The recent election added an item to the Oregon and Portland Metro area’s current tax landscape. This new tax for the Portland area is another addition to the list of other changes that have occurred and will occur over the next couple of years. The new taxes impact tax liability for both individuals and businesses. As you begin to look ahead into the coming year, consider the implications and tax responsibility.
We’ve outlined the new taxes and updates that could impact you and your business, as well as the strategies to pay the appropriate amount for your business operations in Oregon and Portland. It will be particularly important for Oregon businesses to track revenue from Portland, Multnomah, Metro, and other Oregon and non-Oregon customers going forward.
Multnomah County Business Tax – January 2020
In March, the Board of County Commissioners voted to increase the Multnomah County Business Tax from 1.45 percent to 2 percent. Other changes included increasing the gross receipts exemption from less than $50,000 to less than $100,000 and increasing the maximum owner’s compensation deduction to $127,000. The Portland side of the Business Tax stays at 2.6 percent, previously raised in 2018. Thus, the combined rate is now 4.6 percent for income earned inside the city and county.
For businesses wholly inside the city and county, they should consider if they have valid business operations outside of city/county limits that would allow them to apportion income outside of the city. It is possible that if employees are working from their homes, outside of the city/county limits, this may be enough activity to allow a business to apportion their income on a go-forward basis.
Metro Income Tax (Individual and Business) – January 2021
On Tuesday, May 19, 2020, greater Portland area voters passed the Metro ballot Measure 26-210 to raise money for housing services for individuals and families experiencing or at risk of experiencing homelessness. The tax goes into effect for income earned January 1, 2021 and estimated tax payments may be required, with the first payment due April 15, 2021. Regulations and guidance are still being drafted.
The measure will impose a 1 percent tax on qualifying individuals and businesses located or working in Clackamas, Multnomah, and Washington counties. Individuals living in the three counties will owe a 1 percent tax on taxable income over $125,000 for single filers or $200,000 for those married filing jointly.
Individuals living outside of the metro area but with earned income from the metro area over $125,000 for single filers or $200,000 married filing joint will also owe the 1 percent tax. For these non-residents, businesses and individuals will potentially need to track where employees are actually working since many are currently working from home. Guidance on this is yet to be released, but tracking should begin in January 2021.
Businesses with worldwide gross receipts in excess of $5 million will also owe a 1 percent tax on profits earned in the metro area. Businesses with gross receipts less than $5 million will be exempt. Since the rules for this tax are still in development, it is not entirely clear how the apportionment for Metro businesses will work, but tracking the location where all receipts are sourced will be important.
Multnomah County Income Tax – January 2021
Multnomah County residents voted last week and passed a county preschool initiative, referred to as Preschool For All (PFA) or MULTCOINIT-08. The tax rate will range from 1.5 to 3 percent based on income levels for individuals living in the county, starting in 2021.
Individuals with income over $125,000 single and $200,000 married filing jointly would be subject to a 1.5 percent tax on income over those thresholds. This rate would increase to 2.3 percent in 2026. Taxpayers with income over $250,000 single and $400,000 married filing jointly would be subject to a higher tax rate of 3 percent on income over those amounts. For county residents, this tax will be in addition to the Metro income tax mentioned above.
Oregon Corporate Activities Tax — January 2020
On May 16, 2019, Oregon Governor Kate Brown signed House Bill 3427A, creating a new Oregon Corporate Activities Tax (CAT). The bill was later modified by House Bill 2164, which included clarifications, technical corrections, and several other changes. The tax is expected to raise more than $2 billion per biennium for Oregon and applies to companies with revenue greater than $1,000,000. This tax went into effect January 1, 2020 and businesses affected should already have registered and started paying quarterly estimates for their Oregon activity
Tracking revenue location is critical for the CAT. Three main drivers are involved in calculating the tax liability that should be examined to minimize tax liability:
- Revenue: Consider each revenue stream of the business and determine if it’s wholly Oregon-sourced, partially Oregon-sourced, or maybe not Oregon-sourced at all. Many companies that historically did not have any non-Oregon revenue for income tax purposes may have non-Oregon revenue for CAT purposes
- Selling tangible items: Know the location where items are being shipped. If a company is shipping goods outside of the state, the revenue, most likely, does not count as Oregon activity.
- Selling services or intangible items: Know where the client receives the benefit of the service. If the client is located out of state, the revenue is unlikely to count as Oregon activity, regardless if all services are performed in Oregon.
- Cost-of-Goods-Sold (COGS): A potential deduction is allowed for COGS calculated in the same way as is done for income tax purposes. Taking a second look at these costs could be advantageous.
- Payroll: Payroll is the other potential deduction against gross revenue, so capturing all the possible expenses is essential.
You can keep up-to-date with FAQs, rules, and changes to the CAT by subscribing to the DOR’s CAT mailing list here. You can also download our corporate activity tax calculator to estimate the amount of corporate activity tax owed.
Oregon Paid Family Medical Leave – January 2022
Effective January 2022, Oregon businesses and employees will start paying insurance to cover Family Medical Leave. The contribution will be up to 1 percent of payroll and covered 60 percent by employees and 40 percent by employers. Employers with less than 25 employees can opt-out of paying the employer portion. The paid leave would go into effect in January 2023.
Employers could consider establishing their own paid time off plan, and with approval from Oregon, avoid the state-funded plan. There is still only limited information on what the requirements will be, and it may be impractical for most companies to go down that route. With the first payments still a year away, it is time to plan for the additional expense.
Aldrich is Here to Help
Ultimately, companies will want to spend more time considering how to track revenue streams and employee working locations. These factors can impact tax responsibility and provide new avenues for future planning. Each company and individual will be affected slightly differently by all of these new taxes, and preparing for the upcoming tax responsibility should be done now.
As more changes and updates unfurl, we know it can be tough to stay ahead of the curve. Our advisors are here to help guide you through any tax policy changes that may come into effect. Reach out to your Aldrich Advisor today to get the answers you need to stay informed.
Meet the Author
Sara Northcutt, CPA
Aldrich CPAs + Advisors LLP
Sara Northcutt joined the firm in 2005 and has more than a decade of experience working on a wide range of clients, including financial lending, private equity, real estate, and other closely held businesses. Sara specializes in multi-state tax compliance. Sara received her Bachelor of Arts degree from Vanguard University of Southern California and did her... Read more Sara Northcutt, CPA
- Closely-held businesses
- Certified Public Accountant
- Strategic tax planning and compliance