Oregon Adopts Business Gross Receipts Tax
On May 16, 2019, Governor Kate Brown signed HB 3427 also known as “The Student Success Act.” The bill is estimated to generate nearly $2 Billion worth of revenue every two years through a gross receipts tax on Oregon commercial business activity. This will be an entirely new concept to many Oregon businesses as a gross receipts tax will generate a tax liability regardless of bottom line profitability.
The new tax will go into effect January 1, 2020. Only sales apportioned to the State of Oregon are taxed. Details regarding how businesses will file and pay the tax are not yet available.
The tax is imposed on businesses with more than $1 million of commercial activities in Oregon, however filing is required when Oregon commercial activity reaches $750K. The tax rate is $250 + 0.57% of the taxable commercial activity in Oregon over $1 million. A deduction against gross revenue is allowed before arriving at net taxable commercial activity. The deduction is the greater of 35% of the Cost of Goods Sold apportioned to Oregon or 35% of employee compensation apportioned to Oregon, limited to 95% of the total tax base. No more than $500,000 per-employee can be deducted.
Nearly every type of business entity is subject to this tax. Partnerships, LLC’s, C-Corporations, S-Corporations, sole proprietorships, tenants in common, disregarded entities, estates, and trusts, are all subject to the tax.
Unitary groups will be treated as a single taxpayer. Unitary Groups are groups of entities with greater than 50% common ownership. Transactions within the group are not subject to the tax. There are some entities and transactions that are exempt from the tax. A full listing of exemptions can be found in the link to the full text of the bill starting on page 29.
To help illustrate the impact this bill will have on home sales, we have provided a brief simplified example below :
Oregon home sale price 500,000
Cost to build Oregon home (450,000)
Gross builder profit 50,000
- For purposes of this tax, gross receipts are the $500,000 of home sale proceeds.
- For purposes of this tax, cost of goods deduction is $157,500 ($450,000 X 35%)
- For purposes of this tax, net taxable gross receipts are $342,500 ($500,000 – $157,500 from #2 above)
This home sale has the potential to generate a tax liability of $1,952.25 (342,500 X 0.57%).
There are a number of bills popping up that could provide more exemptions such as for agriculture (HB 3445), basic necessities (HB 3446) and financial institutions (HB 2164-1).
For questions regarding HB 3427 please contact us today.