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STARTING AND OPERATING A BUSINESS IN OREGON Copyright © 2008, Michael D. Jenkins CHAPTER 18
CONTENTS OF THIS CHAPTER:
I. INTRODUCTION I. INTRODUCTION Oregon has a fairly typical tax and legal structure under which businesses must operate, except that it is one of the few states that does not impose a sales tax. As a very business-friendly state, Oregon has some of the lowest filing fees of any state for creating business legal entities -- a modest fee of only $50 to create a limited partnership, limited liability partnership, limited liability company, or a corporation, or to "qualify" any such entity that was formed under another state's laws, and only $50 a year to file annual reports, with no franchise tax or similar fees based on the capital of corporations. Like most states, Oregon imposes an income tax on individuals, an income tax on corporations, and various excise taxes, with property taxes imposed at the local level. There are also several city, county, and transit district taxes on wages paid by employers or on self-employment income. Oregon is generally a very business-friendly state, and does not impose:
The state has also adopted a limited liability company (LLC) law, and a limited liability partnership (LLP) law, and exempts S corporations from corporate income tax, so that businesses operating in Oregon in the form of an LLC, LLP, or S corporation may obtain the advantages of limited liability without becoming subject to corporate taxation, generally. At present, the state's economy is somewhat sluggish, as its unemployment rate remains somewhat higher than the national rate of unemployment. In July, 2008, the state's unemployment rate was 6%, up significantly from 5.3% a year earlier. This compares to a national unemployment rate of 5.7% for July, 2007. To view the latest federal Bureau of Labor Statistics unemployment rate data for Oregon or any other state, visit the BLS website. II. LEGAL ENTITIES -- FILING FEES AND REPORTING REQUIREMENTS. (a) In General. A business that operates in Oregon can operate as a sole proprietorship, a general or limited partnership, a corporation, or a limited liability company. In addition, like the federal tax law, the state income tax law also recognizes S corporations, for income tax purposes, and generally allows the income or losses of an S corporation to "flow through" and be taxed or deducted at the shareholder level, rather than taxing the corporation itself as an entity. Oregon also provides for limited liability partnerships, in which no partner is liable for certain debts of the partnership, somewhat like a corporation or LLC, but with fewer legal formalities than are required for either a corporation or an LLC. Each of the above entities is discussed below, along with the basic requirements for forming such an entity and any general ongoing (non-tax) reporting requirements that are applicable to it. The tax treatment of each form of legal entity is discussed in Section IV below. (b) Sole Proprietorships. In general, sole proprietorships in Oregon can be established with no formalities. However, as discussed in Section IV(b), it will generally be necessary to obtain one or more local business licenses from cities or counties in which you operate and, in some cases, state licenses, as well. In addition, a sole proprietorship whose business name does not include the full name of the owner must file an assumed name registration with the Secretary of State of Oregon and at least one county. No separate tax form filing is required, generally, for a sole proprietorship, under the Oregon income tax law. Instead, as with the Schedule C on your federal Form 1040, you simply report the net income or loss from your sole proprietorship on your state personal income tax return. See Section IV(c) for information on the Oregon income tax and filing requirements for individuals. Doing business as a sole proprietor in Oregon is generally much simpler than operating as any other kind of business legal entity. As a sole proprietor, if you have no employees, you are not required to pay any unemployment taxes, withhold any federal or state income tax from wages, nor obtain workers' compensation coverage for yourself. (c) Partnerships. Oregon's partnership laws allow creation of either a general partnership, in which all partners are liable for the debts of the business, or a limited partnership, in which only the general partners are liable for debts, while the liability of limited partners is limited to the amount they have invested, usually. State law also allows for the creation of a limited liability partnership, in which no partner has personal liability (subject to certain exceptions). As is discussed in Section IV(b), it will generally be necessary to obtain one or more local business licenses from cities or counties in which you operate and, in some cases, state licenses, for any type of partnership, including general or limited partnerships, or limited liability partnerships. Partnerships, as entities, are not subject to state income tax in Oregon. Instead, the income or losses of the partnership, as allocated among the partners, must be reported on the personal income tax returns of the individual partners (or on the corporate tax returns of any corporate partners). Partnerships are required to file an annual tax information return with the state and, since 2006, all partnerships and LLC's taxable as partnerships are required to withhold state individual or corporate income tax on behalf of nonresident partners or members, unless the partner or LLC member consents to being included in a composite tax return for the entity's nonresidents or files an affidavit, agreeing to be subject to Oregon income tax on his or her Oregon-source income from the partnership. No withholding is required if the nonresident has other Oregon-source income (other than from other pass-through entities). For details on Oregon partnership tax return filing requirements, see Section IV(c). A partnership agreement, for any type of partnership, should spell out in considerable detail such matters as the following:
As a rule, general partnerships in Oregon can be formed with no formalities, although it is highly advisable to have a written partnership agreement. However, as discussed in Section IV(b), it will generally be necessary to obtain one or more local business licenses from cities or counties in which you operate and, in some cases, state licenses, as well. In addition, any partnership or other business that has employees will generally have to register for, and pay, withheld state income tax on employee wages, as discussed in Section V(a) and state unemployment tax on wages paid, as discussed in Section V(b). If using an assumed name, a general partnership may be required to file an assumed name statement, as discussed in Section IV(g). A limited partnership, in which there is at least one general partner (who is liable for partnership debts) and at least one limited partner (who is not liable for partnership debts), may also be formed under Oregon law. Unlike a general partnership, a limited partnership must generally have a written partnership agreement, and must file a Certificate of Limited Partnership with the secretary of state, together with a filing fee of $50. All business registration fees for partnerships, corporations, and LLC's are set by the Oregon Secretary of State, not by statute. Foreign limited partnerships must also register before being allowed to do business in Oregon, and must pay a registration fee of $50. Registration includes providing a certificate of existence from the state where it was formed. Limited partnerships are also required to file an annual report with the secretary of state. Domestic limited partnerships and foreign limited partnerships both pay an annual report fee of $50. For information on limited partnership filing requirements, see the contact information for the offices of the Oregon Secretary of State, listed in Section VI(a). LIMITED LIABILITY PARTNERSHIPS Limited liability partnerships (LLP's) are a relatively new form of partnership permitted under the laws of Oregon. Like an LLC, an LLP provides limited liability for its owners, while retaining the tax advantages of a partnership for federal and Oregon state income tax purposes. However, unlike an LLC, an LLP typically operates like a regular partnership, and is not required to file articles of organization. Partners in a general partnership can obtain a significant degree of limited liability by simply registering the partnership with the state as an LLP. However, in the case of a partner in a professional partnership that becomes an LLP, doing so will not affect the liability of a partner in an LLP for his or her own omissions, negligence, wrongful acts, misconduct or malpractice. To form an LLP in Oregon, you must file a registration form and pay a filing fee of $50 to the secretary of state. Foreign LLP's, those created under the laws of another state, must register with the secretary of state and pay a fee of $50. Foreign LLP's that fail to register and obtain a certificate of authority to do business in Oregon may not maintain a lawsuit in the state's courts, but such failure will not deprive the partners of their limited liability protection. Every LLP doing business in Oregon, including both domestic and foreign LLP's, must file an annual report and pay an annual registration fee, which is $50 for either a domestic or foreign LLP. For more information on LLP registration and reporting requirements, see the contact information for the offices of the Oregon Secretary of State, listed in Section VI(a). Note that one potential drawback of LLP's, if you will do business in other states besides Oregon, is that you may not enjoy limited liability with regard to creditors of the LLP if you do business in some such states. Some states, like California and New York (and until recently, Nevada), only recognize certain types of professional partnerships as LLP's. Such other states may simply treat your LLP like an ordinary general partnership, with no limitation of liability. (d) Corporations. To form a corporation in Oregon, you must file articles of incorporation with the Oregon Secretary of State and pay a fee of $50. A foreign corporation (one formed under the laws of another state or a foreign country), must obtain a certificate of authority before it may legally conduct business in Oregon, by filing an application for a certificate of authority and paying a filing fee of $50. State law spells out the following non-exhaustive list of various types of activities that specifically do not constitute "doing business in Oregon" by a corporation:
For more information on filing articles of incorporation or applying for a certificate of authority to do business in Oregon, see the contact information for the offices of the secretary of state, listed in Section VI(a). In addition, once your corporation is formed, it will be required to file an annual report and pay a filing fee of $50 to the secretary of state each year. Failure to file this report on a timely basis could result in suspension or revocation of your corporation's charter. In addition to paying federal income taxes on its income, a corporation that does business in Oregon must also file corporate income tax returns with the state. See Section IV(c) for a discussion of state corporate income tax rates and tax return filing requirements. For tax forms and more information on corporate income taxes in Oregon, see the contact information for the offices of the Oregon Department of Revenue, listed in Section VI(a). PLANNING POINT: (e) S Corporations. An S corporation is simply a regular corporation that has elected, for federal or state income tax purposes or for both, to be taxed somewhat like a partnership, with its income, losses and tax credits flowing through to its owners, who report such income, losses, or credits on their individual tax returns. Oregon recognizes S corporations for income tax purposes, and treats them in a manner similar to the federal tax treatment. (f) Limited Liability Companies. Oregon, like every other state in the U.S., has adopted a limited liability company (LLC) law. Thus, in addition to the traditional choices of a sole proprietorship, partnership, or corporation, a business that operates in Oregon may also choose to operate in the form of an LLC. In most states, including Oregon, LLC's are very attractive entities for many small businesses, in that they offer the same protection as a corporation from creditors for debts of the business, while offering much of the flexibility plus the flow-through tax treatment of a partnership for federal tax purposes. As under federal tax law, LLC's are generally not taxable entities under the Oregon tax laws. Unless it has elected to be treated as a corporation for federal tax purposes, an LLC will generally be treated as a partnership or, if it has only one owner, as a "disregarded entity" (sole proprietorship). See Section IV(c) for a discussion of the income tax treatment of LLC's under Oregon's tax laws. To form an LLC under the laws of Oregon, one or more persons must file articles of organization with the Oregon secretary of state, which must be accompanied by a filing fee of $50. Fees for LLC's are set by the secretary of state, and not by state law in Oregon. Oregon state law allows formation of one-owner LLC's, which now qualify for treatment as sole proprietorships for federal and Oregon income tax purposes. Foreign LLC's, those formed under the laws of another state, must obtain a certificate of authority to do business in Oregon, by filing an application for a certificate of authority with the secretary of state and paying a filing fee of $50. The following activities, specified by state law, do not constitute "doing business in Oregon" by an LLC:
In addition to initial filing fees, an LLC formed in Oregon must subsequently file annual reports and pay an annual report filing fee of $50 with each such annual report. A foreign LLC is also required to file an annual report and pay the applicable filing fee of $50. For more information on filing articles of organization for an LLC, see the contact information for the offices of the secretary of state, listed in Section VI(a). III. BUSINESS ACQUISITIONS (a) In General. When acquiring an existing business, there are a number of state legal and tax issues you or, preferably, your business attorney should attend to before closing the purchase. These include matters such as doing a title search for any real property that is being acquired, checking for any recorded security interests on personal property items, and thoroughly researching county, state, and federal records for any judgment liens, tax liens, or other liens, before property is acquired. You will also benefit from consulting a tax advisor before the agreement of sale is negotiated, in order to seek a structuring of the agreement so that the purchase price is allocated among the assets in a way that favors you. You may be able to obtain considerable tax savings if the purchase price is allocated in a way that gives you the best possible tax results under federal and state income tax laws, and other state tax laws, such as property tax laws. Depending upon the state (or states) in which the seller's assets are located, you may also have to plan to minimize sales taxes (not a problem in Oregon) or to comply with state bulk sale or bulk transfer laws (also not a problem in Oregon). You should also obtain tax releases from various state taxing agencies, as discussed below. (b) Bulk Sale Laws. Typical bulk sale laws require either publication of legal notices to all creditors in advance of the sale and recording of such notices in some cases, or maintenance of detailed lists of the property to be transferred, for inspection by the public. Oregon is one of the business-friendly states that has repealed its bulk sale laws, so you no longer have to be concerned with this requirement when buying a business in Oregon. (c) Tax Releases. When you acquire an existing business, you will want to make sure that you do not unwittingly become liable for any unpaid taxes owed by the seller. Typically, to protect yourself, you will need to receive a tax release or releases from various state taxing agencies, for such taxes as sales and use tax, income tax withholding, and state unemployment taxes, in each state in which the seller does business. If you fail to obtain such a release or written statement from the tax agency that the seller is not delinquent on any tax payments, you will be held responsible for such tax if it is not withheld from the purchase price proceeds and paid to the state at the time the sale of the business transpires. In Oregon, you need not be concerned with obtaining a sales tax release, as there is no general sales or use tax in Oregon, state or local. However, you should attempt to ascertain whether the seller is delinquent on payment of any state unemployment taxes, or you may be held liable for such unpaid taxes. (d) Unemployment Tax Rating of Seller. Besides obtaining tax releases, you may find it advantageous to succeed to the seller's unemployment tax experience rating, if the seller has a tax rate lower than you would otherwise obtain as a new business. If you wish to obtain the seller's favorable experience rating as a successor employer, you will need to contact the Oregon Employment Department on a timely basis (within 60 days), requesting that you be treated as a successor employer. Oregon law allows a successor to all or an identifiable and segregable portion of an existing business to succeed to the unemployment tax experience rating of the acquired business or business segment. Under laws that went into effect in 2006, employers are no longer allowed to manipulate unemployment tax rates by various means, such as transferring employees to a newly formed entity or to a subsidiary with a low tax rate, or by acquiring a business for the main purpose of obtaining its low unemployment tax rate. Penalties for any such attempt include a fine of up to $10,000 plus an increase in the employer's tax rate to the highest unemployment tax rate (or an even higher rate) for the next 3 years. In determining whether a person acquired a trade or business solely or primarily for the purpose of obtaining a lower tax rate, the state may use objective factors that may include:
PLANNING POINT: EXAMPLE: (e) Withholding Tax on Real Estate Purchases. As under federal law, Oregon's tax law, beginning in 2008, generally requires a purchaser of real estate that is located in the state to withhold state income tax from the purchase price if the purchaser is a nonresident, except that in this case the Oregon tax has to be withheld if the seller is any nonresident of the state, rather than just a nonresident of the United States. As a purchaser of a business in Oregon, if, as part of the transaction, you are acquiring Oregon real estate owned by a nonresident, it may be necessary to withhold (with certain exceptions) the lesser of:
Transactions in which the consideration is $100,000 or less are exempt from the withholding requirement, as is any transaction in which the computed withholding is less than $100 per transferor. Also, no withholding is required if the seller is a resident individual, a corporation registered to do business in Oregon, or a pass-through entity. The tax is to be withheld by an "authorized agent," defined as an agent who is responsible for closing and settlement services in a conveyance of a real property interest. A nonresident is either a nonresident individual or a C corporation that does not do business in the state or maintain an office in the state. IV. OREGON TAXES AND OTHER GENERAL REQUIREMENTS. (a) In General.
Oregon has a relatively high state income tax on individuals,
reaching its maximum rate of 9% at very low levels of income.
There are also a number of city, county and transit district
taxes on income, wages, or payroll in Oregon, as well as the
state taxes on income. These local taxes include:
While the individual state and local income tax rates in
Oregon are quite high, the corporation excise (income) tax rate
is relatively moderate, at 6.6% of taxable income, and unlike
many states, Oregon does not impose a franchise tax on capital
of corporations or a tax on gross income of businesses. Oregon
is also one of only five states that does not impose any general
sales or use taxes and one of the few states that does not have
real estate transfer or recordation taxes.
State law in Oregon requires the government to refund
excess tax revenues (the "kicker") when actual revenues exceed
forecasts by more than 2% over a 2-year period. A "kicker"
tax credit that was to be allowed for corporations in 2007
was suspended by new legislation that instead diverted the
2007 surplus to a "rainy day fund." However, a taxpayer
that is a C corporation and that has Oregon sales of less
than $5 million continued to receive a credit against taxes
for 2007 that was equal to 67% of those taxes, generally.
The "kicker" is unlikely to be paid in 2008 or the next few
years, if the state's budget situation continues to weaken.
For state tax forms and tax information, see the contact
information for the Oregon Department of Revenue
in Section VI(a).
(b) State and Local Licensing.
Nearly any business, operated anywhere in the United States,
will have to have at least one government license of some kind.
In most cases, this will be a local license, issued by your
city or county. Before you open your business, contact your
local city or county hall and find out if your particular
business needs one or more local licenses. Most kinds of
local business licenses are granted upon payment of a fee,
with no further requirements, except possibly for annual
or other periodic renewal fees.
However, if you are engaging in any kind of food business,
you will usually need to also obtain a health department
permit and show that you are in compliance with health
department food-handling requirements. In addition, be
sure to check with an attorney or local government zoning
or planning department officials to determine if your
business will be in compliance with all local zoning
and planning restrictions. If you own or rent any type
of facility, you will generally need fire department
permits, showing that you meet fire safety codes and any
construction or improvements to an existing structure
will usually require a building permit. If you intend to
simply operate your business from your home, you may be
in violation of local zoning requirements, but this is
less likely to be a concern if you don't have clients,
customers, suppliers, delivery trucks, or employees
coming to your house on business, on a regular basis.
State governments have traditionally required special
licenses for many kinds of professionals, such as physicians,
dentists, lawyers, and accountants. To further protect
consumers, Oregon has expanded the list of occupations
that must be licensed by the state to include many other
occupations. Most state licenses not only require payment
of fees, but are only issued for a given profession or
occupation upon showing that you have completed certain
educational or experience requirements, or passed certain
tests, or some combination of the foregoing.
Unlike some states, which require all businesses to
obtain a state license, there is no general state license
that is required to open a business in Oregon.
For assistance with state licensing and business
registration requirements in Oregon, see the web
links listed in Section VI(c)
to the searchable online database of the License
Directory, which includes over 1,100 different types
of licenses and permits, or the secretary of state's
online "Business Wizard," which will provide you with
a list of referrals and possible licensing requirements
for registering a new business, based on your answers
to certain questions. Also, see the contact information
for the Business Information Center of the Oregon
Secretary of State, listed in Section VI(a).
(c) Income and Franchise Taxes.
Oregon has both an individual income tax and a corporate income
tax. In addition to state income taxes, there are also a number
of county and regional taxes on wages or income, imposed mainly
in urban areas of the state. Several of such local taxes on
employers and the self-employed are discussed in
Section IV(a).
TAXATION OF SOLE PROPRIETORS AND PARTNERSHIPS
The Oregon individual income tax is imposed at a maximum
tax rate of 9%, on income over $7,300 for a single filer in
2008 (or twice that amount, $14,600 of taxable income, if
filing jointly or as head of household).
After 2008, Oregon will no longer base its taxable income on
federal taxable income, for changes in federal tax laws after
December 31, 2008.
Individual taxpayers generally pay state income tax on
their business earnings from a sole proprietorship, or on
their share of the earnings of a pass-through entity, such
as a partnership, S corporation or LLC. The Oregon personal
income tax return is Form 40, which must
be filed with the Oregon Department of Revenue.
Unlike many states, Oregon allows a (limited) deduction
of federal income taxes paid or determined each year. In 2007,
up to $5,500 of federal income tax was allowed as a deduction.
This limit increased to $5,600 for 2008 (or half that amount,
if married and filing separately) and is now indexed annually
for inflation.
Partnerships, or entities taxable as partnerships, such
as LLC's, are not subject to state income taxation in Oregon,
but must file an information return with the Department of
Revenue each year, showing each partner's share of taxable
income, losses, and credits, on Form 65. The
partnership information return is due by the 15th day of the
fourth month after the end of the partnership's taxable year.
Partnerships and other pass-through entities (such as LLC's
and S corporations) are generally required to withhold Oregon
income tax with respect to the income of any nonresident partner
that has no other Oregon-source income. Withholding of tax
is not required if the nonresident has any other Oregon-source
taxable income that is not from a pass-through entity.
Withheld tax must be paid in quarterly estimated payments,
on Form 40-ESV for each individual partner,
or Form 20-V for partners who will file
corporate returns. The tax must be withheld at the 9%
rate for individual partners or at a 6.6% rate for
corporate partners.
Withholding by pass-through entities is not required
if the nonresident signs an affidavit, agreeing to file
an Oregon nonresident tax return and pay any Oregon income
tax owed, or else is included in a composite tax return
(Form OC) filed on behalf of the
nonresident owners of the pass-through entity.
Individual taxpayers doing business as sole proprietors
(or who are partners in partnerships, members of LLC's, or
shareholders in S corporations), who have taxable income
from the business, will generally be required to make advance
payments of estimated Oregon individual income taxes, on
Form 40-V, if their net tax liability (not
covered by withholding) exceeds or equals $1000.
Estimated tax payments are due in four installments, on
the 15th day of the 4th, 6th, and 9th months of the taxable
year, and the 15th day of the first month of the following
year. To avoid penalties, at least 90% of the current
year's tax must be paid in during the year as withholding
or estimated tax payments, or, if less, an amount equal
to 100% of the prior year's tax.
The Oregon corporate income tax rate, on corporations
other than S corporations, is 6.6% in 2008. There is a
minimum annual tax of $10.
The state corporation income tax return is Form 20,
which must be filed with the Department of Revenue within
one month after the due date of the federal return, or by
April 15th in the case of a corporation whose taxable year
is the calendar year.
Corporations are required to make estimated tax payments
of their state corporate income tax in advance if their tax
liability for the year equals or exceeds $500. Estimated
tax payments are due in advance, in four equal installments,
on the 15th day of the 4th, 6th, 9th, and 12th months of
the taxable year. Form 20-V is used to
submit corporate tax payments, including estimated tax
payments, extension request payments, or payments with
the corporate tax return. Payments for each quarter must
be at least equal to 25% of the current year's tax or the
previous year's tax, whichever is less. Certain large
corporations may only base the first quarter estimate on
the previous year's tax liability.
Penalties will be imposed for failure to make the required
estimated tax payments on a timely basis.
Corporations that are required to make federal estimated
tax payments by electronic funds transfer must also make
payments of their estimated Oregon state income tax by
electronic funds transfer.
S corporations are treated the same in Oregon as under
the federal tax law, and thus are exempt from the Oregon
corporation income tax and pay only the $10 corporate
minimum tax, generally. Instead, as for federal tax purposes,
their income is taxable directly to the shareholders.
S corporations must file annual Oregon tax returns on
Form 20-S, Oregon S Corporation Income Tax Return.
Income of an S corporation that is taxable at the corporate
level for federal purposes, such as a "built-in gain" that had
accrued before a C corporation converted to S corporation status,
is also taxed at the corporate level by Oregon, at the regular
corporate tax rate of 6.6%.
Like other pass-through entities (partnerships and LLC's),
S corporations are required generally to withhold Oregon
income tax on the income of nonresident shareholders whose
only Oregon-source income is from pass-through entities,
unless the nonresident shareholders agree to pay Oregon
income tax on their share of the Oregon-source income or
they are included in a composite return filed by the S
corporation on behalf of its nonresident shareholders.
Unlike many states, Oregon does not impose a franchise
tax on the capital or net worth of corporations.
TAXATION OF LIMITED LIABILITY COMPANIES
In Oregon, a limited liability company (LLC) is taxed
in the same manner as a partnership, unless it is taxable
as a corporation for federal income tax purposes. It is
thus possible with an LLC to avoid the double taxation of
income that can occur with a corporation. Note that under
IRS regulations, an LLC may elect to be treated as a
partnership if it has more than one owner, or as a sole
proprietorship if it does not, for federal tax purposes.
Oregon law now recognizes the validity of a one-owner LLC
and, for tax purposes, will treat such an LLC as a
"disregarded entity" where such entity is disregarded
for federal tax purposes.
Although an LLC treated as a partnership is not subject
to Oregon state income taxes, as noted in the discussion of
Oregon's taxation of partnerships, an
LLC that is taxed as a partnership and that has nonresident
members may be required to withhold Oregon individual or
corporate income tax on behalf of such nonresident
individuals or corporations, unless the member is included
in a composite tax return for the nonresident members, or
agrees to file an Oregon income tax return and pay any tax
owed to the state. No withholding is required if the
nonresident member has any Oregon-source income that is
not from a pass-through entity.
Note that it is not always entirely clear whether an LLC is
a "single-member LLC" or not, where the "single owner" is a
married couple who hold the entire ownership of the LLC in some
form of co-tenancy, such as joint tenants with right of survivorship,
tenants by the entirety, or as tenants in common. The federal Internal
Revenue Service (IRS) has taken a very lenient position in Rev.
Proc. 2002-69, where a couple hold the LLC interest as community
property, ruling that the IRS will accept whatever choice the couple
make, either to disregard the LLC as an entity (treating it as a
"single-member LLC") or to treat it as a partnership between the
husband and wife.
However, Oregon is not a community property state, so where the
LLC is owned by a husband and wife in some form of co-tenancy, it
is unclear whether the IRS treatment would be as lenient as for
community property owners, since the IRS has not issued any
published rulings on whether an LLC can be a disregarded entity
if held in one of the various forms of co-tenancy by a married
couple, rather than being held as community property. Thus, it
is also unclear, where an LLC is owned by a husband and wife as
co-tenants, whether Oregon would treat the LLC as a single-member
LLC or as a partnership.
(d) Sales and Use Tax.
There is no general sales or use tax in Oregon. Furthermore, Oregon
adopted a law in 2001 that prohibits any municipalities and other
political subdivisions in the state from imposing any kind of new
state or local taxes on Internet access services.
However, since January 1, 2004, a 1% state lodgings tax
has been imposed on guests staying at Oregon hotels, motels,
and recreational vehicle parks. Beginning January 1, 2006, the
state lodgings tax was expanded to also impose the 1% tax on
vacation home rentals, tent sites, and most other facilities
that charge a fee for transient lodging on a short-term basis.
The state lodgings tax is in addition to any such local
lodgings taxes that may apply.
Businesses are allowed to withhold and retain 5% of
the state lodgings tax or any new local lodgings taxes
(imposed on or after January 1, 2001) that they collect,
to cover the administrative costs of record keeping,
reporting, and payment of such taxes.
(e) Real and Personal Property Taxes.
In Oregon, as in every other state, any business real estate you
own will be subject to real property taxes. In general, there
is little that you must do, unless you wish to challenge your
assessed valuation, since the assessor will bill you for each
year's property taxes as they come due.
Oregon also imposes personal property taxes on tangible
personal property. ("Personal property" is any kind of
property that is not real estate.) However, certain types
of business personal property are exempt from personal
property taxes in Oregon, such as business inventories that
are or will become part of the stock in trade of a business,
held for sale in the ordinary course of business.
Every business is required each year to file a personal
property report with the county assessor's office for the
county where the property is located, and should include on
the report all personal property on the business premises on
the assessment date. The report must list all personal property
in the county as of 1:00 A.M. on January 1 and must be filed
with the county assessor by March 1. You will have to file in
each county where your business has tangible personal property.
Contact the county assessor for more information and for
property tax report forms.
While Oregon generally taxes tangible personal property,
it does not impose a property tax on intangible personal
property, such as stocks, bonds, promissory notes, and
other such paper assets. Only certain utility companies
are taxable on their intangible personal property.
(f) Other Business Taxes.
Oregon imposes a number of excise and other taxes on businesses,
some of which may affect you. These include:
Unlike many states, Oregon has no real estate conveyance
taxes.
(g) Trade Names.
A trade name, also known as a fictitious or assumed name, is any
name used in the course of business that does not include the
actual legal names of all the owners of the business. Thus, if
your business goes by any name other than your own real name,
it is operating under an assumed name. The same is true of a
corporation, if it operates under a name other than its legal
name. Any name that a person uses to identify a business that
includes a word or phrase that suggests the existence of
additional owners, such as "Company," "& Company," "& Daughters,"
"& Associates," or a similar word or phrase, is an assumed
business name, unless it is the real and true name of the person
that carries on, conducts or transacts the business.
In most states where you do business, it will be necessary
to register a trade, fictitious, or assumed name, so that
people who do business with you can find out who the actual
owners of your business are. You may also want to register
any such assumed name, as a means of protecting against other
companies usurping that particular business name.
In Oregon, a business that operates under an assumed business
name is required to register the name with the Business Registry
of the secretary of state, paying a $50 registration fee every two
years. An assumed name must also be registered in at least one county.
To register a name initially, use Form 101 (8/07
revision) or register online (at the Secretary
of State's website).
A sole proprietorship is not required to register if its
business name includes the full legal name of the owner. The
same is true for a general partnership, unless the name suggests
additional owners, or does not include names of all owners.
However, a partnership that uses the last name of some or
all of its partners, where all partners are licensed by a
licensing board, is not required to register the name as an
assumed name.
Corporations, LLC's, and limited partnerships need not
register, unless they are not using their legal name, or
are using a name that does not include the "Inc.," "LLC"
or "Ltd." designation that would identify the type of
entity.
V. EMPLOYER REQUIREMENTS IF YOU HAVE EMPLOYEES (a) Employer Registration and Withholding. Once you hire the first employee in your business, you must comply with many more Federal and state laws. One of the first things you will need to be concerned about as a new employer is withholding personal income taxes from the wages of your employees. As an employer, you are responsible for withholding the taxes and paying them over to the state government on behalf of the employee. If you have any employees, you will already be withholding federal income tax and FICA taxes from their wages. Since Oregon imposes a state income tax on the income of individuals, you will need to also withhold Oregon income tax from the wages of your employees. Before you begin to pay wages, you must register as an employer with the Department of Revenue on Form 150-211-055, Combined Employer's Registration. This registration will be for state income tax withholding, as well as for Tri-Met and Lane County transit district payroll taxes and the state unemployment tax. The state will issue you a Business Identification Number (BIN) once you have registered. Corporate employers that are required to make federal payroll tax payments electronically must now also make Oregon payroll tax payments by electronic funds transfer. The state cannot require out of state employers to withhold Oregon income tax from wages paid to Oregon residents, where the employer does not have employees working in Oregon (for example, Portland residents who commute to work in Vancouver, Washington). However, in such cases, the Oregon Department of Revenue encourages such employers to voluntarily register and withhold taxes from wages of the Oregon residents as a convenience to the employee. Withholding is required for payments of wages to nonresidents who perform services in Oregon (for example, Vancouver residents who commute to Portland), although no withholding is required if the annual wages paid to an employee do not exceed the employee's Oregon standard deduction for his or her income tax filing status. For more information on Oregon income tax withholding and registration requirements for employers, see the contact information for the offices of the Department of Revenue, listed in Section VI(a). (b) Unemployment and Other State Payroll Taxes. If your business employs one or more individuals in each of 18 weeks during a calendar year or if your payroll amounts to $225 or more in any calendar quarter, you, as an employer, will be required to pay state unemployment tax based on the amount of such wages paid. Different standards apply for agricultural employers. Employers subject to the Oregon unemployment tax are required to register with Oregon Employment Department on Form 150-211-055, Combined Employer's Registration, to obtain an employer registration number for unemployment tax purposes. Employers are required to post an unemployment compensation notice (received from the Oregon Employment Department after registering) in the workplace. New employers are required to pay tax at a rate of 2.1% in 2008 on the first $30,200 of wages paid to each employee. After you have had employees for a while, you will develop an unemployment tax experience rating. This rating is based on the number of employees you terminate who then claim unemployment benefits and the amount of such benefits paid to those former employees, under complex formulas. The state will inform you when they have assigned you an individual tax rate based on your firm's experience rating. That rate may be higher or, if you have had relatively few benefit claims charged to your account, lower than the standard new employer tax rate you were initially paying. For employers with experience ratings, the tax rate can range from 0.7% to 5.4% in 2008. All state unemployment taxes are imposed upon you as the employer, and, under Oregon law, cannot be charged to your employees or withheld from their wages. For more information on your Oregon unemployment tax obligations as an employer, see the contact information for the offices of the Oregon Employment Department, listed in Section VI(a). (c) Workers' Compensation. In Oregon, virtually all businesses with one or more employees are required by law to have workers' compensation insurance, except those able to self-insure. Note, however, that a sole proprietor or a partner in a partnership is generally not considered an employee, except that for any partnership (except certain licensed construction or landscaping contractors) only two partners may be exempted, or one for each 10 partnership employees, if greater. Some corporate officers are also exempted, if they are on the corporation's board of directors and either own at least 10% of the stock or an amount of stock equal to the average amount held by all stockholders. Most members of LLC's are also exempt. However, exemptions for corporate officers or LLC members in the construction industry (and timber industry, in the case of corporations) are limited to only two such officers or members per company, or one for every 10 employees, whichever is more. The exemptions for sole proprietors, partners, LLC members and corporate officers apply generally, except in the case of work performed in connection with the construction, alteration, repair, improvement, moving or demolition of an improvement on real property, in which case the sole proprietor, partnership, LLC, or corporation operating under a contract must qualify as an independent contractor in order for the individual owners or officers to be exempted. Real estate brokers paid on a commission basis are generally exempted from workers' compensation coverage. Workers' compensation provides wage loss and medical benefits to employees injured on the job and it protects you, as an employer, from legal action for damages for injuries or job-related illnesses suffered by your employees. In effect, it is a "no-fault" insurance system for work-related injuries or illnesses. CAUTION: As an employer, you must notify injured employees of their benefits and post a notice in the workplace informing your employees of their workers' compensation coverage. For more detailed information regarding your obligations as an employer under the Oregon workers' compensation laws, contact your insurance carrier or see the contact information for the offices of the Workers Compensation Division, part of the Department of Consumer and Business Services, listed in Section VI(a). (d) State Wage and Hour Laws. Some employees of certain small firms not engaged in interstate commerce are not covered by the federal minimum wage and overtime laws. However, even if few or none of your employees are covered by the federal wage-hour laws, if, for example, because your firm does less than $500,000 a year in gross sales and the employees in question are not deemed to "...engage in (interstate) commerce...," they will still generally be subject to the Oregon wage-hour laws, which provide for a state minimum hourly wage that is significantly above the federal minimum wage, as a result of the passage of a ballot initiative by Oregon voters in 2002. The Oregon minimum wage is adjusted each year for inflation, and was $7.50 an hour for the year 2006, $7.80 in 2007, and is $7.95 in 2008. Note that, as under federal wage-hour laws, certain classes of executive, administrative, and professional employees are exempted from the Oregon wage-hour rules, as are outside salespersons and taxicab drivers. Oregon law, like federal, requires overtime pay at time-and-a-half for hours worked in excess of 40 hours per week. However, Oregon also requires daily overtime pay for any work in excess of 10 hours, for certain industries, such as nonfarm canneries, driers, or packing plants and in mills, factories or manufacturing establishments (excluding sawmills, planing mills, shingle mills, and logging camps). Besides the federal wage-hour posters that you must display in the workplace, you must also display a state wage-hour poster, which you can obtain from the Bureau of Labor and Industries. For more information on Oregon's wage-hour rules, contact the Bureau of Labor and Industries at the address listed in Section VI(a). In addition to wage-hour laws, most businesses are subject to federal child labor laws, which put numerous restrictions on the working hours and kinds of work in which minors under the age of 18 may engage. Your business must also be cognizant of similar state child labor laws, in Oregon. The Oregon labor laws require a work permit for any employer of children of the ages 14 to 17, which the employer must submit to the Bureau of Labor and Industries once a year. Children younger than age 14 may not be employed, generally, although there are exceptions for theatrical work, newspaper delivery, and domestic work in private homes, such as babysitting or lawn mowing. The Oregon child labor laws prohibit hiring children under age 18 in various hazardous occupations, and limit the hours children age 14 and 15 may work, as follows:
Children age 16 or 17 may work any hours of the day, but are limited to 44 hours per week. The Oregon child labor laws also place certain restrictions or requirements on working conditions for minors:
For more information on Oregon's child labor laws, contact the Bureau of Labor and Industries at the address listed in Section VI(a). (e) State Occupational Safety and Health Laws. Approximately half of the states have their own OSHA-like agency, charged with administering the state's own occupational safety and health laws. The remaining states have no such enforcement agency, and thus rely instead on the federal Occupational Safety and Health Administration (OSHA) to administer the federal job safety rules within such states. Oregon is one of the states that has its own OSHA-type agency. To determine if your workplace is in compliance with federal and Oregon job safety requirements, you may wish to contact the Oregon Occupational Safety and Health Division (OR-OSHA), part of the Department of Consumer and Business Services, and request a free on-site safety consultation. You will not be cited for any violations detected, provided that you promptly correct the unsafe conditions. This differs from the rules for consultations by federal OSHA inspectors, who are required to cite you for any violations they find. All employers with eleven or more employees are required to establish a safety committee, as do certain employers of less than eleven employees in certain industries with hazardous working conditions or where such employers have a history of frequent lost workdays due to workplace illness or injuries. For information on your job safety and health obligations as an employer, required posters, and possible on-site safety consultations, see the contact information for the Salem offices of OR-OSHA, listed in Section VI(a). Be sure to request the Employer Tool Kit, "Tools of the Trade" an information packet that includes items required to be posted in your workplace. Also request the OR-OSHA booklets, Safety Committees for the Real World and Safety Committees for Businesses with 10 or Fewer Employees. (f) Other Miscellaneous State Labor Laws. Other Oregon labor laws you need to be aware of, as an employer, include the following: (1) Wage payments to terminated employees. A terminated employee must generally be paid accrued wages by the end of the next business day after discharge. An employee who quits without giving notice must be paid final wages within five days (not counting weekends or holidays) or by the next regular payday, whichever is earlier, in general, or an employee who quits after giving at least 48 hours' notice must be given his or her final paycheck on the final day of work. The final paycheck must be mailed to the terminated employee if the employee requests that the employer do so. If an employer fails to make a timely payment of wages upon termination of employment, the ex-employee will continue to accrue wages at the regularly hourly rate, for 8 hours a day, until payment is made (up to a maximum of 30 days). Employers must establish regular paydays, which cannot be more than 35 days apart. (2) Right-to-work laws. About half the states have enacted "right-to-work" laws, which guarantee that no person may be denied employment for refusing to join a union or for not paying union dues, thus banning either "union shop" or "agency shop" agreements, or both. In a union shop, an employee not belonging to a union may be hired but then must join the union, usually within 30 days. In an agency shop, an employee need not join the union but, to remain employed, must pay union dues. Oregon does not have such a right-to-work law and allows union shop or agency shop contracts between an employer and a union. (3) State anti-discrimination laws. In addition to complying with federal anti-discrimination laws, employers must also be aware of and comply with state and local civil rights laws in Oregon. State law prohibits discrimination in employment on account of race, religion, color, sex, marital status, national origin, age, disability, or familial status. Sex discrimination includes, but is not limited to, discrimination because of pregnancy, childbirth and related medical conditions or occurrences. Effective January 1, 2008, Oregon law also prohibits employment discrimination on account of sexual orientation, as some Oregon cities and counties did already. The Cities of Corvallis, Eugene, Portland and Salem, and Benton and Multnomah counties have local ordinances prohibiting various types of discrimination, such as discrimination based on sexual orientation. The state Civil Rights Division of BOLI enforces the parts of these ordinances that are not currently protected under state law, such as source of income. Contact a civil rights intake office for the protected classes covered under each ordinance, if you do business in any of those cities or counties. Unlike federal civil rights laws, the Oregon anti-discrimination laws described above do not exempt small employers, except that the prohibitions against discrimination based on mental or physical disability only apply to employers with six or more employees. For more information, contact the Bureau of Labor and Industries (BOLI), Civil Rights Division, at the address listed in Section VI(a) for the BOLI. (4) Reporting new hires. Under federal welfare reform laws, employers in all states are now required to report newly-hired (or rehired) employees to a designated state agency (the Oregon Department of Justice for Oregon employers) within 20 days after the date of hire. For employers who report electronically, reports are required (if needed) twice a month, on dates not less than 12 days nor more than 16 days apart. See the contact information for new hire reporting in Section VI(a). (5) Lie Detector Tests Prohibited. Under Oregon's labor laws, employers may not (generally) use polygraph (lie detector) tests, psychological stress or brain wave tests as a condition of employment or to deny promotions, and may not penalize an employee or job applicant for refusal to take such a test. Exceptions are made where the individual consents and is a party or witness in civil or criminal judicial proceedings or is a party or witness during the course of a criminal investigation by law enforcement agencies. Also restricted, in connection with employment, are genetic tests or breathalyzer tests of employees or job applicants. However, if an employer has reasonable grounds to believe that an individual is under the influence of intoxicating liquor, the employer may require, as a condition for employment or continuation of employment, the administration of a blood alcohol content test by a third party or a breathalyzer test. An employer may also administer a breathalyzer test if the employee consents to such test. The employer may not require the employee to pay the cost of administering any such test. (6) Family Leave Act. The Oregon Family Leave Act, which is similar to the federal Family and Medical Leave Act, requires employers of 25 or more employees to provide an employee unpaid family leave of up to 12 weeks a year for serious health conditions of the employee or to care for close family members, and an additional 12 weeks in certain circumstances, such as for pregnancy disability leave. "Family members," under this law, has been defined by the Oregon Court of Appeals to include a "same-sex domestic partner," in the case of Tanner vs. Oregon Health Sciences University, No. 9201-00369 (Multnomah County Circuit Court, 1996), aff´d in part, rev´d in part, 157 Or App 502, 971 P2d 435 (1998). An Oregon Family Leave Act poster, which may be obtained from the Bureau of Labor and Industries, must be posted in the workplace of covered employers. Covered employers are not required to provide leave to any employee who has been an employee of the company for fewer than 180 days before the date the leave would commence. In addition, an employer need not grant leaves to any part-time employee who has worked an average of less than 25 hours a week during the 180 days preceding the date leave would commence. However, in the case of a leave to take care of an infant, or newly adopted child or newly placed foster child under the age of 18, or to care for an adopted or foster child 18 or older if he or she is incapable of self-care because of a mental or physical disability, leave must be granted unless the employee has been employed by the company for less than 180 days before the date the leave would start. (7) Smoke-Free Workplace Law. Like California, Oregon has enacted a smoke-free workplace law. Under this law, smoking is prohibited in most indoor business workplaces, although exceptions are made for bars and taverns, tobacco shops, bowling alleys, bingo parlors, designated smoking rooms in hotels or motels, and private homes (except homes used as day care or health care facilities). Restaurant/bar combinations may have designated smoking areas, if such areas are posted as off-limits to minors. Employers may also have designated smoking lounges if adequately ventilated and not accessible to minors. Local governments are not currently allowed to impose additional smoking restrictions, unless such prohibitions were passed before July 1, 2001. UPDATE NOTE: Businesses subject to the smoke-free workplace rules are required to display a "Smoking is Prohibited in Most Indoor Workplaces" poster, which can be obtained from the Oregon Department of Human Services or the Bureau of Labor and Industries. VI. STATE SOURCES OF HELP AND INFORMATION (a) Key State Agencies Contact Information. Oregon, as many states have done in recent years, has set up a "one-stop" center to help your new or existing businesses to obtain all necessary state licenses and permits from a single office, without your having to go from agency to agency to meet all the legal and regulatory licensing requirements. The Secretary of State's office and several other key state agencies have cooperated to establish a Business Information Center, which can help you get your business started in Oregon by sending you a packet of registration forms and by referring you to the appropriate state regulatory agencies and boards. An online "Business Wizard" is provided on the Secretary of State's website, to help you determine what state regulatory requirements will apply to your business. See the Internet web links to the "Business Wizard" and the online Oregon License Directory in Section VI(c). To obtain business registration forms and information on starting or relocating your business in Oregon, including the Oregon Business Guide, contact the Oregon Secretary of State at the address below: SECRETARY OF STATE. Contact the office of the secretary of state for information on:
Oregon Secretary of State TAXES. Obtain state income and other miscellaneous business tax forms, instructions and information from the Oregon Department of Revenue, which is the main tax collection agency in Oregon. Also register with this agency as an employer, for state income tax withholding and unemployment tax purposes, on the Combined Employer's Registration, Form 150-211-055. Forms STATE LABOR LAWS. Contact the following agency about your obligations as an employer under various state labor laws, including:
Bureau of Labor and Industries STATE LICENSES. For information on various occupational and professional licensing requirements, contact the Business Information Center, at the address listed above for the Oregon Secretary of State, or contact the Department of Consumer and Business Services, the main state regulatory agency in Oregon, at: Department of Consumer and Business Services (DCBS) STATE SALES TAX. You will not need to register for a sales tax permit in Oregon, as the state has no sales or use tax. However, businesses in the lodgings industry will need to register with the state Department of Revenue for the lodgings tax, at the address listed above for that agency. EMPLOYER WITHHOLDING. Contact the Oregon Department of Revenue for information and tax withholding forms, at the address listed above for that agency. STATE UNEMPLOYMENT TAX. Contact the following state agency to determine whether you are an employer subject to payment of state unemployment taxes, and for registration as an employer if you are subject. Oregon Employment Department WORKERS' COMPENSATION INSURANCE. If you employ workers for whom you must supply workers' compensation coverage, contact the following agency for further information: Department of Consumer & Business Services STATE OSHA PROGRAM. For information on state occupational safety and health laws that affect you as an employer in Oregon, or to request a free safety consultation, contact: Oregon OSHA STATE ANTI-DISCRIMINATION LAWS. Contact the Civil Rights Division of the Oregon Department of Labor and Industries, at the address listed above for that state agency, for more detailed information on Oregon civil rights laws that may apply to your business, and to obtain anti-discrimination notices you are required to post in the workplace. NEW HIRE REPORTING. Report newly hired (or rehired) employees within 20 days to the Oregon Department of Justice, at the following address: Oregon Department of Justice (b) Small Business Development Centers. A number of Small Business Development Centers (SBDCs) are located throughout Oregon to assist you. These centers, usually located on college campuses, provide a wealth of start-up information and sponsor frequent business-oriented seminars. Contact the lead office below for information, or for the location of other SBDCs nearer to you. Oregon SBDC Network Office (c) Internet Sites. For anyone with access to the Internet, there is a wealth of state and even local business information provided by state and local governments. All states now have a state government Web page, and most major Oregon state agencies also have sites on the Internet where you can obtain useful small business information on matters such as state taxes, financing sources, or the addresses and phone numbers (or e-mail addresses) of various state and federal agencies' offices in Oregon. Since new sites are appearing frequently, you might also want to search for other Oregon government Web sites by using one of the popular Internet search engines, such as Google or Yahoo. To start your Internet search for Oregon government information, you may want to begin with the following Internet sites: State of Oregon home page: Oregon Department of Revenue Web page: Oregon Secretary of State Web page (corporate and other business entity filings): Oregon Secretary of State's Business Wizard (assistance in determining your licensing requirements): License Directory (searchable online directory of over 1,100 types of Oregon licenses, permits, and certifications that may be required of a business): Department of Consumer and Business Services (main Oregon regulatory agency): Oregon Employment Department (unemployment tax): Bureau of Labor and Industries (minimum wage, child labor, anti-discrimination enforcement): (d) Financing Sources. For information and help on locating financing for your small business, contact the nearest U.S. Small Business Administration office in Oregon, or contact the following state agency regarding state sources of financing, including the Oregon Capital Access Program: Capital Access Program The address of the SBA District Office in Oregon is: U.S. Small Business Administration |
Copyright © 2008 Michael D. Jenkins
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