Sunset Date: None Year Enacted: 1987
Corporation Personal Total
2011–13 Revenue Impact: Not Applicable $200,000 $200,000
2013–15 Revenue Impact: Not Applicable $300,000 $300,000
DESCRIPTION: Interest and/or dividends from all federally taxable bonds issued by Oregon state and local governments may be subtracted from Oregon taxable income. This includes interest or dividends received from obligations of counties, cities, local service districts, special government bodies, the Oregon Health and Science University, or other political subdivisions of Oregon that are authorized by the Legislative Assembly to issue bonds.
This provision also applies to nonqualified private activity bonds, which are bonds primarily issued by local governments to help finance private developments. This subtraction applies only to interest and/or dividends that are taxed at the federal level but not by Oregon. See tax expenditure 1.056, Interest on Oregon State and Local Debt, for information related to interest and/or dividends not taxed federally or by Oregon.
PURPOSE: The statute that allows this expenditure does not explicitly state a purpose. Presumably, the purpose is to encourage the purchase of federally taxable bonds issued by Oregon state and local governments in order to promote projects that have public benefits.
WHO BENEFITS: Taxpayers holding these bonds benefit from the tax free interest income. For tax year 2010, approximately 650 personal income taxpayers claimed an average subtraction of about $2,300 using this provision. The State of Oregon and local governments also benefit because this provision reduces the costs of borrowing.
EVALUATION: by the Oregon Business Development Department
Nearly every state provides an interest income exemption for bonds of in-state municipal issuers. This allows municipal issuers to benefit from lower than market interest rates. In addition, the subtraction encourages state residents to purchase bonds of in-state issuers, which helps to create a market for the bonds and provide liquidity.
Very few nonqualified private activity bonds are issued in Oregon. Without the federal tax exemption, most projects do not find this source of funding attractive relative to conventional funding sources. In addition, private activity bonds are more likely to be privately placed with institutional investors rather than sold to individual investors, who would benefit from a personal tax subtraction.
When private activity bonds are issued on behalf of individuals or businesses, it is typically for projects that are expected to result in the creation or retention of jobs, which in turn increases income. For private activity bonds issued through the Oregon Business Development Commission, the department performs a cost effectiveness
analysis to ensure that the public benefits of a project exceed the public costs. Projects must meet this cost effectiveness test to be eligible for the program.
1.310
OREGON INVESTMENT ADVANTAGE
Oregon Statutes: 316.778 and 317.391
Sunset Date: None (partial sunset 6/30/2016 on expanded county eligibility criteria) Year Enacted: 2001, Modified in 2011 (HB 3672)
Corporation Personal Total
2011–13 Revenue Impact: $1,300,000 $1,900,000 $3,200,000
2013–15 Revenue Impact: $1,300,000 $1,600,000 $2,900,000
DESCRIPTION: This provision exempts from state income taxation the income attributable to operations that are new in Oregon for a business firm at a certified facility in a qualified location. In general, facilities must be within the urban growth boundary of a city of 15,000 or fewer residents, or on industrially zoned land if in a larger city or unincorporated area. The location also must be in a county that meets certain criteria related to unemployment levels and per capita income. Legislation in 2005
introduced temporary adjustments to the unemployment and income criteria that resulted in a broader base since additional counties qualified for this provision. These unemployment and income criteria reverted back to the original, more restrictive definition after calendar year 2010. Legislation in 2011 then reinstated the broader county eligibility criteria for July 1, 2011 through June 30, 2016.
For the period July 2012 through June 2013, business firms may apply to receive preliminary certification for locations in the following eighteen eligible counties: Baker, Columbia, Coos, Crook, Curry, Deschutes, Douglas, Grant, Harney, Jackson, Jefferson, Josephine, Klamath, Lake, Linn, Malheur, Umatilla and Wheeler. Three counties that had been eligible in the previous fiscal year became ineligible for 2012- 13 due to improved economic conditions, resulting in the counties not meeting the per capita income and/or unemployment rate criteria.
Exempt corporate income of a business firm is determined by multiplying the firm’s taxable income by the sum of:
Fifty percent of the ratio of the payroll of the business firm from employment at the certified facility over total statewide payroll of the business firm
Fifty percent of the ratio of the average value of the property of the business firm at the certified facility over the average value of the property of the business firm statewide.
For a personal income taxpayer who receives exempt income from a firm that owns the certified facility, the taxpayer’s Oregon-based federal taxable income is prorated based upon the amount of adjusted gross income the taxpayer reported on the federal return attributable to this firm and by the proportion of the firm’s income generated at the certified facility relative to the firm’s overall income.
A facility must be intended to operate for at least 10 years.
The firm must intend to hire five or more full-time year-round employees at a wage that is at least 50 percent higher than the per capita personal income for the county, or at the per capita personal income for the county and provide health insurance (wage and benefit requirements do not apply if preliminary
certification was issued before 2011).
The operation at the facility must constitute new business operations, unlike what the firm does anywhere else in Oregon.
The operations must not compete with existing employers in the city or county where the facility is located.
In order to claim the exemption in a tax year once facility operations have commenced, the business applies annually to OBDD for certification in order to claim the exemption, showing compliance each year with the above hiring and compensation requirements. If a firm does not comply in a particular year of
application, it is disqualified from the program for that year and all subsequent years. If the business firm applied for preliminary certification by June 30, 2011, it may claim the exemption in as many as ten consecutive years. The 2011 reinstatement of broader county eligibility also delays the first annual certification application until not less than 24 months after facility operations commenced, effectively reducing the maximum number of exemption years to eight, possibly nine, depending on the timing of operations respective to the business firm's tax year.
PURPOSE: The statutes that allow this expenditure do not explicitly state a purpose. Presumably, the purpose is to encourage business development in low income areas with high unemployment rates.
WHO BENEFITS: Businesses investing in new facilities in areas with low income or high unemployment rates. In tax year 2010, thirty personal income taxpayers saved approximately $40,200, on average, using this subtraction. Fewer than five corporate income taxpayers utilized the subtraction for tax year 2010. OBDD issued annual certification for 13 businesses in 2010–11; three others had been certified in previous years.
EVALUATION: by the Oregon Business Development Department
In 2005, the broader eligibility definitions allowed for substantially more counties across the state to be eligible. This improved marketing efficiency and contributed to local appreciation of the program which led to a diverse pool of applicants
contributing 800–1,000 new, good jobs, notably in parts of the state that have struggled economically.
Depending on a business firm's state income tax situation and the nature of the facility, this exemption can be quite enticing for developments ranging from small business owners to very large corporate projects in many parts of rural Oregon. It is, however, a complex incentive, requiring sophisticated tax knowledge to identify the benefit in any given case.
The 2011 reinstatement of the broader eligibility definitions does not necessarily increase the relative number of participating counties as much as it once did. In addition, the concurrent legislative change to delay and reduce the years in which the exemption can be used has significantly complicated the program's marketing. Since
the change took effect, only four preliminary certifications have been issued, mainly for facilities of very large companies.
1.311
INVESTMENT OF SEVERANCE PAY
Oregon Statute: 316.856(2) Sunset Date: 12-31-2013 Year Enacted: 2010 (HB 3627)
Corporation Personal Total
2011–13 Revenue Impact: Not Applicable Less than $100,000 Less than $100,000 2013–15 Revenue Impact: Not Applicable Less than $100,000 Less than $100,000
NOTE: The revenue impact estimate includes the effect of the sunset.
DESCRIPTION: For tax years beginning January 1, 2010 through December 31, 2013, severance pay received by an individual and invested in a new or existing small business in Oregon may be subtracted from federal taxable income if all of the following conditions are met:
The investment occurs on or before the due date for the return for the tax year or the expiration of the extension period for filing that return
The investment continues for at least 24 months following termination of employment
The taxpayer materially participates in the small business
The small business is not the employer that paid the severance pay and does not have any owner in common with the employer that paid the severance pay. The subtraction is limited to the lesser of $500,000 or “the amount that remains invested by the taxpayer in the small business at the close of any month during the 24 months following termination of employment,” and may be claimed only once by the taxpayer. (ORS 316.856)
If at any time the Department of Revenue determines that the taxpayer is not in compliance with any of the provisions of the bill, the department will disallow the subtraction and collect the resulting taxes.
PURPOSE: The statute that allows this expenditure does not explicitly state a purpose. According to the legislative staff revenue impact statement for HB 3627 (2010), the purpose of this subtraction “… is to encourage entrepreneurship and provide additional working capital to new and small Oregon businesses.”
WHO BENEFITS: Taxpayers who invest their severance pay in an Oregon small business. Fewer than ten taxpayers have received benefit from this provision.
EVALUATION: by the Oregon Business Development Department