Today I want to talk about professionals providing out of state based services to Oregon clients. Let’s say you are a San Francisco securities lawyer and you helped a Portland company raise capital through a private placement. Your services consisted of working with the company’s Portland law firm in preparing a private placement memorandum. All your services were provided in San Francisco.
Your fees for the project were $100,000. Are any of those fees subject to Oregon income taxation?
Well, before 2018 the answer would be no. Oregon would source your fees to California because Oregon then apportioned the fees based upon the location of the state where you incurred your costs to prepare the private placement memorandum; and that would be California.
But if the work was done in 2018, then Oregon would subject the entire $100,000 fee to the Oregon income tax, because Oregon now apportions such fees based upon where the client is located. The Oregon law that made this change can be found at Laws 2017, Regular Session (SB 28; July 3, 2017).
The Oregon Department of Revenue recently adopted a rule to help figure out whether a client is located in Oregon. Administrative Rule 150-314-0435. The sourcing rules are slightly different whether the client is an individual or a business.
For individuals the fees from a client with a primary residence in Oregon is sourced to Oregon. In limited cases you can source the fees to the billing address provided by the client.
For business clients, you have an Oregon client if the individual managing your contract with the company is based out of Oregon. A no brainer would be working with the CFO based out of the company’s Portland headquarters. There are back up sourcing rules if you don’t know who is managing your contract.
Comment. The new Oregon sourcing rule for professionals is not unique. It was based upon the model regulation adopted by the Multistate Tax Commission. You may see this rule when providing services to clients in other states.
By John McCauley: I help people buy and sell businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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