State & Local Tax Updates in Oregon
It’s been almost three years since the Tax Cuts and Jobs Act (TCJA) was passed, creating a wild west for the tax practitioners who have worked diligently to digest the federal and local impacts of these changes. The opportunities and challenges for tax planning in this new landscape was further complicated by the CARES Act passed earlier this year. The results of the recent local elections only add to the complexity and significantly increases the tax burden. Let’s review the new taxes and who will be impacted beginning in 2021.
Multnomah County Preschool for All Tax (Measure 26-214)
Voters approved a new income tax on Multnomah County residents and non-residents with taxable income derived from sources within Multnomah County. The revenue collected from the tax will be used to establish and fund the operations of a new “Preschool for All” program. The tax is effective beginning January 1, 2021, and will be imposed at a rate of 1.5% on taxable income in excess of $125,000 for single filers and $200,000 for joint filers. Taxpayers will also be subject to an additional 1.5% on taxable income in excess of $250,000 for single filers and $400,000 for joint filers. The tax rate will increase from 1.5% to 2.3% starting January 1, 2026. The rate escalation will be subject to the recommendation from a technical team, depending on the success of the program. After 2025, maximum marginal rates will top out at 3.8%.
Metro homeless services tax (Measure 26-210)
In May of this year, voters approved a 1% tax on individuals and businesses living and operating in the Metro Transit District. The tax is effective beginning January 1, 2021. It was passed to fund services for people experiencing or at risk of experiencing homelessness. Revenue collected from the tax will fund addiction treatment and mental health services as well as pay rent subsidies for those in need. Like the Preschool for All tax, residents and non-residents earning income sourced to Metro will be subject with taxable income of more than $125,000 and joint filers earning more than $200,000. Additionally, business profits will also be subject to the tax for income earned within the Metro District regardless of entity type or tax classification. Businesses with less than $5 million in annual receipts will not be subject to the tax.
New Property Taxes in Portland
On top of these new income taxes, voters approved several new property taxes for Portland-area residents that will go into effect for the 2021-2022 property tax year. Affected property owners could see an increase in their property taxes for as much as $3.11 per $1,000 of assessed value. For an assessed home value of $450,000, that could result in an increase of as much as $1,400 annually.
Corporate Activity Tax
Although not a new tax for 2021, we would be remiss not to mention the Oregon CAT tax effective January 1, 2020. The initial tax returns will be due April 15, 2021. For more detailed information on the CAT, please refer to our previous posts:
With the adoption of these tax measures, residents of Multnomah county earning more than $250,000 will be taxed at or near the highest rate in the United States, surpassing places notorious for their local tax burdens like New York City and Los Angeles. If you have questions about what this will mean for you and your business, we are here and ready to help.
Authored by Sean Wallace, CPA