Unlike partnerships or corporations that are formed solely to do business, a trust is established to preserve assets for one or more beneficiaries. As a result, a trust may contain assets and conduct activities that fall within the "doing business" definitions of the City of Portland Business License and Multnomah County Business Income Tax laws, in addition to assets that are not related to business activity. Accordingly, tax will only be assessed on those activities that are "doing business" under the codes.
(A) If other trust assets are temporarily held for investment but are used primarily in the business, the other assets shall be deemed part of the business activity. Business income does not include portfolio income unless:
1. The portfolio income is held primarily for use in or as reserves for the operation of a business;
2. The trust is in the trade or business of active investment trading; or
3. The portfolio income is directly derived from the sale of an asset used for "doing business" within the jurisdiction notwithstanding such business activity has ceased.
(B) Income from portfolio assets purchased with the after fee/tax proceeds from the sale of a discontinued business activity or installment sale payment from a sold business does not constitute business income.
(C) "Portfolio income" is defined as interest, dividends, royalties, and gain on disposition of “portfolio” assets. Portfolio income as herein used and defined is restricted to this administrative rule.
(D) When determining whether a trust is exempt by gross income, gross income is determined by the "doing business" activities. Gross income from portfolio income will only be included if the portfolio income falls within the business activities described in (A) 1-3 above.
(E) Only those expenses directly related to the business activity are allowable deductions to arrive at net income.
(F) A trust other than a grantor trust with business activity within the City/County shall be subject to the tax on business income apportioned for the trust’s business activity within the jurisdictions. A trust is not subject to the tax solely because the fiduciary is located within the City and/or County.
(G) A grantor trust, as that term is defined under Sections 671 through 678 of the Internal Revenue Code of 1986 as amended and in existence as of October 15, 1994, shall not be responsible for filing a return or payment of the tax on its business income as long as the grantor or deemed grantor of the trust is responsible for inclusion of the income and payment of the tax in the income of his/her personal return. In such a case, the grantor or deemed grantor shall have the duty to file as an individual and shall be taxed under the rules applicable to individuals.
Example 1: The Murphy trust contains the following assets and income items during 1994:
- Two residential rental dwelling units,
- One commercial rental building sold on contract during the year,
- Stock portfolio that generates interest, dividends, and an occasional gain or loss on the sale of an investment.
The annual proceeds from the sale of the commercial rental are invested in portfolio investments. When calculating the taxes, the following incomes are included in both the gross income and net income calculations:
- Rents from the residential and commercial rentals
- Gain recognized from the installment sale of the commercial rental
- Interest income earned on contract for the sale of the commercial rental
Submitted for inclusion in PPD September 17, 2002.
Originally adopted as Bureau of Licenses Administrative Rule 200.95-2 September 26, 1995 and amended as 200.95-2A December 26, 2000.
Revised administrative rule adopted by Director of Revenue Bureau August 10, 2009.