End of 2019 Oregon Legislative Session Brings Important Tax Laws

The Oregon legislature adjourned its 2019 year-end session on June 30, passing hundreds of bills during the tumultuous final two days after many Republican members made national news for skipping several days of the session.

An overview follows of important new tax and nontax-related bills that will likely impact businesses operating in Oregon immediately and in the future.

Corporate Activity Tax

The most notable new bill is House Bill (HB) 3427, known as the Student Success Act, a bill that creates the Oregon corporate activity tax (CAT). 

HB 3427 was signed into law by Governor Kate Brown on May 16, 2019. However, before the law can take effect, it’s possible enough signatures may be gathered for a proposed referendum. That said, this is highly unlikely because the Oregon manufacturers and commerce trade group announced it wouldn’t seek a referendum. That means another group would need to submit enough signatures by September 30, 2019, for a special election to occur. Should this happen, a public vote would be held on January 21, 2020.

Provided the CAT goes into effect, it’s expected to raise at least $1 billion in annual revenue. Businesses subject to the CAT will be taxed at a rate of 0.57% on taxable receipts less deductions. A taxpayer’s first $1 million of Oregon receipts will be exempt from the tax, but impacted taxpayers face a minimum tax of $250 and are also required to register for the tax when their Oregon receipts exceed $750,000. 

For more in-depth information on HB 3427, read our recent Insight.

Potential Student Success Act Ballot Defeat

If the potential special election vote prevents the CAT from being implemented, Senate Bill (SB) 212 would effectively nullify other pieces of HB 3427 related to spending as well as the personal income tax rate reductions.

The bill, which was signed by Governor Brown on July 23, 2019, will apply if the CAT doesn’t become effective prior to March 1, 2020.

Paid Family Leave

Under HB 2005, workers will receive up to 12 weeks of paid time off, which they can also use to recuperate from serious illness or domestic violence, or care for newly adopted or foster children. 

These efforts will be funded through a new tax paid for by employers and employees at a respective split rate of 60% and 40%. The payroll tax can’t exceed 1% and will be imposed on total wages up to $132,900. The actual rate will be set by the director of the Oregon Employment Department.

Employers that have existing plans or create a new plan may opt out of the fund by applying to the director of the Department of Education and paying a $250 fee to effectively self-insure themselves. However, the coverage and benefits must be equal to or greater than those provided under HB 2005.

This bill was signed into law by Governor Brown, and employers are required to start making contributions to the fund no later than January 1, 2022.

Personal Kicker Cut

Current forecasts predict a rather large kicker will be paid to taxpayers when filing their 2019 tax returns. Some estimates reach as high as $748 million. Due to the passing of HB 2975, however, kicker refunds will be cut by approximately 14.5%, or $108 million.

This bill, which has been signed into law by Governor Brown, brings complications and controversy. That’s because reducing the kicker refund strips monies legally owed to taxpayers through creative tax bill and budget balancing tactics passed during the 2017 session. 

Rolling Reconnection

Each session, the legislature updates Oregon’s conformity to the Internal Revenue Code (IRC).

SB 213, which has been signed into law by Governor Brown, now ties the calculation of federal taxable income for the starting point in calculating Oregon taxable income to December 31, 2018.

Global Intangible Low-Taxed Income

SB 851, which was signed by Governor Brown on July 15, 2019, treats global intangible low-taxed income (GILTI) as a foreign dividend and requires an addback for the IRC Section 250 GILTI deduction. A 70% or 80% state-level dividends received deduction (DRD) would then be provided.  

The bill also retroactively updates the reference to IRC Section 965 to January 1, 2017. In doing so, the bill makes it clear that a taxpayer can’t take a state-level DRD for the 100% deduction for foreign-source dividend income provided in IRC Section 245A.

Public Employees Retirement System Reform

Oregon has a very storied public employees retirement system (PERS) funding shortfall. SB 1049 is a step towards addressing the funding shortfall, albeit a small one. The bill, which was signed into law by Governor Brown, includes controversial employee cost-sharing provisions that redirect a portion of the retirement contributions employees make today to a supplemental savings plan that’s similar to a 401k.

Instead, some of those contributions—2.5% of pay for employees hired before August 28, 2003, and 0.75% of pay for employees hired after that date—will go into an account that will support pension benefits.

The bill also increases the minimum payout schedule from eight to 10 years. Between the two changes, the bill will save approximately $3 billion of PERS funding contributions.

We’re Here to Help

Each of these bills has its own complications and will impact every industry differently. To learn more about the impact of Oregon’s newest laws and how these changes may affect your business, contact your Moss Adams professional or email us at statetax@mossadams.com.

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