Photo showing Oregon State Capitol

Oregon Legislative Updates Affecting Dentists

The tax reform passed at the end of 2017 is the first major tax overhaul in 30 years, and will affect individuals, all types of business, tax-exempt entities, international taxation, and many other areas of tax law.

Over the past several months, the state of Oregon has been busy addressing and enacting its own set of tax laws and provisions in response to Federal tax reform. The tax laws enacted include:

 

SENATE BILL 1528

  • Creation of the Oregon Opportunity Grant Fund (OGF), which funds opportunities for college students with financial needs.
    • Consists of tax credits that will be auctioned off to individuals and corporations (with excise taxes):
      • Charitable deduction for Federal income tax purposes
      • Income tax credit for Oregon (credit can be carried forward for two years following the year purchased)
    • Auction bids cannot be less than 95% of the credit amount; e.g. a $1,000 credit cannot be purchased for less than $950
    • Capped at $14 million in credits available per year
    • Available for tax years 2018 through 2023

COMMENTARY: The Oregon OGF will be beneficial for those who have maximized their real estate taxes, state, and local income taxes of $10,000 on Schedule A. The OGF provides dentists and other taxpayers additional opportunities for deductions on Schedule A and close to a dollar-for-dollar offset on Schedule A.

  • No deduction shall be allowed when arriving at Oregon taxable income for IRC Sec. 199A.
    • IRC Sec. 199A is being referred to as the “20% qualified business income deduction” (QBID).
    • In most cases, a deduction up to 20% of qualified business income will be allowed for Federal income tax purposes.

COMMENTARY: The QBID is new and, like its predecessor, the domestic production activities deductions (DPAD), it will not be allowed as a deduction to arrive at Oregon taxable income. It should also be noted that the QBID is limited if Federal taxable income exceeds certain thresholds.

 

 

SENATE BILL 1529

  • The state of Oregon has coupled with Federal tax reform in regard to many of the provisions. Some of those provisions include, but are not limited to:
    • Federal tax depreciation:
      • For 2017 and 2018, a 100% bonus (cost recovery)
      • In 2018, Section 179 increased to $1 million of expensing
    • Loss of miscellaneous itemized deductions.

COMMENTARY: This is a surprising move by the state of Oregon. The last time the was a mid-year depreciation change was in September of 2009, and the state of Oregon did not couple with the Internal Revenue Code (IRC). There will likely be additional changes to the Oregon Revised Statutes.

HOUSE BILL 2017

  • On July 1, 2018, employers must start withholding a new statewide transit tax equal to one-tenth of 1 percent of the wages of Oregon residents and nonresidents working in Oregon.
  • Self-employed income is not subject to this tax. The tax is only withheld from the employee’s wages, and it is the employer’s responsibility to withhold and remit it.
  • The statewide transit tax will go into the Statewide Transportation Improvement Fund to finance investment and improvements in public transportation services.

 

HOUSE BILL 4301

  • On May 21, 2018, legislation was enacted that expanded the Oregon reduced tax rate to qualifying income from a Schedule C practice.  There is no limit to the amount of income that qualifies for the reduced rate.   No other changes were made the to the Oregon reduced tax rate laws.

COMMENTARY: The PTE reduced rate has been beneficial for many practice owners and the new changes will benefit Schedule C practices.

It is important that to be talking with a tax advisor about the potential planning opportunities available, and how the changes could impact tax liability for 2018.