UPDATE: The City of Portland’s New Metro Homeless Services Tax for 2021
The purpose of this letter is to provide a reminder of the upcoming due date of 4/15 for the new tax.
This also provides an update as to how the new tax works as we have been able to review the tax law as written. This provides more “clarity” on how the tax will work compared to our prior BLOG just after the bill was passed.
Individual tax:
- The Metro tax a 1% tax on taxable income in excess of $125,000 (exempt) for individuals and $200,000 (exempt) for joint tax returns. Taxable income is determined differently for residents vs. non-residents (see below)
- Residents of the Portland Metro District will pay tax based on Oregon taxable income in excess of the exempt amount listed above (e.g., an individual in the Metro District 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 below in Individual Example #1. Note that the “Metro District” is not the three combined counties of Multnomah, Clackamas, and Washington. You can use this link to determine if you, or your business, is located in this geographical boundary: https://www.oregonmetro.gov/about-metro/metro-council/find-your-councilor
- Non-Residents who have income that is “sourced” in the Metro district will be taxed exclusively on the Metro- “sourced” amount, which is then subject to same exclusion amounts. This is illustrated in the Individual Example #2. It was previously communicated that there would be an allocation to Metro for an “apportioning” of income based upon gross revenue inside Metro vs. outside of Metro.
- In the event that a taxpayer has a “pass-thru” entity that is subject to the tax at the entity level, which requires gross revenues in excess of $5M (see below), then the income derived from that entity can be deducted at the individual level.
Business Tax:
- There is an exemption for businesses with gross revenues from all business sources less than $5,000,000. These businesses will not be subject to the new Metro tax. Note that the “Metro District” is not the same as the three combined counties of Multnomah, Clackamas, and Washington. See link above.
- 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 located in the Metro District 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 District with income “sourced” inside of the Metro District will “apportion” their Oregon taxable income based upon the percentage of gross receipts inside the Metro District. 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. There will be required withholding and quarterly payment of taxes in 2022. There will be penalties in 2022 for under-withholding or underpayment of quarterly estimated tax payments.
Examples of how the Metro tax will be calculated
Individual Example #1
- Resident of Metro District
- 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 *See changes in calculation
- Non-Resident of Metro District
- Works in or has source income in Metro District
- 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 District
- Calculation of Tax
- Metro Taxable Income $300,000
- Joint Exemption from Tax (200,000)
- Taxable Non-Resident Income $ 100,000
- Tax rate x 1.0%
- Tax owed $ 1,000
Business Example #1
- Business Located in Metro District
- Gross annual revenues over $5,000,000 (under that, you are exempt)
- 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 Metro District
- Some source income in Metro District
- Gross revenues of $5,500,000
- Source revenues of $550,000 earned in Metro District
- 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 these updates and examples give you a better idea of how the new Metro Homeless Services tax is going to work. As we indicated earlier, there are no penalties for failure to withhold or pay the tax during 2021, and the taxes will be due on April 15, 2022.