Federal Tax Reform Implications for Oregon

Published Monday, February 5, 2018

The OBI Fiscal Policy Steering Committee met on January 31st to hear a detailed presentation from the Legislative Revenue Office on the state implications of the federal ‘Tax Cut and Jobs Act of 2017.’

All told, preliminary estimates suggest the newly-passed federal tax cuts will cost the state around $120 million in the current budget cycle, but will add revenue to state coffers starting in the 2019-2021 budget cycle. It’s important to note that these are preliminary estimates that do not include possible one time revenues associated with the repatriation of foreign profits back into the US. This may have the effect of significantly reducing or eliminating the state’s projected costs in the current budget cycle.

There will be two big issues in 2018 for OBI members – (1) connection to the new federal tax cuts, and (2) the viability of the Oregon Small Business Tax Cut which passed in 2013 and taxes pass-through income at lower rates.

OBI members that are C corporations will be paying attention to whether the legislature opts to ‘connect’ or ‘disconnect’ from the new federal provisions that allow for 100% upfront depreciation on capital expenditures made between 2018 and 2022. As of today, OBI has reason to believe the legislature will choose to connect to this provision, although it is a very fluid discussion. 

OSCC members that are pass-through businesses will be paying attention to whether the legislature opts to ‘connect’ or ‘disconnect’ from new federal provisions that allow for an upfront 20% income deduction for pass-through shareholders. OBI has reason to believe this is the provision that the legislature may choose to disconnect from, at least in part, due to the fact that the impact of this tax reduction is nearly $180 million each year to the state.

OBI anticipates that the federal tax connection discussion with take place in Senate Bill 1529.

Also at stake this session is the future of Oregon’s special small business tax rates for pass-through income. As of today, Oregon’s tax rates on pass through-income start at 7% (as opposed to 9% for W-2 income) and gradually move up. The reduced rates apply to pass-through income up to $5 million. OBI anticipates there will be discussion of limiting Oregon’s reduced pass-through rates in order to capture some of the revenue lost to the federal tax cuts. But again, this will be a fluid discussion.

We believe the discussion on this issue will take place with either Senate Bill 1527 or Senate Bill 1528.