New Oregon Pass-Through Entity-Level Business Alternative Income Tax

Senate Bill 727 (SB 727) was introduced as Oregon’s response to the enactment of The Tax Cuts and Jobs Act (TCJA) and the IRS Notice 2020-75. TCJA imposed a limit on the amount of state and local taxes that an individual may deduct from federal taxable income each year. IRS Notice 2020-75 clarified that state and local taxes paid directly by a pass-through entity in accordance with qualifying state or local laws will not be subject to the SALT limitation.

SB 727 allows certain PTEs an election to pay an “Alternative Business Income Tax” at the entity level. Since the SALT limitation does not apply to taxes paid directly by a pass-through entity, shifting the tax liability from the individual to the entity level may provide relief from the TCJA SALT limitation. Additionally, the individual owner will receive a credit against their Oregon tax liability for their share of the tax paid by the entity.

To know more about the benefits, rates, and considerations for this new state tax update, click here to download.