OR Tax Rate Alert 01-29-10.docx
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State & Local Tax Alert Breaking state and local tax developments from Grant Thornton LLP Oregon Voters Approve Increases of Minimum Corporate Tax, Rates for Large Corporations and High-Income Individuals Release date January 29, 2010 At a special election held on January 26, 2010, Oregon voters approved a measure that provides a new sliding scale for determining minimum corporate tax and increases the tax States rate for large corporations.1 Also, voters approved a measure that creates two new Oregon personal income tax brackets for high-income individuals.2 The tax increases are effective for tax years beginning on or after January 1, 2009. The legislation was enacted last year,3 but a group of citizens successfully petitioned to have the tax increases Issue/Topic considered by the voters at the special election. Corporate Income Tax / Personal Income Tax Corporate Tax Increases Contact details Minimum Tax Scott Remington Portland For tax years beginning on or after January 1, 2009, Oregon revamps the minimum T 503.276.5907 E email@example.com corporate tax by installing a sliding scale based on Oregon sales as determined under the state’s sales factor rules.4 Prior to amendment, Oregon imposed a $10 minimum tax on all Steve Jensen Seattle C corporations subject to the corporate excise tax and all S corporations. The new T 206.398.2484 minimum tax for C corporations and affiliated groups ranges between $150 for taxpayers E firstname.lastname@example.org with less than $500,000 of Oregon sales to $100,000 for taxpayers with $100 million or Giles Sutton more of Oregon sales. Note that there are a total of 12 different levels of minimum tax Charlotte T 704.632.6885 that can be imposed, depending upon the amount of Oregon sales. In effect, a tax of E email@example.com approximately 0.1 percent is imposed on gross sales equal to each minimum Jamie C. Yesnowitz bracket amount. The amended statute provides a definition of “Oregon sales” for Washington, D.C. T 202.521.1504 purposes of the new minimum corporate tax.5 E firstname.lastname@example.org Chuck Jones Chicago T 312.602.8517 E email@example.com www.GrantThornton.com/SALT 1 Measure 67, Unofficial Election Results, Oregon Secretary of State, January 27, 2010. Approximately 53 percent of the voters approved this measure. 2 Measure 66, Unofficial Election Results, Oregon Secretary of State, January 27, 2010. Approximately 54 percent of the voters approved this measure. 3 Ch. 745 (H.B. 3405), Ch. 746 (H.B. 2649), Laws 2009. 4 OR. REV. STAT. § 317.090(2). 5 OR. REV. STAT. § 317.090(1). Grant Thornton LLP - 2 Corporate Income/Excise Tax Rates Measure 67 adds progressivity to the state’s corporate income/excise tax rate, which stood at 6.6 percent for all companies prior to 2009. For tax years beginning on or after January 1, 2009 and before January 1, 2011, the 6.6 percent tax rate is applied to corporate taxable income up to $250,000.6 When corporate taxable income exceeds $250,000, a 7.9 percent rate applies. The higher income tax bracket is scheduled to be reduced from 7.9 percent to 7.6 percent for tax years beginning on or after January 1, 2011 and before January 1, 2013. For tax years beginning on or after January 1, 2013, the 6.6 percent corporate tax rate will become applicable for taxpayers with corporate taxable income up to $10 million, while corporate taxable income exceeding $10 million will continue to be taxed at 7.6 percent.7 New Personal Income Tax Brackets Measure 66 adds progressivity to the state’s personal income tax by creating two new income tax brackets for high-income individuals.8 Prior to 2009, most levels of taxable income were taxed at a 9 percent tax rate. For tax years beginning on or after January 1, 2009 and before January 1, 2012, single and married individuals filing separately with taxable income over $125,000 but not over $250,000 are subject to a 10.8 percent tax rate on such income, while taxable income over $250,000 will be subject to an 11 percent tax rate.9 The 10.8 percent tax rate is applicable to joint filers, heads of households and surviving spouses with taxable income over $250,000 but not over $500,000, with the 11 percent tax rate applicable to income over $500,000. Beginning with the 2012 tax year, these two new brackets are scheduled to be combined into one, taxing all income over $125,000 for single and married individuals filing separately (all income over $250,000 for joint filers, heads of households and surviving spouses) at 9.9 percent.10 The new law also reduces or eliminates the deduction for federal income taxes paid for most high-income taxpayers.11 Commentary The Oregon voters historically have rejected tax increases and the imposition of a sales tax. However, proponents of the measures argued that the tax increases were necessary for education, public safety and healthcare.12 The tax rate increases are limited to large corporations and high-income individuals. While other states have temporarily increased taxes on high-income individuals in the past couple of years, Oregon is permanently imposing a higher tax rate on these individuals. 6 OR. REV. STAT. § 317.061. 7 Id. 8 Ch. 746 (H.B. 2649), Laws 2009. 9 OR. REV. STAT. §§ 316.037, 316.042. 10 Id. 11 OR. REV. STAT. § 316.695(3). 12 Arguments in Favor of Measures 66 and 67, Online Voters’ Guide for January 26, 2010 Special Election, Oregon Secretary of State. Grant Thornton LLP - 3 The increase in the corporate minimum tax will be extremely significant for some corporations. The $100,000 minimum tax for companies with a sufficiently large Oregon presence as measured by the sales factor is unlike any minimum tax currently imposed by a state on corporations. This tax could adversely affect companies in loss positions that otherwise would not have substantial Oregon income tax liability. Additionally, Oregon has yet to issue guidance with respect to the utilization of net operating loss carryforwards and credits (Oregon is generally quite generous with respect to the availability of research & experimentation credits and business energy tax credits). Based on the current law now in effect, some taxpayers that have their income tax reduced by these loss carryforwards or credits effectively may not receive any benefit due to the minimum tax regime. Furthermore, special consideration should be given to the impact that the increase in the corporate tax rate may have on ASC 740 (formerly FAS 109) computations, as well as the presentation of the corporate tax on their income statements (income taxes versus minimum taxes which are not based on income). The information contained herein is general in nature and based on authorities that are subject to change. It is not intended and should not be construed as legal, accounting or tax advice or opinion provided by Grant Thornton LLP to the reader. This material may not be applicable to or suitable for specific circumstances or needs and may require consideration of nontax and other tax factors. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Grant Thornton LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, re-keying or using any information storage and retrieval system without written permission from Grant Thornton LLP. Tax professional standards statement This document supports the marketing of professional services by Grant Thornton LLP. It is not written tax advice directed at the particular facts and circumstances of any person. Persons interested in the subject of this document should contact Grant Thornton or their tax advisor to discuss the potential application of this subject matter to their particular facts and circumstances. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed. To the extent this document may be considered written tax advice, in accordance with applicable professional regulations, unless expressly stated otherwise, any written advice contained in, forwarded with, or attached to this document is not intended or written by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed under the Internal Revenue Code.