City and County Income Tax Traps
January 26, 2011
The Multnomah County Business Income Tax and the Portland Business License Law (the City/County Tax) is a 3.65% combined tax on "business income" apportioned to the city and county under a single sales factor. The City/County Tax is loaded with traps for the unwary.
Business owners, investors and even many tax practitioners wrongly assume that "business income" for City/County Tax purposes is the same as "trade or business" income for federal income tax purposes or "business income" for Oregon income tax purposes. However, the City/County Tax rules define "business income" as essentially all income from whatever source derived. "Business income" apportioned to the city and county is taxable, unless an exemption applies.
The exemptions are limited, narrow and inconsistent. For example, an exemption exists for interest, dividends and gain attributable to investment securities held by an individual. But if the individual transfers these investment securities to a family limited partnership for estate planning purposes, the exemption ceases to apply. Interest, dividends and gains that were exempt in the hands of the individual suddenly become taxable in the hands of the partnership.
There are countless other traps buried in the City/County Tax. Many of these traps can be avoided or mitigated with careful tax planning. Contact us if you have any questions or would like us to help you evaluate City/County Tax issues that may impact you or your business.
For more information about this Tax Tip, please contact Mark LeRoux at firstname.lastname@example.org
, or 503-802-2022.