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It probably goes without saying, but we will say it anyway: Nobody likes to pay taxes. That is true for individuals, businesses, and everyone in-between.
Well, a recent bill passed by the Oregon State Legislature is a mixed-bag of good news and bad news for companies and individuals living and doing business in Oregon.
Oregon House Bill 3601 was passed last month during the Legislature's recently completed special session, and it includes a host of tax changes, some of which are retroactive to January 1, 2013, while others will not take effect until January 1, 2015, or later.
The bill's biggest impact will be seen by Oregon C-corporations in the form of higher taxes.
C-corporations currently are taxed at a rate of 6.6% on all taxable income up to $10 million and at 7.6% on all taxable income of greater than $10 million. The new bill reduces the threshold where the 7.6% rate comes into play, as the 6.6% rate now will be applicable to taxable income up to just $1 million, and any taxable income of more than $1 million will be hit by the 7.6% rate.
So for example, a C-corporation that has $10 million of taxable income was subject to $660,000 of tax under the old rules. Now, that same C-corporation will be subject to $750,000 of tax, for an increase of $90,000.
On the individual side of things, the bill eliminates all personal exemption credits for joint filers with a federal adjusted gross income of more than $200,000 and for single filers with AGI of greater than $100,000. Practically, that means wealthy individuals will be subject to higher state taxes as well.
Both of these changes retroactively apply to tax years beginning on or after January 1, 2013.
Now, with the "bad news" behind us, let's look at the bill's "good news."
The bill creates a preferential tax rate structure for certain business income reported on personal income tax returns. Specifically, individuals' "non-passive" income earned from S-corporations, partnerships, and limited liability companies may be subject to better rates, ranging from 7% to 9.9%.
However, in order to receive the preferential rates, which are set to begin January 1, 2015, taxpayers must "materially participate" in the day-to-day operations of the business, and the company must employ at least one person who is not an owner, member, or limited partner – among other stipulations.
So what exactly is "non-passive" income, and what does "materially participate" mean? And what other tax changes will the Oregon bill bring about?
Here at Delap, we can help to answer all of your questions – about Oregon House Bill 3601 and any other tax matters you would like to discuss. Feel free to give us a call at 503-697-4118, or reach out online.