Small Business Taxes
Guide to Portland Small Business Tax
Everything you need to know about small business tax in Portland
Your business plan should include a robust financial section that previews your profit projections. This can’t be done without including the city and state business taxes you’ll need to pay when you open your small business in Portland.
It’s helpful for small businesses to employ an accountant on their staff or hire a Portland CPA for determining tax structures. You can also purchase accounting software to manage invoices and tax documents early in your company history.
Portland City Taxes
The city of Portland’s Business License Tax is required for all regulatory and revenue purposes. Once you open a Portland business, you have 60 days to register your business for tax purposes. You can register online here.
After your registration is complete, you will be issued a business tax account and account number. You will need your business tax account number to print a certificate of compliance, file a tax return, file any other form, or make a payment.
There are businesses that will be exempt from the city business tax:
Exempt businesses are required to submit a request on an annual basis for exemption.
The Portland Business License Tax is 2.2% of your net business income. Portland businesses are required to file a Combined Tax Return report each year to determine the amount of the license tax.
The annual filing process for Portland City tax is as follows:
Oregon State Tax Types
Oregon businesses benefit from having only one type of state tax enforced on corporations and LLCs. Most small businesses in Portland are structured as S corporations, sole proprietorships and partnerships. This means their state taxes will be marginal.
Oregon’s corporate tax is imposed on C corporations and LLC’s set up as corporations. The corporation excise tax is assessed on income from Oregon business conducted within the state. As of 2015, this tax has two marginal rates: 6.6% on the first $10 million of income and 7.6% on all income above $10 million.
Oregon corporations that claim no net income or have net losses must still pay minimum taxes based on total sales. This minimum tax ranges from $150 for sales under $500,000 to $100,000 for sales in excess of $100 million.
Businesses not set up as corporations are mostly shielded from Oregon's corporation excise tax. However, certain noncorporation business types must pay a minimum excise tax of $150. This minimum tax applies to S corporations and all LLCs classified as partnerships.
C corporations pay the Oregon corporation excise tax based on net income or net sales--whichever is the greater amount. Corporations are separate from owners for tax purposes, and these owners can still be taxed on income they collect from their business stake. Capital gains taxes in Oregon can be as high as 9.9%, while taxes on dividends are 31%, the 4th highest of any state.
S corporations operate like C corporations in that they set up separate entities that confer to business owners and their personal assets a host of legal and financial protections. The distinction between the two is the S status filed with the Internal Revenue Service (IRS), which allows income derived from sales to pass through the corporation to its owners. Because the owners then pay personal income tax on this money, the federal government does not charge the business a corporate tax, considering this to be double taxation. Most states follow this philosophy as well. California is not one of them, but Oregon is, with the exception of a $150 excise tax that must be paid by S corporations.
For example, an Oregon S corporation with a net income of $20 million still pays only $150 in tax. This income then passes through to the owners, who pay personal state income tax on it at marginal rates that run from 5 to 9.9% based on total income.
LLCs are pass-through entities that can be classified in different ways. This classification determines an LLC's tax treatment in Oregon. The default LLC classification is as a partnership for businesses owned by multiple persons and as a disregarded entity for businesses owned by individuals. For LLCs classified as partnerships, taxes are the same as for S corporations. The business owes the minimum excise tax of $150, while the business owners pay personal income tax on the income that passes through. For LLCs classified as disregarded entities, no business income tax applies; only personal tax is owed on the pass-through income. In some cases, albeit rarely, an LLC elects to be treated as a corporation. When this is the case, the same tax rules as for Oregon C corporations apply to the LLC.
Partnerships and Sole Proprietorships
In the majority of partnerships and sole proprietorships, the business owner receives his share of income from the business directly, and it does not pass through the company. In these cases, Oregon does not impose any income tax on the business, even the minimum excise tax of $150. The business owner pays personal state income tax at ordinary rates based on which of Oregon's four tax brackets he falls under. The only exception is for LLCs that file partnership tax returns. In this situation, the business is responsible for paying Oregon's minimum excise tax of $150.
Registering in Oregon
In addition to the Portland city registration, all new businesses should register with the Oregon Central Business Registry.
Three weeks after you complete your Central Business, the Oregon Department of Revenue will assign your business a Business Identification Number (BIN).
Oregon’s estimated tax laws are not the same as federal estimated tax laws. You must make quarterly estimated tax payments if you expect to owe tax of $500 or more with your return.
Depending on the size of your business, you might have to register for the additional tax types:
In addition to local and state taxes, all businesses are required to pay the same federal taxes. Those can include:
As a business, keeping a record of payroll and tax documents is important, whether you go with a Portland ccounting agency or a software solution. Documents you should always keep are income tax returns, copies of W-2 forms, general ledgers, and payroll records.
Understanding Portland small business tax is the first step toward making a profit in your new business. Make sure you research the financial options you have for starting a small business.