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to them toward the end of our hour together the obi team is monitoring questions and will be sure to follow up on any we can't get to the webinar is being recorded and will be available on our website following the event along with our presentation slides our webinar this morning is sponsored by paylocity and i'd like to take a minute to thank and acknowledge the great partnership that obi has with paylocity and passed the mic to my colleague nancy marquez nancy is obi's vp of membership and strategic partnerships and she's going to say a few words about paylocity and introduce our presenters this morning so nancy the floor is yours thank you for the introduction scott good morning everyone we're so pleased to have paylocity support this event today and for their partnership with ovi many of you know this but if not your membership with obi qualifies you for a 30 discount on paylocity's industry-leading human resources management and payroll processing software i'm excited to introduce our speakers today and get into this interesting and timely presentation we're joined by ryan kenzie and rob o'neal with moss adams both rob and ryan are considered experts in this field and have been in the industry for several years ryan has practiced public accounting since 2004 and rob since two excuse me 1998. rob also chairs ovi's tax and fiscal policy committee which steers our policy decisions on important issues around taxation with that i'll turn it over to the moss adams team to begin their presentation and thank you both for taking the time with us today good morning and and thank you nancy um as as we turn tradition a transition here uh as as nancy and scott mentioned it couldn't be more timely given today's inauguration and certainly the anticipation of some significant tax policy changes going into the future first off you know and we wanted to cover a number of things today we wanted to cover one both the legislative changes that occurred here at the end of the year uh late in 2020 as well as then to give some perspective as to potential changes into the future uh for both you know from a state perspective as well as a federal perspective i will apologize you know an hour today with you is is not enough to do it full justice but hopefully it'll give you kind of a sense of the landscape and where we're headed and first off too just to get a better sense for rob and myself as to the presentation we'd like to pull provide a poll to the group here just to learn a little bit more about each of you and the organizations that you work with so if you could take a minute here and check through the questions the first one being what type of an organization you work with the second on your expectation or projection around federal stimulus and when that might occur and then third when do you expect that we might see a major tax reform at the federal level if you can hit the submit down at the bottom we'll give that a minute for you to complete i don't know if nancy if we have the results yet at this point katie you'll have those up there they are perfect so as as we expected the majority of you work in either a corporate environment or in a flow-through environment a partnership s-corporation of that nature i i see the kind of the prevailing thought as well is that the next round of federal uh pandemic stimulus would occur in the first quarter and to me i don't think that would be a surprise in the sense that you know the president has made it very clear from a policy perspective that that's issue number one to get after and then lastly this is one where it's at least amongst us tax nerds it's hotly debated around when we would expect to see uh federal tax reform occur i i tend to be in the late 2021 early 2022 crowd personally but as with all things we shall see i thought it would be helpful too just from a landscape perspective one when you look at the federal chambers between the senate and the house as everybody knows the the democrats do have control of both chambers but that control is is razor thin in the senate it's split 50 50 with the tiebreaker going to the vice president and in in the house the the democrats have control however it one thing to point you know in this slide as you can see in the midterms coming up in 2022 there's significantly more republican seats coming up for vote than in the democrat party so there too if major tax policy doesn't occur in the first two years of president biden's term the potential for it should any of the republican seats here flip would increase substantially beyond 2022 now to move into some of the business provisions if we can advance the slide here that's part of part of joe biden's plan one as folks are likely well aware you can see where his proposals would have the corporate tax rate for c corporations moving from 21 up to a 28 corporate rate i've read commentary that this could be one of the negotiated items where it potentially could be 25 to 28 percent is secondarily with that there will be a reinstitution reinstitution of a new alternative a minimum tax structure as you might recall with the trump tax reform the alternative minimum tax was scuttled for corporations this would be would be brought back for large corporations with 100 million or more of book earnings and it would be a 15 minimum tax following that for closely held businesses the qualified business income deduction the 20 phantom deduction for s corporations llcs reits and other similarly structured businesses the biden administration has stated that they would look to phase that out once you would have a taxpayer earning more than 400 thousand also too you know our our country and the taxpayers thereof frankly in my view have become broadly hooked on accelerated depreciation via bonus depreciation um and the the biden administration has been a bit more vague in this regard but i could see a course here where they would let the the trump reform kind of work through its natural course we're starting in 2022 uh bonus depreciation would start to phase out um over time and it would go from 100 to 80 percent uh and so forth down to a full phase out of bonus depreciation certainly and and there's been movement on on this already for those that participate in the new market tax credit programs these programs actually have now become permanent and there'll be a further expansion of them as part of various energy initiatives i would expect to see that we'll have various tax credits come back to support a reduction of carbon emissions various vehicle electric vehicle purchase credits the investment tax credit for the construction of energy efficient infrastructure solar and other systems would come back also too we would expect to see significant movement in the real estate space a big one that has been on the books for years has been the ability to a like-kind exchange of investment property here where you would defer a gain from one property to another the biden administration has talked about seeking to repeal the 1031 exchange also too we would see under their proposals an expansion of low-income housing tax credits a fifteen thousand dollar tax credit for first-time home buyers and other rental uh type incentives to provide to low-income families also too i thought it would be helpful to touch on something that uh will actually become and is is concrete uh guidance if you will at this moment for those of you that answered the first poll that you're part of a flow-through business in particular a partnership just know that this year how you report capital on your k1s is going to change where you'll be required to report on a tax basis or a modified tax basis there's four different options that the treasury is provided for reporting of capital this is the change that was supposed to occur in 2019 but treasury deferred to 2020 so expect some additional reporting in this regard now moving to some individual provisions certainly the the headline topic has been the reinstitution of a 39.6 tax rate for those with incomes above 400 000 also too there's been a lot of conversation around removing the preferential rates so the the 15 or 20 percent and in this case would be 20 capital gains rate and qualified dividend rate for those with incomes above a million dollars lastly too the 3.8 net investment income tax would continue to be in place that's currently part of law today so this could push taxation of gains in particular up over 40 percent for high income individuals also too there's discussion around deductions so your schedule a type deductions those for home mortgage interest charitable contributions state and local taxes being limited to 28 so if your effective tax rate is higher than 28 it would effectively cap those deductions at a 28 effective rate two the biden administration as was hotly contested during the trump reform uh the biden administration would be in support of bringing back the state and local tax deduction whereas today it's currently capped at 10 000 they would pull that cap off but yet still the peas limitation in the 28 itemized deduction limit would uh constrain that deduction a big area for those that are in the closely held space is the estate tax structure there's a lot of conversation around the reduction of the lifetime exemption as to what could be given during life and what could be transitioned to be in an estate at end of life the administration has talked about removing the step-up and basis they've also kicked around the idea of using a what i would call a canadian type estate system where any built-in gains in an estate would be taxed at the passing of the holder of the assets so if you have a stock that you're holding that has a thousand dollars in basis it's worth a hundred thousand that 99 000 would come due at the passing of the individual in the form of a capital gains tax a lot of movement here just from a planning perspective definitely consult tax advisors in this regard before you make decisions because one of the big questions in all of this is how much of the law if implemented in 2021 in particular how much would be retroactive versus perspective and we're seeing more and more commentary that the estate provisions could likely be retroactive to the beginning of 2021 more to come there next slide now to to pivot and talk through some of the uh pandemic related legislation as in the old news categories it feels like it's been a decade ago back into 2020 but there was the passage of the family first coronavirus response act back in march that expanded some employee tax credits for employers you have the cares act which instituted the ppp loan program no carry backs employee retention credits and in other provisions and then late in 2020 we see the consolidated appropriations act which expanded uh the various employee tax credits as well as it expanded some of the cares act provisions and provided for a expansion of the ppp loan program and so to move into some of those changes as part of the the last bill that was just passed late in 2020 the ppp loan program did get refreshed and there was additional clarity and guidance as most are likely aware at this point but now congress affirmatively stated that any expenses related to ppp loans that are ultimately forgiven those expenses would be fully deductible and as was stated more clearly in the cares act the forgiveness of the ppp loan would not be taxable income however just a caution for those that are thinking through this there's some traps for the unwary when you think about how you would quantify tax basis if you're an s corporation that's been previously a c corporation there's also some further nuance to how you might account for some of these issues so once again consult your tax advisor ultimately on the treatment of this also too there's clarity around the idle loans that they would not be taxable income as well here too on the ppp loan front uh round two these loans will be available through the end of march of 2021 also two they they put some different measurements in place as to the types of costs that would qualify still the same costs around payroll leases mortgage interest etc would qualify but you can see here there's additional loss costs around cloud computing software and other related uh ppe type costs that would be covered for ppp loan programs also too uh with the ppp loan it would provide a flexibility if you recall the initial loan program had an eight week measurement period and then they expanded it to 24 weeks with the second round here it would allow the borrower to have flexibility as to the number of weeks they would choose also two there were some changes for those that have loans under 150 000 that further streamlined the forgiveness process that you work through with your bank and then subsequently with the sba to help ease the administrative cost of of getting the forgiveness with it as well these loans different than the first round that had a cap of 10 million these loans will be capped at 2 million dollars the employee count is reduced now to 300 employees or fewer and then two a a significant change is the second bullet point there where to qualify you need to have had a quarter one of your calendar quarters in 2020 with a gross receipt reduction of 25 percent or more in order to qualify so for for many taxpayers that may be the the deal killer if you will and then how you use loans how you quantify the amount of the loan really a lot of that is is consistent with the cares act provisions for the round one of the ppp also too and and rob please feel free to chime in here another thing that's gotten a lot of attention as of late is even though the the federal rule around the ppp loan is that you can deduct all the associated expenses there are a number of states that are taking up this issue and disconnecting from the federal statute on this point and so just be aware that there could be a very different outcome for state purposes as to the taxation of the pvp loan dollars yeah oregon's actually taking that issue up right now in in the session and i'll touch on that a little bit later great here too the the law that was passed at the end of 2020 it expanded the various paid sick and family leave credits it expanded those they were set to sunset at the end of 2020 that's now been extended to march 31st of 2021 frankly this is one of the areas where it wouldn't surprise me to see the new administration further extend that date as they were through a pandemic plan and response to to give a bit more relief that being said with this you know in the credits that were allowed the family leave provisions if all of that benefit was already exhausted in 2020 the way the current law reads is you couldn't double dick dip and take it again in 2021 so it's an extension for those who haven't taken advantage of the law but it isn't a second round if you will next slide with the employee retention tax credit further this was extended out to june of 2021 and further expanded and so it's it does impact a lot of folks also too there were clarity around you know initially those who got a ppp loan would not be qualified to take advantage of the employee retention tax credit however that has been changed to where now uh ppp recipients both under the first round and the second round are fully eligible for the employee retention tax credit now two new employers so if you were a new employer late in 2019 or in 2020 you can take advantage of the credit as well there was initially provisions that prevented new employers from getting access to this credit as part of their payroll tax filings next slide and two here i realize there's there's a lot of words here uh and so we can cut to the quick the the point of it is this credit has been further expanded as you can see down in the bottom section in particular uh the old credit was calculated at 50 percent of wages paid to employee after march 12th in each quarter up to a total of 10 000 for all quarters per employee you can see where that has been expanded now to 70 percent of wages for those that would qualify and it's now you know an additional 14 000 per eligible employee through the first two quarters of this year once again these are provisions that can be taken advantage of through a filing of ame ded 941s your quarterly payroll tax filings and so if you haven't looked at this yet it's not as if the opportunity is gone so there is certainly opportunity to go back into 2020 and to consider this for 2021 going forward next slide here here too and i i believe we've we've touched on on this um you know anybody uh yes and we have touched on it anybody who had a ppp loan initially they couldn't participate in the employee retention tax credit program you now can so once again if you haven't participated please consult your tax advisor on this one because you could be eligible via an amended 941 filing for your business here too we talked about it you know the statute of limitations on a 941 is similar to an income tax return we have three years from the date of the original return for the payroll uh filing to amend it and so certainly you have time to address the issue uh but yet uh our advice would be to explore this sooner rather than later given the magnitude of the dollars and the credit at stake here for it slide lastly just a reminder that to the extent that you take advantage of the work opportunity tax credit which is a hiring credit or any of the other credits that are listed here please note that there isn't a double dipping there isn't double dipping is not allowed so if you're able to take advantage of the watsi credit for an employee you can't also qualify that employee for the employee retention credit so just know that uh these these limits are there uh in a thorough analysis would be necessary to determine which which is best now for the work opportunity tax credit that that credit needs to be certified within 28 days of higher and so if you haven't taken advantage of that already uh likely you're left with some of the other credits to explore as a benefit next slide also too you likely have heard on some of these provisions business meals provided by a restaurant are 100 percent deductible if paid or incurred in 2021 or 2022. here a a a token measure as i would describe it to help incentivize businesses to get back out and have business meals now where they're fully deductible old law depending on the nature of the meal if it was for entertainment or for business would limit that deduction either to 50 percent or be non-deductible entirely also uh depreciation changes have been uh made around residential rental property uh for you know to move it from a 39-year period uh for those that made the 163j uh election this just allows for a quicker depreciation for those that are in rental residential rental property lastly two there was an adjustment around the employee portion of deferred payroll taxes that would have been due december 31st to 2021 this this here just further defers that program as to when you would need to pay that back next slide also two the section 179 d deduction was made permanent this deduction related to energy efficient infrastructure as part of a building so whether this was hvac systems lighting or other modifications to uh to upgrade systems it allowed for a deduction under section 179 d this was set to sunset at the end of the year and was made permanent as part of the law at the end of 2020 additionally other extenders through the end of 2025 the watsi program that we've touched on the new markets tax credit was also extended we also talked about the extension of the tax credit for paid family and medical leave that's extended through 2025 certainly there's there's other changes around student loans and employer payments on those loans uh and the ability to treat those as non not as taxable income to the employee um and then lastly the employer tax credit uh programs that were enacted as part of the tcja were further extended to 2025. moving here quickly for tax relief for individuals also too as as likely this group is well aware the 600 tax credit uh or the recovery rebate for the you know 600 was added here at the end of the year in addition to the prior credit that was done back in in march and april of 2020 as those that have been following the the policy the biden administration has talked about uh increasing this to two thousand dollars rather than the six hundred also too there's been discussion around an expansion of the child tax credit where the administration is po proposing for those with income less than four hundred thousand where the child tax credit would be thirty six hundred for children under six and three thousand for children aged six through seventeen another significant change is these credits are being proposed to be fully refundable and not limited to your tax liability on your return so there would be the potential for a refund above and beyond tax liability here too you can see some of the phase-outs for the recovery rebates for a single married filing joint head of household you can see the phase-outs where practically speaking for those that are you know 218 thousand of agi and less are able to participate in this for those above not participating now you can get some unusual results given uh losses that individuals you could have typically high income taxpayers who are able to take advantage of losses where they're able to participate in the recovery rebates as well so there's certainly some unusual results but here's here's the thresholds for phase out also two there's been an expansion of charitable contributions historically in the past in order to get a charitable contribution deduction you were required to itemize there will now be an above-the-line deduction of 300 for individuals and 600 dollars for uh those that are filing jointly uh and then two they they have increased the deduction limitation of a hundred percent of agi for cash contributions historically that has been limited most recently it was limited at sixty percent and so here a very significant adjustment to to those that are making large charitable contributions finally two and i touched on this earlier around the expansion of the child tax credit and earned income tax credit uh one thing of note on the earned income tax credit that the proposal would be to expand this to those that are working above the age of 65 where they could take advantage of the earned income tax credit other other various provisions around ppp ppe sorry too many acronyms get a mixed together for covid19 here other educator expense the deductions you know with teachers working out of their home offices spending more money hopefully to provide a little bit of relief there also to expanded ability to utilize health independent care flexible spending accounts that typically would have had a use it or lose it rule got rolled from 2020 to 2021 so a little bit more flexibility there as well lastly a few permanent adjustments the medical deduction typically this was subject to a 10 agi floor it's now been moved back to seven and a half percent of hei also there was a repeal of qualified tuition deductions but in exchange for that the uh the lifetime learning credit was expanded for those that would qualify further additional extenders many of these in the energy space around energy efficient homes you know energy efficient property whether that's biomass production uh electric vehicle credits also to the extension of health insurance credits for those that would be below the the four times the the federal poverty line the expansion of that credit would exist and lastly too you can see that there was uh you know the very first bullet around mortgage indebtedness and the ability to have an exclusion from income for qualified principal residents indebtedness that's been forgiven and discharged certainly a lot of different things at play here uh also too there was some changes to the disaster relief provisions here this uh close to home and the fact with oregon having a significant amount of fires this past summer and and in particular on the west side of the the cascades certainly this would have some applicability to those here close to home one on retirement funds that allows for a withdrawal and an avoidance of the 10 early withdrawal penalty up to a hundred thousand if you're within a disaster area now with this uh there were certain counties that were deemed to be federal disaster areas so if you live in those counties certainly it could come into play but not for the entirety of this state also too there was impacts to the personal casualty losses and the ability to deduct those it makes it easier when you're inside of a qualified disaster area there was an expansion of credits for those that are building low-income housing the employee retention credit was further expanded for those inside disaster areas and two uh and expanded uh you know as we talked about earlier expanded benefit of charitable contributions to those uh organizations that are participating in the disaster relief and with that i'll turn it over to rob for the the organ update yeah thank you um that was a lot of material uh ryan to cover and i'm gonna um you know touch on i'd like to do a multi-state update but unfortunately there's not a lot of time and there's been a tremendous amount of change in our own state both at the state level but more recently at the local level so i'm going to talk about the the cat which it seems like it passed forever ago and and and now it's it's uh it's time to to follow your first cat tax return uh due april 15th so i'll touch on some changes there talk about um give it a nice summary of the local taxes and dig into what those mean and how they'll impact businesses and i'm going to get also give a summary of all the different types of taxes now that we have at a state and local level in in this state and and uh because it's it's more than you might think and you're not necessarily sure how you pay the tax i'll go over that and then i'm going to touch on what we're going to expect you know during this this coming session i have at least 15 or 20 bills that that everyone's going to want to watch and see you know how they how they play out because there's going to be a big trend towards limiting deductions at least for those that are deemed rich potentially you know tax rate changes and some other things that that will definitely impact um businesses and and their owners uh going forward so um it's interesting that the cat you know it um it was passed and then there was a legislative session to do some technical changes now we've had the department doing doing rule making and and i don't know if everyone is aware but the department of revenue actually just released the forms here uh recently so now we get to see how we're going to prepare the return um you know where most of us were just doing spreadsheet models to help to calculate estimated payments and so those forms are available additionally most of the major software engines including the one that moss adams uses is planning to have the cat forms uh available within their software which which we'll be using um but i think what i wanted to show with this slide is is the calculation it seems straightforward uh but for a lot of our clients we have about 1800 clients that that will be needing to file a cat tax return uh this year um it's it's a lot more complex and and it's because of you know you know obi and we were uh pushing a different form of uh cat called the um but it but what it had as a deduction element and the deduction element is is is complex and that's where we're seeing a lot of our clients um you know needing some help as well as determining um you know what i items are exempt um from commercial activity because conditional activity is revenue or any sort of compensation that a taxpayer receives so um it's something that that now that we're going to have you're going to have to file that you're going to have to really pay attention to because there's a lot of uncertainty around that because of the deduction whether it's cost of goods sold if you manufacture something or whether you deduct labor you do get a 35 deduction and then of course the million dollar uh subtraction and then pay the tax at the .0057 rate plus the the minimum tax so i'll cover a couple of the major changes here on the next slide so we we've seen some of the technical corrections and then during this most recent um special session uh there was a new um uh safe harbor or election created through uh the house bill 4202 and and it's actually really significant so uh we had um explained to the the legislature and through various channels that a lot of our clients and and businesses cannot close their books more than you know one time a year and because the cat is is calculated on an annual uh calendar year basis versus whatever your fiscal year might be that caused a real problem for a number of companies and they wouldn't have been able to come up with their subtraction and so 4202 allows a taxpayer to use its most recent fiscal year in order to calculate that subtraction and it's an election and so you might suspect that some businesses that were maybe impacted by covid their 19 fiscal year um cogs or subtraction would be greater than their 2020 and so this is something that you can decide to elect maybe you do think it's worth closing your books because 2020 would be greater than 2019 it's something that you know each taxpayer is going to have to consider and take a look at because it could make a difference in your in your cat liability another item that was brought about by 4202 was um taxpayers that have uh foreign subsidiaries or or foreign owners in their ownership group are allowed to exclude them from their cat combined group provided that they don't have oregon commercial activity again this is something that is an election that needs to be made on the return and and can be uh separately elected each year um for that taxpayer another change that was brought about by 4202 is is a fairly significant one originally uh when the department was drafting its rules and and we were involved in and helping them develop those roles um was they they thought the deduction should be calculated based off of um the numerator being your commercial activity and then the denominator being total commercial activity and you know that sounds simple but what that did well one it was inconsistent with the law as passed and and and the and the statutes that it specifically referenced but what it did is it is it harmed oregon based manufacturers that don't file in all the states that they sell into because current the way the law was written was um you looked to for purposes of your subtraction your apportionment for your income tax return and for your income tax return you throw back to the numerator the sales made to states where you don't file and so your oregon income tax apportionment formula might be closer to a hundred percent if you don't file in a bunch of states and the reason that's important is that's what you would look to for purposes of calculating your your subtraction um percentage for for the cat and so that's something that taxpayers are going to want to look at in the future is so the the 4202 uh clarified that that was the intent and so now the taxpayers have the ability to use their income tax apportionment or through other methods developed or safe harbors adopted by rule which is in the rule that i addressed below so next slide 4202 also added an election for taxpayers that are in the farming industry or egg industry and allows them to use which is interesting industry averages to determine you know what product was sold in and outside of oregon because a lot of times if you if you have grain or fruit or vegetables you know you're sending them to you know packing houses and and they're all mixed together with other farmers you know products and it's and it's hard to determine you know what's in oregon and what's outside of oregon this this allows for those types of taxpayers again to do specific tracking or rely on industry averages which creates an opportunity to to potentially reduce your tax base uh for cap purposes okay so here's the the rule um that i was referencing before um the other thing that this this uh rule does is it in it discusses in detail you know what makes up a unitary group and um and and you know what entities are included but one thing i wanted to point out is is that for o egon your your cat group is not going to be in a lot of cases the same group as your income tax there's different ownership thresholds uh the cat owner ownership threshold is 50 or the oregon income tax unitary group is 80 um obviously there'll be some differences on the on the foreign side as well as for income tax it's water's edge for now cat tax we're not water's edge but there's an election to exclude uh foreign entities that that don't have commercial activity the other thing that's interesting uh in in this this rule is you know oregon follows a joist principle for purposes of of determining whether you source sales to the numerator of of a cat or sorry of a oregon income tax return and so for those taxpayers that have an entity that does not have nexus with oregon on its own for income tax purposes wouldn't have been afforded a deduction for purposes of the subtraction so what this rule does is allows those taxpayers that have joyce entities as part of their consolidated group to use the safe harbor or commercial activity ratio that that uses the oregon source cat sales which applies an economic nexus standard versus a a true income tax nexus standard which you know most of the times we would look to public law 86 272. so this basically gives them relief to allow a deduction or subtraction for cat if they have any joyce entities okay so this is um something that we have now you know been showing all of our clients because with so much change uh in the state uh recently a lot of our clients are considering what's my presence in oregon gonna look like over the next five or ten years is you know where is my ownership you know based how am i going to be subject to tax going forward and and you know should i consider expanding inside the state or or or somewhere else and and what are the tax consequences of of that and so we we obviously have the corporate income tax in place which is the 7.6 net income tax and applies to c corps i've just explained now we have we in addition to that and it's filed separately from the corporating tax we have the cat which is a gross receipts tax and and does allow the subtraction and on the individual side we have the nine point nine percent and i'm using the highest marginal rate just to to simplify this this slide on on individuals and and then on top of that we have various wage taxes that are taxed on on the wages of residents and non-residents performing services with inside the state and so those are in effect as of 2020 and then we have some other transit taxes for people that live in lane county and then um as well as within the trimet district additional wage taxes and then um and then for businesses that reside or do business in multnomah county in the city of portland we now have had tax increases for for those and that the marginal rate for that those two taxes on the combined excise or the combined excise tax return is is 4.6 and then i'll cover some of the new ones so now going into effect 2021 we have the new metro tax um you know that some people uh refer to as the the homeless tax but it's the supportive housing services tax this is the new one percent tax that is imposed on individuals and businesses uh and i'm going to go into a little bit more detail on this that either reside or do business with inside the metro taxing district and then another new one the the new preschool tax is imposed on individuals only whether they're a resident or a non-resident and deriving sources of income from sources within the county and that's as high as three percent uh depending on your on your income so that's what's new for 2021 and then uh slated to kick in 2022 is as another new wage tax um to help fund pay the paid family medical leave program for employers that don't have one in place and that's that's split 60 40 between the employee and the employer and so i i wanted to go through all of these and again and and just illustrate that right now if someone that lives in the city of portland and multnomah county their their state tax rate is 13.9 percent plus 0.1 wage tax on top of that and then that would further increase to 13.9 plus 0.7 percent wage tax in 22. we're the highest in the country now and and it's interesting we you know getting a lot of phone calls from our clients and and you know having us prepare models and and and i'm curious to see you know i saw uh something the other day that said oregon had the third highest migration into the state and i think it was behind idaho and one other state and i was surprised to hear that statistic and i'm curious if if that will change going forward with some of these new taxes and and or maybe we'll see migration within the state it's interesting to see how this will will play out okay so here here's the a little bit more detail on on the the metro tax um it's tax it's a one percent tax on on individuals and businesses and the businesses that that make that have more than five million of of receipts and then for individuals it's the uh uh the rate i'm sorry the um uh individuals with more than 125 k on this finally a single and then 200 000 filing joint and then the multnomah county income tax for preschool here there there's the rate structure below it's one and a half percent you know similar uh the one 125 and 200k and then you step up to three percent um when you're at uh 400 k uh filing joint um there was some controversy oh i think that's on the next slide oh yeah there was some um controversy on whether or not the metro tax was going to be imposed you know both at the individual level and the pass-through entity level and the metro has has since clarified that it doesn't um intend to double tax that income and in fact there's there's a specific subtraction in the new code that was just recently released to to clarify that how that subtraction is completed um there is a development and a legal challenge that's coming um there was a number of businesses that felt that the metro taxing jurisdiction did not have the authority to tax the pass-through entity because it's required to follow state law which does not tax pass-through entities there's um a coalition that's been formed here's the contact information at the pba who's going to be filing a legal challenge against this whether or not the the metro has the authority to tax pastor entities it doesn't affect the underlying tax but if they're successful it will limit metro's ability to change it in the future including the tax rate another important aspect to this challenge is if they're required to follow the state law that would also make them follow the state's apportionment and sourcing provisions which if you're a business located in the city of portland county market sourcing would be better in most cases than cost of performance um so this is something to to track and the the action that's being filed by the pba i think is going to happen within the next week all right next slide i want to try to make sure i get time for the the session this coming so yeah um so here's here's what we might expect for this this coming session brown has released her budget it's called for an eight percent increase in spending which is in part helped to um fund racial injustice and economic inequality and and items related to the pandemic and and wildfire season it uh it's interesting that there's a you know an increase in and spending forecasted you know as as uh the office of economic analysis uh releasing this november report that it it's forecasting record revenue uh for the state of 22 billion for the 2223 biennium and so it's interesting you know where do you think all this money is going to come from and and you know we saw the eny release the report that released that business just had a 42 increase in taxes is it come is it going to come from business or is it going to come from you know the individuals so it's it's interesting to see and i'll go over some of the bills that we've seen you know here on the on the next slide so you know ryan was talking about what's going to happen on the on the ppp loans well it was interesting in house bill 2253 that would propose to actually not only disallow the deduction but to impose a surtax a 10 surtax on any ppp loan that is forgiven uh so that's that's an interesting uh uh bill uh another bill that is is out there 2254. would limit the compensation deduction for employees that make over a million dollars uh ryan was talking about the p's limitations at the federal level oregon has a bill 2255 that would impose similar limitations uh for every fifty thousand dollars over five hundred thousand your your deduction for your itemized deductions would go down um it looks like certain ag uh parties have lobbied for some exemption from the cat that's not surprising i would expect a lot more of that to happen over the next several sessions as well as an exemption for prescription drugs uh there's been a lot of buzz around opportunity zones in oregon and trying to couple and this house built 2428 would would affect the couple uh from some of the opportunities on provisions the big one one of the big ones that's getting a lot that has some momentum is there's a bill on the senate side and the house side would limit or or partially limit the reduced pass-through weight that a lot of the small business owners benefit from by having reduced tax rates versus paying the 9.9 they pay something lower than that you know on their pass-through income it what it does is carves out uh you know service providers doctors lawyers accountants and other service providers from receiving the access to those reduced rates another uh thing that's being considered is to disallow the mortgage deduction for certain individuals as well as 2839 would partially decouple from the cares act and limit individuals from doing nol carrybacks i know several of our clients have already filed no carry backs we know the department's processing them it's curious to see how this plays out should should this actually pass as to whether there would be assessments on the on those taxpayers that did file and receive refunds um this is interesting so hospital 2392 it doesn't sound like that big of a deal but this is a this is backdoor sales tax for for uh the legislature they're they're the first one that they're going after is if you sell um information online about a personal uh personal information uh um and sell it to someone like a bank or or an advertiser or someone there'll be a five percent gross receipts tax on that that sale well so if if this passes then now we can just add you know some other thing whatever the legislature wants to tax it has a vehicle to do it so this it doesn't seem like a big deal but it is setting precedent for a way to to expand the tax base any time the legislature wants another big one which will be wildly unpopular is is 2840 would propose to tax the sale of a principal residence and then do what uh the biden plan is attempt potentially doing is disallowing 1031 at a state level and then even bigger is suspending the strategic investment program and the enterpriseo an enterprise zone program for two years this is a 600 million dollar bill and i expect it to to be uh debated uh heavily another one tried i put robin hood i just don't like these types of bills where uh it would send a measure to the voters that says okay rich people people you don't get your kicker and and we're gonna fund the eitc program um i i don't know whether that has legs or not i just think bills that tend to get sent to the voters tend to get passed um uh then there's a couple of disclosure bills uh i i think it's um definitely worth watching um i think it's interesting that you potentially would have you know that the chair of the house or senate finance committees able to access specific tax returns pursuant to their request is is dangerous because then they can target legislation at specific companies which doesn't seem to be uh appropriate from from my perspective uh the last one i'll touch on is the department of revenue has has uh not issued declaratory rulings in a long time and and now this bill would would allow the dor to more easily do declaratory rulings um and and wouldn't require consultation with doj and and i expect there's going to be a need to do a lot of declaratory rulings because of all the new taxes and in particular the cat and there's a lot of uncertainty out there so this will be a nice vehicle for us to get advice from the department on a particular tax issue as it applies to a taxpayer next slide so i'll kind of close on this um you know it's interesting to see what we'll see across the the united states with cobit and and as a lot of the state budgets you know are are going to be running massive deficits you know upwards of 200 billion you know for the 2021 fiscal year and we're already seeing states kind of react to this uh we're expecting a lot more state audit activity hopefully we're going to get another round of stimulus to help fund some of these states and some of their shortfalls i would expect to see a lot of tax amnesties and voluntary disclosure opportunities open up but we're going to probably see a lot of new tax and higher tax and i've given a couple of examples in the states i know we're running up against on time so something to be uh watching for is there's going to be a lot of new tax at the state level in order to fund these shortfalls and and i would expect a trend around more local taxes as well and um for states to aggressively tax out-of-state businesses including the post-warfare economic nexus on the sales tax side so i think that is it i don't know if we want to have a minute or two for questions if if there are any hey so first of all rob thank you so much to you and ryan that was absolutely fantastic i learned a bunch and i i hate to distill it down to one or two things but gosh i'm i'm excited to be able to ride off a whole bunch of lunches in the next two years um so uh rob while you've been uh speaking kind of your portion ryan has done a great job of answering questions and we're right at the we're right at the time right now so what we're gonna do um is uh just any any questions that are left over from uh from me from viewers uh we'll circle back and get those on uh distributed somehow and of course i want to remind people that this uh that the presentation this morning uh has been recorded and will be on our website later today as well as the deck that that ryan and rob were using so with that i just want to say thanks thank you again ryan and rob for that great presentation we learned a bunch we appreciate your expertise i want to say another thank you to paylocity for sponsoring this uh this this program today i mean i i truly valuable so thank you to them and then i just want to say thank you to everybody that was able to join uh thanks for taking an hour out of your day and and really uh uh being able to participate in this great program ask great questions and and uh be better prepared as we head into this crazy tax year and years that we're we're looking at so uh with that rob ryan thank you paylocity thank you and everybody else have a great day take care