Business Tax Reform Package Signed Into Law
Today the County Board of Commisssioners finalized a set of reforms to Multnomah County's Business Income Tax (BIT) system. This reform package marks the first substantive update to our BIT system since 1994. It will result in tax relief for approximately 20,000 businesses, and it will make our local tax structure both more equitable and more stable.
The ordinance that got final approval today will codify reforms passed by the Board on April 12th, 2007. These changes apply beginning in tax year 2008. Three main reforms were passed:
1) The Gross Receipts Exemption was doubled, from $25,000 to $50,000.
2) The Owners Compensation Deduction was raised from $61,500 to 82,000, and will continue to rise annually with the CPI-U (inflation index).
3) A $100 minimum payment was instituted to help decrease volatility in the BIT system.
These reforms stemmed from the recommendations of the BIT Reform Workgroup, which was convened by Commissioner Cogen and the Board on March 1st of 2007. This Workgroup was made up of local business owners, representatives from chambers of commerce and other business groups, and community stakeholders including some who deliver county services and represent county workers. The workgroup was charged with studying the recent reforms to the City of Portland's Business License Fee (BLF) and bringing recommendations to the Board on potentially adopting them at the County.
The City's BLF reform process was led by Commissioner Adams and included a lot of community and business outreach, and collaboration with the City's Small Business Advisory Council. The City's reforms were passed by Portland City Council on January 18th, 2007. The City BLF and County BIT have long been closely aligned tax systems. Collection of the taxes happens on a joint tax form and the two systems are jointly administered by Portland's Revenue Bureau.
The County Business Income Tax Workgroup came back with a set of recommendations aimed at improving equity in our tax system, encouraging small business growth, and protecting our County's regional competitive position by adopting a package of reforms similar to that adopted by the City of Portland. The reforms as mentioned above centered on three key changes. Also included was a commitment to refocus and expand the County's economic development efforts, especially in underserved areas.
Multnomah County’s BIT makes up a significant part of the County's budget. In fiscal year 2005-2006, the BIT contributed $50,980,000 to the general fund. Services vital to the health and well being of the most vulnerable members of our community are funded in part through the BIT. One longstanding issue with the BIT has been its volatility. Year over year swings from 5% to 40% have occurred in recent years, which have adversely impacted the County's ability to deliver core services. The $100 minimum BIT payment now in place as a result of these reforms will help stabilize the system. The City has long had a $100 minimum BLF payment and the City's BLF revenues have been significantly more stable as a result.
The idea of creating a progressive standard for the minimum payment is also something the Board addressed when they accepted the BIT Workgroup's recommendations and passed this package of reforms. The workgroup members shared concerns about the equity of the same low minimum payment applying to huge businesses and very small businesses. The tax data clearly demonstrate that many businesses pay the minimum each year, including many large companies with millions in revenue and hundreds of employees. The Board of County Commissioners resolved to work with the City of Portland and the business community in 2008 on ideas for how to address this inequity. They also resolved to apply additional revenue generated by a progressive minimum to further increasing the Owners Compensation Deduction to $125,000 over the next five years.
This reform effort was the result of a lot of outstanding cooperation and community input. The members of the Business Income Tax Reform Workgroup donated significant time and energy to this effort and they deserve our sincere appreciation, as do all the other business people who weighed in on ideas for our local business tax system. The outstanding spirit of intergovernmental and interagency cooperation demonstrated throughout this process was wonderful to see and to be part of. Changes like this had been long delayed for various reasons. It is exceptional that both the County Board and the Portland City Council were able to come together unanimously to approve these recent reforms. This overdue update to Multnomah County's BIT system will improve our local business climate and help encourage small business growth and retention. Thank you to all involved.
Posted on December 20, 2007
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