Current through Vol. 42, No. 1, September 16, 2024
The following is a partial list and not inclusive of all
the allowable and unallowable adjustments that may be made to federal taxable
income to arrive at Oklahoma taxable income for corporations:
[See: 68 O.S. § 2358]
(1)
Taxes based on income.
[See: 68 O.S. § 2358(A)(5)]
(A) Taxes based on or measured by income
shall not be allowed as a deduction.
(B) Type of taxes that are based on or
measured by income are:
(i) State and Local
Income Taxes,
(ii) Foreign Income
Taxes, and
(iii) some Franchise
Taxes that are based on or measured by income.
(2)
Federal income taxes.
Federalincome taxes are not deductible.
(3)
Federal loss
carryback/carryforward. A federal net operating loss carryover or
carryback will not be utilized in determining Oklahoma taxable income. For the
allowance of Oklahoma net operating loss deduction refer to (4) of this
Section.
(4)
Oklahoma net
operating loss carryback/carryover. An election may be made to forego
the net operating loss (NOL) carryback period. A written statement of the
election must be part of the timely filed Oklahoma loss year return.
(A)
Oklahoma net operating loss.
[
See: 68 O.S. § 2358(A)(3)]
(i) An Oklahoma NOL may be carried back or
over in accordance with 26
U.S.C.A. §
172 until December 31, 1992.
However, no Oklahoma NOL can be carried back to years beginning before January
1, 1981 unless there is a federal NOL carryback from the same loss year to the
same carryback year.
(I) For net operating
losses incurred for tax years beginning on or after January 1, 2001, and ending
on or before December 31, 2007, the loss carryback shall be for a period as
allowed in the Internal Revenue Code; and
(II) For tax years beginning after December
31, 2007, and ending before January 1, 2009, the loss carryback period shall be
for a period of two (2) years; and
(III) For tax years beginning after December
31, 2008, the loss carryback period shall be for a period as allowed by Section
172 of the Internal Revenue Code.
(ii) Any Oklahoma NOL carryback
not allowed, due to no federal loss carryback to the same year, may still be
carried back to the years beginning after December 31, 1980, or carried over
until utilized, without regard to a federal loss.
(B)
Oklahoma net operating loss
computation for carryback to years beginning before January 1, 1981. The
following shall apply to Oklahoma net operating loss before January 1, 1981:
(i) Consolidated federal filing: In the loss
year, the percentage of the Oklahoma loss to all loss companies in the
consolidation. (If no consolidated loss, there is no NOL allowable.)
(ii) Separate company federal filing: In the
loss year, the percentage of the Oklahoma loss to federal loss. (If no federal
loss, there is no NOL allowable.) This percentage is then applied to the
federal NOL (each loss year separately) when it is taken (absorbed) on the
filed federal return. The Oklahoma NOL can be used in the same Oklahoma year it
is used on the filed federal return year.
(5)
Oklahoma accrued income tax.
(A) Oklahoma will allow a deduction for
Oklahoma accrued income tax. The Oklahoma accrued income tax is computed as
follows:
(i) Divide the Oklahoma net income by
the number 26 for tax years beginning before January 1, 1985.
(ii) Divide the Oklahoma net income by the
number 21 for tax years beginning after December 31, 1984 and ending before
January 1, 1990.
(iii) Divide the
Oklahoma net income by the number 17.667 for tax years beginning after December
31, 1989 and ending before January 1, 2022.
(iv) Divide the Oklahoma net income by the
number 26 for tax years beginning after December 31, 2021.
(B) There is no deduction for Oklahoma
accrued income tax when Oklahoma net income is a loss. [See: 68
O.S. § 2358(A)(5)] When credits are allowed, the accrual of Oklahoma tax
will not be allowed on the amount of Oklahoma taxable income that is covered by
the credit, except for credits that have been acquired by transfer. The amount
paid for credits that have been acquired by transfer can be used as a payment
of tax for purposes of computing the deduction for Oklahoma accrued tax. Tax
accrual is allowed on the amount of income for which tax is actually paid. The
example in Appendix A of this Chapter shows how the accrual should be
calculated. A schedule such as the example should be attached and submitted
with Form 512.
(6)
Expenses allocated to nontaxable income. 68 O.S. § 2358(A)(4)
provides that deductions should be allocated to assets that may produce
nontaxable income.
(A) An adjustment is
required when a corporation has an investment in assets which produce income
which is non-unitary, or separately allocable. Such items may include, but are
not limited to, investments in subsidiaries, other corporation's bonds, U.S.
Obligations or other types of securities that produce income which is excluded
from Oklahoma income.
(B) A ratio
is used to allocate expenses between unitary business operations and all other
activities that do not produce unitary income. The manner in which this
adjustment is made is as follows: A fraction, or percentage, is computed by
dividing the average of investment in assets, the income from which is
allocable, by the average of total assets. This percentage is then applied to
certain expenses claimed on the return to arrive at the amount of expenses
related to non-unitary business, and the resulting amount is added back to
federal taxable income.
(C)
Generally, interest expense is the only expense against which the adjustment
described in subparagraph (B) of this paragraph is applied. However, facts and
circumstances may indicate that other expenses should be considered in this
allocation. This adjustment will be considered in all cases where deemed
appropriate. [See: 68 O.S. § 2358(A)(4)] [See example in
Appendix E of this Chapter]
(7)
Interest income.
(A)
U.S. obligations. Interest
income from U.S. obligations is excluded from federal taxable income to arrive
at Oklahoma taxable income. Interest income received from FNMA, GNMA, or the
Internal Revenue Service is not income from an obligation of the U.S.
government and cannot be excluded to arrive at Oklahoma taxable
income.
(B)
Other interest
income.(i) Interest income is to be
directly allocated to the domiciliary situs of the taxpayer; except that
interest income received from accounts receivable income shall be included in
apportionable income.
(ii) There
shall be added to Oklahoma taxable income, interest income on obligations of
any state or political subdivision thereof which is not otherwise exempted
pursuant to federal laws or laws of this State, to the extent said interest is
not included in federal taxable income or adjusted gross income.
(8)
Dividends. Dividends are to be allocated to the domiciliary situs
of the taxpayer. [See: 68 O.S. § 2358(A)(4) (b)]
(A) For purposes of calculating Oklahoma
taxable income, foreign earnings deemed repatriated pursuant to
26 U.S.C. §
965 shall be considered dividend income and
shall be allocated to the domiciliary situs of the taxpayer.
(i) To the extent such income is not included
in the calculation of a taxpayer's federal taxable income due to inclusion on
an IRC 965 Transition Tax Statement rather than the income tax return, the
income shall be included on the Oklahoma return as an addition to net taxable
income.
(ii) If a taxpayer elects
to make installment payments of tax pursuant to the provisions
26 U.S.C. §
965, such election may also apply to the
payment of Oklahoma income tax, attributable to the income upon which such
installment payments are based.
(B) For purposes of calculating Oklahoma
taxable income, global intangible low-taxed income included in federal income
pursuant to 26 U.S.C. §
951A shall be considered dividend income and
shall be allocated to the domiciliary situs of the taxpayer.
(9)
Domestic International
Sales Corporation (DISC) and Foreign Sales Corporation (FSC) Commission
Expense. Expenses incurred in producing DISC and FSC Dividend income
shall be allocated on the same basis as the DISC and FSC Dividend income.
[See: 68 O.S. § 2358(A)(4)]
(10)
Net oil and gas income.
Income or loss from oil and mining production or royalties, and gains or losses
from sales of such property, shall be allocated in accordance with the situs of
such property. General and administrative expenses will be allocated on the
basis of Oklahoma direct expense to total direct expense. [See: 68
O.S. § 2358(A)(4)(a)]
(11)
Oklahoma 22% depletion. Oklahoma depletion on oil and gas may be
computed at twenty-two percent (22%) of gross income derived from each Oklahoma
property during the taxable year.
(A) For tax
years beginning on or after January 1, 2001, and ending on or before December
31, 2011, and for tax years beginning on or after January 1, 2014, major oil
companies, as defined by 52 O.S. § 288.2(4), shall be limited to fifty
percent (50%) of net income for such property (computed without allowance for
depletion).
(B) During years not
specified herein, the Oklahoma depletion allowance, for all taxpayers, shall
not exceed fifty percent (50%) of the net income of the taxpayer (computed
without allowance for depletion) from the property.
(C) The percentage depletion calculated shall
not be a duplication of the depletion allowed on the federal income tax return.
[See: 68 O.S. § 2353(10)]
(12)
Net rental income and safe harbor
leasing. The following provisions apply to the treatment of net rental
income and safe harbor leasing:
(A) Net rental
income is separately allocated. [See: 68 O.S. §
2358(A)(4)]
(B) A schedule of net
rental income is required to be filed with the return showing gross income and
all expenses (depreciation, repairs, taxes, interest, general and
administrative expense, etc.).
(13)
Royalties; patents;
copyrights. [See: 68 O.S. § 2358(A)(5)]
(A) Income from patent or copyright royalties
is apportionable.
(B) Income from
which expenses have been deducted in producing such patent or copyright
royalties in arriving at apportionable income (including the purchase of such
patent or copyright royalties) shall be apportionable.
(14)
Capital gains or loss - 4797 gains
or loss.
(A) Gains (losses) from the
sale or other disposition of unitary assets or any other assets used in the
unitary enterprise are apportionable. [See: 68 O.S. §
2358(A)(5)]
(B) Gains (losses) from
sale of property, the income from which is separately allocated shall also be
separately allocated.
(15)
Partnership income or loss from
corporate partners.
(A) Partnership
income or loss shall be separately allocated. [See: 68 O.S. §
2358(A)(4)]
(B) The Oklahoma
distributive share of partnership income as determined under 68 O.S. §
2358 and 68 O.S. § 2362 shall be allocated to Oklahoma.
(16)
Overhead
allocation. The Commission may adjust or allocate overhead expenses to
or from a parent or subsidiary, or between divisions in order to more
accurately reflect the overhead expenses. [See: 68 O.S. §
2366]
(17)
Federal new jobs
credit deduction. For tax years beginning after December 31, 1980, the
Federal New Jobs deduction is disallowed due to Oklahoma's own Investment/New
Jobs Credit.
(18)
Deductions
related to directly allocated income/loss. Deductions incurred in
producing income of a nonunitary nature shall be allocated on the same basis as
the income. (Examples: Liquidation of subsidiaries, worthless stock loss, bad
debts due subsidiaries on sale of stock, etc.) [See: 68 O.S.
§ 2358(A)(4)]
(19)
Intercompany eliminations. There are no provisions to allow
intercompany eliminations in computing the income of each company filing an
Oklahoma Consolidated Return.
(20)
Other income. Generally, other income, unless it is separately
allocable under 68 O.S. § 2358(A)(4) is apportionable. [See:
68 O.S. § 2358(A)(5)]
(21)
Add-back of federal bonus depreciation for Oklahoma income tax
purposes. Generally, corporations claiming the federal bonus
depreciation (as allowed under provisions of the federal Job Creation
and Workers Assistance Act of 2002, the provisions of the federal
Economic Stimulus Act of 2008 or the federal American
Recovery and Reinvestment Act of 2009) are required to add back a
portion of the bonus depreciation and then claim it in later years for Oklahoma
income tax purposes.
(A) Corporations filing
Oklahoma income tax returns will have to add back eighty percent (80%) of any
bonus depreciation claimed under provisions of the federal Job Creation
and Workers Assistance Act of 2002, the federal Economic
Stimulus Act of 2008 or the federal American Recovery and
Reinvestment Act of 2009). Any amount added back can be claimed in
later years. Twenty-five percent (25%) of the amount of bonus depreciation
added back may be subtracted in the first taxable year beginning after the
bonus depreciation was added back, and twenty-five percent (25%) of the bonus
depreciation added back may be deducted in each of the next three succeeding
taxable years.
(B) The provisions
relating to the add-back of the federal bonus depreciation apply only to
C-Corporations and are not applicable to corporations which have elected to be
treated as Subchapter S Corporations pursuant to
26 U.S.C. §
1361 et seq. of the Internal Revenue Code,
nor to Limited Liability Companies.
(22)
Add-back of applicable Section 179
expenses. For tax years beginning on or after January 1, 2009 and ending
on or before December 31, 2009, any amount in excess of One Hundred
Seventy-five Thousand Dollars ($175,000.00) which has been deducted as a small
business expense under Internal Revenue Code Section
179 as provided in the federal
American Recovery and Reinvestment Act of 2009 must be added
back to Oklahoma taxable income.
(23)
Add-back of federal depreciation
for Oklahoma income tax purposes.
(A)
Taxpayers have the option to immediately and fully deduct the cost of qualified
property and qualified improvement property for income tax purposes. This
deduction is eligible for one hundred percent (100%) bonus depreciation and can
be claimed as an expense in the tax year when the property is placed in
service. This deduction remains available in subsequent years, regardless of
changes to federal law related to cost recovery amortization beginning January
1, 2023.
(B) If a taxpayer chooses
to immediately and fully expense qualified property or qualified improvement
property, any depreciation claimed under this provision cannot duplicate the
depreciation or bonus depreciation claimed on their federal income tax return.
For tax returns filed on or after January 1, 2023, the taxpayer must increase
their federal taxable income by the amount of depreciation received under the
Internal Revenue Code for the property for which the immediate and full
expensing election was made on the Oklahoma income tax return. If a taxpayer's
federal taxable income is not increased as required by this provision before
October 1, 2023, they must file an amended return reflecting the increase by
June 30, 2024. The Tax Commission will not impose penalties or interest if a
correct amended return is filed within the specified timeframe.
(C) The taxpayer's decision to recover
investment costs through immediate expensing in the year of the investment or
through amortization over a schedule is irrevocable, unless specifically
allowed by the Tax Commission.
Amended at 9 Ok Reg
3031, eff 7-13-92; Amended at 11 Ok Reg 555, eff 11-10-93 (emergency); Amended
at 11 Ok Reg 3497, eff 6-26-94; Amended at 13 Ok Reg 3105, eff 7-11-96; Amended
at 14 Ok Reg 2699, eff 6-26-97; Amended at 19 Ok Reg 2433, eff 6-27-02; Amended
at 20 Ok Reg 320, eff 12-10-02 (emergency); Amended at 20 Ok Reg 2165, eff
6-26-03; Amended at 21 Ok Reg 2571, eff 6-25-04; Amended at 22 Ok Reg 1532, eff
6-11-05; Amended at 24 Ok Reg 2359, eff 6-25-07; Amended at 26 Ok Reg 2330, eff
6-25-09; Amended at 27 Ok Reg 2281, eff 7-11-10; Amended at 29 Ok Reg 1475, eff
6-25-12
