2017 Oregon Legislative Tax Update

You can also find our Alert in issue 7-20 of  Practitioner Connection, the Council on State Taxation’s newsletter.

Governor Kate Brown has signed into law several important tax-related bills that were passed during Oregon’s 2017 legislative session. Highlights include a move to market-sourcing, a change to determining apportionable income, a new gross premiums tax, and new and increased transportation-related taxes.

Move to Market-Sourcing Methodology

Senate Bill (SB) 28 replaces Oregon’s current cost-of-performance apportionment methodology for income tax purposes with a market-sourcing methodology.

Sales of items other than tangible personal property are now sourced to Oregon if a taxpayer’s market for sales is in Oregon. For the sale of services, a taxpayer’s sales are sourced to Oregon to the extent the service is delivered to a location in Oregon.

This bill applies to tax years beginning on or after January 1, 2018. For more information, please see our Alert.

Oregon Transportation Package

House Bill (HB) 2017 serves as a major transportation package and includes the following elements:

  • Raises the gas tax by ten cents
  • Significantly increases the weight-mile tax
  • Imposes a 0.5%—$50 per $10,000—excise and use tax on new motor vehicles
  • Applies a 0.1%—$10 per $10,000—payroll tax to be withheld from employees’ payroll and remitted by employers

These tax increases will begin to take effect on January 1, 2018. For more information, please see our Alert.

Gross Premiums Tax and Increased Taxes on Health Care Organizations

HB 2391 imposes a number of new and increased taxes on health care providers and insurers:

  • Creates a 1.5% gross premiums tax on insurers and certain managed care organizations
  • Increases the hospital assessment program rate to 6% of net patient revenue
  • Creates a rural hospital assessment of 4% of net patient revenue

The bill’s components generally take effect on January 1, 2018. For more information, please see our Alert.

Apportionable Income

HB 2273 and HB 2275 make several changes to apportionable income. They replace business income with apportionable income, consistent with model language developed by the Multistate Tax Commission (MTC). The bills also remove the functional test for apportionable income.

For purposes of apportionment, HB 2273 and HB 2275 amend the definition of sales to exclude the following:

  • Receipts from hedging transactions and from the maturity, redemption, sale, exchange, loan, or other disposition of cash or securities
  • Property or money received or acquired by an agent, intermediary, fiduciary, or other person acting in a similar capacity on behalf of another in excess of the recipient’s commission fee or other remuneration
  • Amounts received from others and held in trust by the taxpayer

The bills also define apportionable income as any income that could be allocated to Oregon under the US Constitution. The MTC commented that this “broad definition is intended to include gains from liquidation of a unitary business including a liquidation that is a deemed sale of assets under IRC 338(h)(10)” and applies regardless of how the gains are used.

HB 2273 and HB 2275 apply to tax years beginning on or after January 1, 2018.

Deduction for Dividend Payments Made by an Insurer

SB 153 allows for a 100% deduction for dividend payments made by an insurer to its parent company if both companies are members of an affiliated group filing a consolidated return. In doing so, the bill changes the determination of taxable income for certain affiliated groups. SB 153 applies to all open tax years.

Use of Tax Credits against Corporate Minimum Tax and Other Tax Credit Updates

HB 2066 makes a number of changes to state tax credits, including the following:

  • Permanently disallowing the use of tax credits against the corporate minimum tax
  • Extending sunsets for reservation enterprise zones, affordable-housing lenders, rural medical providers, and fish screening devices
  • Creating a tax credit that’s modeled after the expiring biomass tax credit for the collection of bovine manure that’s used in Oregon as biofuel or to produce biofuel

Most changes apply to tax years beginning on or after January 1, 2018.

Overpayment Application

HB 2283 changes the application of overpayments credited to a subsequent year. Before the law change, Oregon credited an overpayment on a timely filed return to the estimated tax requirement of the first quarter of the subsequent year. Now, the overpayment will be credited, on a cash basis, to the next year on the later of:

  • First due date of the payment
  • Date the taxpayer makes the overpayment

As an example, the 2017 corporate income tax return is due May 15, 2018. The first estimated tax payment for 2018 is due April 15, 2018. Therefore, if a taxpayer files the return on the May 15 due date, any overpayment applied forward will be credited to the second-quarter estimated payment due June 15, 2018, rather than the first quarter estimated payment due April 15, 2018.

HB 2283 also implements the application of overpayments based on when the taxpayer actually remitted a payment to the state. For example, a taxpayer’s extended 2017 return is due October 15, 2018, and the first 2018 estimated payment is due April 15, 2018. If a taxpayer makes a 2017 payment on July 1, 2018, and elects to apply the overpayment forward, the payment is credited on July 1, 2018, and applied to the September 15, 2018, estimated payment, rather than the first quarter payment due April 15, 2018.

HB 2283 applies to estimated tax payments made in tax years beginning on or after January 1, 2018.

Role of Foreign Affiliates Used to Determine Unitary Group

SB 30 allows the Oregon Department of Revenue to evaluate US corporations’ relationships with foreign entities when determining whether or not domestic corporations, which may not be unitary with each other, are engaged in a unitary business and therefore required to file an Oregon unitary return. This bill applies to tax years beginning on or after January 1, 2018.

Reduction of Estate Tax Penalties

SB 32 reduces certain estate tax penalties. Under prior law, two separate 5% penalties were imposed when an estate tax return was filed late and the estate tax was paid late. With SB 32, only one 5% penalty is imposed under these circumstances. The bill applies to estate tax returns due on or after January 1, 2018.

Property Tax Exemption for Not-for-Profit–Owned LLCs

SB 149 allows certain property owned by an LLC to qualify for a property tax exemption if the LLC is wholly owned by one or more not-for-profit organizations or state or municipal entities. Property that would be exempt if owned directly by the not-for-profit or state or municipal entity qualifies for this exemption. The bill is applicable for property tax years beginning on or after July 1, 2017.

We’re Here to Help

If you have questions about how these new laws may affect you or your business, contact your Moss Adams professional or email statetax@mossadams.com.