Portland’s Clean Energy Surcharge Tax Could Increase Costs for Businesses

On February 21, 2019, the city council in Portland, Oregon, passed a measure into law that imposes 1% gross receipts tax on certain large retailers. The Clean Energy Surcharge is meant to fund various clean energy projects and community benefits. The tax is effective January 1, 2019.

Here’s a look at the new tax, who’s liable, and what this change could mean for your business.


The Clean Energy Surcharge expands an existing measure, known as Measure 26-201, that Portland voters passed in November 2018.

However, in codifying the measure, the Portland City Council changed several key provisions—including who qualifies for the tax. Several other important areas are expected to be further developed through the city’s rulemaking process.

Changes for Large Retailers

Measure 26-201, as passed by the voters, and the Clean Energy Surcharge law both impose a 1% tax on Portland revenues of large retailers earning over $500,000 per year from Portland sales. However, the new law expands the definition of a large retailer.

Measure 26-201 defined large retailers as businesses with gross revenue of over $1 billion from retail sales from all locations in the United States in the prior tax year. The Clean Energy Surcharge law keeps the $1 billion threshold but strikes the references to the United States—broadening the test to all sales.

That means a business with high international sales not previously subject to the tax under Measure 26-201 may be subject to the tax under the Clean Energy Surcharge law.

Although the number of businesses subject to the tax has likely expanded with the Clean Energy Surcharge, the tax calculation hasn’t changed—a large retailer is still subject to a tax of 1% on its retail gross revenue within Portland. Language referring to the prior tax year in Measure 26-201 has also been eliminated, which means a business that meets the thresholds in the current tax year will now be subject to the tax in that year.

Sales and Gross Income

Changes introduced by the Clean Energy Surcharge law could have significant effects on sales and gross income for large retailers. Following are a few of the major impacts.

Retail Sales

The term retail is broadly defined in the Clean Energy Surcharge law as a sale to a consumer for use or consumption and not for resale. The law provides the following qualifying definitions:

  • Retail sales. This includes the sale of services, specifically including retail banking services.

  • Taxable retail sales. Taxable retail sales exclude sales of groceries that qualify for purchase under the US Department of Agriculture Supplemental Nutritional Assistance Program (SNAP). Medicines, drugs, and medical devices regulated by the US Food and Drug Administration as a medicine or drug are also excluded from taxable retail sales as well as health care services that involve providing health care to the public—including doctor appointments, medical clinic and hospital visits, health insurance, and care provided by senior care and rehabilitation facilities.
  • Retailer. The term retailer excludes any entity operating a utility within Portland, any cooperative recognized under state or federal law, or any federal or state credit unions. 

The City of Portland Revenue Division has indicated it will provide further guidance on the definition of retail through administrative rules.

Location of Sale

Determining whether a sale occurs in Portland is just as important as calculating retail sales.

Portland’s apportionment rules for net income tax apply to determining gross receipts. These rules may diverge from the state of Oregon’s rules, so retailers subject to the gross receipts tax should carefully review the rules.

For example, for tax years beginning on or after January 1, 2018, Oregon has adopted market sourcing for determining the sales factor numerator. The city of Portland, on the other hand, uses an income-producing activity approach.

Industry-Specific Rules

Portland has specific rules for sourcing receipts to the apportionment numerator for several industries. Here are a few examples:

  • Banking gross income is determined based on deposits within the city.

  • Freight carriers apportion 50% of the total receipts for any freight movement with a pickup or delivery in Portland, although interstate carriers may reduce the receipts by up to 50% if they’re supported by mileage or other business activity documents.
  • Passenger carriers, such as airlines, determine Portland gross receipts based on Portland departures and aircraft type.

The Clean Energy Surcharge law doesn’t exclude receipts that may be exempt from gross receipts taxes under current federal law, but this policy may be challenged in the future.

Pass-Through Entities

Another factor that distinguishes the Clean Energy Surcharge law from Oregon tax law is the treatment of pass-through entities (PTEs).

While Oregon follows the federal treatment of PTEs, entities that aren’t disregarded, such as partnerships and S corporations, are taxed separately under the Portland and Multnomah business license tax. Under current law, the $1 billion or $500,000 thresholds would apply to each taxable entity.

A business with investments in partnerships that include the distributive share of net income and apportionment factors from the partnerships should evaluate its apportionment in light of this new tax. Structuring opportunities may exist to reduce the overall Portland tax burden.

Effective Dates

Although the Clean Energy Surcharge law is effective for tax years beginning on and after January 1, 2019, Portland won’t impose penalties or interest for failure to make quarterly estimated payments for the 2019 tax year. However, Clean Energy Surcharge taxes due for subsequent years will be subject to the same estimated tax payment requirements that apply to the business license tax.

We’re Here to Help

There are still several areas of ambiguity in the Clean Energy Surcharge law, which means businesses that have activity in Portland and over $1 billion in worldwide sales may want to closely monitor the law.

For more information about the Clean Energy Surcharge law and potential implications for you or your business, contact your Moss Adams professional or email statetax@mossadams.com.

Contact Us with Questions

Enter security code:
 Security code