Business/Mgmt & Tax Concepts

Tax Updates from the Oregon State Legislative Session

March 12, 2020

The Oregon State Legislature called it quits a couple days early after the Republican minority walked out and refused to return over the carbon capping tax vote. On Thursday, March 5, rather than wait for the mandatory deadline of March 8 to lapse, Democratic leaders chose to end the session. As a result, a number of bills pending in the Senate or the House simply died.

Three of those bills will have a direct effect on the Oregon’s taxes: Corporate Activity Tax (HB 4009A), Federal General Reconnect (SB 1528A), and Opportunity Zone (HB 4010A).

  1. Corporate Activity Tax — Technical Correction (HB4009A)

In July 2019, when an amendment to a bill (HB 2164) was abruptly pushed through at the last minute, a new tax was created — the Oregon Corporate Activity Tax (CAT). This tax program, originally described as “simple,” has proven to be cumbersome for all parties involved; its ambiguity precipitated the need for clarifying legislation. House Bill 4009 included several technical corrections to the CAT, which was implemented on January 1 of this year. Here is a table that compares the original rule with the pending correction from HB4009.

Aside from the major issues regarding fiscal year taxpayers and the worldwide income inclusion, most of the technical corrections better align the statute with current Department of Revenue rules, which will serve as our guidance until additional rules are released. For this first year, fiscal year taxpayers can expect a reporting burden to develop internal systems that will capture necessary data for the calculations

2. Federal Reconnect Bill (SB 1528A)

The Oregon legislature is required to vote each year to reconnect to the Internal Revenue Code. The Senate bill (SB 1528A) did not pass this year, so Oregon’s connection date remains at 12/31/18. This year’s changes are minor in comparison to the sweeping changes of last year’s Tax Cuts and Jobs Act (TCJA). The most significant Federal changes were covered under the SECURE Act (“Setting Every Community Up for Retirement Enhancement”), which passed on December 19, 2019.  Below are some highlights.

  • Taxpayers can use up to $10,000 per year from 529 plans to pay down student loans.
  • Parents can withdraw up to $5,000 from IRA or 401(k) plans for birth or adoption expenses.
  • The start date for required minimum distributions (RMDs) from retirement accounts has been delayed to age 72. The age limit for tax-deductible contributions to retirement accounts has been extended to age 72.
  • There are newly imposed limitations on inherited IRAs
  • “Safe harbor” retirement plans, whose reporting is relatively inexpensive and more easily administrated, have been established for small business owners
  • Part-time workers are now eligible to participate in employer-sponsored retirement plans.

While the scope of the SECURE Act is limited, taxpayers who intend to take advantage of the new federal rules should consult with their tax advisors to understand the implications of doing so.

3. Opportunity Zone (HB 4010A)

If there is a silver lining to the debacle in the Oregon Legislature this session, it could be the failing of the new regulations around the Opportunity Zones. The TCJA created tax incentives for real estate developers in designated areas in each state.

Under the proposed Oregon rules, a taxpayer would have been required to increase the basis of their investment by 50% of the difference between fair market value and the original basis for property held more than 10 years. Taxpayers would have been required to increase their federal taxable income by the amounts excluded as a gain. A task force would have been created to research the implications of Opportunity Zones and make recommendations based on the rules. In addition, the new bill would have required each qualified opportunity fund in the state to submit an annual report to the Department of Commerce and Business Services.

It’s unclear if this legislation would have affected the business development intended by the original TCJA rules. If the Legislature is hoping to perform a study on the effects of disconnecting from the Federal rules, they need to start laying the groundwork now.

In response to these and numerous other bills that were laid to rest in the 2020 short session, Governor Brown has issued statements addressing her plan to issue executive orders for some of the outstanding issues. These tax bills were not on that short list. The next regularly scheduled legislative session (160 days long) begins in January 2021. In the meantime, a special session could be called by either the governor or the legislature.

Our expert team of state and local tax professionals is ready and prepared to help you navigate these changes for your business.