income of the taxpayer for the tax year is $30,000 or more, but less than $35,000, the assessment shall equal 4 percent of the tax liability of the taxpayer.

(f) If the federal adjusted gross income of the taxpayer for the tax year is $35,000 or more, but less than $50,000, the assessment shall equal 5 percent of the tax liability of the taxpayer.

(g) If the federal adjusted gross income of the taxpayer for the tax year is $50,000 or more, but less than $70,000, the assessment shall equal 6 percent of the tax liability of the taxpayer.

(h) If the federal adjusted gross income of the taxpayer for the tax year is $70,000 or more, but less than $90,000, the assessment shall equal 7 percent of the tax liability of the taxpayer.

(i) If the federal adjusted gross income of the taxpayer for the tax year is $90,000 or more, but less than $120,000, the assessment shall equal 8 percent of the tax liability of the taxpayer.

(j) If the federal adjusted gross income of the taxpayer for the tax year is $120,000 or more, the assessment shall equal 9 percent of the tax liability of the taxpayer.

(2) The assessment is in addition to and not in lieu of any other tax. For all purposes of administration, collection and enforcement, the assessment imposed under this section shall be considered a tax imposed on income.

(3) For purposes of subsection (1) of this section:

(a) The amounts of the federal adjusted gross income brackets are doubled for a taxpayer who files a joint return, a return as a head of household or a return as a surviving spouse.

(b) The tax liability of the taxpayer is the tax computed for the tax year under this chapter before application of this section less credits allowed for purposes of this chapter except that no reduction is made for the credit allowed under ORS 315.262.

SECTION 5. (1) This section applies only if the projected ending fund balance for the General Fund for the biennium beginning July 1, 2003, as estimated by the Office of Economic Analysis of the Oregon Department of Administrative Services in the December 2004 quarterly economic and revenue forecast, is less than four percent of the total amount of General Fund appropriations for the biennium beginning July 1, 2003.

(2) For tax years beginning on or after January 1, 2005, and before January 1, 2006, each person subject to tax under this chapter shall compute and pay an assessment. The assessment shall be a percentage of the tax liability of the taxpayer, and shall be added to the tax otherwise imposed under this chapter for the tax year. The rate of the assessment is as follows:

(a) If the federal adjusted gross income of the taxpayer for the tax year is less than $10,000, an assessment may not be imposed.

(b) If the federal adjusted gross income of the taxpayer for the tax year is $10,000 or more, but less than $20,000, the assessment shall equal 1 percent of the tax liability of the taxpayer.

(c) If the federal adjusted gross income of the taxpayer for the tax year is $20,000 or more, but less than $25,000, the assessment shall equal 2 percent of the tax liability of the taxpayer.

(d) If the federal adjusted gross income of the taxpayer for the tax year is $25,000 or more, but less than $30,000, the assessment shall equal 3 percent of the tax liability of the taxpayer.

(e) If the federal adjusted gross income of the taxpayer for the tax year is $30,000 or more, but less than $35,000, the assessment shall equal 4 percent of the tax liability of the taxpayer.

(f) If the federal adjusted gross income of the taxpayer for the tax year is $35,000 or more, but less than $50,000, the assessment shall equal 5 percent of the tax liability of the taxpayer.

(g) If the federal adjusted gross income of the taxpayer for the tax year is $50,000 or more, but less than $70,000, the assessment shall equal 6 percent of the tax liability of the taxpayer.

(h) If the federal adjusted gross income of the taxpayer for the tax year is $70,000 or more, but less than $90,000, the assessment shall equal 7 percent of the tax liability of the taxpayer.

(i) If the federal adjusted gross income of the taxpayer for the tax year is $90,000 or more, but less than $120,000, the assessment shall equal 8 percent of the tax liability of the taxpayer.

(j) If the federal adjusted gross income of the taxpayer for the tax year is $120,000 or more, the assessment shall equal 9 percent of the tax liability of the taxpayer.

(3) The assessment is in addition to and not in lieu of any other tax. For all purposes of administration, collection and enforcement, the assessment imposed under this section shall be considered a tax imposed on income.

(4) For purposes of subsection (2) of this section:

(a) The amounts of the federal adjusted gross income brackets are doubled for a taxpayer who files a joint return, a return as a head of household or a return as a surviving spouse.

(b) The tax liability of the taxpayer is the tax computed for the tax year under this chapter before application of this section less credits allowed for purposes of this chapter except that no reduction is made for the credit allowed under ORS 315.262.

(Medical Expense Deductions)

SECTION 6. ORS 316.695, as amended by section 1, chapter 8, Oregon Laws 2002 (third special session), is amended to read:

316.695. (1) In addition to the modifications to federal taxable income contained in this chapter, there shall be added to or subtracted from federal taxable income:

(a) If, in computing federal income tax for a taxable year, the taxpayer deducted itemized deductions, as defined in section 63(d) of the Internal Revenue Code, the taxpayer shall add the amount of itemized deductions deducted (the itemized deductions less an amount, if any, by which the itemized deductions are reduced under section 68 of the Internal Revenue Code).

(b) If, in computing federal income tax for a taxable year, the taxpayer deducted the standard deduction, as defined in section 63(c) of the Internal Revenue Code, the taxpayer shall add the amount of the standard deduction deducted.

(c)(A) From federal taxable income there shall be subtracted the larger of (i) the taxpayer's itemized deductions or (ii) a standard deduction. Except as provided in subsection (8) of this section, for purposes of this subparagraph, "standard deduction" means the sum of the basic standard deduction and the additional standard deduction.

(B) For purposes of subparagraph (A) of this paragraph, the basic standard deduction is:

(i) $3,280, in the case of joint return filers or a surviving spouse;

(ii) $1,640, in the case of an individual who is not a married individual and is not a surviving spouse;

(iii) $1,640, in the case of a married individual who files a separate return; or

(iv) $2,640, in the case of a head of household.

(C)(i) For purposes of subparagraph (A) of this paragraph for tax years beginning on or after January 1, 2003, the Department of Revenue shall annually recompute the basic standard deduction for each category of return filer listed under subparagraph (B) of this paragraph. The basic standard deduction shall be computed by dividing the average U.S. City Average Consumer Price Index for the second quarter of the current calendar year by the average U.S. City Average Consumer Price Index for the second quarter of 2002, then multiplying that quotient by the amount listed under subparagraph (B) of this paragraph for each category of return filer.

(ii) If any change in the maximum household income determined under this subparagraph is not a multiple of $5, the increase shall be rounded to the next lower multiple of $5.

(iii) As used in this subparagraph, "U.S. City Average Consumer Price Index" means the U.S. City Average Consumer Price Index for All Urban Consumers (All Items) as published by the Bureau of Labor Statistics of the United States Department of Labor.

(D) For purposes of subparagraph (A) of this paragraph, the additional standard deduction is the sum of each additional amount to which the taxpayer is entitled under subsection (7) of this section.

(E) As used in subparagraph (B) of this paragraph, "surviving spouse" and "head of household" have the meaning given those terms in section 2 of the Internal Revenue Code.

(F) In the case of the following, the standard deduction referred to in subparagraph (A) of this paragraph shall be zero:

(i) A husband or wife filing a separate return where the other spouse has claimed itemized deductions under subparagraph (A) of this paragraph;

(ii) A nonresident alien individual;

(iii) An individual making a return for a period of less than 12 months on account of a change in his or her annual accounting period;

(iv) An estate or trust;

(v) A common trust fund; or

(vi) A partnership.

(d) For the purposes of paragraph (c)(A) of this subsection, the taxpayer's itemized deductions are the sum of:

(A) The taxpayer's itemized deductions as defined in section 63(d) of the Internal Revenue Code (reduced, if applicable, as described under section 68 of the Internal Revenue Code) minus the deduction for Oregon income tax (reduced, if applicable, by the proportion that the reduction in federal itemized deductions resulting from section 68 of the Internal Revenue Code bears to the amount of federal itemized deductions as defined for purposes of section 68 of the Internal Revenue Code); and

(B)(i) The amount that may be taken into account under section 213(a) of the Internal Revenue Code, not to exceed seven and one-half percent of the federal adjusted gross income of the taxpayer, if the taxpayer has attained the following age before the close of the taxable year, or, in the case of a joint return, if either taxpayer has attained the following age before the close of the taxable year:

[(i) For taxable years beginning on or after January 1, 1991, and before January 1, 1993, a taxpayer must attain 58 years of age before the close of the taxable year.]

[(ii) For taxable years beginning on or after January 1, 1993, and before January 1, 1995, a taxpayer must attain 59 years of age before the close of the taxable year.]

[(iii) For taxable years beginning on or after January 1, 1995, and before January 1, 1997, a taxpayer must attain 60 years of age before the close of the taxable year.]

[(iv) For taxable years beginning on or after January 1, 1997, and before January 1, 1999, a taxpayer must attain 61 years of age before the close of the taxable year.]

[(v)] (I) For taxable years beginning on or after January 1, 1999, and before January 1, 2003, a taxpayer must attain 62 years of age before the close of the taxable year.

(II) For taxable years beginning on or after January 1, 2003, and before January 1, 2004, a taxpayer must attain 63 years of age before the close of the taxable year.

(III) For taxable years beginning on or after January 1, 2004, and before January 1, 2005, a taxpayer must attain 64 years of age before the close of the taxable year.

(IV) For taxable years beginning on or after January 1, 2005, a taxpayer must attain 65 years of age before the close of the taxable year.

(ii) Notwithstanding the amount calculated under sub-subparagraph (i) of this subparagraph, the maximum amount allowed for an itemized deduction under this subparagraph may not exceed the amount calculated under sub-subparagraph (i) of this subparagraph reduced by:

(I) 60 percent, if the federal adjusted gross income of the taxpayer for the tax year is $15,000 or more and less than $30,000.

(II) 80 percent, if the federal adjusted gross income of the taxpayer for the tax year is $30,000 or more and less than $40,000.

(III) 90 percent, if the federal adjusted gross income of the taxpayer for the tax year is $40,000 or more and less than $50,000.

(iii) Notwithstanding the amount calculated under sub-subparagraph (i) of this subparagraph, if the federal adjusted gross income of the taxpayer is $50,000 or more for the tax year, an itemized deduction may not be claimed under this subparagraph.

(iv) For purposes of sub-subparagraphs (ii) and (iii) of this subparagraph, the amounts of the federal adjusted gross income brackets are doubled for a taxpayer who files a joint return, a return as a head of household or a return as a surviving spouse.

(2)(a) There shall be subtracted from federal taxable income any portion of the distribution of a pension, profit-sharing, stock bonus or other retirement plan, representing that portion of contributions which were taxed by the State of Oregon but not taxed by the federal government under laws in effect for tax years beginning prior to January 1, 1969, or for any subsequent year in which the amount that was contributed to the plan under the Internal Revenue Code was greater than the amount allowed under this chapter.

(b) Interest or other earnings on any excess contributions of a pension, profit-sharing, stock bonus or other retirement plan not permitted to be deducted under paragraph (a) of this subsection shall not be added to federal taxable income in the year earned by the plan and shall not be subtracted from federal taxable income in the year received by the taxpayer.

(3)(a) Except as provided in paragraph (b) of this subsection and subsection (4) of this section, there shall be added to federal taxable income the amount of any federal income taxes in excess of $5,500, accrued by the taxpayer during the taxable year as described in ORS 316.685, less the amount of any refund of federal taxes previously accrued for which a tax benefit was received.

(b) In the case of a husband and wife filing separate tax returns, the amount added shall be in the amount of any federal income taxes in excess of $2,750, less the amount of any refund of federal taxes previously accrued for which a tax benefit was received.

(c)(A) For a calendar year beginning on or after January 1, 2008, the Department of Revenue shall make a cost-of-living adjustment to the federal income tax threshold amount described in paragraphs (a) and (b) of this subsection.

(B) The cost-of-living adjustment for a calendar year is the percentage by which the monthly averaged U.S. City Average Consumer Price Index for the 12 consecutive months ending August 31 of the prior calendar year exceeds the monthly averaged index for the period beginning September 1, 2005, and ending August 31, 2006.

(C) As used in this paragraph, "U.S. City Average Consumer Price Index" means the U.S. City Average Consumer Price Index for All Urban Consumers (All Items) as published by the Bureau of Labor Statistics of the United States Department of Labor.

(D) If any adjustment determined under subparagraph (B) of this paragraph is not a multiple of $50, the adjustment shall be rounded to the next lower multiple of $50.

(E) The adjustment shall apply to all tax years beginning in the calendar year for which the adjustment is made.

(4)(a) In addition to the adjustments required by ORS 316.130, a full-year nonresident individual shall add to taxable income a proportion of any accrued federal income taxes as computed under ORS 316.685 in excess of $5,500 in the proportion provided in ORS 316.117.

(b) In the case of a husband and wife filing separate tax returns, the amount added under this subsection shall be computed in a manner consistent with the computation of the amount to be added in the case of a husband and wife filing separate returns under subsection (3) of this section. The method of computation shall be determined by the Department of Revenue by rule.

(5) Subsections (3)(b) and (4)(b) of this section shall not apply to married individuals living apart as defined in section 7703(b) of the Internal Revenue Code.

(6)(a) For tax years beginning on or after January 1, 1981, and prior to January 1, 1983, income or loss taken into account in determining federal taxable income by a shareholder of an S corporation pursuant to sections 1373 to 1375 of the Internal Revenue Code shall be adjusted for purposes of determining Oregon taxable income, to the extent that as income or loss of the S corporation, they were required to be adjusted under the provisions of ORS chapter 317.

(b) For tax years beginning on or after January 1, 1983, items of income, loss or deduction taken into account in determining federal taxable income by a shareholder of an S corporation pursuant to sections 1366 to 1368 of the Internal Revenue Code shall be adjusted for purposes of determining Oregon taxable income, to the extent that as items of income, loss or deduction of the shareholder the items are required to be adjusted under the provisions of this chapter.

(c) The tax years referred to in paragraphs (a) and (b) of this subsection are those of the S corporation.

(d) As used in paragraph (a) of this subsection, an S corporation refers to an electing small business corporation.

(7)(a) The taxpayer shall be entitled to an additional amount, as referred to in subsection (1)(c)(A) and (D) of this section, of $1,000:

(A) For himself or herself if he or she has attained age 65 before the close of his or her taxable year; and

(B) For the spouse of the taxpayer if the spouse has attained age 65 before the close of the taxable year and an additional exemption is allowable to the taxpayer for such spouse for federal income tax purposes under section 151(b) of the Internal Revenue Code.

(b) The taxpayer shall be entitled to an additional amount, as referred to in subsection (1)(c)(A) and (D) of this section, of $1,000:

(A) For himself or herself if he or she is blind at the close of the taxable year; and

(B) For the spouse of the taxpayer if the spouse is blind as of the close of the taxable year and an additional exemption is allowable to the taxpayer for such spouse for federal income tax purposes under section 151(b) of the Internal Revenue Code. For purposes of this subparagraph, if the spouse dies during the taxable year, the determination of whether such spouse is blind shall be made immediately prior to death.

(c) In the case of an individual who is not married and is not a surviving spouse, paragraphs (a) and (b) of this subsection shall be applied by substituting "$1,200" for "$1,000."

(d) For purposes of this subsection, an individual is blind only if his or her central visual acuity does not exceed 20/200 in the better eye with correcting lenses, or if his or her visual acuity is greater than 20/200 but is accompanied by a limitation in the fields of vision such that the widest diameter of the visual field subtends an angle no greater than 20 degrees.

(8) In the case of an individual with respect to whom a deduction under section 151 of the Internal Revenue Code is allowable for federal income tax purposes to another taxpayer for a taxable year beginning in the calendar year in which the individual's taxable year begins, the basic standard deduction (referred to in subsection (1)(c)(B) of this section) applicable to such individual for such individual's taxable year shall equal the lesser of:

(a) The amount allowed to the individual under section 63(c)(5) of the Internal Revenue Code for federal income tax purposes for the tax year for which the deduction is being claimed; or

(b) The amount determined under subsection (1)(c)(B) of this section.

SECTION 7. The amendments to ORS 316.695 by section 6 of this 2003 Act apply to tax years beginning on or after January 1, 2003.

NOTE: Sections 8 through 12 were deleted by amendment. Subsequent sections were not renumbered.

(Deduction and Depreciation of Certain Vehicles)

SECTION 13. Section 14 of this 2003 Act is added to and made a part of ORS chapter 316.

SECTION 14. (1) There shall be added to the federal taxable income of a taxpayer a positive amount that equals the entire amount the taxpayer took as an expense deduction under section 179 of the Internal Revenue Code or as a depreciation deduction under section 168 of the Internal Revenue Code for a four-wheeled vehicle manufactured primarily for use on public streets, roads and highways if the vehicle:

(a) Is rated between 6,001 and 14,000 pounds gross vehicle weight;

(b) Is designed to seat nine or fewer individuals; and

(c) Is not equipped with an open cargo area with an interior length of 72 inches or more or does not have a covered box with an interior length of 72 inches or more that is separate from the passenger compartment.

(2) For Oregon tax purposes, the adjusted basis of a vehicle subject to this section shall equal the federal adjusted basis of the vehicle.

(3) This section does not apply to a vehicle that is used predominantly:

(a) In the business of farming, as defined in ORS 316.045;

(b) For the purpose of transporting employees or customers of a business that is engaged in the timber or wood-products industry or cargo or equipment related to the timber or wood-products industry; or

(c) For the purpose of transporting employees or customers of a construction business or cargo or equipment used in construction. For purposes of this paragraph, a construction business does not include real estate sales operations.

SECTION 15. Section 14 of this 2003 Act applies to property placed in service in tax years beginning on or after January 1, 2003.

SECTION 16. Section 17 of this 2003 Act is added to and made a part of ORS chapter 317.

SECTION 17. (1) There shall be added to the federal taxable income of a taxpayer a positive amount that equals the entire amount the taxpayer took as an expense deduction under section 179 of the Internal Revenue Code or as a depreciation deduction under section 168 of the Internal Revenue Code for a four-wheeled vehicle manufactured primarily for use on public streets, roads and highways if the vehicle:

(a) Is rated between 6,001 and 14,000 pounds gross vehicle weight;

(b) Is designed to seat nine or fewer individuals; and

(c) Is not equipped with an open cargo area with an interior length of 72 inches or more or does not have a covered box with an interior length of 72 inches or more that is separate from the passenger compartment.

(2) For Oregon tax purposes, the adjusted basis of a vehicle subject to this section shall equal the federal adjusted basis of the vehicle.

(3) This section does not apply to a vehicle that is used predominantly:

(a) In the business of farming, as defined in ORS 316.045;

(b) For the purpose of transporting employees or customers of a business that is engaged in the timber or wood-products industry or cargo or equipment related to the timber or wood-products industry; or

(c) For the purpose of transporting employees or customers of a construction business or cargo or equipment used in construction. For purposes of this paragraph, a construction business does not include real estate sales operations.

SECTION 18. ORS 318.031 is amended to read:

318.031. It being the intention of the Legislative Assembly that this chapter and the Corporation Excise Tax Law of 1929 shall be administered as uniformly as possible (allowance being made for the difference in imposition of the taxes and the operative date of this chapter), ORS 305.140 and 305.150, ORS chapter 314 and the following sections are incorporated into and made a part of this chapter: ORS 315.104, 315.134, 315.156, 315.204, 315.208, 315.213, 315.234, 315.254, 315.304, 315.504, 315.511 and 315.604 (all only to the extent applicable for a corporation) and ORS 285B.773, 315.507, 317.010, 317.013, 317.018 to 317.022, 317.030, 317.035, 317.038, 317.080, 317.124 to 317.131, 317.152 to 317.154, 317.259 to 317.303, 317.310 to 317.386, 317.476 to 317.485, 317.488, 317.510 to 317.635 and 317.705 to 317.725 and section 17 of this 2003 Act.

SECTION 19. Section 17 of this 2003 Act and the amendments to ORS 318.031 by section 18 of this 2003 Act apply to property placed in service in tax years beginning on or after January 1, 2003.

(Extraterritorial Income Exclusion)

SECTION 20. ORS 317.286 is amended to read:

317.286. (1) To derive Oregon taxable income, federal taxable income shall be modified to the extent necessary to not recognize for Oregon tax purposes any transaction between the taxpayer and a related foreign sales corporation. The taxpayer shall be considered to have entered directly into any transactions with third parties that are treated for federal income tax purposes as having been entered into by a related foreign sales corporation. To satisfy the requirements of this section:

(a) No deduction shall be allowed to a taxpayer for any payment to a related foreign sales corporation; [and]

(b) No income or expense that would be attributed to a taxpayer but for the provisions of sections 921 to 927 of the Internal Revenue Code shall be treated as attributable to a related foreign sales corporation; and

(c) No extraterritorial income exclusion related to a foreign sales corporation under section 114 of the Internal Revenue Code shall be allowed to a taxpayer.

(2) As used in this section, "foreign sales corporation" means a foreign sales corporation as defined in section 922 of the Internal Revenue Code, as amended and in effect on the day prior to the repeal of section 922 of the Internal Revenue Code by section 2 of the FSC Repeal and Extraterritorial Income Exclusion Act of 2000 (P.L. 106-519).

SECTION 21. The amendments to ORS 317.286 by section 20 of this 2003 Act apply to tax years beginning on or after January 1, 2003.

(Corporate Credits)

SECTION 22. Section 23 of this 2003 Act is added to and made a part of ORS chapter 317.

SECTION 23. (1) Notwithstanding any other provision of law, for a tax year beginning on or after January 1, 2003, and before January 1, 2006:

(a) Any credit allowable against the tax imposed under this chapter shall be reduced by 20 percent; and

(b) The amount of reduction caused by this section may not be carried forward to a succeeding tax year.

(2) Notwithstanding subsection (1) of this section, the reduction caused by this section may be carried forward to a succeeding tax year that begins on or after January 1, 2006, and may be offset against the taxpayer's tax liability for that tax year, if that tax year is not more than three years after the date of the last tax year for which the credit could otherwise be claimed, including any carryforward of that credit otherwise allowed by law.

(3) This section does not apply to any credit claimed under ORS 315.164, 315.169, 317.097 or 317.147.

SECTION 24. Section 25 of this 2003 Act is added to and made a part of ORS chapter 318.

SECTION 25. (1) Notwithstanding any other provision of law, for a tax year beginning on or after January 1, 2003, and before January 1, 2006:

(a) Any credit allowable against the tax imposed under this chapter shall be reduced by 20 percent; and

(b) The amount of reduction caused by this section may not be carried forward to a succeeding tax year.

(2) Notwithstanding subsection (1) of this section, the reduction caused by this section may be carried forward to a succeeding tax year that begins on or after January 1, 2006, and may be offset against the taxpayer's tax liability for that tax year, if that tax year is not more than three years after the date of the last tax year for which the credit could otherwise be claimed, including any carryforward of that credit otherwise allowed by law.

(3) This section does not apply to any credit claimed under ORS 315.164, 315.169, 317.097 or 317.147.

NOTE: Section 26 was deleted by amendment. Subsequent sections were not renumbered.

(Corporate Minimum Tax)

SECTION 27. ORS 317.090 is amended to read:

317.090. (1) Each taxpayer named in ORS 317.056 or 317.070 shall pay annually to the state, for the privilege of carrying on or doing business by it within this state, a minimum tax [of $10.] as follows:

(a) If the corporation has Oregon sales for the tax year of less than $20,000, $250.

(b) If the corporation has Oregon sales for the tax year of $20,000 or more but less than $100,000, $500.

(c) If the corporation has Oregon sales for the tax year of $100,000 or more but less than $2 million, $1,000.

(d) If the corporation has Oregon sales for the tax year of $2 million or more but less than $5 million, $2,000.

(e) If the corporation has Oregon sales for the tax year of $5 million or more but less than $15 million, $3,000.

(f) If the corporation has Oregon sales for the tax year of $15 million or more but less than $25 million, $4,000.

(g) If the corporation has Oregon sales for the tax year of $25 million or more, $5,000.

(2) For the purposes of subsection (1) of this section, "Oregon sales" means:

(a) If the corporation apportions business income under ORS 314.650 to 314.665 for Oregon tax purposes, the total sales of the taxpayer during the tax year, as determined for purposes of ORS 314.665;

(b) If the corporation does not apportion business income for Oregon tax purposes, the total sales the taxpayer would have had, as determined for purposes of ORS 314.665, if the taxpayer were required to apportion business income for Oregon tax purposes; or

(c) If the corporation apportions income using a method different than that prescribed by ORS 314.650 to 314.665, Oregon sales as defined by the Department of Revenue by rule.

(3) The minimum tax shall not be apportionable (except in the case of a change of accounting periods), but shall be payable in full for any part of the year during which a corporation is subject to tax.

SECTION 28. The amendments to ORS 317.090 by section 27 of this 2003 Act apply to tax years beginning on or after January 1, 2003.

(S Corporation Minimum Tax)

SECTION 29. ORS 314.732 is amended to read:

314.732. (1) Except as otherwise provided in ORS 314.740[,] and 314.742 and [317.090] section 31 of this 2003 Act, an S corporation [shall not be] is not subject to the taxes imposed by ORS chapter 316, 317 or 318.

(2)(a) Subject to paragraphs (b) to (d) of this subsection, the taxable income of an S corporation shall be computed pursuant to section 1363(b) of the Internal Revenue Code, with the modifications, additions and subtractions provided in this chapter and ORS chapter 316.

(b) Except as otherwise provided under this chapter and ORS chapter 316, 317 or 318, and except as inconsistent with ORS 314.730 to 314.752, subchapter C, chapter 1, Internal Revenue Code, shall apply to an S corporation and its shareholders for Oregon tax purposes. For Oregon tax purposes, the provisions of section 1371 of the Internal Revenue Code shall apply, subject to the modifications, additions and subtractions under this chapter or ORS chapter 316, 317 or 318 and any provisions to the contrary in this chapter or ORS chapter 316, 317 or 318.

(c) Notwithstanding ORS 317.476, 317.478 or 317.479, no carryforward, arising for a taxable year for which a corporation is a C corporation, may be carried to a taxable year for which such corporation is an S corporation.

(d) Notwithstanding ORS 317.476 or other law, no carryforward, and no carryback, shall arise at the corporate level for a taxable year for which a corporation is an S corporation.

SECTION 30. Section 31 of this 2003 Act is added to and made a part of ORS chapter 314.

SECTION 31. (1) Every S corporation doing business in this state shall pay annually to the state, for the privilege of carrying on or doing business within this state, a minimum tax as follows:

(a) If the S corporation has Oregon sales for the tax year of less than $1 million, $250.

(b) If the S corporation has Oregon sales for the tax year of $1 million or more, $500.

(2) The minimum tax is not apportionable, except in the case of a change of accounting periods. The minimum tax is payable in full for any part of a year during which an S corporation conducts business in this state.

(3) The minimum tax shall be due and payable on or before the 15th day of the month following the close of the tax year, and shall be reported and paid in the manner prescribed by the Department of Revenue by rule.

(4) The minimum tax shall be considered a tax imposed on taxable income for all purposes of collection and enforcement.

(5) As used in this section, "Oregon sales" means:

(a) If the S corporation apportions business income under ORS 314.650 to 314.665 for Oregon tax purposes, the total sales of the taxpayer during the tax year, as determined for purposes of ORS 314.665;

(b) If the S corporation does not apportion business income for Oregon tax purposes, the total sales the taxpayer would have had, as determined for purposes of ORS 314.665, if the taxpayer were required to apportion business income for Oregon tax purposes; or

(c) If the S corporation apportions income using a method different than that prescribed by ORS 314.650 to 314.665, Oregon sales as defined by the Department of Revenue by rule.

SECTION 32. Section 31 of this 2003 Act and the amendments to ORS 314.732 by section 29 of this 2003 Act apply to tax years beginning on or after January 1, 2003.

(Dividends Received by Corporations)

SECTION 33. ORS 317.267 is amended to read:

317.267. (1) To derive Oregon taxable income, there shall be added to federal taxable income amounts received as dividends from corporations deducted for federal purposes pursuant to section 243 or 245, except 245(c), amounts paid as dividends by a public utility or telecommunications utility and deducted for federal purposes pursuant to section 247 of the Internal Revenue Code or dividends eliminated under Treasury Regulations adopted under section 1502 of the Internal Revenue Code that are paid by members of an affiliated group that are eliminated from a consolidated federal return pursuant to ORS 317.715 (2).

(2) To derive Oregon taxable income, after the modification prescribed under subsection (1) of this section, there shall be subtracted from federal taxable income an amount equal to [70] 35 percent of dividends (determined without regard to section 78 of the Internal Revenue Code) received or deemed received from corporations if such dividends are included in federal taxable income. However:

(a) In the case of any dividend on debt-financed portfolio stock as described in section 246A of the Internal Revenue Code, the subtraction allowed under this subsection shall be reduced under the same conditions and in same amount as the dividends received deduction otherwise allowable for federal income tax purposes is reduced under section 246A of the Internal Revenue Code.

(b) [No subtraction shall be] A subtraction is not allowed under this subsection if the dividends received or deemed received are from the Oregon Capital Corporation established pursuant to ORS 284.750 to 284.770.

(c) In the case of any dividend received from a 20 percent owned corporation, as defined in section 243(c) of the Internal Revenue Code, this subsection shall be applied by substituting ["80 percent" for "70 percent."] "40 percent" for "35 percent."

(3) There shall be excluded from the sales factor of any apportionment formula employed to attribute income to this state any amount subtracted from federal taxable income under subsection (2) of this section.

SECTION 34. The amendments to ORS 317.267 by section 33 of this 2003 Act apply to tax years beginning on or after January 1, 2003.

SECTION 35. ORS 317.267, as amended by section 33 of this 2003 Act, is amended to read:

317.267. (1) To derive Oregon taxable income, there shall be added to federal taxable income amounts received as dividends from corporations deducted for federal purposes pursuant to section 243 or 245, except 245(c), amounts paid as dividends by a public utility or telecommunications utility and deducted for federal purposes pursuant to section 247 of the Internal Revenue Code or dividends eliminated under Treasury Regulations adopted under section 1502 of the Internal Revenue Code that are paid by members of an affiliated group that are eliminated from a consolidated federal return pursuant to ORS 317.715 (2).

(2) To derive Oregon taxable income, after the modification prescribed under subsection (1) of this section, there shall be subtracted from federal taxable income an amount equal to [35] 70 percent of dividends (determined without regard to section 78 of the Internal Revenue Code) received or deemed received from corporations if such dividends are included in federal taxable income. However:

(a) In the case of any dividend on debt-financed portfolio stock as described in section 246A of the Internal Revenue Code, the subtraction allowed under this subsection shall be reduced under the same conditions and in same amount as the dividends received deduction otherwise allowable for federal income tax purposes is reduced under section 246A of the Internal Revenue Code.

(b) A subtraction is not allowed under this subsection if the dividends received or deemed received are from the Oregon Capital Corporation established pursuant to ORS 284.750 to 284.770.

(c) In the case of any dividend received from a 20 percent owned corporation, as defined in section 243(c) of the Internal Revenue Code, this subsection shall be applied by substituting ["40 percent" for "35 percent."] "80 percent" for "70 percent."

(3) There shall be excluded from the sales factor of any apportionment formula employed to attribute income to this state any amount subtracted from federal taxable income under subsection (2) of this section.

SECTION 36. The amendments to ORS 317.267 by section 35 of this 2003 Act apply to tax years beginning on or after January 1, 2006.

(Temporary Limitation on Withholding Adjustments
and Penalties)

SECTION 37. (1) Notwithstanding ORS 316.162 to 316.212, the Department of Revenue may not adjust withholding tables for tax years beginning on or after January 1, 2003, and before January 1, 2004, to take into account the new provisions and amendments to statutes in sections 4 to 36 of this 2003 Act.

(2) Notwithstanding ORS 316.557 to 316.589, for tax years beginning on or after January 1, 2003, and before January 1, 2004, interest resulting from the underpayment of estimated taxes may not be imposed if the sum of estimated taxes paid by the taxpayer would not have constituted an underpayment of estimated tax prior to enactment of the new provisions and amendments to statutes in sections 4 to 36 of this 2003 Act.

(3) Notwithstanding ORS 314.505 to 314.525, for tax years beginning on or after January 1, 2003, and before January 1, 2004, interest resulting from the underpayment of estimated tax may not be imposed if the sum of estimated taxes paid by a corporation would not have constituted an underpayment of estimated taxes prior to enactment of the new provisions and amendments to statutes in sections 4 to 36 of this 2003 Act.

PROPERTY TAX DISCOUNTS

SECTION 38. ORS 311.505 is amended to read:

311.505. (1) Except as provided in subsection (6) of this section, the first one-third of all taxes and other charges due from the taxpayer or property, levied or imposed and charged on the latest tax roll, shall be paid on or before November 15, the second one-third on or before February 15, and the remaining one-third on or before May 15 next following.

(2) Interest shall be charged and collected on any taxes on property, other charges, and on any additional taxes or penalty imposed for disqualification of property for special assessment or exemption, or installment thereof not paid when due, at the rate of one and one-third percent per month, or fraction of a month until paid.

(3) [Discounts] A 1.5 percent discount shall be allowed on [partial or] full payments of [such] all taxes, made on or before November 15. [as follows:]

[(a) Two percent on two-thirds of such taxes so paid.]

[(b) Three percent where all of such taxes are so paid.]

(4) For purposes of this section, "taxes" includes all taxes on property as defined in ORS 310.140 and certified to the assessor under ORS 310.060 except taxes assessed on any other property which have by any means become a lien against the property for which the payment was made.

(5) All interest collected and all discounts allowed shall be prorated to the several municipal corporations, taxing districts and governmental agencies sharing in the taxes or assessments.

(6) If the total property tax is less than $40, [no] an installment payment of taxes [shall be] is not allowed.

SECTION 39. The amendments to ORS 311.505 by section 38 of this 2003 Act apply to tax years beginning on or after July 1, 2004.

SECTION 40. (1) As soon as practicable after January 1, 2005, and before March 15, 2005, each county tax collector shall compute a positive amount equal to the difference between the amount of discount that would have been allowed if the rate of discount under ORS 311.505 were three percent and the amount of discount that was actually allowed under ORS 311.505 for the 2004-2005 tax year. The tax collector shall certify the computed amount to the county treasurer.

(2) The county treasurer shall transfer the amount certified under subsection (1) of this section from the unsegregated tax collections account, or from a reserve account established by the county for the purpose of making the transfer, to the State Treasurer. The State Treasurer shall deposit:

(a) One-third of the amount received from the county treasurer in the State School Fund established under ORS 327.008; and

(b) Two-thirds of the amount received from the county treasurer in the General Fund.

SECTION 41. ORS 294.381 is amended to read:

294.381. (1) Each municipal corporation that has the power to levy an ad valorem property tax shall estimate, in the manner provided in this section, the amount of revenues that will be received in the ensuing year or ensuing budget period through the imposition of taxes upon the taxable property within the municipal corporation.

(2) Subject to the additional adjustments required under subsection (3) of this section, the estimated ad valorem taxes that will be received in the ensuing year or ensuing budget period is the sum of the following:

(a) The amount derived by multiplying the estimated assessed value for the ensuing year or each fiscal year of the ensuing budget period of the taxable property within the municipal corporation, after boundary changes have been filed in final approved form with the county assessor and the Department of Revenue as provided in ORS 308.225, by whichever of the following is applicable to the municipal corporation:

(A) The municipal corporation's permanent rate limit on operating taxes, as defined in ORS 310.202 (8), or such lesser rate as the municipal corporation may determine to use for purposes of levying such ad valorem taxes; or

(B) The municipal corporation's statutory rate limit on operating taxes, as defined in ORS 310.202 (10), or such lesser rate as the municipal corporation may determine to use for purposes of levying such ad valorem taxes.

(b) If the municipal corporation is authorized to levy a local option tax that was authorized by the electors as a dollar amount, the dollar amount of such local option tax that is authorized to be levied in the ensuing year or ensuing budget period.

(c) If the municipal corporation is authorized to levy a local option tax that was authorized by the electors as a tax rate, the amount derived by multiplying the authorized rate of such local option tax for the ensuing year or ensuing budget period by the estimated assessed value for the ensuing year or each fiscal year of the ensuing budget period of the taxable property within the municipal corporation.

(d) An amount equal to the principal and interest on all bonded indebtedness of the municipal corporation that is due and payable in the ensuing year or ensuing budget period, divided by the annual average percentage of taxes collected in the county in which the taxable property of the municipal corporation is located.

(3) The sum of the amounts determined under subsection (2)(a), (b) and (c) of this section shall be reduced by an amount equal to the estimated amount of such taxes that will not be collected as a result of:

(a) The [discounts] discount allowed under ORS 311.505;

(b) The limits imposed under ORS 310.150 (3); and

(c) The failure of taxpayers to pay such taxes in the year for which they are levied.

(4) The estimated ad valorem taxes determined in accordance with subsections (2) and (3) of this section shall be used by the municipal corporation for purposes of complying with the requirements of ORS 310.060 (1).

SECTION 42. ORS 311.676 is amended to read:

311.676. (1) Upon determining the amount of deferred taxes on tax-deferred property for the tax year, the Department of Revenue shall pay to the respective county tax collectors an amount equivalent to the deferred taxes less [three percent thereof] the amount of discount allowed under ORS 311.505. Payment shall be made from the revolving account established under ORS 311.701.

(2) The department shall maintain accounts for each deferred property and shall accrue interest only on the actual amount of taxes advanced to the county.

(3)(a) If only a portion of taxes are deferred under ORS 311.689, the department shall pay the portion that is eligible for deferral to the tax collector and shall provide a separate notice to the county assessor stating the amount of property taxes that the department is paying.

(b) The notice stating the amount of property taxes paid by the department and any other county records indicating those amounts are not subject to the prohibitions against disclosure set forth in ORS 314.835.

SECTION 42a. ORS 311.681 is amended to read:

311.681. (1) Notwithstanding ORS 311.668, if an individual (or two or more individuals jointly) who has elected to defer homestead property taxes in a prior tax year has not filed a timely claim for deferral for one or more tax years succeeding the year in which property taxes were initially deferred under ORS 311.666 to 311.701, then the individual may request that the Director of the Department of Revenue grant a retroactive deferral of property taxes on the property. A spouse who is eligible to make the election under ORS 311.688 may also request a grant of retroactive deferral under this section.

(2) The director may, in the discretion of the director, grant or deny the retroactive deferral of property taxes. No appeal from a decision of the director under this section may be made.

(3) The director shall not grant a retroactive deferral of property taxes if, in any intervening year between the year in which deferral was last granted to the property and the last year for which retroactive deferral is being requested, the property would not have been eligible for deferral had the claim for deferral been timely filed.

(4) If the director grants a retroactive deferral of property taxes under this section, the department shall pay to the county tax collector an amount equal to the deferred taxes for each year, less [three percent] the amount of discount allowed under ORS 311.505. Interest shall accrue on the actual amount of taxes advanced to the county.

(5) The department shall have a lien against the tax-deferred property for amounts deferred under this section as provided in ORS 311.673. The lien shall attach as of July 1 of the tax year for which the payment relates. In the case of a payment representing more than one year's property taxes, the department shall have a lien in the amount of that portion of a payment related to a particular tax year, which shall attach as of July 1 of that tax year.

SECTION 43. ORS 311.780 is amended to read:

311.780. (1) Upon receipt of the notification from the Department of Revenue of the amount deferred on tax deferred property under ORS 311.740 to 311.780, the State Treasurer shall pay to the respective county tax collectors an amount equivalent to the full amount of tax listed by the department less [three percent thereof] the amount of discount allowed under ORS 311.505.

(2) The department shall maintain accounts for each deferred property and shall accrue interest on the gross amount of taxes advanced.

(3) The funds provided for the payment made pursuant to subsection (1) of this section shall be made as investments from the excess funds mentioned in ORS 293.701 (2) (o).

SECTION 43a. ORS 311.392 is amended to read:

311.392. (1) If, in the discretion of the county court, it is more economical to advance to those municipalities from the general fund of the county the total amount of taxes, assessments or other charges levied against property in the county, the county court may advance from the general fund of the county the full amount of the taxes, assessments and charges levied by those subdivisions and the county court may order the county tax collector to revise the tax distribution schedule provided by ORS 311.390 so that all taxes, assessments and charges advanced by the county will be allocated to the county. If the county makes the payments provided in this section, it shall have no recourse against the political subdivision for recovery of the shrinkage in collections from that anticipated at the time the payment was made.

(2) If the county advances taxes under this subsection, before December 1 of each year, it may deduct from the levy the [three percent] discount [which] that would have been given by the district had all of the taxes been paid by November 15 and turned over to the district on or before December 1 of each year. If the payment is made after December 1, no discount shall be taken by the county.

NOTE: Sections 44 to 71 were deleted by amendment. Subsequent sections were not renumbered.

NOTE: Boldfaced type indicates new language; [brackets and italic] type indicates deletions or comments.

Explanatory Statement

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Table of Contents

Oregon Secretary of State • 136 State Capitol • Salem, OR 97310-0722
Phone: (503) 986-1523 • Fax: (503) 986-1616 • oregon.sos@state.or.us

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