February 22, 2011
February 22, 2011
By J.L. Wilson
Associated Oregon Industries
As the Oregon Legislature heads into its second full week of work, the major tax issues of 2011 are becoming clear. The House and Senate Revenue Committees are already holding public hearings on key issues while the framework of at least one major proposal is being vetted by several business groups, including AOI.
Connection to the Federal Tax Code. Although Oregon is connected to the federal tax code beginning in 2011, we are disconnected in some key areas for tax year 2010. AOI and other business groups are asking the legislature to remove some of the confusion around 2010 tax filings and establish connection to the federal tax code in these key areas:
Bonus depreciation – Federal law allows 100% bonus depreciation for all capital equipment placed in service after September 9, 2010; Oregon law does not.
Section 179 expensing – Federal law allows up to $500,000 in expensing for 2010; Oregon only allows for $134,000.
Start-up costs – Federal law allows up to $10,000 expensing of business start-up costs; Oregon allows only $5,000.
Rainy Day Fund & Kicker. A major proposal is being floated by Senators Frank Morse (R-Albany) and Ginny Burdick (D-Portland) that would put a Rainy Day Fund into the Oregon Constitution and fund it with half of all personal income tax kicker revenues. In addition, all government revenues in excess of population and inflation growth, up to 3% of the General Fund, would be directed into the new savings account. The Senators’ proposal is a serious proposal that is garnering widespread attention from business groups looking to build a reserve fund while at the same time restraining state government growth.
Part of the new Rainy Day Fund proposal includes setting aside all corporate kicker monies into a new stability fund dedicated to higher education.
Key Tax Credits. The legislature is setting the stage for review of several key business tax credits that must be affirmed by the legislature in order to continue. Of particular concern to AOI is the Research & Development (R&D) Tax Credit. Governor Kitzhaber recommended extension of this tax credit in his formal budget, and AOI will work in the legislature to make a case for its extension. Also of note, Governor Kitzhaber, displaying a little political gamesmanship, is endorsing an expansion of the Film Production tax credit to counter New Mexico’s move to cancel their production credit.
Capital Gains Tax. AOI has long been an advocate of cutting Oregon’s capital gains tax rate, which can now be as high as 11%. Governor Kitzhaber set aside $25 million in his budget for capital gains relief for qualified re-investments in Oregon companies. Although AOI was pleased to finally see recognition that capital gains relief is instrumental in job creation, a narrow exclusion in capital gains taxes will not spur the kind of investment that Oregon needs to grow. AOI will be looking for opportunities to cut the capital gains tax rate. We expect that such a proposal would be packaged with other significant tax changes.