Metro is a Portland, Oregon regional government, covering the three Portland-area counties. In 2020, Metro voters approved new local business and personal income taxes, which we summarized in a prior alert. In November 2020, Multnomah County, Oregon voters approved a graduated personal income tax, which we also summarized in a prior alert. Multnomah County includes Portland.
To implement the new taxes, Metro recently adopted three new chapters to the Metro Code, Chapter 7.05, Chapter 7.06 and Chapter 7.07, and Multnomah County recently adopted Ordinance No. 1293, which added sections 11.500 – 11.560 to Chapter 11 of the Multnomah County Code.
The new code provisions address many procedural and substantive tax issues that had been left open by the ballot measures. The Portland Revenue Bureau will administer both the Metro and county taxes.
New Metro Taxes and Multnomah County Tax
- Metro — New Business and Personal Income Taxes: Starting with tax years beginning on or after January 1, 2021, Metro imposes a one percent business income tax on the net income of each person doing business in the Metro district that has total gross receipts over $5 million. For this purpose, “person” generally means a business in any form, including a corporation, partnership or LLC. Sole proprietorships and entities disregarded for federal and state income tax purposes (such as single-member LLCs), are exempt from the Metro business income tax but subject to the Metro personal income tax. Metro imposes a one percent personal income tax on taxable income over $200,000 for joint filers and over $125,000 for taxpayers filing singly.
- Multnomah County — New Personal Income Tax: Effective January 1, 2021, Multnomah County imposes a graduated personal income tax on taxable income over $200,000 for joint filers and over $125,000 for taxpayers filing singly. The tax rate is 1.5 percent on taxable income above $125,000 up to $250,000 for single filers and above $200,000 up to $400,000 for joint filers. Taxable income exceeding $250,000 (single filers) and $400,000 (joint filers) is taxed at three percent. The base tax rate is scheduled to increase to 2.3 percent and the top marginal rate to 3.8 percent starting in 2026. Multnomah County already imposes a business income tax.
Key Takeaways From the New Metro and Multnomah County Ordinances
- Metro Business Income Tax Conforms to the Multnomah County Business Income Tax: Multnomah County has a long-standing business income tax. The Metro business income tax generally conforms to this tax. The Metro Code adopts similar (i) definitions of net income, business activity, and nonbusiness income, and similar apportionment and allocation rules; (ii) a broad presumption of what constitutes “doing business;” (iii) a 14‑day or less trade-show exemption; (iv) deduction disallowances; and (v) net operating loss rules.
- Personal Income Taxes Conform to the Oregon Personal Income Tax: Multnomah County generally conformed its personal income tax to the Metro personal income tax. The Metro personal income tax provisions are construed in conformity with Oregon personal income tax laws and rules. Thus, both new personal income taxes look to the Oregon personal income tax.
- Income Tax Withholding: For 2021, income tax withholding for both the Metro and Multnomah County personal income taxes is voluntary. However, employers must offer employees, in writing, to undertake withholding in 2021 once the employer’s “payroll system(s) can be configured to capture and remit the taxes withheld.” Portland has not yet set up a system to accept payment of withheld taxes. The Portland Revenue Bureau expects to be able to receive payments of withheld taxes in the second quarter of 2021.
Starting January 1, 2022, income tax withholding will be mandatory for any employee working in Metro or Multnomah County, as applicable, who earns $200,000 or more during the calendar year. However, employees may opt out of withholding. Employees earning under $200,000 can opt into withholding.
Withheld taxes are trust fund taxes, and responsible officer, partner, member, or employee liability generally applies.
- Estimated Taxes: Estimated taxes for each of the new Metro and Multnomah County taxes are required for a person expecting a tax liability of $1,000 or more. Estimated taxes can be paid quarterly or through personal income tax withholding. There is no penalty for underpaying estimated taxes, but, beginning in 2022, interest will generally apply to underpayments. The minimum amount required to be paid through estimated taxes is the lesser of (i) 90 percent of the current year liability or (ii) 100 percent of prior year liability. As no tax was due for 2020, it appears that, under the second prong of the safe harbor, estimated tax payments should not be required for 2021
- Broad Nexus for Metro Taxes: The Metro taxes apply to all taxpayers to the maximum extent allowed by the U.S. Constitution. The Multnomah County tax does not have a specific nexus provision.
- Consolidated/Combined Reporting — Metro Business Income Tax: Corporations that file a consolidated return for Oregon corporation excise tax purposes are required to file a single Metro business income tax return.
- Metro Exemption for Businesses With Gross Receipts of $5 Million or Less: Businesses with worldwide gross receipts of $5 million or less are exempt from the Metro business income tax.
- Deduction to Avoid Double Taxation of Income From a Pass-Through Entity: An owner of a pass-through entity generally may claim a deduction on the owner’s personal income tax return of the owner’s share of the pass-through entity’s taxable income subject to the Metro business income tax or the Multnomah County business income tax, as applicable.
- Wage Sourcing for Personal Income Taxes and Withholding: Metro adopted a specific provision that sources wages earned by a nonresident based on where work is performed. Multnomah County does not have a similar provision. However, Multnomah County has issued FAQs for its tax, which states that wages are sourced to where work is performed. This is consistent with Oregon’s personal income tax law. Based on current guidance, the Metro and Multnomah County personal income taxes generally should not apply to wages earned by a nonresident working from home for an employer that is based in Metro or Multnomah County, as applicable.
- Filing Status for Personal Income Taxes: Individuals who file their Oregon income tax returns as “married filing jointly,” “head of household,” or “qualifying widow(er)” must file “joint” Metro and Multnomah County returns. Individuals who file their Oregon personal income tax returns as “single” or “married filing separately” must file single returns.
- Reporting Change or Correction to Federal or State Tax Returns — Metro Taxes: With respect to the Metro taxes, businesses and individuals must report a change or correction to income reported on a federal or state return within 60 days after (i) notice of the final determination of change, or (ii) filing an amended return. For businesses, this conforms with the Multnomah County business income tax. For individuals, however, this deviates from the Oregon personal income tax, which does not include a time period within which taxpayers must report a change or correction. The new Multnomah County Code provisions do not include a similar reporting requirement.
If you would like additional information about the new Metro and Multnomah County income taxes, please contact one of our Oregon tax partners: John Gadon, firstname.lastname@example.org, 503.778.2130, or Eric Kodesch, email@example.com, 503.778.2107.