Taxes on Business Income in Oregon
Oregan imposes a corporate tax based upon corporate taxable net income attributable to Oregon. If your Oregon income is solely from sales in the state, you may be able to pay a lower, gross-receipts-based tax. If you operate your business as a sole proprietorship or via a pass-through entity, then you must report your business income on your personal tax return.
In Oregon, you're generally free to choose to operate your business as a C corporation, S corporation, partnership, limited liability company (LLC), or sole proprietorship. However, the entity type you select for your business may, in some cases, decide whether you or your business pays income taxes on the business income.
Certain local governments in Oregon assess a business income tax. The business income tax applies to any individual, sole proprietorship, partnership, joint venture, association, club, estate, trust, corporation, or any other non-governmental entity capable of doing business. Wages earned by an employee are not subject to the business income tax. Make sure you check with your local government to see if you are subject to these local taxes.
Corporations Are Subject to Tax on Income or Gross Receipts
Domestic corporations (corporations organized in Oregon) and foreign corporations (corporations organized in a state other than Oregon) are subject to an Oregon income tax. Technically, there are two different taxes. The corporate excise tax applies to domestic corporations and those authorized to do business in the state. The corporation income tax is levied on other corporations with income attributable to Oregon sources. However, both taxes impose the same rate of tax. Thus all corporations, including financial corporations, are subject to the same rate of tax whether it is the corporation excise tax or the corporation income tax. Moreover, all S corporations are liable for the $150 minimum tax.
The Oregon corporate tax is the greater of either:
- the computed tax or
- the minimum tax.
Computed Tax. The computed tax is calculated as follows:
For tax years January 1, 2013 and later:
- for Oregon taxable income of $10 million or less, multiply taxable income by 6.6 percent.
- for Oregon taxable income greater than $10 million, $660,000 plus 7.6 percent of the amount over $10 million.
For tax years January 1, 2011 and before January 1, 2013:
- for Oregon taxable income of $250,000 or less, multiply taxable income by 6.6 percent.
- for Oregon taxable income greater than $250,000, $16,500 plus 7.6 percent of the amount over $250,000.
Minimum tax. C corporations carrying on or doing business in Oregon are subject to minimum tax based on Oregon sales shown below. In addition, all S corporations are liable for the $150 minimum tax.
- Less than $500,000, minimum tax is $150.
- $500,000 or more, but less than $1 million, minimum tax is $500.
- $1 million or more, but less than $2 million, minimum tax is $1,000.
- $2 million or more, but less than $3 million, minimum tax is $1,500.
- $3 million or more, but less than $5 million, minimum tax is $2,000.
- $5 million or more, but less than $7 million, minimum tax is $4,000.
- $7 million or more, but less than $10 million, minimum tax is $7,500.
- $10 million or more, but less than $25 million, minimum tax is $15,000.
- $25 million or more, but less than $50 million, minimum tax is $30,000.
- $50 million or more, but less than $75 million, minimum tax is $50,000.
- $75 million or more, but less than $100 million, minimum tax is $75,000.
- $100 million or more, minimum tax is $100,000.
Alternative tax for "sales-only" activities. If your only activities in Oregon consist of sales and you don't own or rent any property in the state you may be eligible to pay an alternative tax. In order to be eligible, your annual gross sales made during the tax year in Oregon must not exceed $100,000. The alternative tax is 0.25 percent of the dollar volume of your sales. If your return on sales is less than 5 percent, the tax is reduced to 0.125 percent of your dollar volume.
S Corporation Income Passes Through to Shareholders
If you meet the federal tax law requirements to operate as an S corporation, the IRS allows your business to "pass through" its income to the shareholders. This means that your business will not pay any IRS corporate level income tax. However, you'll have to claim your entire share of the business income on your personal federal income tax return even if you did not take any money out of the business. Oregon extends this favorable tax treatment to state corporate income tax liability, and S corporations will not be subject to the corporate income tax.
However, as noted above, S corporations carrying on or doing business in Oregon are subject to $150 minimum tax.
Partnership Income Passes Through to Partners
If you operate your business as a partnership, your partnership will not be taxed on its net income. Instead, partners must include in their Oregon taxable adjusted gross income their distributive share of partnership income.
LLC Taxation Based on Federal Election
Oregon law recognizes businesses operating as limited liability companies (LLCs). Domestic and foreign LLCs in Oregon are classified as either partnerships or corporations for Oregon tax purposes. LLCs follow the federal rules on how they will be taxed. Accordingly, if your LLC is treated as a partnership on the federal level, then it will not be taxed on its net income. Instead, members must include in their Oregon taxable adjusted gross income their distributive share of LLC income.
If a business is classified as an association taxable as a corporation for federal income tax purposes, it will also be taxable as a corporation for Oregon tax purposes.