Business Planning for Measures 66 & 67
With voter approval of Measures 66 and 67, Oregonians increased personal income taxes and instituted a permanent increase in the minimum income tax for C corporations.
Measure 66 increases the marginal tax rate on individual income over $125,000 but less than $250,000 from 9% to 10.8% until 2011, and also increases the marginal tax rate for individuals with income over $250,000 from 9% to 11% until 2011.
Measure 67 permanently increases the minimum income tax rate on C corporations from 6.6% to 7.9% for taxable income in excess of $250,000, and also increases the minimum corporate income tax based on the gross income of a C corporation as follows:
|Gross Income||Minimum Tax|
|Less than $500,000||$150|
|$500,000 – $1 million||$500|
|$1 million – $2 million||$1,000|
|$2 million – $3 million||$1,500|
|$3 million – $5 million||$2,000|
|$5 million – $7 million||$4,000|
|$7 million – $10 million||$7,500|
|$10 million – $25 million||$15,000|
|$25 million – $50 million||$30,000|
|$50 million – $75 million||$50,000|
|$75 million – $100 million||$75,000|
|$100 million or more||$100,000|
REDUCING THE TAX IMPACT
Both Measures 66 and 67 are retroactive to January 1, 2009. This means that your business and tax planning should begin now, rather than at the end of your tax year. The following is some planning information that you should consider in light of the passage of Measures 66 and 67.
FILING AN S ELECTION
Filing an election to be taxed as an S corporation reduces the Oregon minimum income tax to $150 per year. Calendar year taxpayers can file an S election prior to March 15, 2010 and receive S corporation status retroactive to January 1, 2010.
CAUTION: Filing an S election can result in an additional tax to the corporation on appreciated assets as the assets are sold and an additional tax on accounts receivable as the accounts are collected. A carefully planned S election can save substantial tax dollars, but coordination with your CPA and attorney is necessary. Some planning considerations include salary and bonus payments and accounts receivable management.
C CORPORATION TAX STRUCTURES
Some corporations prefer to use, or are required to use, a C corporation tax structure. For instance, S corporation shareholders generally are not permitted to participate in certain employer-sponsored health plans. However, a review of your current structure can limit your tax burden. Some options include:
- Consolidation of multiple C corporations or in some cases division of a single C corporation into separate corporations to reduce taxation; and
- Managing increased personal income tax rates through business planning with your C corporation.
Businesses should begin their business planning early this year, as an S election for calendar year businesses must occur before March 15th, and other business planning should be in place as soon as possible.
Please consult one of our business or tax attorneys to review your options.