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BTAR 600.93-9A Definition of Controlling Shareholders and Calculation of Number of Controlling Shareholders

City of Portland Revenue Bureau, License and Tax Division

Business Tax Administrative Rule 600.93-9A

Definition of Controlling Shareholders and Calculation of Number of Controlling Shareholders

A controlling shareholder is any person who, together with that person's spouse, parents, and children, is directly or indirectly the beneficial owner of more than 5% of the outstanding voting stock or securities of the taxfiler. This means that a spouse, parent or child of a person holding 100% of the voting stock of a corporation is defined as being in a controlling shareholder group that includes the 100% stockholder. Any compensation or interest paid the 100% stockholder AND the spouse, parent or child of the 100% stockholder is defined as compensation paid to the controlling shareholder. Spouse, parents and children of a controlling shareholder meet the definition of controlling shareholder “in the aggregate”. Generally, the controlling shareholder counts as one owner that includes the spouse, children and parents unless the spouse, children or parents individually or as a separate related controlling shareholder group controls more than 5% of the stock. All individuals or related shareholder groups controlling more than 5% of the voting stock in their own right are additional controlling shareholders for purposes of Business License Tax and Business Income Tax laws.

Example 1: An individual owns 96% of the voting stock of a corporation. His wife and son each own 2% of the voting stock. For business income tax purposes, there is one controlling shareholder in the corporation.

Example 2: An individual owns 82% of the voting stock of a corporation. Her husband owns no stock. Her three children each own 6% of the voting stock of the corporation. For business income tax purposes, there are four controlling shareholders of the corporation.

Example 3: An individual and her son each own 3% of the voting stock of a large corporation. Together they are considered a controlling shareholder of the corporation, owning 6% of the voting stock. If the spouse of the individual owned 94% of the voting stock, there would be two controlling shareholders for purposes of Business License Tax and Business Income Tax laws.

Example 4: Three family group owns all the voting stock of a corporation. The groups consist of the following family relationships:
a. Father and Mother Smith who own 6% and 1% respectively.
b. The Smith's son and his two daughters who own 6%, 1% and 1% respectively.
c. The Smith's daughter and her five daughters who own 2%, 1%, 1%, 1%, 1%, and 1% respectively.
d. Father and Mother Olson who own 2% and 40% respectively.
e. The Olson's son and two children who own 8%, 2% and 2% respectively.
f. The Olson's daughter who owns 5%.
g. Father and Mother Dailey who own 5% and 0% respectively.
h. The Dailey's daughter who owns 4%.
i. The Dailey's first son and 3 children who own 2%, 1%, 1%, and 1% respectively.
j. The Dailey's second son who owns 5%.
For business income tax purposes, there are seven controlling shareholders, calculated as follows:
1. Father and Mother Smith. (7%)
2. The Smith's son and his family. (8%)
3. The Smith's daughter and her family. (7%)
4. Father Olson along with his daughter. (7%)
5. Mother Olson. (40%)
6. The Olson's son and his family. (12%)
7. Mother and Father Dailey, their daughter, their first son and his children, and their second son. (19%) Note: The Dailey family counts as one controlling shareholder since no one owns more than 5% in his/her own right and siblings, by themselves, are not subject to attribution.

Example 5: John Doe owns 4% of stock directly in his name.  John is also a 50% beneficiary of a trust that owns 5% of stock.  John is granted voting rights and control equivalent to 6.5% ownership of stock (including his 2.5% indirect stock ownership).  John is a controlling shareholder.  Compensation paid to John must be added back to net income and a compensation allowance deduction is granted to John.  Note:  John must be granted direct voting and control rights for his indirect ownership share.  If John has no direct voting and control rights for his indirect stock ownership he is not a controlling shareholder.

 


Adopted: 11/23/93

Amended: 12/26/00 (housekeeping changes), 8/10/09 (housekeeping changes), 1/24/11 (housekeeping changes), 10/11/12 (housekeeping changes)

(PCC 7.02.600 D / MCC 12.600 D)

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