Effective January 1, 2021, Portland-metro residents and businesses need to be aware of two new taxes. The first is the Metro Supportive Housing Services Tax (“Metro Tax”), which was formerly known as Measure 26-210. The second is the Preschool for All Personal Income Tax or Multnomah County Income Tax (“Preschool Tax”), which was formerly known as Measure 26-214.
Metro Tax
On December 17, 2020, the Metro Council adopted tax codes that will allow Metro to implement, collect, and enforce the Metro Tax. The Metro Tax consists of a personal income tax component and a business income tax component. Both components will remain in effect through December 31, 2030, unless reauthorized by voters on or before that date.
Personal Income Tax Component
The personal income tax component calculation differs depending on whether one is a resident of the Metro (i.e., Clackamas, Multnomah, and Washington counties). Although beyond the scope of this update, that residency determination turns on issues such as one’s “domicile” and “abode.” Each taxpayer should review those issues in consideration of the following.
For individuals residing in the Metro, the Metro Tax imposes a 1% tax on a Metro resident’s entire Oregon Taxable Income of more than $125,000 for individuals, and $200,000 for couples filing jointly. The recently adopted Metro Code (“Metro Code”) defines “Oregon Taxable Income” as:
[T]he taxable income of residents or part year residents as reported or as reportable to the State of Oregon for personal income tax purposes.
For individuals residing outside of the Metro, the Metro Tax imposes a 1% tax on the nonresident’s Metro Taxable Income of more than $125,000 for individuals, and $200,000 for couples filing jointly. The Metro Code defines “Metro Taxable Income” as:
[I]ncome attributable to sources within the District less deductions from income attributable to sources within the District. This includes, but is not limited to:
- Wages received by a nonresident taxfiler attributable to work performed within the District;
- Items reported to a nonresident taxfiler attributable to the taxfiler’s ownership interest in a pass-through entity that does business in the District and reports tax items attributable to that ownership interest to the taxfiler on a Schedule K-1; and
- Income and expenses from a sole proprietorship or disregarded entity attributable to business in the District and reported on a nonresident taxfiler’s individual return.
The Metro Code defines “District” as the territory within the Metro’s jurisdictional boundary.
In addition, if an individual is a part-year resident of the District, then the individual’s taxable income includes the taxfiler’s Oregon Taxable Income for the portion of the year in which the individual was a Metro resident, and includes the taxfiler’s Metro Taxable Income for the portion of the year in which the individual was a nonresident.
Finally, given the imposition of the business income tax component, discussed below, a taxfiler is allowed a deduction from taxable income for pass-through income that is subject to the business income tax. Such deduction is limited to the individual owner’s or partner’s distributable share of income on the Metro business income tax Return. Nevertheless, if the taxable income shown in that return is zero, the taxfiler is not allowed a deduction.
Business Income Tax Component
The Metro Tax also imposes a 1% tax on profits from businesses with gross receipts of more than $5,000,000. There are a few exemptions to the business income tax; most notably, the fact that it does not apply to sole proprietorships and disregarded entities, as those are subject to the personal income tax component discussed above.
Withholding and Administration
For the current tax year, withholding is voluntary. Beginning on January 1, 2022, however, withholding will be mandatory for all employees that work in the Metro and earn $200,000 or more during the calendar year. This applies equally to resident and nonresident employees. Employees that earn less than $200,000 during the calendar year may choose to “opt in” or “opt out” based the employee’s tax situation.
Moreover, similar to the personal income tax component, taxfilers who expect to have a tax liability of $1,000 or more must estimate and pay the taxfiler’s tax liability for the current year in quarterly payments, or via the employer’s provided withholdings from the taxfiler’s wages. For tax year 2021, the Administrator will not impose underpayment interest for failure to make quarterly estimated tax payments. However, for tax years beginning on January 1, 2022, the Administrator will impose such penalties and interest.
Finally, taxfilers will need to submit and file their Metro Tax Personal Income Return and Metro Tax Business Income Return by April 15th of the following year for the tax year at issue.
Preschool Tax
On January 28, 2021, the Multnomah County Board of County Commissioners (the “Board”) adopted Ordinance 1293. That ordinance repealed Ordinance 1288, amended Multnomah County Code secs. 11.500-11.560, and provided substantive guidance with respect to the Preschool Tax. As a starting point, the Preschool Tax is in addition to the Metro Tax.
General Framework
The Preschool Tax calculation also differs depending on whether one is a resident of Multnomah County. As such, each taxpayer should consider their determinations of “domicile” and “abode,” as noted above, in consideration of the following.
For individuals residing in Multnomah County, the Preschool Tax imposes a 1.5% tax on a Multnomah County resident’s entire Oregon Taxable Income of more than $125,000 for individuals, and $200,000 for couples filing jointly. The Preschool Tax imposes an additional 1.5% tax on an individual’s income over $250,000 and on a joint filers’ income over $400,000.
For individuals residing outside of Multnomah County, the Preschool Tax imposes a 1.5% tax on the nonresidents’ Multnomah County Taxable Income of more than $125,000 for individuals, and $200,000 for couples filing jointly. The Preschool Tax imposes an additional 1.5% tax on an individual’s income over $250,000 and on a joint filers’ income over $400,000.
An application can be seen in the following example:
A single Multnomah County resident earns $300,000 for tax year 2021. The taxpayer’s Preschool Tax liability would be $3,375 calculated as follows:
- $300,000 – $125,000 = $175,000
- First $125,000 x 1.5% = $1,875
- Remaining $50,000 x 3.0% = $1,500
Credits and Deductions
The Preschool Tax contains two provisions that address the issue of double taxation. The first is a deduction for pass-through income that is subject to tax under the Multnomah County Business Tax. The second is a credit for Multnomah County residents who are taxed on the same property by another jurisdiction. Such a credit enables equity between resident and nonresident taxpayers.
Withholding and Administration
The withholding provisions in the recently adopted Multnomah County Code resemble those in the Metro Tax. This means for the current year withholding will be voluntary, but beginning in January 1, 2022, withholding is mandatory for all employees who work in Multnomah County and earn $200,000 or more. Employees who earn less than $200,000 during the calendar year may choose to “opt in” or “opt out” based the employee’s tax situation. All payments are due by April 15th of the following year. Finally, the City of Portland Revenue Division will be collecting the tax on behalf of Multnomah County.
Conclusion
At its January 28, 2021 meeting, the Multnomah County Tax Team consisting of Chief Financial Officer Eric Arellano, Senior County Attorney William Glasson, Senior Treasury Analyst Margot Wheeler, and Administrative Tax Consultant Terri Williams indicated to the Board that they have been working and will continue to work with Metro to maintain tax conformity with the Metro Tax, and they will continue to work on and release additional materials to taxpayers in the future. Such materials will include tax administrative procedures containing examples, a tax handbook, and forms.[1]
We will continue to follow any such developments and analyze any materials that are released. In the meantime, if you have any questions or comments about the Metro Tax or the Preschool Tax, please do not hesitate to contact Dan Eller or Alee Soleimanpour.
[1] 33:00 to 35:00 of Jan. 21, 2021 meeting.
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