Tax Insider for May 12

Tax Insider

Good morning. It was a quieter week in the legislature, with the Senate walkout hiatus playing out, but it certainly wasn't a slow week in tax news and developments. Here's a quick rundown of things to know.

Portland's Tax Weirdness Redux: On Thursday, Portland Mayor Ted Wheeler announced he would ask City Council for a one-year freeze on proposed or planned tax and fee increases. It's welcome news for taxpayers still learning to live with the multitude of new and increased taxes. In the last decade, the Portland area has created or raised income taxes eight times (assuming, like me, you consider the arts tax an income tax). A tax hiatus makes sense, but is it possible outside of the taxes and fees proposed for the City's budget?

While the mayor's announcement could shape local budget negotiations, it might not come to fruition. On Tuesday, Multnomah County voters will cast their ballots on a local measure seeking to make the county the only jurisdiction in the world to impose two capital gains taxes. Measure 26-238 aims to impose a 0.75 percent capital gains tax on residents—we'll get to that in a minute. Notably, the proposed capital gains tax is separate from the county's income tax, which already includes the income generated from capital gains.

The measure's proponents claim the tax is a way to soak the rich in new taxes, but unlike the existing capital gains tax, there is no threshold targeting "the rich." Without a threshold, something the progressive tax groups love and tax policy experts despise, anyone with a capital gain will be subject to the new tax. That includes families setting aside money in investment funds for a child's college. And the Portland Revenue Division, which administers the area's income taxes, says the administrative costs of the new tax could swallow about half of the revenue from the new tax because it's so complicated.

Oddly enough, the measure's authors applied the new capital gains tax only to residents of Multnomah County. So, if someone lives outside the county but has capital gains from a source within the county, such as a business, they do not pay the tax. Considering the concerning trends of people moving out of the Portland area because of high taxes, it's weird to consider another tax that only baits people to leave.

Recalibrating the Corporate Activity Tax: Since the 2019 session, the legislature has considered proposals to make policy changes to the corporate activity tax (CAT). During the 2020 and 2021 sessions, revenue leadership postponed any material changes until the economists had two year's worth of real-world tax data to use as a starting point. The assumption, perhaps naively, was it meant the 2023 session.