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Tax Planning Guide

Oregon Tax Legislation Update

October 22, 2013

House Bill 3601 (H.B. 3601) was passed by the Oregon legislature and signed by the Governor on October 8, 2013. It contains several important tax provisions relating to businesses and individuals.

These provisions are effective starting in 2013, except the preferential tax rate provision is effective starting in 2015. Here’s a brief summary of the most important provisions.

CORPORATE TAXPAYERS

  • H.B. 3601 increases the corporate tax rate from 6.6% to 7.6% on taxable income between $1 million and $10 million. Taxable income in excess of $10 million is still taxed at 7.6%.

INDIVIDUAL TAXPAYERS

Income Tax Rates

  • H.B. 3601 did not change the individual income tax rates. The top rate remains at 9.9%.

Personal Exemption Credit

  • H.B. 3601 disallows the personal exemption credit for joint filers with adjusted gross income exceeding $200,000 ($100,000 for single filers).

Medical Expense Deduction

  • H.B. 3601 converts the senior medical expense deduction into a subtraction, caps the amount of the subtraction, phases out the subtraction as income increases, and gradually increases the age eligibility over time from 62 to 66.
  • The subtraction cap is $1,800 per individual for a joint filers with adjusted gross income less than $50,000; $1,400 per individual for a joint filers with adjusted gross income between $50,000 and $100,000; $1,000 per individual for a joint filers with adjusted gross income between $100,000 and $200,000; and $0 per individual for a joint filers with adjusted gross income exceeding $200,000.
  • The subtraction caps apply to single filers at one-half of the adjusted gross income levels of a joint filer.
  • Age eligibility increases over time: 62 in 2013; 63 in 2014 and 2015; 64 in 2016 and 2017; 65 in 2018 and 2019; and 66 in 2020 and subsequent years.


PREFERENTIAL TAX RATE FOR INCOME FROM PASS-THROUGH ENTITIES, EFFECTIVE STARTING IN 2015

  • At the taxpayer’s election, nonpassive income earned from S-corporations, partnerships, and LLCs may be subject to preferential tax rates ranging from 7% to 9%.
  • Eligibility requirements include material participation by the taxpayer and the business’ employment of at least one full-time, non-investor employee.
  • The preferential tax rates on eligible income at the individual level are 7% for income up to $250,000; 7.2% for income between $250,000 and $500,000; 7.6% for income between $500,000 and $1 million; 8% for income between $1 million and $2.5 million; 9% for income between $2.5 million and $5 million; and 9.9% for income exceeding $5 million.


DOMESTIC INTERNATIONAL SALES CORPORATION (DISC)

  • An existing interest charge DISC is exempt from the corporate minimum tax.
  • A DISC is subject to a 2.5% tax rate on any commissions received.
  • A deduction is allowed for commissions paid to an existing DISC.
  • A personal income deduction is allowed for dividends received from a DISC.

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