Or. Admin. R. 150-314-0521

Current through Register Vol. 63, No. 6, June 1, 2024

Section 150-314-0521 - Pass-through entity elective tax: Estimated tax; interest on underpayment of estimated tax; waiver of underpayment interest for individual members

(1) Definitions.

(a) "PTE-E tax" means the pass-through entity elective tax that may be paid by an electing pass-through entity pursuant to 2021 Oregon Laws Chapter 589, as amended by 2022 Oregon Laws Chapter 82.

(b) "Electing entity" means a pass-through entity that elects or plans to elect to pay the PTE-E tax.

(c) "Distributive income" means the income of an electing entity from Oregon sources that will be distributed to members and used to calculate the PTE-E tax.

(d) "Calendar year" means a twelve-month year beginning on January 1 and ending on December 31.

(e) "Tax year" means the twelve-month year that an electing entity uses for accounting purposes. A tax year may be a calendar year or a year that ends in a month other than December.

(f) "Required annual payment" means the total amount of required estimated PTE-E tax to be paid by an electing entity for the tax year for which an election will be made.

(g) "Required installment payment" means the amount of the payment that is due for each of the four payment periods for the calendar year for which the election will be made.

(h) "Installment period" means the portion of the tax year consisting of the following months:

(A) The first installment period consists of the first three months of the tax year.

(B) The second installment period consists of the fourth and fifth months of the tax year.

(C) The third installment period consists of the sixth, seventh, and eighth months of the tax year.

(D) The fourth installment period consists of the ninth, tenth, eleventh, and twelfth months of the tax year.

(i) "Payment period" means the portion of the calendar year consisting of the following months:

(A) The first payment period is January, February, and March.

(B) The second payment period is April and May.

(C) The third payment period is June, July, and August.

(D) The fourth payment period is September, October, November, and December.

(j) "Underpayment" means the excess of the required installment amount over the amount paid on or before the due date for that installment.

(k) "Underpayment period" means the period of time that runs from the date a required installment payment was due to the earlier of the due date of the PTE-E tax return (without extensions) or, with respect to any portion of the underpayment, the date the underpaid amount is paid.

(2) Electing entities must make payments of estimated PTE-E tax if the tax to be shown on the electing entity's return will be $1,000 or more.

(3) The due dates for making estimated payments of PTE-E tax are the same as the due dates for making estimated payments of personal income tax under ORS 316.579(2), for the calendar year for which the election will be made.

(4) The amount of estimated PTE-E tax to be paid is calculated using the sum of the electing entity's distributive proceeds from Oregon sources for the tax year that ends during the calendar year for which the election will be made.

(5) To determine the amount of estimated PTE-E tax to be paid, the electing entity must first determine the required annual payment, then determine the amount of the required installment payments.

(a) The required annual payment is the lesser of:

(A) Ninety percent of the PTE-E tax shown on the return for the calendar year for which the election is made; or

(B) One hundred percent of the tax shown on the electing entity's PTE-E tax return for the prior year, if the election to pay PTE-E tax was made for the prior calendar year and the prior tax year consisted of 12 months.

(b) The required installment payment amount is the lesser of the amounts determined using the regular installment method or the annualized income installment method.

(A) Regular installment method: Each regular installment payment is 25 percent of the required annual payment.

(B) Annualized income installment method: The required annualized income installment payment is the "applicable percentage" of the required annual payment, minus the amount of any required installments for prior periods of the same year. The applicable percentages are:

(i) 22.5 percent for the first installment period;

(ii) 45 percent for the first and second installment periods;

(iii) 67.5 percent for the first, second, and third installment periods; and

(iv) 90 percent for the first through fourth installment periods.

(c) If an electing entity uses the annualized income installment method to determine a required installment payment, the difference between that amount and the amount that would have been due if the regular installment method had been used must be added to the regular installment payment for the subsequent period.

(6) An electing entity that uses a tax year other than a calendar year for accounting purposes calculates the required annual payment and required installment payments using the installment periods of its tax year.

Example 1: ABC Enterprises, a partnership, is an electing entity that uses the 12-month year beginning on May 1 and ending on April 30 for accounting purposes. ABC will make the election for calendar year 2023. ABC determines that it will have $830,800 in distributive income for the tax year that begins May 1, 2022 and ends April 30, 2023. It calculates $80,000 in tax using the PTE-E rates and determines that its required annual payment is $72,000 ($80,000 x 0.90). ABC's regular installment amount is 25 percent of its annual required payment, or $18,000 ($72,000 x 0.25). It pays $18,000 on April 18, 2023 for its first installment period ending July 31, 2022; $18,000 on June 15, 2023 for its second installment period ending September 30, 2022; $18,000 on September 15, 2023 for its third installment period ending December 31, 2022; and $18,000 on January 16, 2024 for its fourth installment period ending April 30, 2023.

Example 2: Same facts as in example 1, but ABC didn't receive its distributive income evenly throughout the tax year. It received $180,000 during the first installment period (May through July), $100,300 during the second installment period (August and September), $220,000 during the third installment period (October through December), and $330,500 during the fourth installment period (January through April). ABC calculates its required installment payments using the annualized income installment method.

ABC annualizes the $180,000 in income for the first installment period by multiplying it by 4 (3 months x 4 = 12 months), for $720,000 in annualized income ($180,000 x 4). ABC applies the PTE-E tax rates and determines that the tax on the annualized income is $69,030. It then multiplies the tax by 22.5 percent to arrive at $15,532 ($69,030 x 0.225) for the first period annualized income installment payment. This amount is smaller than the $18,000 regular installment amount, so ABC pays $15,532 on April 18, 2023.

For its second installment payment, ABC annualizes the income received during the first and second installment periods (a total of five months) by multiplying the $280,300 received ($180,000 + $100,300) by 2.4 (5 months x 2.4 is approximately 12 months). The annualized income is $672,720 ($280,300 x 2.4). ABC determines that the PTE-E tax on the annualized income is $64,349. It multiplies the tax by 45 percent to arrive at $28,957 ($64,349 x 0.45), then subtracts the amount of the first installment payment to arrive at an annualized income installment payment of $13,425 ($28,957 - 15,532) for the second period. Next, ABC finds the excess regular installment amount for the first period, which is the difference between the regular installment amount and the installment payment for the first period, which is $2,468 ($18,000 - 15,532). ABC adds the $2,468 from the first period to the $18,000 regular installment amount, for a total regular installment for the second period of $20,468 ($18,000 + 2,468). This amount is larger than the $13,425 annualized income installment amount, so ABC will pay the annualized income installment amount for the second period. ABC pays $13,425 on June 15, 2023.

For its third installment payment, ABC annualizes the income received during the first three installment periods (a total of eight months) by multiplying $500,300 ($180,000 + 100,300 + 220,000) by 1.5 (8 months x 1.5 = 12 months), for annualized income of $750,450 ($500,300 x 1.5). It calculates $72,045 in PTE-E tax on this amount. ABC multiplies the tax by 67.5 percent to arrive at $48,630 ($72,045 x 0.675). It then subtracts the first two installment payments from this amount to arrive at the annualized income installment amount of $19,673 ($48,630 - 15,532 - 13,425) for the third period. Next, to the $18,000 regular installment amount, ABC adds the difference between the regular installment amount and the installment payment amount for each of the two prior periods: $2,468 for the first period ($18,000 - 15,532) plus $7,043 for the second period ($20,468 - 13,425), for a total regular installment of $27,511 ($18,000 + 2,468 + 7,043) for the third period. This is larger than the $19,673 annualized income installment amount, so ABC pays the annualized income installment amount for its third installment payment on September 15, 2023.

For its fourth installment payment, ABC subtracts the first three installment payments, totaling $48,630 ($15,532 + 13,425 + 19,673) from the $72,000 annual required payment, arriving at the remaining payment amount of $23,370 ($72,000 - 48,630). It pays this amount on January 16, 2024.

(7) Interest on an underpayment of estimated tax will accrue at the rate established under ORS 305.220 on any unpaid portion of a required installment payment for the underpayment period.

Example 3: Same facts as example 2, but instead of making the payment for the second installment period on June 15, 2023, ABC makes the payment on August 14, 2023. ABC will owe underpayment interest for the 60-day underpayment period that the $13,425 installment remained unpaid.

(8) Estimated tax payments may be refunded upon request by an electing entity that makes one or more estimated PTE-E tax payments but ultimately does not elect to be liable for and pay the PTE-E tax. The refund request shall contain information and be in the form prescribed by the Department of Revenue.

(9) Interest shall be computed at the rate established under ORS 305.220 on a refund of estimated PTE-E tax payments starting 45 days after the date the return or request for refund is filed, or 45 days after the due date of the return (without extension), whichever is later.

(10) If an electing entity pays at least 90 percent of the tax shown on the PTE-E tax return before the return is filed, an individual member of the electing entity (or of an entity that is a member of the electing entity) who does not make estimated payments of personal income tax on the member's share of distributive proceeds from the electing entity may request that interest on such underpayment be waived in the manner prescribed by the department.

Or. Admin. R. 150-314-0521

REV 35-2022, adopt filed 12/28/2022, effective 1/1/2023

Statutory/Other Authority: ORS 305.100

Statutes/Other Implemented: 2021 Oregon Laws ch. 589 & 2022 Oregon Laws ch. 82 § 4