There has been a lot chatter in the Oregon business community about what to expect from the Oregon Legislature on the heels of the massive defeat of Measure 97.
One of Public Affairs Counsel’s areas of expertise is tax issues, particularly for Oregon companies.
These are the tax issues that we’ll be paying attention to in 2017:
Tax reform. Senator Mark Hass (D-Beaverton) has been steadfast in his support for a 0.4% Commercial Activities Tax (CAT) in exchange for eliminating corporate income taxes and lowering personal income taxes. 2017 may be the year this proposal gains traction.
- Shift from cost of performance to market-based sourcing. More and more states are moving from the traditional cost-of-performance method and adopting market-based sourcing rules to apportion sales of services. Under a market-based approach, business income is assigned to the state in which the services or benefits of the services are received or where the customer or marketplace is located. This is a way for states to export their tax burden. Oregon is still of “Cost of Performance” state. Many of Oregon’s high tech and software companies would have been seriously hurt by this should Measure 97 have passed.
Property taxes. Senator Hass has also proposed eliminating the 3% annual growth cap on assessed value in exchange for moving to market-value based assessments coupled with a significant homestead exemption. This would translate into an increase in business property taxes and would likely be part of a comprehensive tax overhaul proposal.
Corporate tax disclosure. For the past several years, the legislature has flirted with legislation to require C corporations to disclose business and tax information to the Secretary of State so it can be posted on a public website. We expect a full-throated effort to pass this type of legislation in 2017.
Creative tax increases. For the past several years, the legislature has exploited a loophole that allows it to both extend existing tax credits (revenue deduction) and raise taxes (revenue increase) in the same legislation in order to avoid the 3/5 supermajority requirement for raising taxes. Significant emerging threat to the business community
What can be passed with a simple majority vote? The Oregon Supreme Court handed legislative tax-raisers a victory in the past year by ruling that it no longer takes a 3/5 supermajority vote of the legislature to raise revenue through the elimination of tax credits or deductions. For years, certain legislators have salivated over the prospect of scaling back or eliminating tax deductions such as the mortgage interest deduction. 2017 will be the first session where this will be possible with a simple majority vote. Huge implications for Oregon businesses.
Tax havens. Since 2014, Oregon has enacted an aggressive state policy of taxing foreign source income based on the premise that the state is losing significant tax revenue due to profit shifting to foreign “tax haven” nations. Oregon now requires corporate taxpayers to include in consolidated tax returns any unitary affiliate incorporated in a “tax haven” jurisdiction. What constitutes a “tax haven,” of course, is a political decision. We fully anticipate that the Oregon Department of Revenue will recommend new additions to the “tax haven” list that will include major Oregon trading partners and significant sources of foreign direct investment (FDI).