Oregon Advisory Opinions November 28, 1973: OAG 73-55 (November 28, 1973)

OAG 73-55.

The first question presented arises out of a 1973 amendment to ORS 316.102, the statute which allows a credit against Oregon personal income tax for a qualifying political contribution. Prior to its amendment, ORS 316.102 permitted only a credit against tax of 50 percent of the amount of a qualifying political contribution, but not more than $5 on a separate return or $10 on a joint return.

The equivalent federal provision is section 41 of the Internal Revenue Code of 1954 (26 USC §41), which allows a credit against federal income tax of 50 percent of the amount of the qualifying contribution, up to $12.50 for a separate return, $25 for a joint return.

Under federal law, however, the taxpayer has the option, if he does not take a credit, of instead deducting the full amount of the contribution, up to $50 for a separate return, $100 for a joint return, from his gross income in determining his taxable income. 26 USC §218.

Ordinarily a taxpayer lawfully claiming a federal tax deduction also obtains the benefit of the deduction on his Oregon return, since his Oregon taxable income is basically his federal taxable income, after deductions. However, 26 USC §218 is applicable to tax years ending and political contributions made after December 31, 1971, and under ORS 316.012, as amended by Oregon Laws 1971 (Special Session) ch 4 §2, a change in allowable federal deductions operative subsequent to December 31, 1971, does not affect the Oregon tax laws. Thus the federal deduction must be added back in order to determine Oregon taxable income.

In short, prior to the 1973 amendment, a taxpayer making a qualifying political contribution could obtain the benefit of a credit against his federal tax, and another credit against his state tax; or in the alternative he could claim a deduction against his federal taxable income, without any benefit for that deduction in computation of his state taxable income, but could still claim a credit against his state tax.

Oregon Laws 1973, ch 119 amended ORS 316.102 to increase the maximum allowable credit against state income tax to $12.50 for a separate return, $25 for a joint return. (Before and after the amendment, the credit could not exceed the tax liability of the taxpayer.) Other changes, however, have given rise to some misunderstanding.

Ch 119 §2 provides:

"Notwithstanding ORS 316.012, no modification may be made to federal taxable income on account of a deduction for a political contribution lawfully taken on a taxpayer's federal income tax return."

Use of the words "no modification may be made" seems to imply that the taxpayer is losing an option or a benefit which he previously had. This is not the case. His federal taxable income reflects the deductions lawfully taken under federal law; but since this particular federal deduction is permissible, only for 1972 and later years, the taxpayer (prior to this change) would have been required by ORS 316.012 to "modify" his federal taxable income by adding back the amount of the deduction to determine his Oregon taxable income. The result of the new provision is that if he exercises his option under 26 USC §218 to deduct the contribution, he is no longer required to "modify" federal taxable

income, but his federal taxable income, after this deduction (and disregarding other adjustments which may be necessary), is his taxable income for purposes of the state income tax.

Thus, in effect, if he takes a federal deduction under 26 USC §218, in lieu of a federal tax credit under 26 USC §41, he may also have the benefit of that deduction for state tax purposes.

This is made clearer by the language added by section 3 at the beginning of ORS 316.102(1). This is the statute which permits the taking of a credit against the state tax; the added language is as follows:

"Unless a taxpayer has claimed a deduction for a political contribution on his federal tax return for the taxable year, . . ." (emphasis supplied)

The taxpayer, formerly allowed a state tax credit whether he took a federal tax credit or claimed a federal tax deduction, and unable to obtain the benefit of a deduction for state tax purposes, may now also gain the benefit of the deduction on his state return if he does so on the federal return; but if he does so, may not claim the state tax credit.

Perhaps due to misunderstanding of the distinction between a "credit" and a "deduction," it has been assumed the effect of Oregon Laws 1973, ch 119 is to prevent a taxpayer from obtaining an Oregon tax benefit by virtue of a political contribution, if he has claimed such a benefit on his federal income tax return. This is not the case. If, after computing the federal tax due, he claims a credit against that tax, he may also after computing the state personal income tax due claim a credit against the

state tax. On the other hand if he claims a deduction from income in computing his federal income tax, he may now also have the benefit of that deduction in computing his state personal income tax, but in that case he may not claim a credit against the tax finally computed to be due.

The second question presented is quickly answered. ORS 316.102(1) allows a tax credit (unless a deduction is instead claimed on the federal return) for "contributions made in the taxable year to political parties . . ." Subsequent language relating to contributions to candidates contains a requirement that names be listed on the ballot; this requirement does not relate back to the political parties themselves. Thus, in an off-year, with no elections and hence no candidates listed on the ballot, a contribution to a political party qualifies under ORS 316.102 for a credit against tax.

The third question is whether a contribution to a declared political candidate, made during an off-year in which no election is held and the candidate accordingly does not appear on the ballot, qualifies for a deduction under ORS 316.102.

Again there is a difference between the language of the federal and state law. Under the federal law, a contribution qualifies if it is to a person who:

"(A) has publicly announced that he is a candidate for nomination to such [i.e., federal, state or local] office; and

"(B) meets the qualifications prescribed by law to hold such office." 26 USC §41(c)(2).

Under the state law, the contribution must be:

". . . to or for the use of a candidate for federal, state or local elective office whose name is listed on a primary, general or special election ballot in this state." ORS 316.102(1), as amended.(fn1)

It is not sufficient for the person to declare his candidacy; he must actually be listed on the official ballot. If at the close of the tax year, his name has not been so listed, no credit can be taken for the contribution to him.

The answer to the third question must accordingly be no; even though the taxpayer may lawfully claim a credit against his federal tax for an off-year contribution to a declared candidate, he may not claim a credit against his state personal income tax for the same contribution.

There are, of course, "off-year" elections for various local office, school district, municipal, etc. Contributions to a candidate listed on the ballot in the year of the contribution qualify for the tax credit, even though it may be an "off-year" for the statewide primary and general election.

Finally, we note another anamoly which results from section 2 of Oregon Laws 1973, ch 119. If a taxpayer makes a contribution which qualifies under federal law for a tax credit under 26 USC §41, as we have seen it also qualifies (in the alternative) for

a deduction under 26 USC §218. If the contribution fails, because of differences between the language of the federal and state provisions, to also qualify for a state tax credit under ORS 316.102, the taxpayer may nevertheless obtain at least some benefit under the state tax laws, if instead of taking a credit against his federal tax, he claims a deduction from income. Chapter 119 §2 allows him to also claim the benefit of the deduction on his state tax return; it is "a deduction for a political contribution lawfully taken on a taxpayer's federal income tax return," whether or not it is also a qualifying political contribution under ORS 316.102.