Oregon Lawmakers Advance Plan to Pull Back Tax Haven Statute

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Paul Shukovsky

Two Oregon tax bills responding to recent federal tax changes are headed to the governor after passage in the final hours of the 2018 legislative session.

S.B. 1529 not only would repeal the state tax haven statute, but it also addresses a “quirk” in Oregon law that would trigger an estimated $100 million revenue loss to the state as a result of the 2017 federal tax act ( Pub. L. No. 115-97).

Under the bill, companies receiving a federal dividend-received deduction related to repatriation of overseas dollars would have to add it back to their state filings. Oregon would get a one-time gain of $160 million minus $20 million in tax haven credits, according to a revenue impact statement.

S.B. 1528—which was barely muscled through by the Legislature’s Democrat majority—would require pass-through entities to add to taxable income the amount allowable as a deduction under Internal Revenue Code § 199A(a).

‘Trump Tax Scheme’

Democrats hailed the passage of the bills to “disconnect from the destructive Trump tax scheme” in a March 3 press release. “Months after Republicans in Congress passed the sweeping Trump tax scheme that rewarded the wealthiest Americans and large corporations, the Oregon House of Representatives voted to disconnect the state from portions of the plan that would disrupt funding for public schools, Medicaid recipients, and public safety.”

The Democrats characterized S.B. 1529 as ending what would have been a double deduction for multinational corporations. And they pointed to support from the Tax Foundation for S.B. 1528, which said the bill “to limit the special pass-through deduction in Oregon is the right choice, protecting the state’s budget, while advancing sound tax policy.”

The revenue impact for adding back the IRC 199A(a) deduction for pass-through entities would be $1.05 billion from the 2017-19 biennium through the 2021-23 biennium, according to revenue impact statement on S.B. 1528.

But Republicans criticized S.B. 1528, saying in a March 3 release that the “controversial tax increase on small businesses flew through the building without bipartisan support.”

Ballot Initiative Filed

Gov. Kate Brown’s (D) Press Secretary Kate Kondayen told Bloomberg Tax in a March 5 email that the governor “doesn’t often express her predisposition to sign a bill” before it has been vetted by attorneys to ensure it passes constitutional muster. Local media in Oregon have reported Brown has expressed reservations about S.B. 1528.

The Oregon Small Business Association announced that in response to S.B. 1528, it has filed a ballot initiative for the 2020 general election that would require that “any tax advantages given to large, publicly-traded, and out-of-state corporations operating in Oregon would be automatically allowed for thousands of small businesses and solo entrepreneurs.”

To contact the reporter on this story: Paul Shukovsky in Seattle at pshukovsky@bloomberglaw.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

Copyright © 2018 Tax Management Inc. All Rights Reserved.

Request Daily Tax Report: State