As many of you may already know, there was a bit of drama last Wednesday in the Oregon Senate when House Bill 3405, which increases taxes on corporations and businesses in Oregon, was derailed by just one vote. However, Thursday the vote changed and bill passed the Senate, and now it is on its way to Governor Kulongoski, who has already made a statement about it leaving no doubt that we need to start preparing the changes.
All businesses in Oregon or doing business in Oregon are affected by this change – whether you have a C-Corporation, S-Corporation, LLC, LLP, or partnership, you will be paying more for Oregon excise tax, filing fees, and annual registration fees. Here is what you will need to know:
Increased Minimum Excise Tax
The low $10 minimum tax for filing business entities (not including disregarded entities) has been increased to $150 for tax years beginning on or after January 1, 2009. For C-Corporations, the minimum tax of $150 only applies to corporations with Oregon sales less than $500k. C-Corporation with Oregon sales over $500k will now pay a minimum tax based on a multi-tiered calculation based on the level of sales.
C-Corporation Minimum Excise Tax Increase
Oregon minimum excise tax for C-Corporations can now range from $150 all the way up to $100k depending on the level of Oregon sales. For a complete breakdown of the tax based on Oregon sales tiers, see page 2 of HB3405. Here is a quick summary of the minimum tax amounts for smaller businesses:
- Oregon sales over $500k but under $1 million = $500 tax
- From $1 million to 2 million = $1,000 tax
- From $2 million to 3 million = $1,500 tax
- From $3 million to 5 million = $2,000 tax
In addition, the tax rate for C-Corporations increases from 6.6% (current rate) to 7.9% for taxable income in excess of $250k.
Filing Fee Increases
In addition to tax increases, HB3405 will double most business registration filing fees with the Oregon Secretary of State from $50 to $100. Some filing fees, like those for authority to transact business in the state, will increase to $275.
Increased Document Fees
Most copy and certificate fees will also increase at the Secretary of State’s office. In addition, the notary public fees will increase from $20 to $40.
All in all, the increases are not a surprise for most of us. The Oregon excise tax has been much lower than similar taxes in most states, and there was talk before the recession about increasing the tax to $50. However, for the small business owner in Portland, this is not the best news – especially after the Multnomah County minimum tax increase for 2008.
For those of you with C-Corporations, you may want to talk with your CPA regarding the cost to convert to an S-Corporation. For many, the large amount of built-in gains tax would not make the conversion worthwhile, but with this tax increase and the likely upcoming expiration of qualified dividends and low capital gains rates, it is definitely worth looking into as some could see long-term tax savings.