The City of Portland has a new Metro Homeless Services tax (Metro) that impacts individuals and businesses starting in 2021. The tax was approved by voters in May of 2020. Now that we know how the City of Portland plans to administer the new tax, we wanted to provide more information about how the tax may impact you. What follows is information for individuals and businesses along with examples showing how the tax is calculated for residents and non-residents of Multnomah, Clackamas, and Washington County.
Individual Tax:
- The Metro tax is based on Oregon taxable income in excess of $125,000 (exempt) for individuals and $200,000 (exempt) for joint tax returns.
- Residents of Multnomah, Clackamas or Washington County pay tax based on Oregon taxable income in excess of the exempt amount listed above (e.g., an individual in Multnomah County having Oregon taxable income of $150,000 would have $25,000 subject to the new tax, the amount of taxable income above $125,000). This is illustrated soon in Individual Example #1.
- Non-Residents who have sourced income in the three counties will apportion their taxable income to Metro. The allocation to Metro for apportioning income will be based upon gross revenue inside Metro and outside of Metro. This is illustrated in the Individual Example #2.
- There is an exemption for income associated with “pass-thru” income that is taxed at the business level (via a K-1). Sole proprietors are taxed as an individual and not as a business.
Business Tax:
- There is an exemption for businesses with annual gross revenues less than $5,000,000. These businesses will not be subject to the new Metro tax.
- When businesses have gross revenue at or above $5,000,000, their Oregon taxable income will be taxed at 1%. This is illustrated in the Business Example #1.
- Businesses in Metro Counties will pay tax on all Oregon taxable income unless exempt per the gross revenue test (exempt if gross revenue is less than $5,000,000).
- Business located outside of Metro Counties with sourced income inside of the Metro Counties will apportion their Oregon taxable income based upon gross receipts inside the Metro Counties. This is illustrated in the Business Example #2.
When are payments due?
- For 2021, there will be no penalties for failure to withhold or pay this tax during the year. The tax will be due on April 15, 2022, with the filing of the tax return. Metro has discussed providing quarterly estimated tax coupons during the second quarter of 2021, but that is their best guess. They will also be working on an optional withholding-of-tax option, but they are estimating the second quarter will be the earliest that this option will be available.
Examples of how the Metro tax will be calculated:
Individual Example #1
- Resident of Multnomah, Clackamas, or Washington County
- Joint tax filing
- Oregon taxable income of $450,000 (this is above the $200,000 exempt level)
- Calculation of the tax:
- Oregon Taxable Income $450,000
- Joint Exemption from Tax (200,000)
- Taxable Resident Income $ 250,000
- Tax rate x 1.0%
- Tax owed $ 2,500
Individual Example #2
- Non-Resident of Multnomah, Clackamas, or Washington County
- Works in or has source income in Metro Counties
- Joint tax filing
- Oregon taxable income of $450,000
- Total gross income of $600,000, but only $300,000 is from wages in a Metro County
- Calculation of Tax
- Oregon Taxable Income $450,000
- Metro Source % (300k/600k) x 50.0%
- Metro Allocated Income $225,000
- Joint Exemption from Tax (200,000)
- Taxable Non-Resident Income $ 25,000
- Tax rate x 1.0%
- Tax owed $ 250
Business Example #1
- Business Located in Multnomah, Clackamas, or Washington County
- Gross annual revenues over $5,000,000 (under that, you are exempt)
- Oregon taxable income of $450,000.
- Calculation of Tax
- Oregon Taxable Income $450,000
- Tax rate x 1.0%
- Tax owed $ 4,500
Business Example #2
- Business Not Located in Multnomah, Clackamas, or Washington County
- Some source income in Metro Counties
- Gross revenues of $5,500,000
- Source revenues of $550,000 earned in a Metro County
- Oregon taxable income of $450,000
- Calculation of Tax
- Oregon Taxable Income $450,000
- Metro Source % (550k/5.5M) x 10.0%
- Allocated Income to Metro $ 45,000
- Tax rate x 1.0%
- Tax owed $ 450
We hope the information and examples give you a better idea of what to expect with the new Metro tax. As we indicated earlier, there are no penalties for failure to withhold or pay the tax during 2021, and the tax is not due until April 15, 2022. This gives everyone time to plan appropriately. We will provide more information about Metro as the City of Portland releases it.