Oregon’s Metro regional government district added a wage tax measure to the November 2020 ballot to fund several transportation projects including a new light rail line. This tax joins the proposed 3% income tax being sought by Multnomah County, which comprises much of Metro’s region and the city of Portland, to fund universal preschool.
If the measure passes, a new tax of up to 0.75% will be imposed on wages paid by all employers with more than 25 employees. Wages of state and local employees are exempt from the tax. The tax will be imposed on wages paid for services performed in whole or in part within the Portland-area Metro district in addition to existing state and local taxes.
Existing Oregon State & Local Taxes
The new tax would join existing state and local income, gross receipts, and payroll taxes included in the table below. All tax rates noted are top marginal rates.
Local governments impose several additional taxes with more limited application including:
- Portland’s CEO surcharge
- Portland’s gross receipts tax on certain large retailers
- Portland’s heavy vehicle use tax
Proposed Wage Tax
While the proposed wage tax appears similar to the existing TriMet wage tax, important differences must be considered so that employers can effectively implement the tax if passed.
Metro District Boundaries
The Metro district boundary is similar to, but not the same as, the TriMet district boundary. Employers will need to track wages for services performed in Metro but not TriMet, TriMet but not Metro, or Metro and TriMet.
Employees of State & Local Governments
Wages of state or local government employees are exempt from the new tax, but are subject to the TriMet tax.
Employees of Charitable Organizations—Other than Hospitals
Wages of employees who work for charitable organizations are subject to the new tax, but are exempt from the TriMet tax.
The ordinance as written imposes the tax on remuneration for services performed including the cash value of all noncash remuneration.
The ordinance doesn’t contain any exclusions or refer to the definition of wages for the TriMet tax.
The TriMet tax wage base excludes several forms of remuneration including certain agricultural wages and income exempt from tax. Without a significant modification, Metro’s proposal could tax all of these items.
Examples of items exempt from the TriMet tax that could be subject to the Metro tax are as follows:
- Health care insurance benefits
- Employee deferrals to retirement savings plans, such as 401-K plans
- Employee deferrals to health savings and flexible savings plans
- Transit benefits, including TriMet passes
- Any other employee benefits
Employers would be required to calculate a new wage base, separate from the wage bases for the TriMet tax, the statewide transit tax, and Oregon withholding. The entire remuneration, including nontaxable benefits, would need to be identified for each employee so that wages paid to employees working in the Metro district could be accurately taxed.
Services Performed in the Metro Area
Wages for services provided wholly outside the Metro area wouldn’t be taxed. Wages for services performed partly within the Metro area would be taxed, but the initial proposal doesn’t include definitions or examples of how this would be applied.
Many businesses pay wages for services performed partly within the Metro area. An appliance retailer, for example, may send employees to install and repair appliances inside and outside the Metro area.
As another example, trucking companies employ drivers who may cross the Metro area boundaries daily, monthly, or once per year. The initial proposal doesn’t indicate whether all of the wages paid to these employees would be subject to the tax, or if the tax would apply to the portion of the services performed within the Metro district instead.
The COVID-19 pandemic adds additional considerations as many employees, who may have worked in the Metro district in early 2020, are now working remotely—and may, or may not, be working within the Metro district. Further clarification will be needed.
If the proposed Metro tax is passed, the total tax on wages for services performed in an area within both TriMet and Metro boundaries could be up to 2.6237%, or $262.37 per $10,000 of total remuneration. When combined with existing local income taxes on individuals and Oregon’s personal income tax, the top marginal individual income tax rate would be 19.5%. This compares with 14.5% before 2021 and 16.5% when the new Supportive Housing Services tax becomes effective.
Some taxpayers may be able to deduct elements of these taxes when filing their federal and Oregon income tax returns, which could reduce the net effective tax rate slightly. However, if these additional taxes are approved in November, it’s likely that top earners in the Portland metro area could be subject to income and wage tax rates that are among the highest in the country.
The new proposed tax would add administrative complexity for employers as they would need to calculate a wage base that’s different from the wage base calculated for any other purpose.
Employers may need to implement systems to track employee locations as work is performed—either to ensure compliance with business policies to perform services outside the Metro district area, or to identify wages earned performing services within the TriMet and Metro districts as well as Multnomah County and Portland.
We’re Here to Help
Many areas outside the Portland, Oregon metropolitan region have different tax structures. Depending on your situation, changing residences or moving divisions or teams to other locations can cause dramatic shifts in your overall tax burden and bring unanticipated consequences.
The COVID-19 pandemic also may have changed where your employees are performing services and where they may be performing services. These should be considered when you’re modeling where current operations should be located and where future growth should occur.
If you’re considering a move to another state or another city in Oregon, please contact your Moss Adams professional.