710:50-17-51 Adjustments to arrive at Oklahoma taxable income for corporations

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. A net operating loss (NOL) may be carried back or forward to the extent permitted under Internal Revenue Code § 172 and 68 O.S. § 2358. A taxpayer entitled to a carryback may elect to forego the carryback period by making the election on a timely filed original Oklahoma loss year return. The election may be made by checking the designated box on the return or, if the checkbox is not present, by attaching a written statement to the 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 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, foreign income inclusions under 26 U.S.C. § 951A (Global Intangible Low-Taxed Income, prior to repeal, or Net CFC Tested Income) 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 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 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 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 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. 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 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 $175,000 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 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.