You probably already received a notice from Multnomah County regarding upcoming changes for the 2008 tax year, and if you actually read it - congratulations!  You are probably among the 5 to 10% that actually read these type of notices - most of whom are probably accountants.  Since most people rate tax law updates right up there with a trip to the dentist, I will try and make this as painless as possible.

Not to insult our great County and City, but the MCBIT/PBL tax is kind of like that annoying, yipping terrier who thinks he is bigger than the other larger dogs at the park.  Nothing against terriers either, but the fact that the City of Portland will not accept the federal extension form like ODR, requires payment with extension, sends constant notices hounding taxpayers, and complicates our lives with more rules than some state taxing authorities makes the imagery all the more real.  We have enough to worry about in Oregon with our Federal and State business tax returns and estimated tax payments, so when you get to the local level you are simply exhausted and the extra complication and added paperwork has always made me apathetic to say the least.  However, at least some “simplification” has been made for 2008:

• The gross receipts exemption will now be $50k for both the MCBIT tax and the PBL “license”, unlike the 2007 tax year, which left most confused with the two sets of limits and figures.  However, this only really helps very small businesses and lets us finally increase rents paid to shareholders from the $24,999 annual figure we have had it at for years.
• The compensation allowance deduction will also be the same for both agencies at $80k plus the inflation adjustment.  It is also scheduled to head up to $125k over the next five years.
• Effective 9/19/08, the council voted to change the Portland “license” to an after-the-fact tax, which means no more confusion regarding initial and final year fees.  It also simplifies tax planning as we used to spend time trying to minimize net income in the first year and put off real estate sales until the final year to minimize the PBL fee.

Of course, anytime they simplify and/or reduce tax, they always raise tax in other places.  The bad news is that the MCBIT now has a minimum fee of $100 like with the PBL fee.  This means that many of you small S-Corporation owners taking minimum reasonable wages are actually going to pay more tax despite the supposed “tax relief”.

Kevin covered some of the other changes from the 9/19/08 council meeting in a related post, but overall even though some will pay more tax - the simplification is much appreciated.  City Council - if you simplified the extension process and held off on presumptive fees until after the extended deadlines pass like the bigger taxing agencies, then I might take back the yipping terrier bit.

Stay tuned for some City and County tax tips that I will feature in my next post - otherwise, enjoy the last of the summer weather while you can!   Brian Germer, CPA