Portland-area voters approved a number of new local taxes in the November 3 election. These new taxes, together with previously enacted taxes that either have become effective or will become effective in 2021, will significantly increase the state and local tax burden in Oregon and especially the Portland area.
Multnomah County Preschool for All Tax (Multnomah County Ballot Measure 26-214)
Multnomah County voters approved a measure that imposes a new income tax on Multnomah County residents and non-residents with taxable income derived from sources within Multnomah County. The tax will become effective January 1, 2021 and initially will be imposed at a rate of 1.5% of taxable income over $125,000 for single filers and $200,000 for joint filers. This rate will increase to 2.3% effective January 1, 2026. Individuals will also be subject to an additional 1.5% tax on taxable income over $250,000 for single filers and $400,000 for joint filers. When fully phased in the aggregate top tax rate will be 3.8%. The proceeds of the tax will fund preschool services for qualified Multnomah County residents. The scheduled rate increase is subject to a recommendation from a “technical team” as to whether the increases are necessary to fully fund the planned preschool program.
The new tax will apply to all taxable income of Multnomah County residents, regardless of source. For non-residents, only income derived from sources within Multnomah County will be subject to the tax. A previously proposed version of the preschool tax indicated that sourcing income to Multnomah County would likely be determined by applying rules similar to the state income tax sourcing rules applicable to non-Oregon residents. If that approach is applied, we would expect that income attributable to services performed by nonresidents in Multnomah county would be sourced to the county and would be subject to the tax, and income attributable to services performed by nonresidents outside the county would be sourced outside the county and would not be subject to the tax. In addition, if rules similar to the state income tax sourcing rules are applied, it is possible that special rules would apply for persons providing managerial services as officers and executives of businesses located in the county, and owners of businesses with pass-through income sourced within the county.
Property Tax Measures
A number of new property tax measures were also approved by voters in the Portland area. These include measures that will impose additional property taxes to finance public school modernization, library renovations, and recreational programs and park services. The public school modernization measure authorizes the Portland public school district to issue up to $1.2 billion in bonds for school facilities and education investments. The measure is expected to result in additional property tax liability for affected property owners of $2.50 per $1,000 of assessed value. The library renovation measure authorizes Multnomah County to issue $387 million in bonds to update, renovate, and construct libraries across the county. The measure is estimated to increase the property tax rate by 61 cents per $1,000 of assessed value. The recreation program and park services measure authorizes the City of Portland to impose a five-year levy for the purpose of operating the city’s park system, including to improve water quality and wildlife habitat, control erosion, and plant and protect park trees. The levy will be imposed at a rate of 80 cents per $1,000 of assessed value of affected property and is expected to raise approximately $48 million each year of the five-year period.
Previously Enacted Changes
The newly enacted taxes are in addition to taxes that were previously enacted and either have become effective or will become effective in 2021. These include the new Metro tax to fund services for people experiencing homelessness or at risk of experiencing homelessness. This tax will become effective January 1, 2021 and will be imposed at a rate of 1% on individual taxable income over $125,000 for single filers and $200,000 for joint filer per years. The tax also will apply to the “business profits” of any businesses with gross receipts of more than $5 million per year. The details of how this tax will operate remain to be determined. Metro has announced plans to adopt administrative rules in fall 2020, and has said that it expects the rules to be similar to administrative rules for Multnomah County’s personal income tax, which was in place from 2003 to 2005, and the Multnomah County Business Income Tax.
In addition, the Multnomah County Business Income Tax rate increased from 1.45% to 2.0% effective January 1, 2020. The new Oregon Corporate Activity Tax (CAT) also went into effect on January 1, 2020. The CAT generally is imposed at a rate of 0.57% on commercial activity from Oregon sources in excess of $1 million. For a summary of the CAT see Oregon Enacts New Corporate Activities Tax.
These new taxes significantly increase the total tax burden on individuals and businesses in Oregon, and particularly those in Multnomah County. With the passing of the preschool tax in addition to the recently passed measures, the combined top state and local income tax rate for Multnomah County residents who earn over $250,000 will be at or near the highest in the Unites States. In addition, it is estimated that businesses in Multnomah County will be subject to a more than 20% increase in overall taxes due to the recent tax changes.
New Metro Payroll Tax (Metro Ballot Measure 26-218) Defeated
Voters rejected Metro Ballot Measure 26-218, which would have imposed a new 0.75% payroll tax on employers who employ individuals in the Metro areas (most of Washington, Multnomah and Clackamas Counties) to fund traffic, safety, transit improvements and transportation programs.
Please contact one of the Key Contributors to this Alert if you have questions about the above taxes or any Oregon state and local taxes.