Oregon ballot measure could substantially increase taxes for corporations

In November 2024, Oregonians will be voting on a measure that could create major tax changes for individuals and corporations doing business in Oregon.

Ballot Measure 118, initially known as Initiative Petition (IP) 17, would amend Oregon’s corporate minimum tax statutes, creating a new 3% gross receipts tax on corporations with Oregon sales over $25 million. The measure would use the revenue raised by this new tax to fund a refundable tax credit or rebate for individuals, including minor children, residing in Oregon for more than 200 days in the prior calendar year.

Businesses should review their sales sourcing methodologies and Oregon sales calculations to understand the potential new tax should Measure 118 pass.

Proposed changes in measure 118

Measure 118 proposes to add an additional 3% tax on Oregon sales exceeding $25 million for tax years beginning on or after Jan. 1, 2025. This tax would be in addition to the current graduated minimum tax.

For example, if a business’ Oregon sales are $100 million, its minimum tax would equal $2.35 million, which is the graduated minimum tax of $100,000 plus 3% of $75 million. C corporations with low-margin activities or in loss positions could see an increase in their Oregon tax burden if the 3% tax exceeds the calculated corporate income (excise) tax.

Additionally, the 3% tax would also apply to S corporations with Oregon sales of $25 million or more, which could create a new obligation for a large number of businesses.

Other entities not taxed as corporations wouldn’t be subject to the tax, so potential choice-of-entity planning may become an important analysis.

Measure 118 would not change the definition of Oregon sales. As a result, Oregon businesses subject to throwback could be disproportionately affected by Measure 118 vs. similarly situated businesses located out-of-state. While that same disparity exists under current law, the potential impact is currently limited to the $100,000 minimum tax cap.

The bipartisan Oregon Legislative Revenue Office (LRO) estimates, should Measure 118 pass, it would collect $6.7 billion of revenue in the 2025 biennium that would be used to fund the rebate to residents.