December 11, 2013
by J.L. Wilson
Associated Oregon industries
A little-known provision of the “Grand Bargain” supported by AOI and passed by the Oregon Legislature in October gives Oregon export companies a limited window to qualify for significant Oregon tax savings.
One of the provisions of HB 3601, which was passed by the Legislature on October 2 and signed into law by Governor Kitzhaber, provides additional tax-favored treatment to Oregon businesses that export goods to international markets. This new law complements a federal law that has been in place for the past 30 years.
Any Oregon company that exports goods produced, grown, assembled, or created in the U.S. that are sold outside of the U.S. Manufacturers, farmers, and exporters are among those most likely to qualify. In addition, for a business that uses an intermediary to access foreign markets, both the producer and the exporter are eligible for the tax-favored treatment.
How does the law work?
The law enables qualifying businesses to establish what’s known as an “IC-DISC.” An IC-DISC, which stands for Interest Charge-Domestic International Sales Corporation, is a corporate entity that exists side-by-side with your company. An Oregon exporter will pay the IC-DISC a “commission” on international sales. The IC-DISC, in turn, pays back the commission as a dividend to the company at a lower tax rate. The sole function of the IC-DISC is to provide the means to lower taxes on income from international sales.
The IC-DISC concept has been in federal law for 30 years as a means to lower federal taxes on international sales.
The Oregon Legislature, through HB 3601, has given Oregon companies the ability to utilize the IC-DISC to lower state taxes as well, but only for a very limited window of time.
In order to qualify for an Oregon IC-DISC, companies need to have it established by January 1, 2014.
For more information on the IC-DISC law, and how to potentially set up an IC-DISC prior to the January 1 deadline, look here.