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Tidbits: Oregon Tax & Regulatory Updates

An update on recent Oregon tax and regulatory actions.
Tidbits: Oregon Tax & Regulatory Updates

Oregon Considers Controversial Tax Rules for Internet Sellers

Oregon may become the first state to formally adopt a controversial policy eroding a federal law limiting the reach of state income taxes for businesses shipping goods from another state. The policy asserts that Public Law 86-272, which insulates a business from state income taxes if its only connection to the state is soliciting tangible property sales, doesn’t apply to a business offering assistance to its customers over the Internet.

On Tuesday, Aug. 23, the Department of Revenue held its first of three rules advisory committee (RAC) meetings to field reactions from the business and tax practitioner communities. The response was not kind. Stakeholders cautioned the Department not to adopt the controversial policy, saying it would make Oregon an outlier among states and incite litigation. RAC members also questioned the appropriateness of the Department making such a sweeping change by rule, without any statutory authority or policy mandate from the legislature.

The Department is expected to announce its intentions moving forward at the next RAC meeting on Sept. 20. For more information about the first meeting, see our blog post on the discussion.

Quality Education Commission Suggests Legislature Pocketed Corporate Kicker

Every two years, the Quality Education Commission (QEC) estimates the funding required to fully fund the state’s public education system and recommends a budget to the governor and legislature. In 2020, the QEC praised the legislature in its annual report for narrowing the funding gap by nearly $1 billion with the passage of the Student Success Act. In its latest report, however, the Commission seems ready to throw some legal punches.

With booming revenues, Oregon’s corporate tax collections have skyrocketed in recent years, triggering corporate kickers worth billions of dollars. Oregon’s Constitution requires the legislature to appropriate these episodic resources as additional funding for the public education system.

The Commission’s latest report suggests the legislature ignored the constitutional requirement and, instead, pocketed the funds in the General Fund to spend across all state agencies and programs. The QEC is recommending that Oregon commission an audit and legal review of the practice.

Portland Revenue Division Considers Aligning Local Income Tax Sourcing Rules to the State

Although often overlooked as insignificant, the local tax structure in the Portland area has taken a newfound focus for businesses and their advocates in recent years. Currently, a small business in the Portland area is subject to seven different income taxes, each using a different set of rules to determine income. In some cases, businesses are paying more in accounting fees to navigate these local taxes than they are to local jurisdictions.

Thankfully, after more than two years of discussions with local leaders and staff, businesses may be close to operating under a more uniform code. The Portland Revenue Division, which administers income taxes for the City, Multnomah County, and Metro, is contemplating a proposal to align the local taxes with the state. According to a plan outlined by the Revenue Division, the local jurisdictions will consider conforming ordinances later this fall.

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