Is a California state tax refund taxable to Oregon?

[GeoffreyG · Accepted solution]

If your California state refund is taxable on your Federal income tax return (please look specifically at Form 1040, Line 10 to determine), then to the extent that you file an Oregon state tax return as either a resident, part-year resident, or nonresident, the California state refund will impact your Oregon taxes.

However, because of the way that the Oregon part-year and nonresident tax returns (Form 40P and Form 40N) mechanically calculate your Oregon tax liability (i.e. using your federal income and your Oregon-source income to derive your Oregon-taxable "percentage"), only in the case of a full-year Oregon resident (filing Form 40), will the California refund (shown on Form 1040, Line 10) be fully taxable by Oregon.

If that process sounds a little bit confusing to you, then you are right . . . it is.  There is a somewhat different treatment applied to full-year residents than compared to part-year or nonresidents.  But these are the (current) state of Oregon tax rules.

Thank you for asking this important question.