Alert
Oregon Ballot Measure Could Substantially Increase Taxes for Corporations
In November 2024, Oregonians will be voting on a measure that could create major tax changes for individuals and corporations doing business in Oregon.
Ballot Measure 118, initially known as Initiative Petition (IP) 17, would amend Oregon’s corporate minimum tax statutes, creating a new 3% gross receipts tax on corporations with Oregon sales over $25 million. The measure would use the revenue raised by this new tax to fund a refundable tax credit or rebate for individuals, including minor children, residing in Oregon for more than 200 days in the prior calendar year.
Businesses should review their sales sourcing methodologies and Oregon sales calculations to understand the potential new tax should Measure 118 pass.
Proposed Changes in Measure 118
Measure 118 proposes to add an additional 3% tax on Oregon sales exceeding $25 million for tax years beginning on or after January 1, 2025. This tax would be in addition to the current graduated minimum tax.
For example, if a business’ Oregon sales are $100 million, its minimum tax would equal $2.35 million, which is the graduated minimum tax of $100,000 plus 3% of $75 million. C corporations with low-margin activities or in loss positions could see an increase in their Oregon tax burden if the 3% tax exceeds the calculated corporate income (excise) tax.
Additionally, the 3% tax would also apply to S corporations with Oregon sales of $25 million or more, which could create a new obligation for a large number of businesses.
Other entities not taxed as corporations wouldn’t be subject to the tax, so potential choice-of-entity planning may become an important analysis.
Measure 118 would not change the definition of Oregon sales. As a result, Oregon businesses subject to throwback could be disproportionately affected by Measure 118 vs. similarly situated businesses located out-of-state. While that same disparity exists under current law, the potential impact is currently limited to the $100,000 minimum tax cap.
The bipartisan Oregon Legislative Revenue Office (LRO) estimates, should Measure 118 pass, it would collect $6.7 billion of revenue in the 2025 biennium that would be used to fund the rebate to residents.
While the overall implications of the rebate remain unclear, the LRO anticipates there could be an overall reduction in money available to the state’s General Fund caused mainly by a reduction in personal income tax revenue due to the tax credit.
Because the rebate is structured as a credit, individuals filing Oregon personal income tax returns can factor this into their tax after the rebate. However, while the rebate would be exempt from Oregon personal income tax, the rebate could be subject to tax for federal income tax purposes similar to the Alaska Permanent Fund rebate.
As written, the Measure 118 tax would apply at every stage of a supply chain. Because of this, the cost of the tax would ultimately be borne by the ultimate consumer in increased prices. The two sectors that would be hit the hardest in total incremental tax are anticipated to be wholesalers and retailers.
The actual amount of the rebate will vary significantly depending on revenues and administrative costs, interpretation of the statutory language, and subsequent legislative changes. It is anticipated the rebate could be $750 or more per resident.
Existing Minimum Tax
C corps doing business in Oregon are currently subject to the greater of their calculated corporate income tax, or the applicable minimum tax.
Under the current minimum tax regime, C corps pay a graduated minimum tax annually equal to $150 to $100,000, depending on their volume of Oregon sales. S corps, however, are only subject to a $150 minimum tax. These minimum taxes apply regardless of whether corporations generate any profits.
For purposes of the minimum tax, Oregon sales is generally defined as total sales—gross receipts—of the taxpayer for purposes of determining its Oregon sales factor for income tax purposes.
Importantly, Oregon has a throwback provision if tangible personal property is sold and shipped from Oregon into a destination state where the taxpayer is not taxable. Those sales are thrown back to Oregon and included in Oregon sales. In other words, Oregon taxes the income from these sales if other states don’t.
We’re Here to Help
For more information about how Ballot Measure 118 could affect your business, contact your Moss Adams professional.