ADMINISTRATIVE RULE REVIEW 150-314-0435 - oregon.gov Fall... · ADMINISTRATIVE RULE REVIEW Rule No. 150-314-0435 Amended Rule Permanent Rule Page Page 3 of 46 Last Revised Date October

ADMINISTRATIVE RULE REVIEW Rule No.

150-314-0435

Amended Rule Permanent Rule

Page

Page 1 of 46 Last Revised Date

October 17, 2017

NOTICE OF INTENDED ACTION

Bulletin Dated

November 2017 Hearing Scheduled

November 28, 2017

PURPOSE: Implementing 2017 legislation (SB 28), providing a market-based sourcing methodology

for taxpayers to use when sourcing receipts other than receipts from the sale of tangible personal

property for tax years beginning on or after January 1, 2018.

OAR 150-314-0435 1

Sales Factor; Sales Other Than Sales of Tangible Personal Property in This State 2

(1) This rule is effective August 31, 2008 and applies to tax years beginning on or after January 1, 2008. 3

For tax years beginning prior to January 1, 2008 an “income producing activity” did not include 4

transactions performed on behalf of a taxpayer, such as those conducted on the taxpayer’s behalf by an 5

independent contractor. 6

(2) In General. ORS 314.665(4) provides for the inclusion of gross receipts from transactions other than 7

sales of tangible personal property (including transactions with the United States Government) in the 8

numerator of the sales factor); under this section gross receipts are attributed to this state if the income 9

producing activity that gave rise to the receipts is performed wholly within this state. Also, gross receipts 10

are attributed to this state if, with respect to a particular item of income, the income producing activity is 11

performed within and without this state but the greater proportion of the income producing activity is 12

performed in this state, based on costs of performance. Income Producing Activity; Defined. The term 13

"income producing activity" applies to each separate item of income and means the transactions and 14

activity directly engaged in by the taxpayer in the regular course of its trade or business for the ultimate 15

purpose of obtaining gains or profit. Income producing activity includes transactions and activities 16

performed on behalf of a taxpayer, such as those conducted on its behalf by an independent contractor. 17

Accordingly, income producing activity includes but is not limited to the following: 18

(a) The rendering of personal services by employees or by an agent or independent contractor acting on 19

behalf of the taxpayer or the utilization of tangible and intangible property by the taxpayer or by an agent 20

or independent contractor acting on behalf of the taxpayer in performing a service. 21

(b) The sale, rental, leasing, franchising, licensing or other use of real property. 22

(c) The rental, leasing, franchising, licensing or other use of tangible personal property. 23

(d) The sale, franchising, licensing or other use of intangible personal property. The mere holding of 24

intangible personal property is not, of itself, an income producing activity. 25


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(3)(a) Where the income producing activity in respect to business income from intangible personal 1

property can be readily identified, the income is included in the denominator of the sales factor and, if the 2

income producing activity occurs in this state, in the numerator of the sales factor as well. For example, 3

usually the income producing activity can be readily identified in respect to interest income received on 4

deferred payments on sales of tangible property (OAR 150-314-0425) and income from the sale, 5

licensing or other use of intangible personal property. 6

(b) Where business income from intangible property cannot readily be attributed to any particular income 7

producing activity of the taxpayer, the income cannot be assigned to the numerator of the sales factor for 8

any state and must be excluded from the denominator of the sales factor. For example, where business 9

income in the form of dividends received on stock, royalties received on patents or copyrights, or interest 10

received on bonds, debentures or government securities results from the mere holding of the intangible 11

personal property by the taxpayer, the dividends and interest must be excluded from the denominator of 12

the sales factor. 13

(4) Costs of Performance; Defined. The term "costs of performance" means direct costs determined in a 14

manner consistent with generally accepted accounting principles and in accordance with accepted 15

conditions or practices in the trade or business of the taxpayer to perform the income producing activity 16

that gives rise to the particular item of income. Included in the taxpayer’s cost of performance are 17

taxpayer’s payments to an agent or independent contractor for the performance of personal services and 18

utilization of tangible and intangible property which give rise to the particular item of income. For 19

purposes of this rule, direct costs do not include costs that are not part of the income producing activity 20

itself, such as accounting or billing expenses. 21

(5) Application. 22

(a) In General. Receipts (other than from sales of tangible personal property) in respect to a particular 23

income producing activity performed by the taxpayer are in this state if: 24

(A) The income producing activity is performed wholly within this state; or 25


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(B) The income producing activity is performed both in and outside this state and a greater proportion of 1

the income producing activity is performed in this state than in any other state, based on costs of 2

performance. 3

(b) Under the authority provided in ORS 314.667, paragraphs (A)–(C) of this subsection describe when 4

receipts from certain income producing activities are in this state. 5

(A) Gross receipts from the sale, lease, rental, franchising, or licensing of real property are in this state if 6

the real property is located in this state. 7

(B) Gross receipts from the rental, lease, franchising, or licensing of tangible or intangible personal 8

property are in this state if the property is located in this state. 9

(i) The rental, lease, franchising, licensing or other use of tangible or intangible personal property in this 10

state is a separate income producing activity from the rental, lease, licensing or other use of the same 11

property while located in another state; consequently, if the property is within and without this state 12

during the rental, lease, franchising or licensing period, gross receipts attributable to this state must be 13

measured by the ratio that the time the property was physically present or was used in this state bears to 14

the total time or use of the property everywhere during the period. 15

Example 1: Taxpayer is the owner of 10 railroad cars. During the year, the total of the days each railroad 16

car was present in this state was 50 days. The receipts attributable to the use of the 10 railroad cars in this 17

state are a separate item of income and are determined as follows: 10 cars x 50 days = 500 car days 10 18

cars x 365 days = 3,650 car days x Total Receipts = Receipts Attributable to this State 19

(ii) Intangible personal property is located in this state if the property is used in business activity in this 20

state, whether the use is by the taxpayer, a third-party licensee, or another entity with the right to use the 21

property. Intangible personal property may be used in more than one state at the same time. The use of 22

intangible personal property in this state is a separate income producing activity from use of the same 23

property in another state. Use is determined in each tax year. 24

(C) Gross receipts for the performance of personal services are attributable to this state to the extent the 25

services are performed in this state. If services relating to a single item of income are performed partly 26


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within and partly without this state, the gross receipts from the performance of the services are 1

attributable to this state only if a greater proportion of the services were performed in this state, based on 2

costs of performance. Usually, where services are performed partly within and partly without this state, 3

the services performed in each state will constitute a separate income producing activity; in these cases 4

the gross receipts for the performance of services attributable to this state must be measured by the ratio 5

which the time spent in performing the services in this state bears to the total time spent in performing 6

the services everywhere. Time spent in performing services includes the amount of time expended in the 7

performance of a contract or other obligation that gives rise to the gross receipts. Personal service not 8

directly connected with the performance of the contract or other obligation, as for example, time 9

expended in negotiating the contract, is excluded from the computations. 10

Example 2: Taxpayer, a road show, gave theatrical performances at various locations in State X and in 11

this state during the tax period. All gross receipts from performances given in this state are attributed to 12

this state. 13

Example 3: The taxpayer, a public opinion survey corporation, conducted a poll by its employees in State 14

X and in this state for the sum of $9,000. The project required 600 hours to obtain the basic data and 15

prepare the survey report. Two hundred of the 600 hours were expended in this state. The receipts 16

attributable to this state are $3,000. 200 hours/ 600 hours x $9,000 17

(c) Services on behalf of taxpayer. An income producing activity performed on behalf of a taxpayer by 18

an agent or independent contractor is attributed to this state if the income producing activity is in this 19

state. 20

(A) In order to determine if income producing activity is in this state, consider the following list in 21

sequential order: 22

(i) When the taxpayer can reasonably determine at the time of filing that the income producing activity is 23

actually performed in this state by the agent or independent contractor, but the activity occurs in more 24

than one state, the location where the income producing activity is actually performed shall be deemed to 25

be not reasonably determinable at the time of filing under this subsection; 26


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(ii) If the taxpayer cannot reasonably determine at the time of filing where the income producing activity 1

is actually performed, when the contract between the taxpayer and the agent or independent contractor 2

indicates it is to be performed in this state and the portion of the taxpayer’s payment to the agent or 3

contractor associated with the performance is determinable under the contract; 4

(iii) If it cannot be determined where the income producing activity is actually performed and the agent 5

or independent contractor's contract with the taxpayer does not indicate where it is to be performed, when 6

the contract between the taxpayer and the taxpayer's customer indicates it is to be performed in this state 7

and the portion of the taxpayer’s payment to the agent or contractor associated with the performance is 8

determinable under the contract; or 9

(iv) If it cannot be determined where the income producing activity is actually performed and neither 10

contract indicates where it is to be performed or the portion of the payment associated with the 11

performance, when the domicile of the taxpayer’s customer is in this state. If the taxpayer’s customer is 12

not an individual, “domicile” means commercial domicile as defined in ORS 314.610. 13

(B) If the location of the income producing activity by an agent or independent contractor, or the portion 14

of the payment associated with the performance, cannot be determined under sections (5)(c)(A)(i) 15

through (5)(c)(A)(iii), or the taxpayer’s customer’s domicile cannot be determined under section 16

(5)(c)(A)(iv) of this rule, or, although determinable, the income producing activity is in a state where the 17

taxpayer is not taxable, the income producing activity will be disregarded. 18

(1) This rule adopts a model regulation recommended by the Multistate Tax Commission to promote 19

uniform treatment of this item by the states. This rule applies to tax years beginning on or after January 1, 20

2018. In general, ORS 314.665(4) provides for the inclusion of gross receipts arising from transactions 21

other than sales of tangible personal property in the numerator of the sales factor. 22

(a) Market-Based Sourcing. Receipts, other than receipts described in ORS 314.665(2) (from sales of 23

tangible personal property) are in Oregon within the meaning of ORS 314.665(4) and this rule if and to 24

the extent that the taxpayer’s market for the sales is in Oregon. In general, the provisions in this section 25

establish uniform rules for (1) determining whether and to what extent the market for a sale other than 26


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the sale of tangible personal property is in Oregon, (2) reasonably approximating the state or states of 1

assignment where the state or states cannot be determined, and (3) excluding receipts from the sale of 2

intangible property from the numerator and denominator of the sales factor pursuant to Oregon Laws 3

2017, chapter 549, section 2(3)(c). 4

(b) Outline of Topics. 5

(A) General Rules 6

(i) Market-Based Sourcing 7

(ii) Outline of Topics 8

(iii) Definitions 9

(iv) General Principles of Application; Contemporaneous Records 10

(v) Rules of Reasonable Approximation 11

(vi) Rules with respect to Exclusion of Receipts from the Sales Factor 12

(B) Sale, Rental, Lease, or License of Real Property 13

(C) Rental, Lease, or License of Tangible Personal Property 14

(D) Sale of a Service 15

(i) General Rule 16

(ii) In-Person Services 17

(iii) Services Delivered to the Customer or on Behalf of the Customer, or Delivered Electronically 18

Through the Customer 19

(iv) Professional Services 20

(E) License or Lease of Intangible Property 21

(i) General Rules 22

(ii) License of a Marketing Intangible 23

(iii) License of a Production Intangible 24

(iv) License of a Mixed Intangible 25


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(v) License of Intangible Property where Substance of the Transaction Resembles a Sale of Goods or 1

Services 2

(F) Sale of Intangible Property 3

(i) Assignment of Receipts 4

(G) Special Rules 5

(i) Software Transactions 6

(ii) Sales or Licenses of Digital Goods and Services 7

(c) Definitions. 8

(A) “Billing address” means the location indicated in the books and records of the taxpayer as the 9

primary mailing address relating to a customer’s account as of the time of the transaction as kept in good 10

faith in the normal course of business and not for tax avoidance purposes. 11

(B) “Business customer” means a customer that is a business operating in any form, including a sole 12

proprietorship. Sales to a non-profit organization, to a trust, to the U.S. Government, to a foreign, state, 13

or local government, or to an agency or instrumentality of that government are treated as sales to a 14

business customer and must be assigned consistent with the rules for those sales. 15

(C) “Code” means the Internal Revenue Code as currently adopted by ORS 314.011. 16

(D) “Individual customer” means a customer that is not a business customer. 17

(E) “Intangible property” generally means property that is not physical or whose representation by 18

physical means is merely incidental and includes, without limitation, copyrights; patents; trademarks; 19

trade names; brand names; franchises; licenses; trade secrets; trade dress; information; know-how; 20

methods; programs; procedures; systems; formulae; processes; technical data; designs; licenses; literary, 21

musical, or artistic compositions; information; ideas; contract rights including broadcast rights; 22

agreements not to compete; goodwill and going concern value; securities; and, except as otherwise 23

provided in this rule, computer software. 24

(F) “Place of order” means the physical location from which a customer places an order for a sale other 25

than a sale of tangible personal property from a taxpayer, resulting in a contract with the taxpayer. 26


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(G) “Population” means the most recent population data maintained by the U.S. Census Bureau for the 1

year in question as of the close of the taxable period. 2

(H) “Related party” means: 3

(i) A stockholder who is an individual, or a member of the stockholder's family set forth in section 318 of 4

the Code if the stockholder and the members of the stockholder's family own, directly, indirectly, 5

beneficially, or constructively, in the aggregate, at least 50 percent of the value of the taxpayer's 6

outstanding stock; 7

(ii) A stockholder, or a stockholder's partnership, limited liability company, estate, trust, or corporation, 8

if the stockholder and the stockholder's partnerships, limited liability companies, estates, trusts, and 9

corporations own directly, indirectly, beneficially or constructively, in the aggregate, at least 50 percent 10

of the value of the taxpayer's outstanding stock; or 11

(iii) A corporation, or a party related to the corporation in a manner that would require an attribution of 12

stock from the corporation to the party or from the party to the corporation under the attribution rules of 13

the Code if the taxpayer owns, directly, indirectly, beneficially, or constructively, at least 50 percent of 14

the value of the corporation's outstanding stock. The attribution rules of the Code apply for purposes of 15

determining whether the ownership requirements of this definition have been met. 16

(iv) The provisions of this rule regarding sales between related parties do not apply to sales that are 17

treated as intercompany transactions between affiliated corporations filing a consolidated Oregon return 18

eliminated as provided in section (3) of OAR 150-314-0630. 19

(I) “State where a contract of sale is principally managed by the customer” means the primary location at 20

which an employee or other representative of a customer serves as the primary contact person for the 21

taxpayer with respect to the day-to-day execution and performance of a contract entered into by the 22

taxpayer with the customer. 23

(d) General Principles of Application; Contemporaneous Records. In order to satisfy the requirements of 24

this rule, a taxpayer’s assignment of receipts other than receipts from sales of tangible personal property 25

must be consistent with the following principles: 26


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(A) This rule provides various assignment rules that apply sequentially in a hierarchy. For each sale to 1

which a hierarchical rule applies, a taxpayer must make a reasonable effort to apply the primary rule 2

applicable to the sale before seeking to apply the next rule in the hierarchy (and must continue to do so 3

with each succeeding rule in the hierarchy, where applicable). For example, in some cases, the applicable 4

rule first requires a taxpayer to determine the state or states of assignment, and if the taxpayer cannot do 5

so, the rule requires the taxpayer to reasonably approximate the state or states. In these cases, the 6

taxpayer must attempt to determine the state or states of assignment (i.e., apply the primary rule in the 7

hierarchy) in good faith and with reasonable effort before it may reasonably approximate the state or 8

states. 9

(B) A taxpayer’s method of assigning its receipts, including the use of a method of approximation, where 10

applicable, must reflect an attempt to obtain the most accurate assignment of receipts consistent with the 11

regulatory standards set forth in this rule, rather than for tax avoidance purposes. A method of 12

assignment that is reasonable for one taxpayer may not necessarily be reasonable for another taxpayer, 13

depending upon the applicable facts. 14

(e) Rules of Reasonable Approximation. 15

(A) In General. In general, this rule establishes uniform rules for determining whether and to what extent 16

the market for a sale other than the sale of tangible personal property is in Oregon. This rule also sets 17

forth rules of reasonable approximation, which apply if the state or states of assignment cannot be 18

determined. In some instances, the reasonable approximation must be made in accordance with specific 19

rules of approximation prescribed in this rule. In other cases, the applicable rule permits a taxpayer to 20

reasonably approximate the state or states of assignment using a method that reflects an effort to 21

approximate the results that would be obtained under the applicable rules or standards set forth in this 22

rule. 23

(B) Approximation Based Upon Known Sales. In an instance where, applying the applicable rules set 24

forth in section (4) of this rule (Sale of a Service), a taxpayer can ascertain the state or states of 25

assignment of a substantial portion of its receipts from sales of substantially similar services (“assigned 26


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receipts”), but not all of those sales, and the taxpayer reasonably believes, based on all available 1

information, that the geographic distribution of some or all of the remainder of those sales generally 2

tracks that of the assigned receipts, it must include receipts from those sales which it believes tracks the 3

geographic distribution of the assigned receipts in its sales factor in the same proportion as its assigned 4

receipts. This rule also applies in the context of licenses and sales of intangible property where the 5

substance of the transaction resembles a sale of goods or services. See sections (5)(e) and (6)(a)(C) of 6

this rule. 7

(C) Related-Party Transactions – Information Imputed from Customer to Taxpayer. Where a taxpayer 8

has receipts subject to this rule from transactions with a related-party customer, information that the 9

customer has that is relevant to the sourcing of receipts from these transactions is imputed to the 10

taxpayer. 11

(f) Rules with Respect to Exclusion of Receipts from the Sales Factor 12

(A) The sales factor only includes those amounts defined as sales under ORS 314.610(7) and applicable 13

rules. 14

(B) Certain receipts arising from the sale of intangibles are excluded from the numerator and 15

denominator of the sales factor pursuant to Oregon Laws 2017, chapter 549, section 2(3)(c). See section 16

(6)(a)(D) of this rule. 17

(C) Receipts of a taxpayer from hedging transactions, or from holding cash or securities, or from the 18

maturity, redemption, sale, exchange, loan, or other disposition of cash or securities, must be excluded 19

pursuant to ORS 314.610(7). 20

(2) Sale, Rental, Lease, or License of Real Property. In the case of a sale, rental, lease, or license of real 21

property, the receipts from the sale are in Oregon if and to the extent that the property is in Oregon. 22

(3) Rental, Lease, or License of Tangible Personal Property. In the case of a rental, lease, or license of 23

tangible personal property, the receipts from the sale are in Oregon if and to the extent that the property 24

is in Oregon. If property is mobile property that is located both within and without Oregon during the 25

period of the lease or other contract, the receipts assigned to Oregon are the receipts from the contract 26


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period multiplied by the fraction computed under OAR 150-314-0392 (as adjusted when necessary to 1

reflect differences between usage during the contract period and usage during the taxable year). 2

(4) Sale of a Service. 3

(a) General Rule. The receipts from a sale of a service are in Oregon if and to the extent that the service 4

is delivered to a location in Oregon. In general, the term “delivered to a location” refers to the location of 5

the taxpayer’s market for the service, which may not be the location of the taxpayer’s employees or 6

property. The rules to determine the location of the delivery of a service in the context of several specific 7

types of service transactions are set forth at sections (4)(b)-(d) of this rule. 8

(b) In-Person Services. 9

(A) In General. Except as otherwise provided in section (4)(b) of this rule, in-person services are services 10

that are physically provided in person by the taxpayer, where the customer or the customer’s real or 11

tangible property upon which the services are performed is in the same location as the service provider at 12

the time the services are performed. This rule includes situations where the services are provided on 13

behalf of the taxpayer by a third-party contractor. Examples of in-person services include, without 14

limitation, warranty and repair services; cleaning services; plumbing services; carpentry; construction 15

contractor services; pest control; landscape services; medical and dental services, including medical 16

testing, x-rays, and mental health care and treatment; child care; hair cutting and salon services; live 17

entertainment and athletic performances; and in-person training or lessons. In-person services include 18

services within the description above that are performed at (1) a location that is owned or operated by the 19

service provider or (2) a location of the customer, including the location of the customer’s real or 20

tangible personal property. Various professional services, including legal, accounting, financial and 21

consulting services, and other similar services as described in section (4)(d) of this rule, although they 22

may involve some amount of in-person contact, are not treated as in-person services within the meaning 23

of section (4)(b) of this rule. 24

(B) Assignment of Receipts. 25


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(i) Rule of Determination. Except as otherwise provided in section (4)(b)(B) of this rule, if the service 1

provided by the taxpayer is an in-person service, the service is delivered to the location where the service 2

is received. Therefore, the receipts from a sale are in Oregon if and to the extent the customer receives 3

the in-person service in Oregon. In assigning its receipts from sales of in-person services, a taxpayer 4

must first attempt to determine the location where a service is received, as follows: 5

(I) If the service is performed with respect to the body of an individual customer in Oregon (e.g. hair 6

cutting or x-ray services) or in the physical presence of the customer in Oregon (e.g. live entertainment or 7

athletic performances), the service is received in Oregon. 8

(II) If the service is performed with respect to the customer’s real estate in Oregon or if the service is 9

performed with respect to the customer’s tangible personal property at the customer’s residence or in the 10

customer’s possession in Oregon, the service is received in Oregon. 11

(III) If the service is performed with respect to the customer’s tangible personal property and the tangible 12

personal property is to be shipped or delivered to the customer, whether the service is performed within 13

or outside Oregon, the service is received in Oregon if the property is shipped or delivered to the 14

customer in Oregon. 15

(C) Rule of Reasonable Approximation. In an instance in which the state or states where a service is 16

actually received cannot be determined, the taxpayer must reasonably approximate such state or states. 17

(D) Examples. Note that for purposes of the examples it is irrelevant whether the services are performed 18

by an employee of the taxpayer or by an independent contractor acting on the taxpayer’s behalf. 19

Example 1: Salon Corp has retail locations in Oregon and in other states where it provides hair cutting 20

services to individual and business customers, the latter of whom are paid for through the means of a 21

company account. The receipts from sales of services provided at Salon Corp’s in-state locations are in 22

Oregon. The receipts from sales of services provided at Salon Corp’s locations outside Oregon, even 23

when provided to residents of Oregon, are not receipts from in-state sales. 24

Example 2: Landscape Corp provides landscaping and gardening services in Oregon and in neighboring 25

states. Landscape Corp provides landscaping services at the in-state vacation home of an individual who 26


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is a resident of another state and who is located outside Oregon at the time the services are performed. 1

The receipts from sale of services provided at the in-state location are in Oregon. 2

Example 3: Same facts as Example 2, except that Landscape Corp provides the landscaping services to 3

Retail Corp, a corporation with retail locations in several states, and the services are with respect to those 4

locations of Retail Corp that are in Oregon and in other states. The receipts from the sale of services 5

provided to Retail Corp are in Oregon to the extent the services are provided in Oregon. 6

Example 4: Camera Corp provides camera repair services at an in-state retail location to walk-in 7

individual and business customers. In some cases, Camera Corp actually repairs a camera that is brought 8

to its in-state location at a facility that is in another state. In these cases, the repaired camera is then 9

returned to the customer at Camera Corp’s in-state location. The receipts from sale of these services are 10

in Oregon. 11

Example 5: Same facts as Example 4, except that a customer located in Oregon mails the camera 12

directly to the out-of-state facility owned by Camera Corp to be fixed, and receives the repaired camera 13

back in Oregon by mail. The receipts from sale of the service are in Oregon. 14

Example 6: Teaching Corp provides seminars in Oregon to individual and business customers. The 15

seminars and the materials used in connection with the seminars are prepared outside the state, the 16

teachers who teach the seminars include teachers that are resident outside the state, and the students who 17

attend the seminars include students that are resident outside the state. Because the seminars are taught in 18

Oregon, the receipts from sales of the services are in Oregon. 19

(c) Services Delivered to the Customer or on Behalf of the Customer, or Delivered Electronically 20

Through the Customer. 21

(A) In General. If the service provided by the taxpayer is not an in-person service within the meaning of 22

section (4)(b) of this rule or a professional service within the meaning of section (4)(d) of this rule, and 23

the service is delivered to or on behalf of the customer, or delivered electronically through the customer, 24

the receipts from a sale are in Oregon if and to the extent that the service is delivered in Oregon. For 25

purposes of section (4)(c) of this rule, a service that is delivered “to” a customer is a service in which the 26


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customer and not a third party is the recipient of the service. A service that is delivered “on behalf of” a 1

customer is one in which a customer contracts for a service but one or more third parties, rather than the 2

customer, is the recipient of the service, such as fulfillment services, or the direct or indirect delivery of 3

advertising to the customer’s intended audience (see section (4)(c)(B)(i) of this rule and Example 4 under 4

section (4)(c)(B)(i)(III) of this rule). A service can be delivered to or on behalf of a customer by physical 5

means or through electronic transmission. A service that is delivered electronically “through” a customer 6

is a service that is delivered electronically to a customer for purposes of resale and subsequent electronic 7

delivery in substantially identical form to an end user or other third-party recipient. 8

(B) Assignment of Receipts. The assignment of receipts to a state or states in the instance of a sale of a 9

service that is delivered to the customer or on behalf of the customer, or delivered electronically through 10

the customer, depends upon the method of delivery of the service and the nature of the customer. 11

Separate rules of assignment apply to services delivered by physical means and services delivered by 12

electronic transmission. (For purposes of section (4)(c) of this rule, a service delivered by an electronic 13

transmission is not a delivery by a physical means). If a rule of assignment set forth in section (4)(c) of 14

this rule depends on whether the customer is an individual or a business customer, and the taxpayer 15

acting in good faith cannot reasonably determine whether the customer is an individual or business 16

customer, the taxpayer must treat the customer as a business customer. 17

(i) Delivery to or on Behalf of a Customer by Physical Means Whether to an Individual or Business 18

Customer. Services delivered to a customer or on behalf of a customer through a physical means include, 19

for example, product delivery services where property is delivered to the customer or to a third party on 20

behalf of the customer; the delivery of brochures, fliers, or other direct mail services; the delivery of 21

advertising or advertising-related services to the customer’s intended audience in the form of a physical 22

medium; and the sale of custom software (e.g., where software is developed for a specific customer in a 23

case where the transaction is properly treated as a service transaction for purposes of corporate taxation) 24

where the taxpayer installs the custom software at the customer’s site. The rules in section (4)(c)(B)(i) of 25

this rule apply whether the taxpayer’s customer is an individual customer or a business customer. 26


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(I) Rule of Determination. In assigning the receipts from a sale of a service delivered to a customer or on 1

behalf of a customer through a physical means, a taxpayer must first attempt to determine the state or 2

states where the service is delivered. If the taxpayer is able to determine the state or states where the 3

service is delivered, it must assign the receipts to that state or states. 4

(II) Rule of Reasonable Approximation. If the taxpayer cannot determine the state or states where the 5

service is actually delivered, it must reasonably approximate the state or states. 6

(III) Examples: 7

Example 7: Direct Mail Corp, a corporation based outside Oregon, provides direct mail services to its 8

customer, Business Corp. Business Corp contracts with Direct Mail Corp to deliver printed fliers to a list 9

of customers that is provided to it by Business Corp. Some of Business Corp’s customers are in Oregon 10

and some of those customers are in other states. Direct Mail Corp will use the postal service to deliver 11

the printed fliers to Business Corp’s customers. The receipts from the sale of Direct Mail Corp’s services 12

to Business Corp are assigned to Oregon to the extent that the services are delivered on behalf of 13

Business Corp to Oregon customers (i.e., to the extent that the fliers are delivered on behalf of Business 14

Corp to Business Corp’s intended audience in Oregon). 15

Example 8: Ad Corp is a corporation based outside Oregon that provides advertising and advertising-16

related services in Oregon and in neighboring states. Ad Corp enters into a contract at a location outside 17

Oregon with an individual customer who is not an Oregon resident to design advertisements for 18

billboards to be displayed in Oregon and to design fliers to be mailed to Oregon residents. All of the 19

design work is performed outside Oregon. The receipts from the sale of the design services are in Oregon 20

because the service is physically delivered on behalf of the customer to the customer’s intended audience 21

in Oregon. 22

Example 9: Same facts as Example 8, except that the contract is with a business customer that is based 23

outside Oregon. The receipts from the sale of the design services are in Oregon because the services are 24

physically delivered on behalf of the customer to the customer’s intended audience in Oregon. 25


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Example 10: Fulfillment Corp, a corporation based outside Oregon, provides product delivery 1

fulfillment services in Oregon and in neighboring states to Sales Corp, a corporation located outside 2

Oregon that sells tangible personal property through a mail order catalog and over the Internet to 3

customers. In some cases when a customer purchases tangible personal property from Sales Corp to be 4

delivered in Oregon, Fulfillment Corp will, pursuant to its contract with Sales Corp, deliver that property 5

from its fulfillment warehouse located outside Oregon. The receipts from the sale of the fulfillment 6

services of Fulfillment Corp to Sales Corp are assigned to Oregon to the extent that Fulfillment Corp’s 7

deliveries on behalf of Sales Corp are to recipients in Oregon. 8

Example 11: Software Corp, a software development corporation, enters into a contract with a business 9

customer, Buyer Corp, which is physically located in Oregon, to develop custom software to be used in 10

Buyer Corp’s business. Software Corp develops the custom software outside Oregon, and then physically 11

installs the software on Buyer Corp’s computer hardware located in Oregon. The development and sale 12

of the custom software is properly characterized as a service transaction, and the receipts from the sale 13

are assigned to Oregon because the software is physically delivered to the customer in Oregon. 14

Example 12: Same facts as Example 11, except that Buyer Corp has offices in Oregon and several other 15

states, but is commercially domiciled outside Oregon and orders the software from a location outside 16

Oregon. The receipts from the development and sale of the custom software service are assigned to 17

Oregon because the software is physically delivered to the customer in Oregon. 18

(ii) Delivery to a Customer by Electronic Transmission. Services delivered by electronic transmission 19

include, without limitation, services that are transmitted through the means of wire, lines, cable, fiber 20

optics, electronic signals, satellite transmission, audio or radio waves, or other similar means, whether or 21

not the service provider owns, leases, or otherwise controls the transmission equipment. In the case of the 22

delivery of a service by electronic transmission to a customer, the following rules apply. 23

(I) Services Delivered By Electronic Transmission to an Individual Customer. 24

(1) Rule of Determination. In the case of the delivery of a service to an individual customer by electronic 25

transmission, the service is delivered in Oregon if and to the extent that the taxpayer’s customer receives 26


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the service in Oregon. If the taxpayer can determine the state or states where the service is received, it 1

must assign the receipts from that sale to that state or states. 2

(2) Rules of Reasonable Approximation. If the taxpayer cannot determine the state or states where the 3

customer actually receives the service, but has sufficient information regarding the place of receipt from 4

which it can reasonably approximate the state or states where the service is received, it must reasonably 5

approximate the state or states. If a taxpayer does not have sufficient information from which it can 6

determine or reasonably approximate the state or states in which the service is received, it must 7

reasonably approximate the state or states using the customer’s billing address. 8

(II) Services Delivered By Electronic Transmission to a Business Customer. 9

(1) Rule of Determination. In the case of the delivery of a service to a business customer by electronic 10

transmission, the service is delivered in Oregon if and to the extent that the taxpayer’s customer receives 11

the service in Oregon. If the taxpayer can determine the state or states where the service is received, it 12

must assign the receipts from that sale to the state or states. For purposes of section (4)(c)(B)(ii)(II) of 13

this rule, it is intended that the state or states where the service is received reflect the location at which 14

the service is directly used by the employees or designees of the customer. 15

(2) Rule of Reasonable Approximation. If the taxpayer cannot determine the state or states where the 16

customer actually receives the service, but has sufficient information regarding the place of receipt from 17

which it can reasonably approximate the state or states where the service is received, it must reasonably 18

approximate the state or states. 19

(3) Secondary Rule of Reasonable Approximation. In the case of the delivery of a service to a business 20

customer by electronic transmission where a taxpayer does not have sufficient information from which it 21

can determine or reasonably approximate the state or states in which the service is received, the taxpayer 22

must reasonably approximate the state or states as set forth in this rule. In these cases, unless the taxpayer 23

can apply the safe harbor set forth in section (4)(c)(B)(ii)(II)(4) of this rule, the taxpayer must reasonably 24

approximate the state or states in which the service is received as follows: first, by assigning the receipts 25

from the sale to the state where the contract of sale is principally managed by the customer; second, if the 26


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state where the customer principally manages the contract is not reasonably determinable, by assigning 1

the receipts from the sale to the customer’s place of order; and third, if the customer’s place of order is 2

not reasonably determinable, by assigning the receipts from the sale using the customer’s billing address; 3

provided, however, if the taxpayer derives more than five percent of its receipts from sales of services 4

from any single customer, the taxpayer is required to identify the state in which the contract of sale is 5

principally managed by that customer. 6

(4) Safe Harbor. In the case of the delivery of a service to a business customer by electronic transmission, 7

a taxpayer may not be able to determine, or reasonably approximate under section (4)(c)(B)(ii)(II)(2) of 8

this rule, the state or states in which the service is received. In these cases, the taxpayer may, in lieu of 9

the rule stated at section (4)(c)(B)(ii)(II)(3) of this rule apply the safe harbor stated in this subsection. 10

Under this safe harbor, a taxpayer may assign its receipts from sales to a particular customer based upon 11

the customer’s billing address in a taxable year in which the taxpayer (1) engages in substantially similar 12

service transactions with more than 250 customers, whether business or individual, and (2) does not 13

derive more than five percent of its receipts from sales of all services from that customer. This safe 14

harbor applies only for purposes of services delivered by electronic transmission to a business customer, 15

and not otherwise. 16

(5) Related-Party Transactions. In the case of a sale of a service by electronic transmission to a business 17

customer that is a related party, the taxpayer may not use the secondary rule of reasonable approximation 18

in section (4)(c)(B)(ii)(II)(3) of this rule but may use the rule of reasonable approximation in section 19

(4)(c)(B)(ii)(II)(2) of this rule, and the safe harbor in section (4)(c)(B)(ii)(II)(4) of this rule, provided that 20

the department may aggregate sales to related parties in determining whether the sales exceed five 21

percent of receipts from sales of all services under that safe harbor provision if necessary or appropriate 22

to prevent distortion. 23

(III) Examples: In these examples, unless otherwise stated, assume that the taxpayer is not related to the 24

customer to which the service is delivered. Also, assume if relevant, unless otherwise stated, that the safe 25

harbor set forth at section (4)(c)(B)(ii)(II)(4) of this rule does not apply. 26


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Example 13: Support Corp, a corporation that is based outside Oregon, provides software support and 1

diagnostic services to individual and business customers that have previously purchased certain software 2

from third-party vendors. These individual and business customers are located in Oregon and other 3

states. Support Corp supplies its services on a case by case basis when directly contacted by its customer. 4

Support Corp generally provides these services through the Internet but sometimes provides these 5

services by phone. In all cases, Support Corp verifies the customer’s account information before 6

providing any service. Using the information that Support Corp verifies before performing a service, 7

Support Corp can determine where its services are received, and therefore must assign its receipts to 8

these locations. The receipts from sales made to Support Corp’s individual and business customers are in 9

Oregon to the extent that Support Corp’s services are received in Oregon. See sections (4)(c)(B)(ii)(I) 10

and (II) of this rule. 11

Example 14: Online Corp, a corporation based outside Oregon, provides web-based services through the 12

means of the Internet to individual customers who are resident in Oregon and in other states. These 13

customers access Online Corp’s web services primarily in their states of residence, and sometimes, while 14

traveling, in other states. For a substantial portion of its receipts from the sale of services, Online Corp 15

can either determine the state or states where the services are received, or, where it cannot determine the 16

state or states, it has sufficient information regarding the place of receipt to reasonably approximate the 17

state or states. However, Online Corp cannot determine or reasonably approximate the state or states of 18

receipt for all of the sales of its services. Assuming that Online Corp reasonably believes, based on all 19

available information, that the geographic distribution of the receipts from sales for which it cannot 20

determine or reasonably approximate the location of the receipt of its services generally tracks those for 21

which it does have this information, Online Corp must assign to Oregon the receipts from sales for which 22

it does not know the customers’ location in the same proportion as those receipts for which it has this 23

information. See section (1)(e)(B) of this rule. 24

Example 15: Same facts as Example 14, except that Online Corp reasonably believes that the geographic 25

distribution of the receipts from sales for which it cannot determine or reasonably approximate the 26


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location of the receipt of its web-based services do not generally track the sales for which it does have 1

this information. Online Corp must assign the receipts from sales of its services for which it lacks 2

information as provided to its individual customers using the customers’ billing addresses. See section 3

(4)(c)(B)(ii)(I) of this rule. 4

Example 16: Net Corp, a corporation based outside Oregon, provides web-based services to a business 5

customer, Business Corp, a company with offices in Oregon and two neighboring states. Particular 6

employees of Business Corp access the services from computers in each Business Corp office. Assume 7

that Net Corp determines that Business Corp employees in Oregon were responsible for 75 percent of 8

Business Corp’s use of Net Corp’s services, and Business Corp employees in other states were 9

responsible for 25 percent of Business Corp’s use of Net Corp’s services. In this case, 75 percent of the 10

receipts from the sale are received in Oregon. See section (4)(c)(B)(ii)(I)(1) of this rule. Assume 11

alternatively that Net Corp lacks sufficient information regarding the location or locations where 12

Business Corp’s employees used the services to determine or reasonably approximate the location or 13

locations. Under these circumstances, if Net Corp derives five percent or less of its receipts from sales to 14

Business Corp, Net Corp must assign the receipts under section (4)(c)(B)(ii)(II)(3) of this rule to the state 15

where Business Corp principally managed the contract, or if that state is not reasonably determinable, to 16

the state where Business Corp placed the order for the services, or if that state is not reasonably 17

determinable, to the state of Business Corp’s billing address. If Net Corp derives more than five percent 18

of its receipts from sales of services to Business Corp, Net Corp is required to identify the state in which 19

its contract of sale is principally managed by Business Corp and must assign the receipts to that state. 20

Example 17: Net Corp, a corporation based outside Oregon, provides web-based services through the 21

means of the Internet to more than 250 individual and business customers in Oregon and in other states. 22

Assume that for each customer Net Corp cannot determine the state or states where its web services are 23

actually received and lacks sufficient information regarding the place of receipt to reasonably 24

approximate the state or states. Also assume that Net Corp does not derive more than five percent of its 25


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receipts from sales of services to a single customer. Net Corp may apply the safe harbor stated in section 1

(4)(c)(B)(ii)(II)(4) of this rule and may assign its receipts using each customer’s billing address. 2

(iii) Services Delivered Electronically Through or on Behalf of an Individual or Business Customer. A 3

service delivered electronically “on behalf of” the customer is one in which a customer contracts for a 4

service to be delivered electronically but one or more third parties, rather than the customer, is the 5

recipient of the service, such as the direct or indirect delivery of advertising on behalf of a customer to 6

the customer’s intended audience. A service delivered electronically “through” a customer to third-party 7

recipients is a service that is delivered electronically to a customer for purposes of resale and subsequent 8

electronic delivery in substantially identical form to end users or other third-party recipients. 9

(I) Rule of Determination. In the case of the delivery of a service by electronic transmission, where the 10

service is delivered electronically to end users or other third-party recipients through or on behalf of the 11

customer, the service is delivered in Oregon if and to the extent that the end users or other third-party 12

recipients are in Oregon. For example, in the case of the direct or indirect delivery of advertising on 13

behalf of a customer to the customer’s intended audience by electronic means, the service is delivered in 14

Oregon to the extent that the audience for the advertising is in Oregon. In the case of the delivery of a 15

service to a customer that acts as an intermediary in reselling the service in substantially identical form to 16

third-party recipients, the service is delivered in Oregon to the extent that the end users or other third-17

party recipients receive the services in Oregon. The rules in this subsection apply whether the taxpayer’s 18

customer is an individual customer or a business customer and whether the end users or other third-party 19

recipients to which the services are delivered through or on behalf of the customer are individuals or 20

businesses. 21

(II) Rule of Reasonable Approximation. If the taxpayer cannot determine the state or states where the 22

services are actually delivered to the end users or other third-party recipients either through or on behalf 23

of the customer, it must reasonably approximate the state or states. 24

(III) Select Secondary Rules of Reasonable Approximation. 25


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(1) If a taxpayer’s service is the direct or indirect electronic delivery of advertising on behalf of its 1

customer to the customer’s intended audience, and if the taxpayer lacks sufficient information regarding 2

the location of the audience from which it can determine or reasonably approximate that location, the 3

taxpayer must reasonably approximate the audience in a state for the advertising using the following 4

secondary rules of reasonable approximation. If a taxpayer is delivering advertising directly or indirectly 5

to a known list of subscribers, the taxpayer must reasonably approximate the audience for advertising in a 6

state using a percentage that reflects the ratio of the state’s subscribers in the specific geographic area in 7

which the advertising is delivered relative to the total subscribers in that area. For a taxpayer with less 8

information about its audience, the taxpayer must reasonably approximate the audience in a state using 9

the percentage that reflects the ratio of the state’s population in the specific geographic area in which the 10

advertising is delivered relative to the total population in that area. 11

(2) If a taxpayer’s service is the delivery of a service to a customer that then acts as the taxpayer’s 12

intermediary in reselling that service to end users or other third-party recipients, and if the taxpayer lacks 13

sufficient information regarding the location of the end users or other third-party recipients from which it 14

can determine or reasonably approximate that location, the taxpayer must reasonably approximate the 15

extent to which the service is received in a state by using the percentage that reflects the ratio of the 16

state’s population in the specific geographic area in which the taxpayer’s intermediary resells the 17

services, relative to the total population in that area. 18

(3) When using the secondary reasonable approximation methods provided above, with regard to the 19

relevant specific geographic area, include only the areas where the service was substantially and 20

materially delivered or resold. Unless the taxpayer demonstrates the contrary, it will be presumed that the 21

area where the service was substantially and materially delivered or resold does not include areas outside 22

the United States. 23

(IV) Examples: 24

Example 18: Cable TV Corp, a corporation that is based outside of Oregon, has two revenue streams. 25

First, Cable TV Corp sells advertising time to business customers pursuant to which the business 26


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customers’ advertisements will run as commercials during Cable TV Corp’s televised programming. 1

Some of these business customers, though not all of them, have a physical presence in Oregon. Second, 2

Cable TV Corp sells monthly subscriptions to individual customers in Oregon and in other states. The 3

receipts from Cable TV Corp’s sale of advertising time to its business customers are assigned to Oregon 4

to the extent that the audience for Cable TV Corp’s televised programming during which the 5

advertisements run is in Oregon. See (4)(c)(B)(iii)(I) of this rule. If Cable TV Corp is unable to 6

determine the actual location of its audience for the programming and lacks sufficient information 7

regarding audience location to reasonably approximate the location, Cable TV Corp must approximate its 8

Oregon audience using the percentage that reflects the ratio of its Oregon subscribers in the geographic 9

area in which Cable TV Corp’s televised programming featuring the advertisements is delivered relative 10

to its total number of subscribers in that area. See section (4)(c)(B)(iii)(III)(1) of this rule. To the extent 11

that Cable TV Corp’s sales of monthly subscriptions represent the sale of a service, the receipts from 12

these sales are properly assigned to Oregon in any case in which the programming is received by a 13

customer in Oregon. See section (4)(c)(B)(ii)(I) of this rule. In any case in which Cable TV Corp cannot 14

determine the actual location where the programming is received and lacks sufficient information 15

regarding the location of receipt to reasonably approximate the location, the receipts from these sales of 16

Cable TV Corp’s monthly subscriptions are assigned to Oregon where its customer’s billing address is in 17

Oregon. See section (4)(c)(B)(ii)(I)(2) of this rule. Note that whether and to the extent that the monthly 18

subscription fee represents a fee for a service or for a license of intangible property does not affect the 19

analysis or result as to the state or states to which the receipts are properly assigned. See section (5)(e) of 20

this rule. This example is intended to illustrate how sales are sourced under ORS 314.665 but does not 21

control to the extent the provisions of ORS 314.680 to ORS 314.690 apply. 22

Example 19: Network Corp, a corporation that is based outside of Oregon, sells advertising time to 23

business customers pursuant to which the customers’ advertisements will run as commercials during 24

Network Corp’s televised programming as distributed by unrelated cable television and satellite 25

television transmission companies. The receipts from Network Corp’s sale of advertising time to its 26


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business customers are assigned to Oregon to the extent that the audience for Network Corp’s televised 1

programming during which the advertisements will run is in Oregon. See section (4)(c)(B)(iii)(I) of this 2

rule. If Network Corp cannot determine the actual location of the audience for its programming during 3

which the advertisements will run and lacks sufficient information regarding audience location to 4

reasonably approximate the location, Network Corp must approximate the receipts from sales of 5

advertising that constitute Oregon sales by multiplying the amount of advertising receipts by a 6

percentage that reflects the ratio of the Oregon population in the specific geographic area in which the 7

televised programming containing the advertising is run relative to the total population in that area. See 8

sections (4)(c)(B)(iii)(III)(2) and (3) of this rule. This example is intended to illustrate how sales are 9

sourced under ORS 314.665 but does not control to the extent the provisions of ORS 314.680 to ORS 10

314.690 apply. 11

Example 20: Web Corp, a corporation that is based outside Oregon, provides Internet content to viewers 12

in Oregon and other states. Web Corp sells advertising space to business customers pursuant to which the 13

customers’ advertisements will appear in connection with Web Corp’s Internet content. Web Corp 14

receives a fee for running the advertisements that is determined by reference to the number of times the 15

advertisement is viewed or clicked upon by the viewers of its website. The receipts from Web Corp’s 16

sale of advertising space to its business customers are assigned to Oregon to the extent that the viewers of 17

the Internet content are in Oregon, as measured by viewings or clicks. See section (4)(c)(B)(iii)(I) of this 18

rule. If Web Corp is unable to determine the actual location of its viewers and lacks sufficient 19

information regarding the location of its viewers to reasonably approximate the location, Web Corp must 20

approximate the amount of its Oregon receipts by multiplying the amount of receipts from sales of 21

advertising by a percentage that reflects the Oregon population in the specific geographic area in which 22

the content containing the advertising is delivered relative to the total population in that area. See section 23

(4)(c)(B)(iii)(III) of this rule. 24

Example 21: Retail Corp, a corporation that is based outside of Oregon, sells tangible property through 25

its retail stores located in Oregon and other states and through a mail order catalog. Answer Co, a 26


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corporation that operates call centers in multiple states, contracts with Retail Corp to answer telephone 1

calls from individuals placing orders for products found in Retail Corp’s catalogs. In this case, the phone 2

answering services of Answer Co are being delivered to Retail Corp’s customers and prospective 3

customers. Therefore, Answer Co is delivering a service electronically to Retail Corp’s customers or 4

prospective customers on behalf of Retail Corp and must assign the proceeds from this service to the 5

state or states from which the phone calls are placed by the customers or prospective customers. If 6

Answer Co cannot determine the actual locations from which phone calls are placed and lacks sufficient 7

information regarding the locations to reasonably approximate the locations, Answer Co must 8

approximate the amount of its Oregon receipts by multiplying the amount of its fee from Retail Corp by a 9

percentage that reflects the Oregon population in the specific geographic area from which the calls are 10

placed relative to the total population in that area. See section (4)(c)(B)(iii)(III)(1) of this rule. 11

Example 22: Web Corp, a corporation that is based outside of Oregon, sells tangible property to 12

customers via its Internet website. Design Co designed and maintains Web Corp’s website, including 13

making changes to the site based on customer feedback received through the site. Design Co’s services 14

are delivered to Web Corp, the proceeds from which are assigned pursuant to section (4)(c)(B)(ii) of this 15

rule. The fact that Web Corp’s customers and prospective customers incidentally benefit from Design 16

Co’s services and may even interact with Design Co in the course of providing feedback, does not 17

transform the service into one delivered “on behalf of” Web Corp to Web Corp’s customers and 18

prospective customers. 19

Example 23: Wholesale Corp, a corporation that is based outside Oregon, develops an Internet-based 20

information database outside Oregon and enters into a contract with Retail Corp whereby Retail Corp 21

will market and sell access to this database to end users. Depending on the facts, the provision of 22

database access may be either the sale of a service or the license of intangible property or may have 23

elements of both, but for purposes of analysis it does not matter. See section (5)(e) of this rule. Assume 24

that on the particular facts applicable in this example Wholesale Corp is selling database access in 25

transactions properly characterized as involving the performance of a service. When an end user 26


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purchases access to Wholesale Corp’s database from Retail Corp, Retail Corp in turn compensates 1

Wholesale Corp in connection with that transaction. In this case, Wholesale Corp’s services are being 2

delivered through Retail Corp to the end user. Wholesale Corp must assign its receipts from sales to 3

Retail Corp to the state or states in which the end users receive access to Wholesale Corp’s database. If 4

Wholesale Corp cannot determine the state or states where the end users actually receive access to 5

Wholesale Corp’s database and lacks sufficient information regarding the location from which the end 6

users access the database to reasonably approximate the location, Wholesale Corp must approximate the 7

extent to which its services are received by end users in Oregon by using a percentage that reflects the 8

ratio of the Oregon population in the specific geographic area in which Retail Corp regularly markets and 9

sells Wholesale Corp’s database relative to the total population in that area. See section (4)(c)(B)(iii)(II) 10

of this rule. Note that it does not matter for purposes of the analysis whether Wholesale Corp’s sale of 11

database access constitutes a service or a license of intangible property, or some combination of both. 12

See section (5)(e) of this rule. 13

(d) Professional Services. 14

(A) In General. Except as otherwise provided in section (4)(d) of this rule, professional services are 15

services that require specialized knowledge and in some cases require a professional certification, 16

license, or degree. These services include the performance of technical services that require the 17

application of specialized knowledge. Professional services include, without limitation, management 18

services, bank and financial services, financial custodial services, investment and brokerage services, 19

fiduciary services, tax preparation, payroll and accounting services, lending services, credit card services 20

(including credit card processing services), data processing services, legal services, consulting services, 21

video production services, graphic and other design services, engineering services, and architectural 22

services. Nothing in this rule applies to services provided by a financial institution that must apportion 23

and allocate its income under ORS 314.280. 24

(B) Overlap with Other Categories of Services. 25


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(i) Certain services that fall within the definition of “professional services” set forth in section (4)(d) of 1

this rule are nevertheless treated as “in-person services” within the meaning of section (4)(b) of this rule 2

and are assigned under the rules of that section. Specifically, professional services that are physically 3

provided in person by the taxpayer such as carpentry, certain medical and dental services or child care 4

services, where the customer or the customer’s real or tangible property upon which the services are 5

provided is in the same location as the service provider at the time the services are performed, are “in-6

person services” and are assigned as such, notwithstanding that they may also be considered to be 7

“professional services.” However, professional services where the service is of an intellectual or 8

intangible nature, such as legal, accounting, financial, and consulting services, are assigned as 9

professional services under the rules of section (4)(d) of this rule, notwithstanding the fact that these 10

services may involve some amount of in-person contact. 11

(ii) Professional services may in some cases include the transmission of one or more documents or other 12

communications by mail or by electronic means. In some cases, all or most communications between the 13

service provider and the service recipient may be by mail or by electronic means. However, in these 14

cases, despite this transmission, the assignment rules that apply are those set forth in (4)(d) of this rule, 15

and not those set forth in section (4)(c) of this rule, pertaining to services delivered to a customer or 16

through or on behalf of a customer. 17

(C) Assignment of Receipts. In the case of a professional service, it is generally possible to characterize 18

the location of delivery in multiple ways by emphasizing different elements of the service provided, no 19

one of which will consistently represent the market for the services. Therefore, the location of delivery in 20

the case of professional services is not susceptible to a general rule of determination and must be 21

reasonably approximated. The assignment of receipts from a sale of a professional service depends in 22

many cases upon whether the customer is an individual or business customer. In any instance in which 23

the taxpayer, acting in good faith, cannot reasonably determine whether the customer is an individual or 24

business customer, the taxpayer must treat the customer as a business customer. For purposes of 25

assigning the receipts from a sale of a professional service, a taxpayer’s customer is the person that 26


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contracts for the service, irrespective of whether another person pays for or also benefits from the 1

taxpayer’s services. 2

(i) General Rule. Receipts from sales of professional services other than those services described in 3

section (4)(d)(C)(ii) of this rule (architectural and engineering services) and section (4)(d)(C)(iv) of this 4

rule (transactions with related parties) are assigned in accordance with section (4)(d)(C)(i) of this rule. 5

(I) Professional Services Delivered to Individual Customers. Except as otherwise provided in section 6

(4)(d) of this rule (see in particular section (4)(d)(C)(iv) of this rule), in any instance in which the service 7

provided is a professional service and the taxpayer’s customer is an individual customer, the state or 8

states in which the service is delivered must be reasonably approximated as set forth in section 9

(4)(d)(C)(i)(I) of this rule. In particular, the taxpayer must assign the receipts from a sale to the 10

customer’s state of primary residence, or, if the taxpayer cannot reasonably identify the customer’s state 11

of primary residence, to the state of the customer’s billing address; provided, however, in any instance in 12

which the taxpayer derives more than five percent of its receipts from sales of all services from an 13

individual customer, the taxpayer must identify the customer’s state of primary residence and assign the 14

receipts from the service or services provided to that customer to that state. 15

(II) Professional Services Delivered to Business Customers. Except as otherwise provided in section 16

(4)(d) of this rule, in any instance in which the service provided is a professional service and the 17

taxpayer’s customer is a business customer, the state or states in which the service is delivered must be 18

reasonably approximated as set forth in this section. In particular, unless the taxpayer may use the safe 19

harbor set forth at section (4)(d)(C)(i)(III) of this rule, the taxpayer must assign the receipts from the sale 20

as follows: first, by assigning the receipts to the state where the contract of sale is principally managed by 21

the customer; second, if the place of customer management is not reasonably determinable, to the 22

customer’s place of order; and third, if the customer place of order is not reasonably determinable, to the 23

customer’s billing address; provided, however, in any instance in which the taxpayer derives more than 24

five percent of its receipts from sales of all services from a customer, the taxpayer is required to identify 25

the state in which the contract of sale is principally managed by the customer. 26


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(III) Safe Harbor; Large Volume of Transactions. Notwithstanding the rules set forth in sections 1

(4)(d)(C)(i)(I) and (II) of this rule, a taxpayer may assign its receipts from sales to a particular customer 2

based on the customer’s billing address in any taxable year in which the taxpayer (1) engages in 3

substantially similar service transactions with more than 250 customers, whether individual or business, 4

and (2) does not derive more than five percent of its receipts from sales of all services from that 5

customer. This safe harbor applies only for purposes of section (4)(d)(C)(i) of this rule and not otherwise. 6

(ii) Architectural and Engineering Services with respect to Real or Tangible Personal Property. 7

Architectural and engineering services with respect to real or tangible personal property are professional 8

services within the meaning of section (4)(d) of this rule. However, unlike in the case of the general rule 9

that applies to professional services, (1) the receipts from a sale of an architectural service are assigned to 10

a state or states if and to the extent that the services are with respect to real estate improvements located, 11

or expected to be located, in the state or states; and (2) the receipts from a sale of an engineering service 12

are assigned to a state or states if and to the extent that the services are with respect to tangible or real 13

property located in the state or states, including real estate improvements located in, or expected to be 14

located in, the state or states. These rules apply whether or not the customer is an individual or business 15

customer. In any instance in which architectural or engineering services are not described in section 16

(4)(d)(C)(ii) of this rule, the receipts from a sale of these services must be assigned under the general rule 17

for professional services. See section (4)(d)(C)(i) of this rule. 18

(iii) Related-Party Transactions. In any instance in which the professional service is sold to a related 19

party, rather than applying the rule for professional services delivered to business customers in section 20

(4)(d)(C)(i)(II) of this rule, the state or states to which the service is assigned is the place of receipt by the 21

related party as reasonably approximated using the following hierarchy: (1) if the service primarily 22

relates to specific operations or activities of a related party conducted in one or more locations, then to 23

the state or states in which those operations or activities are conducted in proportion to the related-party’s 24

payroll at the locations to which the service relates in the state or states; or (2) if the service does not 25

relate primarily to operations or activities of a related party conducted in particular locations, but instead 26


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relates to the operations of the related party generally, then to the state or states in which the related party 1

has employees, in proportion to the related-party’s payroll in those states. The taxpayer may use the safe 2

harbor provided by section (4)(d)(C)(i)(III) of this rule provided that the department may aggregate the 3

receipts from sales to related parties in applying the five percent rule if necessary or appropriate to avoid 4

distortion. 5

(iv) Examples: Unless otherwise stated, assume in each of these examples, where relevant, that the 6

customer is not a related party and that the safe harbor set forth at section (4)(d)(C)(i)(III) of this rule 7

does not apply. 8

Example 24: Broker Corp provides securities brokerage services to individual customers who are 9

resident in Oregon and in other states. Broker Corp is not a financial institution required to report under 10

ORS 314.280. Assume that Broker Corp knows the state of primary residence for many of its customers, 11

and where it does not know this state of primary residence, it knows the customer’s billing address. Also 12

assume that Broker Corp does not derive more than five percent of its receipts from sales of all services 13

from any one individual customer. If Broker Corp knows its customer’s state of primary residence, it 14

must assign the receipts to that state. If Broker Corp does not know its customer’s state of primary 15

residence, but rather knows the customer’s billing address, it must assign the receipts to that state. See 16

section (4)(d)(C)(i)(I) of this rule. 17

Example 25: Same facts as Example 24, except that Broker Corp has several individual customers from 18

whom it derives, in each instance, more than five percent of its receipts from sales of all services. 19

Receipts from sales to customers from whom Broker Corp derives five percent or less of its receipts from 20

sales of all services must be assigned as described in Example 24. For each customer from whom it 21

derives more than five percent of its receipts from sales of all services, Broker Corp is required to 22

determine the customer’s state of primary residence and must assign the receipts from the services 23

provided to that customer to that state. In any case in which a five percent customer’s state of primary 24

residence is Oregon, receipts from a sale made to that customer must be assigned to Oregon; in any case 25


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in which a five percent customer’s state of primary residence is not Oregon, receipts from a sale made to 1

that customer are not assigned to Oregon. 2

Example 26: Architecture Corp provides building design services as to buildings located, or expected to 3

be located, in Oregon to individual customers who are resident in Oregon and other states, and to 4

business customers that are based in Oregon and other states. The receipts from Architecture Corp’s sales 5

are assigned to Oregon because the locations of the buildings to which its design services relate are in 6

Oregon, or are expected to be in Oregon. For purposes of assigning these receipts, it is not relevant 7

where, in the case of an individual customer, the customer primarily resides or is billed for the services, 8

and it is not relevant where, in the case of a business customer, the customer principally manages the 9

contract, placed the order for the services, or is billed for the services. Further, these receipts are assigned 10

to Oregon even if Architecture Corp’s designs are either physically delivered to its customer in paper 11

form in a state other than Oregon or are electronically delivered to its customer in a state other than 12

Oregon. See sections (4)(d)(B)(ii) and (C)(ii) of this rule. 13

Example 27: Law Corp provides legal services to individual clients who are resident in Oregon and in 14

other states. In some cases, Law Corp may prepare one or more legal documents for its client as a result 15

of these services and/or the legal work may be related to litigation or a legal matter that is ongoing in a 16

state other than where the client is resident. Assume that Law Corp knows the state of primary residence 17

for many of its clients, and where it does not know this state of primary residence, it knows the client’s 18

billing address. Also assume that Law Corp does not derive more than five percent of its receipts from 19

sales of all services from any one individual client. If Law Corp knows its client’s state of primary 20

residence, it must assign the receipts to that state. If Law Corp does not know its client’s state of primary 21

residence, but rather knows the client’s billing address, it must assign the receipts to that state. For 22

purposes of the analysis it is irrelevant whether the legal documents relating to the service are mailed or 23

otherwise delivered to a location in another state, or the litigation or other legal matter that is the 24

underlying predicate for the services is in another state. See sections (4)(d)(B)(ii) and (C)(i) of this rule. 25


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Example 28: Law Corp provides legal services to several multistate business clients. In each case, Law 1

Corp knows the state in which the agreement for legal services that governs the client relationship is 2

principally managed by the client. In one case, the agreement is principally managed in Oregon; in the 3

other cases, the agreement is principally managed in a state other than Oregon. If the agreement for legal 4

services is principally managed by the client in Oregon, the receipts from sale of the services are 5

assigned to Oregon; in the other cases, the receipts are not assigned to Oregon. In the case of receipts that 6

are assigned to Oregon, the receipts are so assigned even if (1) the legal documents relating to the service 7

are mailed or otherwise delivered to a location in another state, or (2) the litigation or other legal matter 8

that is the underlying predicate for the services is in another state. See sections (4)(d)(B)(ii) and (C)(i) of 9

this rule. 10

Example 29: Consulting Corp, a company that provides consulting services to law firms and other 11

customers, is hired by Law Corp in connection with legal representation that Law Corp provides to 12

Client Co. Specifically, Consulting Corp is hired to provide expert testimony at a trial being conducted 13

by Law Corp on behalf of Client Co. Client Co pays for Consulting Corp’s services directly. Assuming 14

that Consulting Corp knows that its agreement with Law Co is principally managed by Law Corp in 15

Oregon, the receipts from the sale of Consulting Corp’s services are assigned to Oregon. It is not relevant 16

for purposes of the analysis that Client Co is the ultimate beneficiary of Consulting Corp’s services, or 17

that Client Co pays for Consulting Corp’s services directly. See section (4)(d)(C)(i)(II) of this rule. 18

Example 30: Advisor Corp, a corporation that provides investment advisory services and is not a 19

financial institution required to report under ORS 314.280, provides investment advisory services to 20

Investment Co. Investment Co is a multistate business client of Advisor Corp that uses Advisor Corp’s 21

services in connection with investment accounts that it manages for individual clients, who are the 22

ultimate beneficiaries of Advisor Corp’s services. Assume that Investment Co’s individual clients are 23

persons that are resident in numerous states, which may or may not include Oregon. Assuming that 24

Advisor Corp knows that its agreement with Investment Co is principally managed by Investment Co in 25

Oregon, receipts from the sale of Advisor Corp’s services are assigned to Oregon. It is not relevant for 26


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purposes of the analysis that the ultimate beneficiaries of Advisor Corp’s services may be Investment 1

Co’s clients, who are residents of numerous states. See section (4)(d)(C)(i)(II) of this rule. 2

Example 31: Advisor Corp, a corporation that provides investment advisory services and is not a 3

financial institution required to report under ORS 314.280, provides investment advisory services to 4

Investment Fund LP, a partnership that invests in securities and other assets. Assuming that Advisor 5

Corp knows that its agreement with Investment Fund LP is principally managed by Investment Fund LP 6

in Oregon, receipts from the sale of Advisor Corp’s services are assigned to Oregon. See section 7

(4)(d)(C)(i)(II) of this rule. Note that it is not relevant for purposes of the analysis that the partners in 8

Investment Fund LP are residents of numerous states. 9

Example 32: Design Corp is a corporation based outside Oregon that provides graphic design and 10

similar services in Oregon and in neighboring states. Design Corp enters into a contract at a location 11

outside Oregon with an individual customer to design fliers for the customer. Assume that Design Corp 12

does not know the individual customer’s state of primary residence and does not derive more than five 13

percent of its receipts from sales of services from the individual customer. All of the design work is 14

performed outside Oregon. Receipts from the sale are in Oregon if the customer’s billing address is in 15

Oregon. See section (4)(d)(C)(i)(I) of this rule. 16

(5) License or Lease of Intangible Property. 17

(a) General Rules. 18

(A) The receipts from the license of intangible property are in Oregon if and to the extent the intangible 19

is used in Oregon. In general, the term “use” is construed to refer to the location of the taxpayer’s market 20

for the use of the intangible property that is being licensed and is not to be construed to refer to the 21

location of the property or payroll of the taxpayer. The rules that apply to determine the location of the 22

use of intangible property in the context of several specific types of licensing transactions are set forth at 23

sections (5)(b)-(e) of this rule. For purposes of the rules set forth in section (5) of this rule, a lease of 24

intangible property is to be treated the same as a license of intangible property. 25


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(B) In general, a license of intangible property that conveys all substantial rights in that property is 1

treated as a sale of intangible property for purposes of this rule. See section (6) of this rule. Note, 2

however, that for purposes of sections (5) and (6) of this rule, a sale or exchange of intangible property is 3

treated as a license of that property where the receipts from the sale or exchange derive from payments 4

that are contingent on the productivity, use, or disposition of the property. 5

(C) Intangible property licensed as part of the sale or lease of tangible property is treated under this rule 6

as the sale or lease of tangible property. 7

(D) Nothing in section (5) of this rule is to be construed to allow or require inclusion of receipts in the 8

sales factor that are not included in the definition of “sales” pursuant to ORS 314.610(7) or related rules, 9

or that are excluded from the numerator and the denominator of the sales factor pursuant to Oregon Laws 10

2017, chapter 549, section 2(3)(c). For examples of the types of intangibles that are excluded pursuant to 11

ORS 314.610(7), see OAR 150-314-0425. For examples of the types of intangibles that are excluded 12

pursuant to Oregon Laws 2017, chapter 549, section 2(3)(c), see section (6)(a)(D) of this rule. So, to the 13

extent that the transfer of either a security, as defined in OAR 314-0425(9), or business “goodwill” or 14

similar intangible property, including, without limitation, “going concern value” or “workforce in place,” 15

may be characterized as a license or lease of intangible property, receipts from such transaction must be 16

excluded from the numerator and the denominator of the taxpayer’s sales factor. 17

(b) License of a Marketing Intangible. Where a license is granted for the right to use intangible property 18

in connection with the sale, lease, license, or other marketing of goods, services, or other items (i.e., a 19

marketing intangible) to a consumer, the royalties or other licensing fees paid by the licensee for that 20

marketing intangible are assigned to Oregon to the extent that those fees are attributable to the sale or 21

other provision of goods, services, or other items purchased or otherwise acquired by consumers or other 22

ultimate customers in Oregon. Examples of a license of a marketing intangible include, without 23

limitation, the license of a service mark, trademark, or trade name; certain copyrights; the license of a 24

film, television, or multimedia production or event for commercial distribution; and a franchise 25

agreement. In each of these instances the license of the marketing intangible is intended to promote 26


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consumer sales. In the case of the license of a marketing intangible, where a taxpayer has actual evidence 1

of the amount or proportion of its receipts that is attributable to Oregon, it must assign that amount or 2

proportion to Oregon. In the absence of actual evidence of the amount or proportion of the licensee's 3

receipts that are derived from Oregon consumers, the portion of the licensing fee to be assigned to 4

Oregon must be reasonably approximated by multiplying the total fee by a percentage that reflects the 5

ratio of the Oregon population in the specific geographic area in which the licensee makes material use of 6

the intangible property to regularly market its goods, services, or other items relative to the total 7

population in that area. If the license of a marketing intangible is for the right to use the intangible 8

property in connection with sales or other transfers at wholesale rather than directly to retail customers, 9

the portion of the licensing fee to be assigned to Oregon must be reasonably approximated by 10

multiplying the total fee by a percentage that reflects the ratio of the Oregon population in the specific 11

geographic area in which the licensee's goods, services, or other items are ultimately and materially 12

marketed using the intangible property relative to the total population of that area. Unless the taxpayer 13

demonstrates that the marketing intangible is materially used in the marketing of items outside the United 14

States, the fees from licensing that marketing intangible will be presumed to be derived from within the 15

United States. 16

(c) License of a Production Intangible. If a license is granted for the right to use intangible property other 17

than in connection with the sale, lease, license, or other marketing of goods, services, or other items, and 18

the license is to be used in a production capacity (a “production intangible”), the licensing fees paid by 19

the licensee for that right are assigned to Oregon to the extent that the use for which the fees are paid 20

takes place in Oregon. Examples of a license of a production intangible include, without limitation, the 21

license of a patent, a copyright, or trade secrets to be used in a manufacturing process, where the value of 22

the intangible lies predominately in its use in that process. In the case of a license of a production 23

intangible to a party other than a related party where the location of actual use is unknown, it is presumed 24

that the use of the intangible property takes place in the state of the licensee's commercial domicile 25

(where the licensee is a business) or the licensee’s state of primary residence (where the licensee is an 26


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individual). If the department can reasonably establish that the actual use of intangible property pursuant 1

to a license of a production intangible takes place in part in Oregon, it is presumed that the entire use is in 2

this state except to the extent that the taxpayer can demonstrate that the actual location of a portion of the 3

use takes place outside Oregon. In the case of a license of a production intangible to a related party, the 4

taxpayer must assign the receipts to where the intangible property is actually used. 5

(d) License of a Mixed Intangible. If a license of intangible property includes both a license of a 6

marketing intangible and a license of a production intangible (a “mixed intangible”) and the fees to be 7

paid in each instance are separately and reasonably stated in the licensing contract, the department will 8

accept that separate statement for purposes of this rule. If a license of intangible property includes both a 9

license of a marketing intangible and a license of a production intangible and the fees to be paid in each 10

instance are not separately and reasonably stated in the contract, it is presumed that the licensing fees are 11

paid entirely for the license of the marketing intangible except to the extent that the taxpayer or the 12

department can reasonably establish otherwise. 13

(e) License of Intangible Property where Substance of Transaction Resembles a Sale of Goods or 14

Services. 15

(A) In general. In some cases, the license of intangible property will resemble the sale of an 16

electronically-delivered good or service rather than the license of a marketing intangible or a production 17

intangible. In these cases, the receipts from the licensing transaction are assigned by applying the rules 18

set forth in sections (4)(c)(B)(ii) and (iii) of this rule, as if the transaction were a service delivered to an 19

individual or business customer or delivered electronically through an individual or business customer, as 20

applicable. Examples of transactions to be assigned under section (5)(e) of this rule include, without 21

limitation, the license of database access, the license of access to information, the license of digital goods 22

(see section (7)(b) of this rule), and the license of certain software (e.g., where the transaction is not the 23

license of pre-written software that is treated as the sale of tangible personal property, see section (7)(a) 24

of this rule). 25


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(B) Sublicenses. Pursuant to section (5)(e)(A) of this rule, the rules of section (4)(c)(B)(iii) of this rule 1

may apply where a taxpayer licenses intangible property to a customer that in turn sublicenses the 2

intangible property to end users as if the transaction were a service delivered electronically through a 3

customer to end users. In particular, the rules set forth at section (4)(c)(B)(iii) of this rule that apply to 4

services delivered electronically to a customer for purposes of resale and subsequent electronic delivery 5

in substantially identical form to end users or other recipients may also apply with respect to licenses of 6

intangible property for purposes of sublicense to end users. For this purpose, the intangible property 7

sublicensed to an end user shall not fail to be substantially identical to the property that was licensed to 8

the sublicensor merely because the sublicense transfers a reduced bundle of rights with respect to that 9

property (e.g., because the sublicensee’s rights are limited to its own use of the property and do not 10

include the ability to grant a further sublicense), or because that property is bundled with additional 11

services or items of property. 12

(C) Examples: In these examples, unless otherwise stated assume that the customer is not a related party. 13

Example 33: Crayon Corp and Dealer Co enter into a license contract under which Dealer Co as licensee 14

is permitted to use trademarks that are owned by Crayon Corp in connection with Dealer Co's sale of 15

certain products to retail customers. Under the contract, Dealer Co is required to pay Crayon Corp a 16

licensing fee that is a fixed percentage of the total volume of monthly sales made by Dealer Co of 17

products using the Crayon Corp trademarks. Under the contract, Dealer Co is permitted to sell the 18

products at multiple store locations, including store locations that are both within and without Oregon. 19

Further, the licensing fees that are paid by Dealer Co are broken out on a per store basis. The licensing 20

fees paid to Crayon Corp by Dealer Co represent fees from the license of a marketing intangible. The 21

portion of the fees to be assigned to Oregon are determined by multiplying the fees by a percentage that 22

reflects the ratio of Dealer Co’s receipts that are derived from its Oregon stores relative to Dealer Co’s 23

total receipts. See section (5)(b) of this rule. 24

Example 34: Program Corp, a corporation that is based outside Oregon, licenses programming that it 25

owns to licensees, such as cable networks, that in turn will offer the programming to their customers on 26


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television or other media outlets in Oregon and in all other U.S. states. Each of these licensing contracts 1

constitutes the license of a marketing intangible. For each licensee, assuming that Program Corp lacks 2

evidence of the actual number of viewers of the programming in Oregon, the component of the licensing 3

fee paid to Program Corp by the licensee that constitutes Program Corp’s Oregon receipts is determined 4

by multiplying the amount of the licensing fee by a percentage that reflects the ratio of the Oregon 5

audience of the licensee for the programming relative to the licensee’s total U.S. audience for the 6

programming. See section (5)(e) of this rule. Note that the analysis and result as to the state or states to 7

which receipts are properly assigned would be the same to the extent that the substance of Program 8

Corp’s licensing transactions may be determined to resemble a sale of goods or services, instead of the 9

license of a marketing intangible. See section (5)(e) of this rule. This example is intended to illustrate 10

how sales are sourced under ORS 314.665 but does not control to the extent the provisions of ORS 11

314.680 to ORS 314.690 apply. 12

Example 35: Moniker Corp enters into a license contract with Wholesale Co. Pursuant to the contract, 13

Wholesale Co is granted the right to use trademarks owned by Moniker Corp to brand sports equipment 14

that is to be manufactured by Wholesale Co or an unrelated entity, and to sell the manufactured 15

equipment to unrelated companies that will ultimately market the equipment to consumers in a specific 16

geographic region, including a foreign country. The license agreement confers a license of a marketing 17

intangible, even though the trademarks in question will be affixed to property to be manufactured. In 18

addition, the license of the marketing intangible is for the right to use the intangible property in 19

connection with sales to be made at wholesale rather than directly to retail customers. The component of 20

the licensing fee that constitutes the Oregon receipts of Moniker Corp is determined by multiplying the 21

amount of the fee by a percentage that reflects the ratio of the Oregon population in the specific 22

geographic region relative to the total population in that region. See section (5)(b) of this rule. If Moniker 23

Corp is able to reasonably establish that the marketing intangible was materially used throughout a 24

foreign country, then the population of that country will be included in the population ratio calculation. 25

However, if Moniker Corp is unable to reasonably establish that the marketing intangible was materially 26


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used in the foreign country in areas outside a particular major city, then none of the foreign country’s 1

population beyond the population of the major city is include in the population ratio calculation. 2

Example 36: Formula, Inc and Appliance Co enter into a license contract under which Appliance Co is 3

permitted to use a patent owned by Formula, Inc to manufacture appliances. The license contract 4

specifies that Appliance Co is to pay Formula, Inc a royalty that is a fixed percentage of the gross 5

receipts from the products that are later sold. The contract does not specify any other fees. The appliances 6

are both manufactured and sold in Oregon and several other states. Assume the licensing fees are paid for 7

the license of a production intangible, even though the royalty is to be paid based upon the sales of a 8

manufactured product (i.e., the license is not one that includes a marketing intangible). Because the 9

department can reasonably establish that the actual use of the intangible property takes place in part in 10

Oregon, the royalty is assigned based to the location of that use rather than to location of the licensee’s 11

commercial domicile, in accordance with section (5)(a) of this rule. It is presumed that the entire use is in 12

Oregon except to the extent that the taxpayer can demonstrate that the actual location of some or all of 13

the use takes place outside Oregon. Assuming that Formula, Inc can demonstrate the percentage of 14

manufacturing that takes place in Oregon using the patent relative to the manufacturing in other states, 15

that percentage of the total licensing fee paid to Formula, Inc under the contract will constitute Formula, 16

Inc's Oregon receipts. See section (5)(e) of this rule. 17

Example 37: Axel Corp enters into a license agreement with Biker Co in which Biker Co is granted the 18

right to produce motor scooters using patented technology owned by Axel Corp, and also to sell the 19

scooters by marketing the fact that the scooters were manufactured using the special technology. The 20

contract is a license of both a marketing and production intangible, i.e., a mixed intangible. The scooters 21

are manufactured outside Oregon. Assume that Axel Corp lacks actual information regarding the 22

proportion of Biker Co.’s receipts that are derived from Oregon customers. Also assume that Biker Co is 23

granted the right to sell the scooters in a U.S. geographic region in which the Oregon population 24

constitutes 25 percent of the total population during the period in question. The licensing contract 25

requires an upfront licensing fee to be paid by Biker Co to Axel Corp and does not specify what 26


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percentage of the fee derives from Biker Co's right to use Axel Corp's patented technology. Because the 1

fees for the license of the marketing and production intangible are not separately and reasonably stated in 2

the contract, it is presumed that the licensing fees are paid entirely for the license of a marketing 3

intangible, unless either the taxpayer or the department reasonably establishes otherwise. Assuming that 4

neither party establishes otherwise, 25 percent of the licensing fee constitutes Oregon receipts. See 5

sections (5)(b) and (d) of this rule. 6

Example 38: Same facts as Example 37, except that the license contract specifies separate fees to be paid 7

for the right to produce the motor scooters and for the right to sell the scooters by marketing the fact that 8

the scooters were manufactured using the special technology. The licensing contract constitutes both the 9

license of a marketing intangible and the license of a production intangible. Assuming that the separately 10

stated fees are reasonable, the department will: (1) assign no part of the licensing fee paid for the 11

production intangible to Oregon, and (2) assign 25 percent of the licensing fee paid for the marketing 12

intangible to Oregon. See section (5)(d) of this rule. 13

Example 39: Better Burger Corp, which is based outside Oregon, enters into franchise contracts with 14

franchisees that agree to operate Better Burger restaurants as franchisees in various states. Several of the 15

Better Burger Corp franchises are in Oregon. In each case, the franchise contract between the individual 16

and Better Burger provides that the franchisee is to pay Better Burger Corp an upfront fee for the receipt 17

of the franchise and monthly franchise fees, which cover, among other things, the right to use the Better 18

Burger name and service marks, food processes, and cooking know-how, as well as fees for management 19

services. The upfront fees for the receipt of the Oregon franchises constitute fees paid for the licensing of 20

a marketing intangible. These fees constitute Oregon receipts because the franchises are for the right to 21

make Oregon sales. The monthly franchise fees paid by Oregon franchisees constitute fees paid for (1) 22

the license of marketing intangibles (the Better Burger name and service marks), (2) the license of 23

production intangibles (food processes and know-how), and (3) personal services (management fees). 24

The fees paid for the license of the marketing intangibles and the production intangibles constitute 25

Oregon receipts because in each case the use of the intangibles is to take place in Oregon. See sections 26


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(5)(b)-(c) of this rule. The fees paid for the personal services are to be assigned pursuant to section (4) of 1

this rule. 2

Example 40: Online Corp, a corporation based outside Oregon, licenses an information database through 3

the means of the Internet to individual customers that are resident in Oregon and in other states. These 4

customers access Online Corp’s information database primarily in their states of residence and 5

sometimes while traveling in other states. The license is a license of intangible property that resembles a 6

sale of goods or services and are assigned in accordance with section (5)(e) of this rule. If Online Corp 7

can determine or reasonably approximate the state or states where its database is accessed, it must do so. 8

Assuming that Online Corp cannot determine or reasonably approximate the location where its database 9

is accessed, Online Corp must assign the receipts made to the individual customers using the customers’ 10

billing addresses to the extent known. Assume for purposes of this example that Online Corp knows the 11

billing address for each of its customers. In this case, Online Corp’s receipts from sales made to its 12

individual customers are in Oregon in any case in which the customer’s billing address is in Oregon. See 13

section (4)(c)(B)(ii)(I) of this rule. 14

Example 41: Net Corp, a corporation based outside Oregon, licenses an information database through 15

the means of the Internet to a business customer, Business Corp, a company with offices in Oregon and 16

two neighboring states. The license is a license of intangible property that resembles a sale of goods or 17

services and are assigned in accordance with section (5)(e) of this rule. Assume that Net Corp cannot 18

determine where its database is accessed but reasonably approximates that 75 percent of Business Corp’s 19

database access took place in Oregon, and 25 percent of Business Corp’s database access took place in 20

other states. In that case, 75 percent of the receipts from database access is in Oregon. Assume 21

alternatively that Net Corp lacks sufficient information regarding the location where its database is 22

accessed to reasonably approximate the location. Under these circumstances, if Net Corp derives five 23

percent or less of its receipts from database access from Business Corp, Net Corp must assign the 24

receipts under section (4)(c)(B)(ii)(II) of this rule to the state where Business Corp principally managed 25

the contract, or if that state is not reasonably determinable, to the state where Business Corp placed the 26


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order for the services, or if that state is not reasonably determinable, to the state of Business Corp’s 1

billing address. If Net Corp derives more than five percent of its receipts from database access from 2

Business Corp, Net Corp is required to identify the state in which its contract of sale is principally 3

managed by Business Corp and must assign the receipts to that state. See section (4)(c)(B)(ii)(II) of this 4

rule. 5

Example 42: Net Corp, a corporation based outside Oregon, licenses an information database through 6

the means of the Internet to more than 250 individual and business customers in Oregon and in other 7

states. The license is a license of intangible property that resembles a sale of goods or services, and 8

receipts from that license are assigned in accordance with section (5)(e) of this rule. Assume that Net 9

Corp cannot determine or reasonably approximate the location where its information database is 10

accessed. Also assume that Net Corp does not derive more than five percent of its receipts from sales of 11

database access from any single customer. Net Corp may apply the safe harbor stated in section 12

(4)(c)(B)(ii)(II)(4) of this rule and may assign its receipts to a state or states using each customer’s billing 13

address. 14

Example 43: Web Corp, a corporation based outside of Oregon, licenses an Internet-based information 15

database to business customers who then sublicense the database to individual end users that are resident 16

in Oregon and in other states. These end users access Web Corp’s information database primarily in their 17

states of residence and sometimes while traveling in other states. Web Corp’s license of the database to 18

its customers includes the right to sublicense the database to end users, while the sublicenses provide that 19

the rights to access and use the database are limited to the end users’ own use and prohibit the individual 20

end users from further sublicensing the database. Web Corp receives a fee from each customer based 21

upon the number of sublicenses issued to end users. The license is a license of intangible property that 22

resembles a sale of goods or services and are assigned by applying the rules set forth in section 23

(4)(c)(B)(iii) of this rule. See section (5)(e) of this rule. If Web Corp can determine or reasonably 24

approximate the state or states where its database is accessed by end users, it must do so. Assuming that 25

Web Corp lacks sufficient information from which it can determine or reasonably approximate the 26


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location where its database is accessed by end users, Web Corp must approximate the extent to which its 1

database is accessed in Oregon using a percentage that represents the ratio of the Oregon population in 2

the specific geographic area in which Web Corp’s customer sublicenses the database access relative to 3

the total population in that area. See section (4)(c)(B)(iii)(III) of this rule. 4

(6) Sale of Intangible Property. 5

(a) Assignment of Receipts. The assignment of receipts to a state or states in the instance of a sale or 6

exchange of intangible property depends upon the nature of the intangible property sold. For purposes of 7

section (6) of this rule, a sale or exchange of intangible property includes a license of that property where 8

the transaction is treated for tax purposes as a sale of all substantial rights in the property and the receipts 9

from transaction are not contingent on the productivity, use, or disposition of the property. For the rules 10

that apply where the consideration for the transfer of rights is contingent on the productivity, use, or 11

disposition of the property, see section (5)(a) of this rule. 12

(A) Contract Right or Government License that Authorizes Business Activity in Specific Geographic 13

Area. In the case of a sale or exchange of intangible property where the property sold or exchanged is a 14

contract right, government license, or similar intangible property that authorizes the holder to conduct a 15

business activity in a specific geographic area, the receipts from the sale are assigned to a state if and to 16

the extent that the intangible property is used or is authorized to be used within the state. If the intangible 17

property is used or may be used only in this state, the taxpayer must assign the receipts from the sale to 18

Oregon. If the intangible property is used or is authorized to be used in Oregon and one or more other 19

states, the taxpayer must assign the receipts from the sale to Oregon to the extent that the intangible 20

property is used in or authorized for use in Oregon, through the means of a reasonable approximation. 21

(B) Sale that Resembles a License (Receipts are Contingent on Productivity, Use, or Disposition of the 22

Intangible Property). In the case of a sale or exchange of intangible property where the receipts from the 23

sale or exchange are contingent on the productivity, use, or disposition of the property, the receipts from 24

the sale are assigned by applying the rules set forth in section (5) of this rule (pertaining to the license or 25

lease of intangible property). 26


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(C) Sale that Resembles a Sale of Goods and Services. In the case of a sale or exchange of intangible 1

property where the substance of the transaction resembles a sale of goods or services and where the 2

receipts from the sale or exchange do not derive from payments contingent on the productivity, use, or 3

disposition of the property, the receipts from the sale are assigned by applying the rules set forth in 4

section (5)(e) of this rule (relating to licenses of intangible property that resemble sales of goods and 5

services). Examples of these transactions include those that are analogous to the license transactions cited 6

as examples in section (5)(e) of this rule. 7

(D) Excluded Receipts. Receipts from the sale of intangible property are not included in the sales factor 8

in any case in which the transaction does not give rise to sales within the meaning of ORS 314.610(7). In 9

addition, in any case in which the sale of intangible property does result in sales within the meaning of 10

ORS 314.610(7), those sales are excluded from the numerator and the denominator of the taxpayer’s 11

sales factor if the receipts are not referenced in Oregon Laws 2017, chapter 549, section 2(3)(a) or (b). 12

The sale of intangible property that is excluded from the numerator and denominator of the taxpayer’s 13

sales factor under this provision includes, without limitation, the sale of a partnership interest, the sale of 14

business “goodwill,” the sale of an agreement not to compete, or similar intangible property. 15

(E) Examples. 16

Example 44: Sports League Corp, a corporation that is based outside Oregon, sells the rights to 17

broadcast the sporting events played by the teams in its league in all 50 U.S. states to Network Corp. 18

Although the games played by Sports League Corp will be broadcast in all 50 states, the games are of 19

greater interest in the northwest region of the country, including Oregon. Because the intangible property 20

sold is a contract right that authorizes the holder to conduct a business activity in a specified geographic 21

area, Sports League Corp must attempt to reasonably approximate the extent to which the intangible 22

property is used in or may be used in Oregon. For purposes of making this reasonable approximation, 23

Sports League Corp may rely upon audience measurement information that identifies the percentage of 24

the audience for its sporting events in Oregon and the other states. See section (6)(a)(A) of this rule. This 25


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example assumes that Sports League Corp is not subject to the broadcaster provisions at ORS 314.680 to 1

ORS 314.690. 2

Example 45: Inventor Corp, a corporation that is based outside Oregon, sells patented technology that it 3

has developed to Buyer Corp, a business customer that is based in Oregon. Assume that the sale is not 4

one in which the receipts derive from payments that are contingent on the productivity, use, or 5

disposition of the property. See section (6)(a)(A) of this rule. Inventor Corp understands that Buyer Corp 6

is likely to use the patented technology in Oregon, but the patented technology can be used anywhere 7

(i.e., the rights sold are not rights that authorize the holder to conduct a business activity in a specific 8

geographic area). The receipts from the sale of the patented technology are excluded from the numerator 9

and denominator of Inventor Corp’s sales factor. See Oregon Laws 2017, chapter 549, section 2(3)(c), 10

and section (6)(a)(D) of this rule. 11

(7) Special Rules. 12

(a) Software Transactions. A license or sale of pre-written software for purposes other than commercial 13

reproduction (or other exploitation of the intellectual property rights) transferred on a tangible medium is 14

treated as the sale of tangible personal property, rather than as either the license or sale of intangible 15

property or the performance of a service. In these cases, the receipts are in Oregon as determined under 16

the rules for the sale of tangible personal property set forth under ORS 314.665(2) and related rules. In 17

all other cases, the receipts from a license or sale of software are to be assigned to Oregon as determined 18

otherwise under this rule (e.g., depending on the facts, as the development and sale of custom software, 19

see section (4)(c) of this rule, as a license of a marketing intangible, see section (5)(b) of this rule, as a 20

license of a production intangible, see section (5)(c) of this rule, as a license of intangible property where 21

the substance of the transaction resembles a sale of goods or services, see section (5)(e) of this rule, or as 22

a sale of intangible property, see section (6) of this rule). 23

(b) Sales or Licenses of Digital Goods or Services. 24

(A) In general. In the case of a sale or license of digital goods or services, including, among other things, 25

the sale of various video, audio, and software products, or similar transactions, the receipts from the sale 26


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or license are assigned by applying the same rules as are set forth in sections (4)(c)(B)(ii) or (iii) of this 1

rule, as if the transaction were a service delivered to an individual or business customer or delivered 2

through or on behalf of an individual or business customer. For purposes of the analysis, it is not relevant 3

what the terms of the contractual relationship are or whether the sale or license might be characterized, 4

depending upon the particular facts, as, for example, the sale or license of intangible property or the 5

performance of a service. See sections (5)(e) and (6)(a)(C) of this rule. 6

[Publications: Contact the Oregon Department of Revenue to learn how to obtain a copy of the 7

publication referred to or incorporated by reference in this rule pursuant to ORS 183.360(2) and 8

183.355(1)(b).] 9

Stat. Auth.: ORS 305.100 10

Stats. Implemented: ORS 314.665, & 314.667 11

Documents

ADMINISTRATIVE RULE REVIEW 150-314-0435 - oregon.gov Fall... · ADMINISTRATIVE RULE REVIEW Rule No. 150-314-0435 Amended Rule Permanent Rule Page Page 3 of 46 Last Revised Date October