Oregon Business Tax: Everything You Need to Know
An Oregon business tax is imposed on businesses in this state when a small business incorporates itself as an LLC or a C Corporation.3 min read
An Oregon business tax, also commonly referred to as a corporate excise tax, is imposed on businesses in this state when a small business incorporates itself as an LLC or a C Corporation. Basically, it's a corporate tax that must be paid by all corporations operating in the state of Oregon.
Many small businesses are not actually categorized as C Corporations. And the ones that are LLCs are not normally treated as corporations, but this tax is still pertinent to understand because it has to be paid. More importantly, a lot of small businesses end up turning into corporations over an extended period of time.
How Is the Oregon Business Tax Calculated?
The tax itself is based on the income of the business that is operating in Oregon. As you can deduce, the higher the income, the higher the tax. Generally, the tax will be calculated according to either of the following, with the greater value being the amount that is to be paid by the business:
- Percentage of the business's income
- A minimum tax amount that is determined by Oregon
What Is the Marginal Rate Used to Calculate Oregon Business Tax?
There are two marginal rates that determine what the calculated tax will be. A higher tax rate applies to those businesses that do over one million dollars in business. As of 2018, the Oregon business tax is as follows:
- Those with an income of $1 million or less will have to pay a tax of 6.6 percent.
- Those with an income of more than one million will have to pay $66,000 plus an additional 7.6 percent on the amount that exceeds one million.
As you can see, it can be quite expensive to operate a business in Oregon. On the upside, though, if you sell products or services outside of the state of Oregon, you don't have to include them as part of your income when calculating the Oregon business tax amount. Instead, you only include the amount that relates to products and services being sold to Oregon-based consumers.
What Are the Tax Rates for Personal Income Returns?
To determine the amount that has to be paid in this type of situation, you would take your ratio of sales that are based out of Oregon to other sales and apply the ratio to what is known as consolidated federal income. The amount that you are left with is what you must include as taxable income for state purposes.
As of 2018, in Oregon, the state tax amount on a personal return starts at 5 percent. It can rise up to 7 percent if you are filing jointly. These rates apply if your income is between $3,450 and $6,900. If your income is greater than $8,700, the tax rate is 9 percent. If you have income over $250,000, the tax rate is 9.9 percent. If, however, you have nonpassive income, the tax rate that you will have to pay may be lower, especially if the income is associated with a pass-through business.
What About Property Taxes?
The property tax that you will have to pay for your business in Oregon is not going to be over 3 percent of its fair market value. There are several tax abatement programs you can take advantage of, such as the Strategic Investment programs, that will help mitigate your property tax liability. Some of these programs can even completely eliminate the amount of money you would pay for property taxes. It is your responsibility to research the programs and see which ones can be of the most benefit to you.
Do All States Have Business Tax?
Almost all states have some sort of requirement in place that mandates businesses pay a state tax. Many of the states, however, will base this tax on the type of business a company is formed as. For example, corporations are often subject to certain corporate taxes, whereas LLCs and partnerships are subject to a different type. For sole proprietorships, the taxes are usually the same as those applied to partnerships and LLCs. If you conduct research, you will see that tax rates vary widely from one state to the next.
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