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New Oregon Taxes

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The Portland Revenue Bureau is ramping up to administer the Metro and Multnomah county taxes that were voted on in November 2020. For those not familiar with the Metro it is an Oregon regional government that covers portions of Clackamas, Multnomah and Washington counties. In addition, the City of Eugene is also implementing a new Community Safety Payroll Tax. In total there are four new tax regimes that businesses and individuals are potentially subject to effective January 1, 2021:

Metro Business Income Tax: Also, known as the Supportive Housing Services Tax, this is a one percent business income tax on the net income of persons doing business in the Metro area that have worldwide gross receipts over $5 million. A “person” has been defined to include corporations, partnerships or LLCs. Sole proprietorships or disregarded entities are exempt from the Metro Business Income Tax because they will be subject to the Metro Personal Income Tax. The first annual tax return will be due April 15, 2022.

Metro Personal Income Tax: This is the personal income tax component of the Supportive Housing Services Tax. It is a one percent personal income tax on taxable income over $200,000 for joint filers and $125,000 for single filers. As stated above sole proprietorships and disregarded entities are subject to this tax. The first annual tax return will be due April 15, 2022.

Multnomah County Personal Income Tax: Also, known as the Preschool for All Tax, is a graduated personal income tax on taxable income over $200,000 for joint filers and $125,000 for single filers as follows:

 

 

 

 

Starting 2026 the 1.5% rate is set to increase to 2.3% and the 3% rate is set to increase to 3.8%. This means for a married couple living in Portland making over $400,000 in taxable income will have a top tax rate of 13.9% (Oregon State 9.9% + Metro Personal Income Tax 1% + Multnomah County Personal Income Tax 3%) and in 2026 this will rise to 14.7%. The first annual tax return will be due April 15, 2022.

Community Safety Payroll Tax: This is a City of Eugene payroll tax that the employer and employee pay through payroll withholdings. It is based on where the business is located, not where the employee is located. The employer rate is 0.21% on subject wages. If you’re an employer with an average of two or less employees you may be eligible for a reduced rate of 0.15% on the first $100,000 of subject wages. The employee rate ranges from 0.30% to 0.44% (employees who earn the minimum wage as of July 1, 2020 of $12 per hour are exempt). The payroll taxes and returns are due on a quarterly basis. For people who are self-employed they will pay the tax on an annual basis and the first return will be due April 15, 2022.

For 2021, the income tax withholding for both the Metro and Multnomah County Personal Income Tax is voluntary, but once the payroll systems are in place employers must offer employees in writing the option to withhold. The Portland Revenue Bureau is expecting to be able to receive payments of withholdings the second quarter of 2021. Starting January 1, 2022, income tax withholding will be mandatory, with an opt-out option for individuals who earn $200,000 or more. The City of Eugene’s Community Safety Payroll Tax was effective the first pay period starting on or after January 1, 2021 and the first quarterly tax return will be due on April 30, 2021.

Estimated taxes are required for both the Metro and Multnomah County Personal Income Tax if a person expects to have a tax liability of $1,000 or more and they do not have the taxes withheld from their wages. Underpayment penalties will not apply for 2021, but they will in subsequent years. The City of Eugene’s Community Safety Payroll Tax is a payroll tax that is handled completely through payroll so there are no estimated tax payments needed.

The all important question, how does an employer source wages? For both the Metro and Multnomah County Personal Income Tax wages are sourced to the area based on where the work is performed by the employee. This means nonresidents that work in the area could be subject to these taxes. On the flip side of this the City of Eugene’s Community Safety Payroll Tax is based on where the business is located, not where the work is performed by the employee. For example, if a business is located in Washington and has an employee working remotely from their home in Eugene, the employer and the employee are not subject to this payroll tax. If a business is located in Eugene and they have employees that work from home outside the Eugene area they are subject to the payroll tax.

The Metro Business Income Tax is based on sales sourced to the Metro area. For the sale of tangible personal property it is based on where the product is delivered or shipped to, but currently it appears if a purchase is picked up outside the Metro area by a customer to be taken to a location inside the Metro area it would not be sourced to the Metro area. For service revenue the Metro has adopted a cost of performance methodology. We will need further guidance on how to specifically apply both of these sourcing methodologies especially since they differ in distinct ways from the Oregon Revised Statutes. Fortunately there is relief for pass-through entity owners so they are not double taxed, a deduction will be allowed on the owner’s personal income tax return for the owner’s share of the pass-through entity’s taxable income that was subject to the Metro Business Income Tax.

There are still more details to work out regarding administration of these taxes and how all of the tax filings will work, especially for the Metro Business and Personal Income Tax and Multnomah County Personal Income Taxes. We will continue to monitor the additional guidance that is released.

For more information or assistance, please contact your Berntson Porter representative at 425-454-7990. We are here to help!

Berntson Porter is here to help businesses navigate these challenging times. Visit our Resource Center for up-to-date information about COVID-19 legislation that impacts you and your business


     

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