State and Local Tax Alert - August 2017

August 2017

Oregon Enacts Market-based Sourcing Statute



On July 3, 2017, Oregon Governor Kate Brown (D) signed S.B. 28 to enact market-based sourcing for sales of services and sales or licenses of intangibles for corporation income tax purposes.  As a result, market-based sourcing for Oregon’s single sales factor apportionment formula will be required for most Oregon corporate taxpayers for taxable years beginning on or after January 1, 2018.


Oregon becomes the 26th state or jurisdiction, including the District of Columbia and New York City, to adopt market-based sourcing of sales of services and sales or licenses of intangibles for purposes of the sales factor of the corporate income apportionment formula.  (Montana also adopted market-based sourcing during its 2017 legislative session (H.B. 511, signed May 3, 2017).)  Oregon S.B. 28 is patterned after the Multistate Tax Commission’s (“MTC”) model market-based sourcing statute and generally sources receipts from services and intangibles to Oregon if the taxpayer’s market for the receipts is in Oregon.  In turn, the general rule for determining such a market is whether the service is “delivered to a location in” Oregon or the intangible is used in Oregon. 
While Oregon’s market-based sales factor sourcing statute is based on the MTC’s model statute, which has also been adopted by similar statutes enacted in other states, not all state market-based sourcing statutes are uniform.  Some states, particularly California, follow a “where the benefit is received” standard for determining the market for sourcing services.  Further, S.B. 28 only sets forth the general rule for sourcing.  Most state departments of revenue have issued regulations to provide the detail for sourcing particular services and intangibles transactions, including professional services, electronic services, and sales or licenses of software and digital products.  It is likely that the Oregon Department of Revenue will look to these other state regulations, including the MTC’s model market-based sourcing regulations, when contemplating the issuance of its regulations.  Specific state regulations, and the examples contained therein, may result in conflicting service or intangible receipts sourcing for multistate taxpayers. 
Market-Based Sourcing Standard
S.B. 28 amends O.R.S. § 314.665(4), effective for taxable years beginning on or after January 1, 2018, and sources receipts from sales of services and sales or licenses of intangibles to Oregon for purposes of the Oregon sales factor formula if:
  • The service is delivered to a location in the state;
  • The licensed intangible is used in the state (and an intangible used to market a good or service is used in Oregon if the good or service is purchased by a consumer in Oregon);
  • The sale of an intangible that is a contract right, government license, or similar intangible that authorizes the holder to conduct business activity in a specific geographic area are assigned to Oregon if the state is included in the authorized geographic area; 
  • Receipts from the sale of an intangible that are contingent on the productivity, use, or disposition of the intangible are assigned pursuant to the intangible licensing provision (above); and  
  • All other receipts from sales of intangibles are excluded from the Oregon sales factor.
Unlike other states, and the MTC model, Oregon’s statute does not contain a “throw-out rule.”  If the state or states of assignment cannot be determined using the sourcing rules set forth above, such state or states “shall be reasonably approximated.”
Oregon’s market-based sourcing statute does not apply to financial organizations and public utilities, including telecommunications companies.  Taxpayers in these industries are subject to special Oregon apportionment formulas.  

BDO Insights

  • Oregon (and Montana) became the latest states in 2017 to adopt market-based sourcing for services and intangibles transactions for purposes of the sales factor.  Despite having issued final market-based sourcing regulations based on 2016 legislation, market-based sourcing remains pending in North Carolina.
  • Given the lack of uniformity among the various state market-based sourcing rules, not only as to the methods applied to particular types of services and intangibles, but also as to due diligence requirements, record retention, and the ability of a taxpayer to change its method of sourcing on future returns, multistate taxpayers must be mindful that market-based sourcing is not always a “one-size-fits-all” method of apportionment.
  • Taxpayers affected by Oregon’s adoption of market-based sourcing beginning January 1, 2018, should consult with their financial statement auditor and tax advisor to evaluate and determine the potential financial statement implications under ASC 740, including the impact on current and deferred taxes, uncertain tax benefits, and disclosures.

For more information, please contact one of the following practice leaders:
West:   Southeast:
Rocky Cummings
Tax Partner
  Scott Smith
Tax Managing Director
Paul McGovern
Tax Managing Director
  Tony Manners
Tax Managing Director

Northeast:   Southwest:

Janet Bernier
Tax Principal


Tom Smith
Tax Partner

Matthew Dyment
Tax Principal


Gene Heatly
Tax Managing Director

Central:   Atlantic:

Nick Boegel
Tax Managing Director


Jonathan Liss
Tax Managing Director

Joe Carr
Tax Principal


Jeremy Migliara
Tax Managing Director

Mariano Sori
Tax Partner


Angela Acosta
Tax Managing Director

Richard Spengler
Tax Managing Director