Oregon’s enterprise zone property tax incentives and related e-commerce income tax credit have been around for some time. However, many companies don’t realize they’re eligible to claim them, and others simply don’t know how to begin.
To start, companies must apply for the Oregon enterprise zone program prior to commencing any expansion project—before beginning construction, purchasing equipment, hiring additional staff, or taking any other expansion steps. This makes awareness of the incentive a critical first step. After that, claiming one or both incentives takes a bit of planning and analysis, but the tax savings can be significant.
Take an Oregon manufacturer pursuing plans to build an additional manufacturing facility within an enterprise zone. Much of the real and tangible personal property related to this expansion would qualify for a five-year property tax exemption. Then, in conjunction, the manufacturer implements an enterprise resource planning solution and launches a new Web site that allows it to sell its entire product line directly to consumers. On top of a five-year property tax exemption (and assuming the manufacturer is in an e-commerce zone, which we’ll discuss later) the company would be able to claim an Oregon income tax credit equal to 25 percent of e-commerce investments made during each property tax exemption year.
Let’s look at the two incentive components of the enterprise zone program—the standard enterprise zone property tax exemption and the e-commerce income tax credit—as well as which companies are eligible to claim these incentives and the potential tax savings.
Property Tax Exemption
Companies engaging in eligible business activities and interested in the three to five year property tax exemption on eligible purchases should begin by confirming whether they’re located (or will be located) within an enterprise zone. Companies must then submit an application for entrance into the program and authorization to claim the property tax exemption prior to commencing construction or making any investments.
What Businesses Qualify?
The property tax exemption is available to manufacturing, processing, and shipping businesses as well as a range of support operations, including headquarters and call centers, within an enterprise zone. Retail, construction, financial, and certain other activities are ineligible; hotel and resort businesses are eligible only in certain zones.
To qualify, these businesses must increase their full-time, permanent employment within the enterprise zone by at least 10 percent and make a minimum investment of $50,000. In special cases, exceptions may apply to the hiring requirement. For example, if you’re new to a zone, you may need to hire only one employee. Business Oregon provides a map of the state’s enterprise zones and boundaries on its Web site.
What Property Qualifies?
The property tax exemption under the enterprise zone program can amount to a savings of 1 to 2 percent of the total investment’s assessed property value. Construction-in-progress property may also qualify for a property tax exemption for up to two years while the project is under development.
Property purchases that qualify for the credit include:
- New buildings or structures
- Additions or modifications to existing buildings
- Other personal property related to the expansion
E-Commerce Income Tax Credit Overlay
As businesses race to keep up with consumer demands for faster service, more options, and greater convenience, many are investing heavily in their e-commerce infrastructure. Companies making such investments within certain Oregon enterprise zones may be eligible for an income tax credit that offsets either Oregon corporate excise tax or the personal income tax of owners of a pass-through entity.
The credit is equal to 25 percent (up to $2 million) of a company’s investment in capital assets to be used in e-commerce operations inside the enterprise zone—making the credit quite lucrative for companies that take the time to plan for it. The credit can be claimed in addition to the property tax exemption, and any unused credit may be carried forward for up to five tax years.
For purposes of the credit, electronic commerce is defined as engaging predominantly in transactions via the Internet or an Internet-based computer platform. This includes taking orders, closing sales, making purchases, providing customer service, or performing other business activities with third parties. Note that these activities qualify for the credit despite the fact that they’re retail in nature.
To qualify for the e-commerce income tax credit, your company must first meet the standard enterprise zone program requirements. The credit is then claimed directly on an Oregon corporate, pass-through, or individual tax return. While no additional application form is required, businesses that claim the e-commerce credit will need to maintain records and documentation of investments and purchased assets, their qualifications for meeting the credit guidelines, and other relevant information.
We're Here to Help
Oregon’s enterprise zones cover most metropolitan and nonmetropolitan cities in the state, and many businesses within the zones have operations that may qualify. If you’re in the process of deciding where and how to expand, you may want to consider how enterprise zone credits impact the financial case for those decisions.
Our State & Local Tax Services professionals can perform an analysis to help you determine whether you’re located in a qualifying zone and whether your business and expansion activities qualify for the property tax exemption or the e-commerce credit. For more information, contact your Moss Adams professional or email email@example.com.