With the passage of HB 2157 during the 2009 session, the Oregon tax code is connected to federal law as the federal law existed on May 1, 2009. Why is this important? For Oregon taxpayers it means that filing tax returns is easier because Oregon adopts the federal definition of taxable income. However, due to the state’s budgetary issues, the legislature disconnected from specific provisions of The American Recovery and Reinvestment Act of 2009 (ARRA).

The ARRA extended the additional 50% first year depreciation for qualified purchases through December 31, 2009. Oregon disconnected from this provision and will require an “add back” to taxable income on the Oregon income tax return.

Another important federal stimulative provision is the Section 179 expense deduction. The ARRA deduction limit is $250,000 with a phase-out of the deduction when the cost of Section 179 property exceeds $800,000. For Oregon purposes, the deduction is limited to $125,000 and the deduction phase-out begins at $500,000.

The ARRA allows any person to elect and defer the reporting of cancellation of debt income when he settles his debts at less than their basis over a ten year period, starting with the fifth year. This provision is not available to Oregon taxpayers, and they will have to report the income in the year the cancellation takes place.

Another revenue raiser for the state is the elimination of the Residential Energy Tax Credit and the Business Energy Tax Credit for gasoline-hybrid vehicles starting January 1, 2010.

Oregon Tax Amnesty

On July 15, 2009, Governor Kulongoski signed SB 880 providing an opportunity for non-filers to come into the light of tax compliance. If a taxpayer qualifies for amnesty, the Oregon Department of Revenue will waive all penalties and one-half of the interest if the delinquent tax returns are filed or original tax returns are amended and underreported tax is paid. For tax years 2007 and earlier, tax amnesty is available for corporate income and excise taxes, personal income taxes including estates and trusts, inheritance tax, and transit district taxes on self-employment.

In order to take advantage of this opportunity one must file an Amnesty Application between October 1, 2009 and November 19, 2009. The application will be available on September 18, 2009 and it can be downloaded from www.oregon.gov/dor . However, if a taxpayer has received a Notice of Deficiency or has been assessed a tax for failure to file, the amnesty program will not help. The original or amended filings are due by no later than January 19, 2010 and a copy of the Amnesty Application should be attached.

Increases in tax rates

Governor Kulongoski signed HB 2649 into law on July 20, 2009 and by doing so added two new income tax brackets. Starting with tax years 2009 through 2011, single individuals with taxable income between $125,000 and $250,000 and married couples filing jointly with taxable income between $250,000 and $500,000 will pay at the marginal rate of 10.8%. Single filers and joint filers with taxable income in excess of $250,000 and $500,000 respectively, will pay at the marginal rate of 11%. After 2012, the highest bracket will be reduced to 9.9% for individuals and joint filers with taxable income in excess of $125,000 and $250,000, respectively.

Oregon’s new minimum tax of $150 will be imposed on Partnerships, LLC’s, LLP’s and S-Corporations. The old $10 minimum tax for C-corporations is being replaced by a new structure effective for tax years beginning in 2009. For C-corporations with Oregon sales of $500,000 or less, the minimum tax is $150. For Oregon sales in excess of $500,000, the minimum tax ranges from $500 to $100,000. For tax years 2009-2011, C-corporations with taxable income up to $250,000 will be taxed at a rate of 6.6%, amounts in excess of $250,000 will be taxed at 7.9%. In 2012, the rate decreases to 7.3% for taxable income in excess of $250,000. C-corporations will pay the higher of the minimum tax or the tax rate computation.