2011 New Law Update

Oregon Department of Revenue

Table of Contents HB 3543 – Kicker Refund Method HB 2710 – Tax Court Fee Increase HB 2728 – 529 Direct Deposit SB 301 – Reconnect HB 3454 – Disconnect Depreciation

Subtraction not allowed for NOLs SB 305 – Amnesty Deadline SB 817 – Oregon Low Income Community

Jobs Initiative

Table of Contents (continued) HB 2825 – Public access to tax credit

information HB 3261 – Issuing of Warrants HB 3672 – Tax Credit Extension

BETC sunset and new energy credits RETC changes Credits that will sunset

HB 2543 – Senior Property Tax Deferral Program changes

HB 2541 – Inheritance/Estate Tax Reform

Table of Contents (continued) Fall Rules Legislative Schedule Update on what’s happening at DOR

Procurement Activities Season Update Form Changes for next season

Practitioner Outreach Email Liaison Meetings Revenews

HB 3543 – Kicker Calculation Method HB 3543 changes the kicker from a paper check back

to a refundable credit on the tax return The credit will be refundable and placed on the

subsequent year’s return This is not comprehensive Kicker reform!

There were several legislative proposals to modify the kicker so that a significant portion would be diverted to a “rainy day” fund. One proposal linked kicker reform with a capital gains tax cut. Neither passed the 2011 legislature, but proponents vow they will try again!

HB 3543 – Kicker Calculation Method How will it work? Assume a kicker in the next biennium:

State Economist makes “end of (legislative) session” revenue forecast for 2011-2013 biennium (August 26, 2011)

That estimate is compared with the actual revenues for the 2011-2013 biennium and if they exceed the end of session forecast by 2% or more, a kicker will be triggered (late summer, 2013); A kicker percentage is determined based on 2012 tax year

The department will release information around October, 2013 so that taxpayers are able to plan by making smaller estimated payments or adjust withholding

HB 3543 – Kicker Calculation Method How will it work? Assume a kicker in the next biennium:

2013 return: The kicker will be a refundable credit equal to the kicker percentage X 2012 tax liability before all credits except credit for taxes paid to another state

Example: Sally has 2012 tax liability of $4,000 before credits. The kicker percentage is 10%. On her 2013 return, Sally will receive a refundable credit of $400.

HB 2710 – Court Fee Increase HB 2710 raises the fee to file a claim in the

Oregon Tax Court, including Magistrate, from the current $75 to $240 (effective October 1, 2011). You may apply for a waiver of fee

In response, DOR will be taking a look at our written objection procedures to ensure reasonable arguments are adequately considered

HB 2710 – Court Fee Increase Written Objection Hints:

Clearly write “written objection” on the top of the response

In your response, provide NEW information or an explanation (cite your references) with supporting documents

Respond within 30 days of the notice from the date of the notice from the department

Do not send in amended returns unless specifically asked to do so.

HB 2728 – 529 Direct Deposit Beginning with the 2012 tax return,

taxpayers will be able to direct deposit some or all of their refund (min. $25) into an Oregon 529 College Savings Account

Taxpayer must already have an account set up

Election to contribute may not be changed or revoked

SB 301 - Reconnect TAX YEARS 2009 & 2010

Disconnected from temporary federal increase in expensing (IRC 179)

Disconnected from bonus depreciation (IRC 168(k)) Disconnected from discharge of indebtedness (IRC 108) Disconnected from exclusion of federal subsidies for

prescription drug plans (ORS 316.837; ORS 317.401) Disconnected from exclusion of domestic production

activities – QPAI (ORS 316.836; ORS 317.398) TAX YEARS 2011 AND FORWARD

Disconnected from exclusion of federal subsidies for prescription drug plans (ORS 316.837; ORS 317.401)

Disconnected from exclusion of domestic production activities – QPAI (ORS 316.836; ORS 317.398)

Connected to expensing and bonus depreciation provisions of the Internal Revenue Code in effect

SB 301 - Reconnect TAX YEAR 2010

Connected to: Teacher’s expenses ($250) Exclusion of health care premiums for adult children Tuition and Fees Modification of the calculation of the self-

employment tax Contribution of capital gain property for conservation

purposes Small Business Jobs Act provisions Start up expenses

The department has issued an Oregon Revenue Bulletin (#2011-01) which provides guidance and instructions on reconnect

HB 3454 – Disconnect subtraction and NOLs Taxpayers who calculate their 2009 or 2010 NOL using

disallowed federal expensing or bonus depreciation are not entitled to an additional subtraction in the out years.

Example: Ryan has a 2010 federal NOL of $10,000. Ryan also takes advantage of $5,000 in 168(k) bonus depreciation which is factored into the NOL calculation for both federal and Oregon.

Normal treatment: Ryan would have to addback the $5,000 on his Oregon return and then receive subtractions in the out years according to the normal depreciation schedule for that particular asset

NOL treatment: Ryan has no addback for Oregon because the Oregon NOL is calculated the same as the federal NOL. As a result, Ryan receives no subtraction in the out years for that particular asset

SB 305 – Amnesty Deadline Original program required

all amnesty debts to be paid by May 31, 2011

SB 305 allows the department to extend that deadline for “good cause” Good cause will be evaluated on

a case-by-case basis.

SB 817 – Low Income Community Jobs Initiative Creates a tax credit equal to 39% of the

cost of a “qualified equity investment” (modeled after the federal New Markets Tax Credit)

Intent is to stimulate investment in low or moderate income communities

Credit is taken over 7 years (0%, 0%, 7%, 8%, 8%, 8%, 8%)

$16 million in credits max./year Nonrefundable application fee of $20,000 Oregon Business Development

Department certifies this credit

HB 2825 – Public access to tax credit information Agencies will be required to submit

information about tax credits dealing with economic development to DAS for posting to the Oregon Transparency website

Information to be posted: Name and address Amount of tax credit received Actual results related to the

project receiving the tax credit Applies to certifications after July 1,

2010

HB 3261 – Friendlier Notices! Allows the Department of Revenue to issue tax

warrants without direction to the sheriff to “seize and sell” the taxpayer’s real and personal property

Wording will be removed from our notices because the department rarely takes this action

This was a suggestion from our CPA liaison group – get rid of language that the department does not need and needlessly worries recipients

Still allows the department to direct the sheriff to seize property if necessary – taxpayer would be notified in writing if we are going to take that action.

HB 3672 & 2523 – Tax Credit Changes

Business Energy Tax Credit (BETC) Changes BETC sunset

Other than Renewable Energy Resource Credits, taxpayers must have: Files application for preliminary certification on

or before April 15, 2011; Receives preliminary certification prior to July 1,

2011; and Receives final certification prior to January 1,

2013 or has demonstrated evidence of beginning construction before April 15, 2011

HB 3672 & 2523 – Tax Credit Changes

Renewable Energy Resource Credit – changes effective 1/1/12 (HB 2523) Will be administered and certified by

Oregon Business Development Credits is up to 50% of eligible costs Each project is limited to $40 million for

each phase of development Up to $200 million in tax credits can be

issued per biennium Credit may be transferred for cash equal

to present day value

HB 3672 & 2523 – Tax Credit Changes

Replacement BETC credits New Credit: Renewable Energy Development

Contributions TAX CREDIT AUCTIONS occurred October 24-

November 4 and Dec. 1 – 9, 2011 $1.5 million in total credits up for auction (in

$1,000 increments) Bidders cannot transfer credits; 3 year

carryforward Bid must be 95% of the face value More auctions to come next year

Another $1.5 Renewable Energy $6 million in Film & Video

Proceeds go to ODOE to issue grants

HB 3672 & 2523 – Tax Credit Changes

Replacement BETC credits New Credit: Energy Conservation Projects

Department of Energy administers 35% credit for certain conservation projects

(10% in year 1, 10% in year 2, 5% in years 3, 4, and 5) If the certified cost is $20,000 or less, the

credit can be taken in one year Project must be located in Oregon and certified

by Department of Energy May be transferred once Carryforward is 5 years Limited to $28 million in tax credits for the

biennium

HB 3672 & 2523 – Tax Credit Changes

Replacement BETC credits New Credit: Transportation Projects

Department of Energy administers Amount of credit:

35% credit if preliminary certification (PC) is obtained before July 1, 2011

25% credit if PC is obtained before 1/1/13 20% credit if PC is obtained before 1/1/14 15% credit if PC is obtained before 1/1/15 10% credit if PC is obtained before 1/1/16

Exception: 35% in any year for vehicle infrastructure project

Project must be located in Oregon and certified by Department of Energy

Carryforward is 5 years Credit may be transferred once

HB 3672 – Residential Energy Credit (RETC) Changes

Extended through January 1, 2018 Excluded from the program, effective

January 1, 2012: Alternative fuel vehicle credit (including

electric vehicles) Eliminates dishwashers, clothes washers,

refrigerators, air conditioners, and boilers

Tax Credits Expiring in 2012 (last year to claim is 2011) Water transit vessels Crop donations Diesel truck engines

Diesel engine repower/retrofit expires on December 31, 2011

New Diesel engine tax credit expired on July 1, 2011 (HB 3170)

Energy conservation lenders Biofuel consumer Biodiesel used in home heating Reforestation Riparian Lands excluded from farm production Workers’ compensation insurance

Senior Property Tax Deferral Revision (HB 2543) 2011 Legislation changed criteria to qualify for the

program: Real market value (RMV) of home cannot be more

than 100-200% of the county median RMV (percentage allowed based on # yrs in home)

Participants must have lived in the home for at least 5 years

Interest is charged at 6% compound (as opposed to 6% simple)

Sets income limits based on household income (as opposed to FAGI)

Net worth limitation ($500,000) Home may not be pledged as security for a reverse

mortgage.

Inheritance/Estate Tax Reform Update (HB 2541)

2011 Legislation: HB 2541At the end of the 2009 legislative session, the House and Senate Revenue Committees requested that the Oregon Law Commission (OLC) conduct a law reform project regarding Oregon‘s inheritance taxation laws and make recommendations for reform to the 2011 Legislative Assembly. After periodic interim reports the OLC proposed HB 2541 that makes major changes to the inheritance tax statutes, found in ORS Chapter 118, that are tied to the outdated 2000 federal Internal Revenue Code.

Inheritance/Estate Tax Reform Update (HB 2541)

Update: Key provisions Replaces the current inheritance tax with an estate tax

imposed as a percentage of the Oregon taxable estate; Updates connection to federal Internal Revenue Code; Establishes a tax rate schedule for estates valued at $1

million and above that includes tax rates between 10% and 16% depending on the size of the estate;

Makes substantial changes to clarify and improve the existing natural resource property credit;

Applies to the estates of decedents who die on or after January 1, 2012

Department of Revenue Fall, 2011 Income Tax Administrative Rules

E-file mandate: both personal income tax and corporate income tax programs are planning rules to implement HB 2071 Federal mandate will apply to Oregon Oregon will allow a hardship exception

Tax Credit Auction Rule

Update on what’s happening at the Department of Revenue Core system replacement:

Department is currently working on the process for a “core system replacement” (all of the department’s major systems and would include a data warehouse)

Major project that expected to last 3-5 years Will seek legislature’s “go-ahead” Benefits-based contract means that the

contractor will be paid based on the increase in funds that result from the new systems

Business Process Re-engineering Audits Suspense

Audit Policy & Process Improvements and Reviews

Study and evaluation of the use of advanced audit tools such as subpoenas and fraud penalties.

Audit process improvement changes: Using mutual commitment dates to ensure

the audit progresses in a timely manner Sharing what to expect during an audit and

payment options as part of the audit process

Upcoming Legislative Schedule Interim committees meet in

September and November Short regular session begins February

1, 2012 and ends on or before March 6, 2012

Very limited bill introduction: Each legislator gets 2 bills; Governor gets 5 bills; Interim committees get 5 bills

Update on what’s happening at the Department of Revenue

Season update – Through 9/26/11

Forms changes – No more Form 40S! Everyone will convert

to Form 40 Additional

instructions will be provided in the booklet for former Form 40S filers.

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

Processed Suspended

Paper

Legacy e-File

Modernized

2D Barcode

Update on what’s happening at the Department of Revenue

Processing Requests ‘Check if amending due to a net

operating loss (NOL).’ Tax Due electronic return payments Use correct Estimated Tax amount

Update on what’s happening at the Department of Revenue

Forms changes – No more form 40S! Everyone will convert to Form 40

Common Issues That Delay Return Processing

Invalid Addition, Subtraction, & Credit Codes Verify that you are using the correct code.

For example, we often see the code “529” used to claim a 529 Oregon College Savings Plan subtraction. The correct code is “324.”

Estimated Tax Payment Mismatch To verify payments, including refund

applications, go to “How much do I owe?” on our website – with your client’s permission.

Common Issues That Delay Return Processing

Estimated payments or withholding reported on amended return does not match original return. Do not include payments toward penalty &

interest or interest on the underpayment of estimated taxes.

Oregon Income Tax Paid If filing an “Oregon Only” Schedule A, include

Oregon income tax paid on line 5 and subtract that amount on the Oregon return as “state income tax claimed as an itemized deduction.”

Common Issues That Delay Return Processing

Federal Tax Subtraction on amended return is different than reported on original. If filing an amended Oregon return to report

changes made to a federal return, do not increase the federal tax subtraction. Report the additional federal tax in the year the tax was paid or determined, whichever is later.

Direct Deposit Account Number We cannot change a direct deposit number

entered on the return. Double-check the number to make sure it is correct.

Practitioner Connection

Liaison Meetings LTP/LTC – 4th Friday of April, July, and

October and the 1st Friday in December at the Revenue building in Salem

OSCPA – meets three times yearly (contact OSCPA for more information)

Oregon State Bar (OSB) – quarterly (contact the Tax Section for more information)

Practitioner email help (general questions only, please) prac.revenue@state.or.us