Does an upper-tier partnership owe Oregon's $150 minimum tax or the corporate activity tax on lower-tier income alone?

Two taxes with two different triggers

The illustration is a holding partnership, a Delaware limited partnership owned by a group of investors, that holds limited partner interests in several real estate funds. One of them, the Oregon fund, is an Oregon limited partnership that owns two office buildings in Oregon through single-purpose LLCs. The holding partnership owns 40 percent of the Oregon fund, receives a Schedule K-1 showing about $400,000 of Oregon-source rental income, and has no office, employee, bank account or property in Oregon and no part in the fund's management. In the vocabulary of this article the holding partnership is the upper tier and the Oregon fund is the lower tier.

Oregon asks the upper tier two unrelated questions. Under the income tax chapters: does it file an Oregon partnership return, and does it owe the $150 minimum tax that accompanies the return? Under chapter 317A: does it have commercial activity the corporate activity tax reaches, and is it part of a unitary group that files one CAT return? The two regimes share no definitions. The return and the minimum tax turn on Oregon-source income and on transacting business; the CAT turns on commercial activity, substantial nexus and common ownership. A yes on one does not produce a yes on the other.

The $150 minimum tax: filing is not the trigger, doing business is

The partnership return and the minimum tax sit in two different sections, and the difference between them decides the question.

The return comes first. Section 314.724(1) requires a return from every partnership "having a resident partner or having any income derived from sources in this state," due by the due date of the corresponding federal return. The upper tier's $400,000 distributive share of Oregon rental income is income derived from sources in Oregon, so the upper tier files Form OR-65 whether or not it ever sets foot in the state. The 2025 form carries the test as two questions: 2A, "Does the partnership have income or loss derived from sources in Oregon?" and 2B, "Does the partnership have Oregon resident partners?" (2025 Form OR-65, Rev. 05-29-25). A yes to either requires the return; a partnership that answers no to both "isn't required to file a return or pay the minimum tax" (2025 Form OR-65 Instructions, 150-101-065-1, Rev. 10-16-25).

The tax comes second and has its own test. Section 314.725 provides that "[e]ach partnership transacting business in this state shall, for the privilege of carrying on or doing business by it within this state," include with the section 314.724 return "payment of a minimum tax of $150." The statute does not say each partnership required to file. It says each partnership transacting business, and it describes the $150 as the price of "carrying on or doing business by it," that is, by the partnership itself. The form follows the statute: question 1 (line 1A) asks "Did the partnership do business in Oregon during the year?", and line 3A directs an entry of $150 only where question 1 and question 2A or 2B are answered yes, and zero otherwise. The instructions state the rule in one sentence: "A partnership must pay the $150 minimum tax if it's doing business in Oregon and required to file a partnership return." Both conditions are required, and the first is not satisfied by the second.

What "doing business" means is drawn from the corporate excise tax: "'Doing business' is defined the same for partnerships and corporations" (2025 Form OR-65 Instructions). For corporations, the statute defines the term as "any transaction or transactions in the course of its activities conducted within the state" (section 317.010(4)), and the Department's rule restates it: "A taxpayer is doing business when it engages in any profit-seeking activity in the State of Oregon," with examples that turn on an office, shop, store, warehouse or factory in the state, employees or agents regularly selling there, a stock of goods, services performed by employees in Oregon, or activities performed in Oregon by a third party on the corporation's behalf (Or. Admin. R. 150-317-0030(1), (2), (4)). The Department's partnership page lists the indicators for a partnership: "A stock of goods," "An office," "A place of business other than an office, where partnership activities are regularly conducted," "Employees or representatives providing services to customers," and "An economic presence that uses Oregon's economy to produce income" (Oregon Department of Revenue, Partnership). The instructions add a sentence for entities that qualified with the Secretary of State out of caution: a partnership that "is registered to do business in Oregon, but didn't have any business activity" is "not subject to the minimum tax." Qualification is not activity.

The corporate parallel shows that Oregon already lives with this distinction. A corporation doing business in Oregon pays the excise tax and its minimum tax (section 317.090(2)); a corporation that is not doing business in Oregon but has income from Oregon sources pays the income tax of chapter 318 instead, which the Department's rules describe as reaching income from Oregon activities that fall short of doing business (Or. Admin. R. 150-317-0030(5); 150-318-0040(1)), and "[i]ncome tax filers aren't subject to corporate excise or minimum tax" (2025 Form OR-20 Instructions, 150-102-020-1, Rev. 10-27-25). The partnership regime is built the same way: section 314.724 reaches source income, section 314.725 reaches transacting business, and the form keeps them on separate lines.

Does the lower tier's business reach the upper tier?

The question the statutes do not answer in words is whether owning an interest in a partnership that does business in Oregon makes the owner a partnership transacting business there. The current guidance does not address tiers: the Form OR-65 instructions, the partnership page, and the corporate rules on doing business and substantial nexus (Or. Admin. R. 150-317-0020, 150-317-0030) say nothing about a partner's status, and the apportionment rule that tells a corporate partner when to include its share of a partnership's factors, which applies where the partnership "is a part of the corporation's overall business operations" (Or. Admin. R. 150-314-0385(8)), is a measurement rule for a taxpayer already in the excise tax, not a nexus rule. The Department addressed tiers in Oregon Revenue Bulletin 2010-02 (March 29, 2010), which by its terms is not binding: an upper tier is doing business if it "is involved in the Oregon business or acts on behalf of the Oregon business," and "[g]enerally, limited partners aren't involved in a partnership's activities and don't act on behalf of the partnership." The answer therefore divides on the kind of interest held.

A general partner, or the managing member of an LLC, conducts the lower tier's business. Under Oregon's partnership act "[e]ach partner is an agent of the partnership for the purpose of its business" (section 67.090(1)), and a general partner that manages Oregon office buildings is performing profit-seeking activity in Oregon through the lower tier no less than through employees of its own. If the holding partnership in the illustration were the general partner of the Oregon fund, or the managing member of the LLCs that own the buildings, the better answer to question 1 is yes, and the $150 is owed at that tier in addition to the tier below.

A limited partner is in a different position. The limited partnership act makes a limited partner's protection turn on not participating "in the control of the business," and lists the activities a limited partner may undertake without doing so: consulting with and advising a general partner, voting on specified major matters, attending meetings, serving as a guarantor (section 70.135(1), (2)). A holding partnership that holds a 40 percent limited interest, receives distributions and a K-1, and does none of the lower tier's work has no transaction of its own in Oregon. Its Oregon-source income exists because the Oregon fund does business there, and Oregon taxes that income to the partners through the return and the nonresident partner rules. But the privilege the $150 pays for, "carrying on or doing business by it within this state," is not one the limited partner exercises. On the definitions as the Department states them, and in the 2010 bulletin's own examples, such an upper tier answers question 1 no, answers question 2A yes, files the return, and enters zero on line 3A.

That reading carries two cautions. First, the Department's partnership page lists "[a]n economic presence that uses Oregon's economy to produce income" as an indicator of doing business, and the corporate nexus rule says the Commerce Clause "does not require a taxpayer to have a physical presence in Oregon" (Or. Admin. R. 150-317-0020(2)). An auditor could argue that an investor whose income is produced by Oregon office buildings has that presence. The argument proves too much, since it would make every nonresident partner of every Oregon partnership a person doing business in the state, and the form would then have no reason to ask question 1 separately from question 2A. But it is the argument the position will meet, and the 2010 bulletin that reaches the opposite result for an uninvolved limited partner is not binding. Second, the answer is entity by entity, each year: each partnership in a chain answers question 1 on its own activity, and an intermediate tier that is the general partner of the tier below answers it differently from a sibling that holds only limited interests.

Three mechanics follow. The $150 is not reduced for a short year except where the short year results from a change of accounting periods, in which case the instructions prorate it by month; an initial or final short-year return owes the full $150 (2025 Form OR-65 Instructions; the corporate rule is the same, section 317.090(3)). "An extension to file doesn't mean more time to pay," so a partnership that owes the $150 pays it with the extension voucher by the original due date, while one that does not owe it has nothing to pay at extension. And an upper tier that paid the $150 in a prior year on a yes to question 1 that its facts did not support can correct it on an amended return, which the instructions treat as producing a refund where it changes the amount on line 3D.

The corporate activity tax: a distributive share is not commercial activity

The CAT is imposed on "persons with substantial nexus with this state" on their taxable commercial activity (section 317A.116(1)), and "person" expressly includes partnerships, limited liability companies and entities disregarded for federal income tax purposes (section 317A.100(14)). An upper-tier partnership is a person the tax can reach. Whether it does depends on commercial activity, and the statute answers the tiered question directly.

Commercial activity is "[t]he total amount realized by a person, arising from transactions and activity in the regular course" of its trade or business, without deduction for expenses (section 317A.100(1)(a)). The exclusion list that follows removes the items an investor-tier partnership typically receives: "[i]nterest income," with exceptions for credit sales and financial institutions (paragraph (1)(b)(A)); receipts from the sale of assets described in Internal Revenue Code sections 1221 or 1231 (paragraph (B)); "[d]ividends received" (paragraph (BB)); and, the item that decides this article's question, "[d]istributive income received from a pass-through entity" (paragraph (CC)). The upper tier's $400,000 share of the Oregon fund's income is excluded from its commercial activity in full, and the 2025 return carries it as an exclusion code on Schedule OR-EXC-CAT (2025 Form OR-CAT Instructions, 150-106-003-1, Rev. 09-10-25, exclusion code 728).

The thresholds then do the rest. A person or unitary group must register with the Department once its commercial activity exceeds $750,000 in a tax year, with a penalty of up to $100 per month, not to exceed $1,000 per year, for failing to do so (section 317A.131(1), (3)); a return is required of persons with commercial activity "in excess of $1 million" (section 317A.137(1)); the tax is $250 plus 0.57 percent of taxable commercial activity above $1 million, and "is not owed ... if the person's taxable commercial activity does not exceed $1 million" (section 317A.125(1), (2)). The Department's instructions measure both thresholds by Oregon commercial activity (2025 Form OR-CAT Instructions). An upper tier whose receipts are distributive shares, interest and dividends has no commercial activity to measure, crosses neither threshold, and is an "excluded person" as "[a]ny person with commercial activity that does not exceed $750,000 for the tax year" (section 317A.100(4)(j)). On the K-1 alone there is no registration, no return and no tax. The Oregon fund's own position is separate: its office rents are receipts from the rental of real property "located in this state" (section 317A.128(1)(a)), and the fund registers, files and pays on its own commercial activity, with a subtraction of 35 percent of the greater of its cost inputs or labor costs, capped at 95 percent of its Oregon commercial activity (section 317A.119(1), (5)).

Substantial nexus does not change the answer. The upper tier may have it, since a person has substantial nexus if it "[h]olds a certificate of existence or authorization issued by the Secretary of State" or has bright-line presence through $50,000 of Oregon property or payroll, $750,000 of Oregon-sourced commercial activity, or 25 percent of its total property, payroll or commercial activity in the state (section 317A.116(3), (4)). Nexus is the condition for imposing the tax; it does not create commercial activity where the statute excludes it.

When the unitary group pulls the upper tier in

The exclusion for distributive income answers the K-1. It does not answer the second half of the question, which is whether the upper tier and the lower tier are one taxpayer. Section 317A.100(4)(j)'s exclusion of small persons carves out "a person that is part of a unitary group" with commercial activity above $750,000, and section 317A.106(1) requires a unitary group to "register, file and pay taxes" as "a single taxpayer." A unitary group is "a group of persons with more than 50 percent common ownership, either direct or indirect, that is engaged in business activities that constitute a unitary business" (section 317A.100(20)), and a unitary business is one whose parts show "a sharing or exchange of value as demonstrated by" centralized management, centralized administrative services or functional integration (section 317A.100(19)(a)). Both elements are required, and each is tested on its own.

Ownership is measured through partnership interests. The Department's rule treats "a person owning more than 50 percent of the capital or profits interest in the partnership" as a common owner (Or. Admin. R. 150-317-1020(10)(d)(C)), counts indirect ownership through chains of entities (section 10(b)), and measures voting power in a non-corporate entity by "the power of all ownership interests with the right to control or determine the management of the entity" (section 10(a)). In the illustration, a 40 percent limited interest fails the ownership test on its own, and the Oregon fund and the holding partnership are not a unitary group whatever their operational ties, unless some other person owns more than 50 percent of both. A 60 percent interest would pass it.

Unity is the second gate, and the rule closes it on passive holdings. A unitary business exists where "the activities of one business either contribute to the activities of another business or are dependent upon" them (section 3), shown by the three factors, with the presence of all three establishing unity and one or two capable of showing it (section 2). But "passive investment" and the financial strength an owner lends are not enough, and "[c]entralized efforts to fulfill stewardship oversight are not evidence of centralization of management" (sections 4, 8(a)(B)). A holding partnership that owns 60 percent of the Oregon fund, receives distributions, votes as a limited partner on major matters and otherwise leaves the fund's sponsor to run it is a majority owner that is not unitary with its investment. One whose principals manage the fund, share staff, accounting and financing with it, and decide its acquisitions is.

Where both gates are passed, the consequences are concrete. The group registers, files and pays as one taxpayer and "may exclude receipts from transactions among its members" (section 317A.106(1); section 317A.100(1)(b)(FF)), so a management fee the Oregon fund pays to a unitary upper tier drops out of the group's commercial activity while the fund's rents stay in. The group designates one member as reporting entity, and the Department's instructions require that member to have substantial nexus in Oregon (section 317A.106(2); 2025 Form OR-CAT Instructions), so the Oregon fund, not the holding partnership, is the natural designee. Combined filers list affiliates with Oregon commercial activity on Schedule OR-AF-CAT. The only members a group may elect to leave out are non-U.S. members with no Oregon-sourced commercial activity (Or. Admin. R. 150-317-1025(1), (2)); a domestic upper tier with no Oregon receipts of its own is a member all the same, with its distributive income excluded on the group return as it would be on a separate one.

A worked figure shows what membership changes and what it does not. The Oregon fund has $3 million of Oregon office rents, a $1.2 million subtraction after apportionment, and taxable commercial activity of $1.8 million; its tax is $250 plus 0.57 percent of $800,000, or $4,810. If the holding partnership is a unitary majority owner, the group's return shows the same $3 million and the same tax, because the holding partnership's own receipts are distributive income, interest and dividends, all excluded, and its interest in the fund adds no sourced receipts. What membership changes is the filing posture: the holding partnership is named on a combined return, is part of the single taxpayer for registration and payment, and shares the group's thresholds, so that its own Oregon-sourced receipts in a later year, for example a consulting fee delivered to an Oregon customer, enter the group's $3 million rather than being tested alone against $750,000. If the holding partnership is not unitary, or owns 50 percent or less, the Oregon fund files alone, and the holding partnership's CAT exposure is measured on its own commercial activity, which is zero.

Practice notes

The sound sequence for a tiered structure with Oregon K-1s is to answer the four questions separately for each tier. For the partnership return, question 2A is answered yes wherever a K-1 carries Oregon-source income, and the return is filed. Question 1 is answered on the tier's own activity: a general partner or managing member of an Oregon business answers yes and pays the $150; a limited partner or non-managing member with no office, employee, property or activity of its own in Oregon has the better reading that it answers no, documents the basis (the partnership agreement's allocation of management, the absence of Oregon personnel and property, the character of the interest), and enters zero on line 3A, with the Department's "economic presence" indicator understood as the argument it may face. Prior years in which the $150 was paid on an unsupported yes are candidates for amended returns within the refund period. For the CAT, the distributive share is excluded under section 317A.100(1)(b)(CC) and creates no registration or filing duty by itself; the question that remains is the unitary group, tested first on more than 50 percent common ownership measured by capital or profits interests through every link in the chain, and then on the flow of value, with passive majority ownership failing the second test. Where a group exists, the Oregon lower tier with substantial nexus is the natural reporting entity, the upper tier is a listed member, intra-group receipts are excluded, and the group's thresholds govern. G&G State Tax Group provides Oregon partnership filing position reviews, minimum tax refund claims and corporate activity tax unitary group analysis alongside its state and local tax practice.