On June 26, 2021, the Oregon Senate adjourned after passing several new measures that impact businesses. Among these, Senate Bills (SB) 139, 164, and 727 include the most substantial changes to Oregon tax law. Our experts have outlined what you need to know about each of these new measures—and how they could affect your organization.
Oregon Senate Bill 139: Pass-Through Entity Business Tax Increase
Effective September 24, 2021, or 90 days after the senate adjourns, business owners will face restructured tax rates for pass-through entities. Oregon Senate Bill 139 (SB 139) eliminates tax breaks for businesses with more than $5 million in profits, and creates a minimum number of nonowner employees for eligibility, effective for the 2021 tax year. Funds raised from the bill will be invested in services for low-income Oregon citizens.
Pass-through income deductions have been an effective way for owners to manage Oregon tax liability. SB 139 reforms the tax breaks for businesses earning more than $250,000 in profits by adjusting the tax rates and adding a requirement for a minimum ratio of nonowner employees to owners.
Updated Tax Brackets
|Ordinary Taxable Income||Tax Rate||Nonowner Employees per Owner|
|$250,000 – 500,000||7%||1 employee with a min. of 1,200 aggregate hours|
|$500,000 – 1 million||7.5%||2 employees with 2,400 aggregate hours|
|$1 – 2.5 million||8%||Four employees with 4,800 aggregate hours|
|$2.5 – 5 million||9%||Ten employees with 12,000 aggregate hours|
Oregon Senate Bill 727: State and Local Tax (SALT) Update
The Oregon Senate approved a State and Local Tax (SALT) workaround that establishes an elective entity-level, pass-through business alternative income tax. The update allows businesses to reduce federal tax liability and creates a personal tax credit for owners.
When elected, up to $250,000 of income is taxed at 9%, and income exceeding $250,000 is taxed at 9.9%. If paid, owners will receive state income tax credits for a pro rata share of entity tax. Businesses may elect the credit for tax years 2022 and 2023. This relatively narrow window creates an opportunity for organizations to decrease tax payments significantly.
Oregon Senate Bill 164: CAT Filing Date Change for Fiscal Year-End Filers
While SB 164 includes several changes, the most notable update is for fiscal year-end taxpayers filing their Corporate Activity Tax (CAT). For the 2021 calendar year, taxpayers using a federal tax year other than the calendar year must register with the Oregon Department of Revenue and file a short year tax return.
The short year tax return applies from January 1, 2021 to the last day of the federal tax year ending in calendar year 2021. The 2021 short year tax returns must be filed by April 15, 2022. Taxpayers will need to prorate their CAT calculations for the number of days for which the short year tax return applies. Once filed, this will allow fiscal year-end filers to align their income tax return with their Oregon CAT.
Managing Your Tax Liability with Aldrich
With much change ahead for Oregon taxpayers, business owners should consult with their Aldrich Advisor to better understand their tax liability. Each bill adds another layer to consider when evaluating your tax planning strategy and savings potential. Our experts will continue to monitor for additional developments and keep you apprised of further updates and changes.
Meet the Authors
Mike Sause, CPA, CCIFP®
Aldrich CPAs + Advisors LLP
Mike Sause joined the firm in 2008 and provides consulting, tax planning and compliance services to businesses and their owners. He has over two decades of public accounting experience in medium sized local and regional firms and specializes in the construction industry. Mike also spent four years in banking and private accounting positions. Oregon Society…
- Certified Public Accountant
- Certified Construction Industry Financial Professional (CCIFP®)
- Strategic tax planning and compliance
Diana Strassmaier, CPA, CCIFP®
Aldrich CPAs + Advisors LLP
Diana joined the firm in 2018 with almost two decades of experience serving members of various industries including construction, engineering and architecture, manufacturing and distribution, and government contracting. An expert on conducting overhead audits, Diana works closely with government contracting industry clients to offer clarity on how overhead rates work and help them maximize compensation.…
- Indirect cost rate (overhead) audits and consulting
- Financial audits, reviews and compilations
- Business and personal tax planning and preparation
- Certified QuickBooks ProAdvisor
- Management consulting
- Compensation analysis
- Sage Fixed Assets Certified Consultant