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. Oregon does not have a state sales tax.
Personal Income Tax
Oregon residents and nonresidents who earn income in Oregon pay personal income tax. During the 2019 Legislative Session, the Legislature passed HB 3427, referred to as the Student Success Act, which created a Corporate Activity Tax (CAT) dedicated to school funding. As part of the legislation that created the CAT, and effective the beginning of the tax year 2020, the Legislature reduced Oregon’s first three income tax brackets from 5%, 7%, and 9%, to 4.75%, 6.75%, and 8.75% respectively. After deductions and credits, the average effective tax rate is about 6.0% of adjusted gross income. Since 1993, the income tax brackets have been indexed to changes in the Consumer Price Index. The current standard deduction is $4,630 on joint returns, $2,315 on single and married filing separate returns, and $3,725 for a head of household return. Blind or elderly taxpayers, persons over the age of 65, will receive an additional $1,200 standard deduction on a single return and an additional $1,000 per eligible person on a joint return.
The personal income tax is the largest source of state tax revenue and is projected to comprise 86% of the total General Fund revenues in the 2019–2021 biennium. In January 2010, Oregon voters approved Ballot Measure 66, which made two changes to personal income tax calculations. First, it established new tax brackets for adjusted gross incomes above $125,000 (single filers) and $250,000 (joint filers) and phased out the federal tax subtraction for those same filers. Second, it allowed a one-year tax exclusion of the first $2,400 of unemployment benefits, as is permitted in federal tax law.
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 tax rate is 6.6% on Oregon taxable income of $1 million or less and 7.6% on Oregon taxable income above $1 million. There is a minimum excise tax of $150.
The corporate excise and income tax is the second largest source of state tax revenue. Oregon voters approved Ballot Measure 67 in January 2010. The measure made three changes to Oregon corporate taxation. First, it increased the minimum corporate tax from $10 to $150. Second, it instituted a new corporate income tax rate structure that applied a marginal rate of 7.9% to corporate net income above $250,000 in tax years 2009 and 2010. For 2011 and 2012, the rate dropped to 7.6%. In 2013, the marginal rate was 7.6% for net income above $10 million and 6.6% for net income below $10 million. Third, it established higher rates for corporate filing fees with the secretary of state.
Property tax rates differ across Oregon. The rate depends on the tax rate 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.
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 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 was passed by the voters in May 1997. Measure 50 added another limit to the Measure 5 limits. Now, each property has a real market value and an assessed value. Each taxing district has a fixed, permanent tax rate for operations. Districts may not increase this rate. Voters can approve local option levies for up to five years for operations and up to 10 years or the useful life of capital projects, whichever is less. Local option levies require a “double majority” for approval. Measure 50 established the 1997–1998 maximum assessed value as 90% of a property’s 1995–1996 real market value. In subsequent tax years, the assessed value is limited to 3% annual growth until it reaches real market value. The assessed value can never exceed real market value. New property is assessed at the average county ratio of assessed to real market value of existing property of the same class. For 2008–2009, for all classes of property statewide, total assessed value was about 56% of real market value.