Government Finance: Taxes
Personal income tax and corporate excise tax are the most significant components of the state General Fund, and property tax is the most significant local tax in Oregon. These three taxes represent 80 percent of all state and local taxes. Oregon does not have a state sales tax.
Personal Income Tax
Oregon residents and nonresidents who earn income in Oregon pay personal income tax. The personal income tax is the largest source of state tax revenue, expected to account for 87 percent of the state’s General Fund for the 2013–15 biennium. Oregon’s taxable income is closely connected to federal taxable income. For tax year 2014, the standard deduction was $4,230 on a joint return, $2,115 on single and married filing separate returns and $3,405 for a head of household return. Oregon has four personal income tax rates ranging from 5 percent to 9.9 percent of taxable income. After deductions and credits, the average effective tax rate for tax year 2012 was 5.7 percent of adjusted gross income.
The tax rates for the three lowest brackets have been in place since 1987, and these brackets have been indexed to changes in the U.S. Consumer Price Index. In January 2010, Oregon voters approved Ballot Measure 66, which established two additional tax rates of 10.8 and 11 percent for filers with taxable income over $125,000 ($250,000 for joint filers). For 2012 and forward, the top tax rate bracket was eliminated, and the tax rate for the next bracket was reduced from 10.8 to 9.9 percent.
Corporations that do, or are authorized to do, business in Oregon pay an excise tax. Corporations not doing, or that are not authorized to do, business in Oregon, but that have income from an Oregon source, pay income tax. The corporate excise and income taxes are the second largest source of state tax revenue.
Oregon voters approved Ballot Measure 67 in January 2010. The measure made three significant changes to Oregon corporate taxation. First, it replaced the flat $10 minimum excise tax rate with a minimum excise tax ranging from $150 to $100,000, based on the corporation’s Oregon sales. Second, it instituted a new corporate income and excise tax rate structure that applied a marginal rate of 7.9 percent to corporate net income above $250,000 in tax years 2009 and 2010. For 2011 and 2012, the rate dropped to 7.6 percent. Since 2013, the marginal rate is 7.6 percent for net income above $1 million and 6.6 percent for net income below $1 million. Third, it established higher rates for corporate filing fees with the secretary of state.
Measure 67 increased the minimum excise tax for S corporations from $10 to $150. The taxation of S corporations varies from the C corporation structure, because nearly all income of S corporations is passed on to the corporation’s shareholders and is taxed as personal income. Business income from sole proprietorships is also taxed as personal income.
Oregon’s property tax is one of the most important sources of revenue for the public sector in Oregon, raising $5.5 billion for local governments in fiscal year 2013–14.
Property tax rates differ across Oregon. The rate depends on that approved by local voters and the limits established by the Oregon Constitution. Most properties are taxed by a number of districts such as a city, county, school district, community college, fire district or port. The total tax rate on any particular property is calculated by adding all the local taxing district rates in the area. The total tax rate is then multiplied by the assessed value of the property. The county assessor verifies the tax rates and levies submitted by each local taxing district on an annual basis. The county tax collector collects the taxes and distributes the funds to the local districts.
2013–15 Property Taxes Imposed by Type of District
Taxable property includes real property, mobile homes and some tangible personal property used by business. The state and each county assessor determine the value of property in each county.
Measure 5, which was passed by the voters in November 1990, restricted total non-school taxes on any property to $10 per $1,000 of real market value. It restricted school taxes on any property to $5 per $1,000 of real market value.
Measure 50, passed by the voters in May 1997, added another limit in that each property has a real market value as well as an assessed value. Each taxing district has a fixed, permanent tax rate for operations, and districts may not increase this rate, although temporary local option levies may be implemented with voter approval.
Measure 50 established the 1997–98 taxable assessed value at 90 percent of a property’s 1995–96 real market value and limited the growth of assessed value to 3 percent annual growth. The assessed value cannot exceed the real market value of the property. For 2013–14, for all classes of property statewide, total assessed value was about 78 percent of real market value.
In the mid- to late 2000s, the real market and assessed values of properties diverged sharply as real market values increased at a rate much faster than 3 percent. Since the “Great Recession”, this trend reversed, and overall real market values have declined, while assessed values continue to steadily grow by 3 percent each year, as long as the assessed value for any given property does not exceed the real market value of the property. Because of this, the amount that property owners are taxed is based upon on a continually increasing assessed value of the property, even though many properties may have lost value in terms of the real market value.