Oregon offers numerous tax incentives for businesses considering expansion or relocation in the state.
These programs, however, require many qualification considerations, with some updates being passed during the 2023 legislative session, including the following programs:
Enterprise Zone Program (EZ)
Businesses expanding within an identified EZ may be eligible to receive a three- to five-year property tax exemption on qualifying property as well as a construction-in-process local tax exemption for up to two years. Qualification is dependent on the type of business as well as satisfying investment and hiring or wage requirements.
HB 2009 extended the EZ program through 2032, as well as mandated a new school support fee.
What Businesses Are Eligible for the EZ Program?
To be eligible for the EZ program, businesses must provide goods or services to other operations or organizations. Manufacturing, assembly, fabrication, processing, shipping, or storage businesses are eligible business activities.
Call centers and headquarters also qualify. Hotels and motels may qualify, depending on the EZ.
Ineligible activities include retail sales or services, childcare, housing, retail food service, health care, tourism, entertainment, financial services, professional services, leasing space to others, property management, and construction.
Fulfillment centers no longer qualify for the EZ program pursuant to HB 2009.
What Property Qualifies for the EZ Program?
The following property qualifies provided it’s owned or leased by an authorized EZ business within an EZ:
- Newly constructed buildings or structures
- New additions or modifications to an existing building or structure
- Any real property machinery or equipment or personal property that is new, used, or reconditioned and installed on property owned or leased by the EZ business, and is either newly purchased or leased, or newly transferred into the EZ from outside the county
All real property must exceed $50,000 to qualify, and each item of personal property must exceed $50,000 ($1,000 or more in the case of an item used exclusively in the production of tangible goods). The property must also further the production of income.
Property That Doesn’t Qualify
- Property unused for more than 180 days
- Noninventory supplies
- Operator-driven motor vehicles or equipment
- Rolling stock transported beyond the EZ boundary
Are There Hiring or Wage Requirements?
To qualify for the standard three-year exemption, businesses must generally increase employment by the greater of one job or 10% of the current annual average employment of the business. Local requirements may also exist depending on the EZ.
To qualify for the four- or five-year exemption, businesses must have new worker compensation at or above 150% of the county average wage, seek written approval from the zone sponsor, and satisfy any additional local requirements.
What Is the School Support Fee for EZ Businesses?
Under HB 2009, businesses must also pay a school support fee during years four and five of exemption, if granted. The school support fee is paid in lieu of property taxes on the EZ property. The rates are set by the governing bodies of the zone sponsor and each school district and must be between 15%–30% of the property tax that would have been paid on the exempt property.
Are There Application or Compliance Due Dates?
Businesses must generally file an application with the local zone sponsor prior to commencing construction or hiring, enter into a written agreement with the city or county, and enter into a first source hiring agreement with local job training providers. After approval, an exemption claim must be filed with the county assessor and local EZ manager between January 1 and April 1 to claim the exemption annually.
Long-Term Rural Enterprise Zone (LTREZ) Program
39 EZs are categorized as rural EZs. Businesses located within a rural EZ may be eligible for the LTREZ program.
How Does the LTREZ Incentive Differ from the Standard EZ?
The LTREZ program allows for a property tax abatement of seven to 15 years, compared to the Standard EZ exemption period of three to five years. Additionally, facilities aren’t subject to tax until facility operations commence, meaning the construction in process exemption may exceed two years.
HB 2009 extended the LTREZ program through 2032, as well as mandated a new school support fee.
How Do You Qualify for the LTREZ Program?
Unlike the standard EZ, any type of business can qualify, provided it meets the following requirements:
- Total facility costs must be 0.51% of a county’s total real market value (base amount typically $1 million to 25 million)
- Within three to five years of commencing operations, a minimum of 10new full-time employees, depending on location, must be hired and retained through the abatement period
- Annual average compensation, including benefits, of all workers must be at least 150% of the county average annual wage, with the 150% threshold being based on the latest, final figure in the fifth year of operation, upon which the minimum is set for the remainder of the abatement period
Does the New School Support Fee Apply to the LTREZ Program?
Yes, under HB 2009, businesses must also pay a school support fee during years six through 15 of the LTREZ exemption, if granted. The school support fee is paid in lieu of the property taxes that would have been imposed. Rates are set by the governing bodies of the zone sponsor and each school district and must be between 15%–30% of the property tax that would have been paid on the exempt property.
What Is the Application Process for the LTREZ Program?
To be approved, businesses must apply to the local EZ sponsor and county assessor and enter into a written agreement. Applications must be made prior to beginning construction or hiring. For the LTREZ, a local resolution must be passed to approve the property tax exemption.
Strategic Investment Program (SIP)
The SIP provides a 15-year exemption from property tax for a portion of large capital investment projects exceeding a certain real market value threshold.
Traded Sector Projects
Projects must serve a traded sector industry, meaning member firms sell their goods or services into markets where national or international competition exists.
To qualify, projects must:
- Receive local approval
- Meet minimum eligibility thresholds
- Pay a community service fee
- Enter into a first source hiring agreement with a publicly funded job training provider and hold a job fair through WorkSource Oregon
How Are Projects Approved for the SIP?
Projects must either receive local approval through a custom agreement or be located in one of three preestablished strategic investment zones (SIZ): Gresham SIZ, Clackamas rural SIZ, or Clackamas urban SIZ.
Under prior law, only cities or counties could enter into SIP agreements, but ports are now authorized under HB 2009.
Note that no additional SIZ may be created under HB 2009.
What Are the Minimum Eligibility Thresholds?
Under HB 2009, the project eligibility thresholds were increased for property tax years beginning on or after July 1, 2024. To be eligible for the SIP, a project cost must be at least $40 million in rural areas (up from $25 million) or $150 million in urban areas (up from $100 million). Minimum amounts are also now adjusted annually for inflation.
What Property Value Would Be Considered Exempt? What Is the Real Market Value Threshold?
HB 2009 also modified the real market value thresholds. In urban areas, first-year real market value of the project exceeding $100 million is still exempt but is now adjusted annually for inflation.
In rural areas, the initial taxable amount depends on total investment costs:
- For investments of $500 million or less, the real market value threshold is $45 million, up from $25 million
- For investments between $500 million and $1 billion, the real market value threshold is $75 million, up from $50 million
- For investments greater than $1 billion, the real market value threshold is $150 million, up from $100 million
Each year during the exemption period, regardless of whether a project is in an urban or rural area, the exemption threshold increases by 3%.
For example, for a $100 million project in a rural area in year one, tax is owed only on the first $45 million of real market value and $55 million of real market value is exempt. In the second year, tax is owed only on the first $46.35 million of real market value and $53.65 million of real market value is exempt.
What Is the Community Service Fee?
The project must pay a community service fee, as in the agreement negotiated between the firm and the county/city. The fee is equal to 25% of each year’s tax savings, capped at an annual maximum of $3 million (up from $2.5 million prior to HB 2009) and now adjusted for inflation.
How Else Did HB 2009 Modify the SIP?
Under HB 2009, SIP businesses must also enter into a first source hiring agreement with a publicly funded job training and hold a job fair through WorkSource Oregon.
Oregon Investment Advantage Program (OIA)
The OIA program provides up to a 10-year taxable income exemption for businesses that locate facilities in eligible locations. It can be paired with applicable property tax exemptions.
What Locations Are Eligible for the OIA Program?
Eligible locations must be within a qualifying county and either on land zoned for industrial use or located inside the urban growth boundary of a city with a population of 15,000 or less. As of January 1, 2023, 16 counties are eligible.
What Income Is Exempt?
The OIA program exempts the income of a business that is apportionable to the facility that was certified under the program. Income is apportioned by multiplying the taxable income of the business by an apportionment percentage determined based on the payroll and value of the property at the facility versus total payroll and value of property statewide.
The exemption begins at least 24 months after the commencement of new operations.
What Businesses Qualify for the OIA Program?
Unlike the EZ and LTREZ programs there’s no minimum investment requirement for the OIA program. Any type of project may qualify, provided that it must:
What Is the Application and Compliance Process for the OIA Program?
A business must submit an initial application with the Oregon Business Development Department, before hiring or work begins with the project. The application approval process lasts 60 days, during which local governments can comment on the proposed project.
After preliminary certification, within 30 days after each applicable tax year, OIA businesses must submit an annual certification for each year of exemption.
We’re Here to Help
Contact your Moss Adams professional if you have questions about business incentives, specifically site selection projects or how to align your business expansion strategy with incentives.
You can also find additional resources with our Tax Credits & Incentives Services.