Schedule OR-PTE-PY Instructions                                                 2023
                                 Qualified business income reduced tax rate for 
                                              Oregon part-year residents

                                                                    • Has ordinary business income that doesn’t exceed 
General information                                                 $5 million;
                                                                    • Employs one or more employees in Oregon who meet the 
If you have qualifying income from a sole proprietorship,           employee requirements described below; and
partnership, or an S corporation, you may elect to use a            • If ordinary business income is more than $250,000, com-
reduced tax rate for that income. The reduced tax rate can          plies with the employee-to-owner ratio requirement or 
be claimed for qualifying income up to $5 million. Use              meets the income distribution requirement described 
Schedule OR-PTE-PY to claim this reduced tax rate if you’re         below.
a part-year resident.
                                                                    Employee-to-owner ratio requirement. Unless the income 
Important: The qualifying business income reduced tax               distribution requirement is met, partnerships and S corpora-
rate is an irrevocable election that must be made each year         tions with more than $250,000 in ordinary business income 
on an original return. You can’t amend to revoke or make            must have, at a minimum, the number of qualifying employ-
the election after your original return is filed unless you         ees in Oregon per owner as shown in this table. The com-
file an amended return on or before the original due date of        bined total of hours worked by the qualifying employees, 
April 15, 2024, or if filing on extension, October 15, 2024. See    up to 1,200 hours per employee, must be at least the number 
the “Amending” section for more information. The annual             shown in this table.
election is made by completing Schedule OR-PTE-PY and 
                                                                    Partnership and S corporation employee requirements:
checking box 44c on the Oregon Form OR-40-P. 
Qualifying income may only be modified for depreciation             Ordinary     But not   Employees     Aggregate 
before applying the reduced tax rate. No other additions,           business     more than      required hours worked 
subtractions, or deductions are allowed in the calculation          income is at                         by employees
of the tax on qualifying income.                                    least
                                                                    $0           $250,000       One           1,200
Schedule OR-PTE-PY is for Oregon part-year residents only. 
                                                                                                One per  1,200 per 
If you are an Oregon full-year resident, use Schedule OR-           $250,001     $500,000
PTE-FY. If you are an Oregon nonresident, use Schedule                                          owner         owner
OR-PTE-NR.                                                                                      Two per  2,400 per 
                                                                    $500,001     $1,000,000
                                                                                                owner         owner
                                                                                                Four per 4,800 per 
Qualifications                                                      $1,000,001   $2,500,000
                                                                                                owner         owner
                                                                                                Ten per  12,000 per 
Generally                                                           $2,500,001   $5,000,000
                                                                                                owner         owner
To be eligible for the reduced tax rate, you must materially        Income distribution requirement. A partnership or S 
participate in the business, have at least the minimum num-         corporation with more than $250,000 in ordinary business 
ber of qualifying Oregon employees, and meet any specific           income may still qualify for the reduced tax rate even if 
requirements for a sole proprietorship or for a partnership         the employee-to-owner ratio shown in this table isn’t met, 
or S corporation.                                                   so long as income distributions don’t exceed 25 percent of 
                                                                    ordinary business income. Calculate the percentage using 
Sole proprietorship                                                 the total distributions and total ordinary business income 
To be eligible for the reduced tax rate, a sole proprietor must:    for the current tax year and up to two of the most recent tax 
                                                                    years. Treat an annual amount of less than zero as zero for 
• Have qualifying business income from the sole                     that year.
proprietorship; 
• Materially participate in the business; and                       Qualifying business income. For your income to qualify 
• Employ one or more employees in Oregon who meet the               for the reduced tax rate, it must be nonpassive income from 
employee requirements explained below for at least 1,200            a sole proprietorship, partnership, or S corporation. Income 
aggregate hours during the tax year.                                from trusts or estates doesn’t qualify for the reduced tax rate. 
                                                                    “Nonpassive income” is income other than that from passive 
Partnership or S corporation
                                                                    activities as defined in Section 469 of the Internal Revenue 
To be eligible for the reduced tax rate, a partner or S corpo-      Code (IRC). This includes, but isn’t limited to, nonpassive 
ration shareholder must have qualifying income from and             income reported on federal Schedules C (line 31), E [line 28, 
materially participate in a partnership or S corporation that:      column (k)], and F (line 34); IRC Section 1231 gains treated as 
150-101-366-1 (Rev. 10-03-23)                                     1                        2023 Schedule OR-PTE-PY Instructions

ordinary income; guaranteed payments; and royalties. Non-         partner can be used to meet the hour requirements. Indepen-
passive income doesn’t include wages, interest, dividends, or     dent contractors can’t be used for the employee requirement.
capital gains for the purpose of the reduced tax rate.
                                                                  Example 2: A sole proprietorship had one employee that 
Tiered entities. If you received nonpassive income that           worked a total of 1,440 hours during the year in Oregon. 
passed-through an upper-tier entity to you from a qualifying      The employee worked 32 hours per week for 30 weeks and 
lower-tier entity, that income qualifies for the reduced tax      worked 24 hours per week for 20 weeks. The total qualifying 
rate if the lower-tier entity meets the employee requirement.     hours is 960 (32 hours x 30 weeks) since the proprietor can’t 
                                                                  count hours worked less than 30 hours in a week. Because 
Coordination with pass-through entity elective tax (PTE-E 
                                                                  the total qualifying hours worked in Oregon is less than 
tax). Certain partnerships and S corporations may elect to 
                                                                  1,200, the nonpassive income from the sole proprietorship 
pay PTE-E tax. This means they have elected to pay Oregon 
                                                                  doesn’t qualify for the reduced tax rate.
income tax at the entity level. Individuals who are direct 
or indirect members of an electing entity are allowed a tax       Example 3: A partnership with three partners employed 
credit for the PTE-E tax paid by the entity. Individuals must     six employees during the year in Oregon. One employee 
also report an addition for any PTE-E tax deducted on an          worked 32 hours a week for 30 weeks and the other five 
entity-level federal return. The addition amount will be          employees each worked 20 hours per week for 40 weeks in a 
added to qualified business income, but only to the extent        job share position. Only the hours worked by the employee 
that the ordinary business income reported on the entity-         that worked 32 hours per week can be used toward the 
level federal return qualifies for the reduced tax rate. See      1,200 hour requirement. Since the total hours (30 weeks x 32 
the instructions for column (b) for additional information.       hours per week = 960 total hours) worked by that employee 
Example 1: Bryant is the sole shareholder of an S corpora-        don’t exceed the 1,200 hour requirement, and the other 
tion. Marcus is the sole shareholder of an S corporation.  The    five employees don’t qualify for purposes of the employee 
two S corporations each have a 50 percent ownership in a          ratio requirement, the income from the partnership doesn’t 
partnership. Bryant and Marcus both materially participate        qualify for the reduced tax rate.
in the partnership, which has ordinary business income of         Example 4: An S corporation with two shareholders and 
$2 million. The partnership employs ten full-time employees       annual ordinary business income of $800,000 has three 
in Oregon. Bryant and Marcus receive a distributive share of      employees, all of whom work 35-hour weeks. The office man-
nonpassive income from the partnership that passes through        ager and the two shareholders each work 50 weeks a year, a 
their respective S corporations. They also receive a salary       sales clerk works for 30 weeks a year, and a delivery driver 
as reasonable compensation for the work performed for the         works 20 weeks a year, for a total of 3,500 hours worked by 
partnership. The distributive share of nonpassive income          non-owner employees. Annual income distributions to the 
they receive from the partnership qualifies for the reduced       shareholders include $150,000 in ordinary business income. 
tax rate since the partnership (as passed through to them         With only three employees, this business doesn’t meet the 
from their respective S corporations) meets the ordinary          employee ratio requirement; however, because it distributes 
business income and employee requirements. However, the           less than 25 percent of its ordinary business income to the 
salary received from the partnership doesn’t qualify for the      shareholders each year, its nonpassive income still qualifies 
reduced tax rate.                                                 for the reduced tax rate.
Material participation. Material participation has the same       Temporary or “leased” employees. If a qualifying busi-
meaning as defined for federal purposes under IRC Sec-            ness contracts with a professional employer organization to 
tion 469. A taxpayer materially participates in an activity if    employ temporary or “leased” employees, those employees 
they work on a regular, continuous, and substantial basis         can be used to qualify a business for the reduced tax rate if 
in operations, and must meet any one of the seven material        the employees meet the hour requirements.
participation tests in Treasury Regulation Section 1.469-5T(a).
Grouping activities. You may group trade, business, or rental 
                                                                  Amending
activities into a single activity if they form an appropriate 
economic unit for the purpose of meeting the material partici-
                                                                  You can’t amend to revoke or make the election after your 
pation test under Treasury Regulation Section 1.469-4(c). This 
                                                                  original return is filed unless the amended return is filed on 
treatment is also allowed for the purposes of the qualifying 
                                                                  or before the original due date of April 15, 2024, or if filing 
business income reduced tax rate and the material participa-
                                                                  on extension, October 15, 2024.
tion requirement.
                                                                  Example 5: Liam filed his original return on March 3, 2024, 
Employee requirement. The business must have the 
                                                                  and didn’t elect the reduced tax rate. He files an amended 
required number of employees who performed work for the 
                                                                  return on April 12, 2024, and makes the election. His 
business in Oregon for the required number of hours dur-
                                                                  amended return will be accepted allowing the reduced tax 
ing the tax year. Only the hours worked in a week in which 
                                                                  rate because it was filed before the original due date.
an employee worked at least 30 hours in Oregon can be 
counted. Hours worked by an employee that is a spouse or          Example 6: Maggie filed her original return on March 
other family member that isn’t an owner, member, or limited       12, 2024, and didn’t elect the reduced tax rate or file an 

150-101-366-1 (Rev. 10-03-23)                                   2                          2023 Schedule OR-PTE-PY Instructions

extension. She files an amended return on May 3, 2024, and            Column (a).    Enter nonpassive losses attributable to the 
elects the reduced tax rate. The reduced tax rate will be             qualifying sole proprietorship, partnership, or S corporation. 
denied since the amended return was filed after the original          Include qualifying nonpassive losses such as IRC Section 
due date of April 15, 2024, and she did not file an extension.        1231 losses treated as ordinary losses.
Example 7: Sam filed his original return on a timely filed            Column (b). For partnerships and S corporations only. 
extension on May 13, 2024, and elects the reduced tax rate.           Enter Section 179 expense deduction you reported in Part 
The reduced tax rate election will be allowed because it was          II, Section 28, column (i) of your federal Schedule E attribut-
made on his original return.                                          able to the qualifying partnership or S corporation. Don’t 
Example 8: Allen filed his original return on a timely filed          complete this column for sole proprietorships.
extension on May 3, 2024, and didn’t elect the reduced tax            Column (c). Enter nonpassive income attributable to the 
rate. He files an amended return on July 1, 2024 and makes            qualifying sole proprietorship, partnership, or S corporation. 
the election. His amended return will be accepted allowing            Also include qualifying nonpassive income such as royal-
the reduced tax rate and his amended return will be treated           ties and IRC Section 1231 gains treated as ordinary income. 
as the original return for the reduced tax rate election.             Don’t include passive income, capital gains, interest income, 
If you claimed the reduced tax rate on your original return,          wages, or dividends. 
you must amend Schedule OR-PTE-PY if:                                 Column (d). If you are not a member of an entity that elected 
• An IRS audit (or other state audit) resulted in a change that       to pay PTE-E tax, enter 0. Otherwise, if all of the ordinary 
affects your Oregon return;                                           business income passed through from the entity qualifies 
• You amended your federal (or other state) return and the            for this reduced tax rate, enter the amount from Schedule 
changes you made affect your Oregon return;                           OR-21-K-1, line 2. However, if not all of the ordinary busi-
• You have a net operating loss (NOL) carryback; or                   ness income passed through from the entity qualifies for this 
• You need to correct income or deductions you originally             reduced tax rate, use the federal Schedule K-1 (or Oregon 
reported.                                                             Schedule OR-K-1) and Oregon Schedule OR-21-K-1 issued by 
                                                                      the electing entity and this formula to determine the amount 
Note: If you amend after the due date for the return of April 
                                                                      to enter on column (d):
15, 2024 (or October 15, 2024, if filing on extension), you must 
use the tax on line 16a of the Tax worksheet even if line 18a         Qualifying business 
is less.                                                                  income from  
                                                                      electing entity           Addition from          Amount to 
                                                                                              x      Schedule       =  claim on 
Schedule instructions                                                 Ordinary business         OR-21-K-1, line 2      column (d)
                                                                          income from  
Use the following instructions to complete Schedule OR-PTE-           Schedule K-1, box 1

PY. Complete the entire schedule and include it with your             See Form OR-21 Instructions and our website for information 
Oregon Form OR-40-P. 
                                                                      about the PTE-E tax.
Section A instructions                                                Line 4. Report the totals for columns (a), (b), (c), and (d). If 
Complete a line for each qualifying sole proprietorship, part-        more than one page is used, report the total of all pages on 
nership, or S corporation. Only list businesses that qualify.         the first page.
Use additional schedules if necessary and put the total from 
                                                                      Line 7. If line 7 is 0 or less, you can’t use the reduced tax rate. 
all schedules on line 4 of the first page.
                                                                      Return to line 44 and complete the rest of Form OR-40-P. If 
Note: You must list all nonpassive income (or loss) from qual-        line 7 is more than 0, enter the amount on line 2b of Section B.
ifying sole proprietorships, partnerships, and S corporations 
for each individual making the election. You can’t selectively        Section B instructions
choose which qualifying income (or losses) to report.                 The tax worksheet in Section B will help you calculate which 
For each qualifying business, enter the business name, fed-           tax rate is more beneficial to you. Complete each line to 
eral employer identification number (FEIN), number of quali-          determine your tax. 
fying employees, business code number, and entity type.               Lines 4 and 7. Report only the depreciation modification 
Business code number.         Enter the business code number          attributable to the qualifying sole proprietorships, partner-
(or North American Industry Classification System code)               ships, or S corporations listed in Section A. 
as reported on line C of federal Form 1065, line B of federal         Example 9: Liam reports an addition for depreciation attrib-
Form 1120-S, or line B of federal Schedules C or F. 
                                                                      utable to a qualifying sole proprietorship he owns on line 
Entity type. Enter the appropriate code for how the business          30F of his Form OR-40-P. He also reports a subtraction for 
files for tax purposes:       SP for a sole proprietorship, SC for    depreciation attributable to a qualifying partnership on line 
an S corporation, or  Pfor a partnership. Don’t enter LLC or          33F of his Form OR-40-P. In Section B, Liam will report the 
anything other than the codes listed.                                 addition on line 4 and report the subtraction on line 7.
150-101-366-1 (Rev. 10-03-23)                                       3                           2023 Schedule OR-PTE-PY Instructions

Line 10a. Use Tax rate chart A below for the taxable income       Line 19a. Enter the lesser of line 16a or 18a. If line 16a is less 
reported on 8a. Report the tax on line 10a. Note: If you have     than 18a, enter the amount on line 19a on lines 44 and 45 of 
other income that qualifies for an alternative tax rate, such     Form OR-40-P, check box 44c, and complete the rest of the 
as farm liquidation long-term capital gains or farm income        return. Don’t multiply the tax by the Oregon percentage as 
averaging, you’ll need to use the appropriate worksheet or        instructed on line 45 of the Form OR-40-P. If line 18a is less 
schedule, 2023 Worksheet FCG or 2023 Schedule OR-FIA-             than 16a, it isn’t more beneficial for you to use the reduced 
40-P, to calculate the tax on line 10a. Don’t include the non-    tax rate. Enter the amount from line 17a on line 44 of Form 
passive income listed on line 8a in the calculation.              OR-40-P and complete the rest of the return.
Line 13b. Use Tax rate chart B below for the taxable income 
reported on line 9b and report the tax on line 13b.               Do you have questions or need help?
Line 17a. Use Tax rate chart A below for the taxable income 
reported on line 1a. Report the tax on line 17a. Note: If you       www.oregon.gov/dor
have other income that qualifies for an alternative tax rate,     503-378-4988 or 800-356-4222
such as farm liquidation long-term capital gains or farm          questions.dor@dor.oregon.gov
income averaging, you’ll need to use the appropriate work-        Contact us for ADA accommodations or assistance in other 
sheet or schedule, 2023 Worksheet FCG or 2023 Schedule            languages.
OR-FIA-40-P, to calculate the tax on line 1a.

2023 Tax rate chart A
2023 tax rate chart—Use this chart only for income reported on lines 1a and 8a of Section B. Report the tax on Section B, 
lines 10a and 17a. 
Chart S: For persons filing single or married filing separately:
If your taxable income isn’t over $4,050 ...............................................................................your tax is 4.75% of taxable income
If your taxable income is over $4,050 but not over $10,200 ........................your tax is $192 plus 6.75% of excess over $4,050
If your taxable income is over $10,200 but not over $125,000 ..................your tax is $607 plus 8.75% of excess over $10,200
If your taxable income is over $125,000 ................................................... your tax is $10,652 plus 9.9% of excess over $125,000
Chart J: For persons filing jointly, head of household, or qualifying widow(er) with dependent child:
If your taxable income isn’t over $8,100 ...............................................................................your tax is 4.75% of taxable income
If your taxable income is over $8,100 but not over $20,400 ........................your tax is $385 plus 6.75% of excess over $8,100
If your taxable income is over $20,400 but not over $250,000 ...............your tax is $1,215 plus 8.75% of excess over $20,400
If your taxable income is over $250,000 ...................................................your tax is $21,305 plus 9.9% of excess over $250,000

2023 Tax rate chart B
2023 pass-through entity reduced tax rate chart—Use this chart only for qualifying income reported on line 9b of 
Section B. Report the tax on Section B, line 13b.
If your taxable income isn’t over $500,000 ..........................................................................your tax is 7% of qualifying income
If your taxable income is over $500,000 but not over $1 million ........your tax is $35,000 plus 7.5% of excess over $500,000
If your taxable income is over $1 million but not over $2.5 million .......your tax is $72,500 plus 8% of excess over $1 million
If your taxable income is over $2.5 million but not over $5 million ........your tax is $192,500 plus 9% of excess over $2.5 million
If your taxable income is over $5 million ..........................................your tax is $417,500 plus 9.9% of excess over $5 million

150-101-366-1 (Rev. 10-03-23)                                   4                     2023 Schedule OR-PTE-PY Instructions