Oregon’s Measure 118, a proposed business tax initiative, is causing ripples across the state’s political and economic landscapes. This measure, if passed, will introduce a new 3% tax on corporate sales exceeding $25 million, a significant leap from the current minimum tax structure.

Referred to as the “Oregon Rebate,” Measure 118 aims to utilize the increased income from the tax to provide a refundable tax credit or rebate to Oregon residents, projected to be around $1,600 per resident. The measure is set to be presented to Oregon voters in the November 2024 ballot. If approved, the new tax would take effect from January 1, 2025. The proposed measure would impact both C corporations and S corporations and potentially impact those businesses with low-margin activities or in loss positions.

At present, C corporations or affiliated corporate groups are subject to a minimum tax ranging from $150 to $100,000 based on Oregon sales. In contrast, S corporations only face a $150 minimum tax, unless they have taxable income related to special circumstances. Under the proposal, the new tax rules would apply without altering the sourcing rules used to determine a corporation’s annual Oregon sales. Corporations with less than $25 million in annual Oregon sales, partnerships, and individuals would not be affected by Measure 118.

To provide an understanding of the potential impact of the measure, consider a corporation with $100 million in Oregon sales. Under the current minimum tax regime, they would owe a $100,000 minimum tax. However, with the proposed measure, the same corporation would face a minimum tax of $2.35 million – $100,000 from the current minimum tax and an additional $2.25 million from the proposed new minimum tax. This example underscores the substantial financial implications for corporations that surpass the $25 million Oregon sales threshold.

Measure 118 has been met with considerable opposition. Major political groups, labor unions, and a growing number of politicians have voiced their concerns about the potential impact on the state budget. Business interests have also contributed significantly to campaigns opposing the measure, reflecting the heightened concern in the business community about the proposed tax hike.

Changes to the Oregon Minimum Tax under Measure 118 closely mirror the tax amendments proposed previously on Measure 97 (M97), which appeared on the November 2016 Oregon ballot. M97 also attempted to amend the Oregon Corporate Minimum Tax for C corporations only by imposing a 2.5% tax on annual Oregon sales over $25 million plus $30,000. M97 was defeated at the ballot, receiving more than 59% no votes. To pass, Measure 118 needs to receive a simple majority of votes.

The measure’s impact could be substantial, affecting both corporations and individuals. Businesses are advised to review their sales sourcing methodologies and Oregon sales calculations to understand the potential implications should Measure 118 pass.

Geffen Mesher’s team is available to assist you with questions related to these updated rules. Please contact our professionals for more information at INFO@GMCO.COM.