ORDINANCE No. 182427

Amend the Business License Law to accelerate the timing of the First Year Adjustment Credit to one tax year, clarify special industry apportionment rules and clarify the effective date of the change to an after the fact tax. (Ordinance; amend Code Sections 7.02.610 D and 7.02.860 C)

The City of Portland ordains:

Section 1.  The Council finds:

1.  In June 1993, the City Council established the Business License Law under Chapter 7.02 to achieve code conformity with the Multnomah County Business Income Tax (ordinance 166767 amended by ordinances 167154, 171910, 172019, 177340, 17779, 178614, 178615, 178906, 179739 and 180247).

2.  The City Charter does not specify when payment must be made for the license issuance. The Charter also does not use either the word “fee” or “tax” to describe the revenue raised via the licenses.

3.  The City has historically called the payment a “fee”. However, because it is measured on net business income, courts have held that it is a “tax.”

4.  In August 2008, the City replaced the Business License Law under Chapter 7.02 to change the business license from a license paid in advance of doing business to an after the fact business tax. Doing so eliminated the doubling up of the tax liability in the first year and required a final tax calculation and payment in the final year of doing business in the City. Additionally, to be fair to existing businesses, a credit was granted beginning in tax year 2008 equal to the first year adjustment the business paid in their first year of business.

5.  This credit was originally planned to be taken by businesses over five tax years when PCC 7.02.860 was added in 2008. Due to the current economic downturn and the need to assist Portland businesses during this rough period, the City has reviewed its financial position and determined that due to changes in business license revenue recognition as a result of moving to an after the fact tax, it is appropriate to accelerate the payment of the first year adjustment credit to the 2008 tax year instead of the planned 5 tax years..

6.  There has been some confusion about the transition from the prepaid license to the after the fact tax:

a.  By businesses who closed business during the 2008 tax year;

b.  By businesses who have not filed past tax year returns; and

c.  By currently “unlicensed” businesses who now wish to come into compliance with the City’s business license tax.

These three circumstances need clarification to ensure taxpayers understand how the law change impacts their individual tax returns that have been or need to be filed.

7.  In addition, the apportionment section of the code requires clarification to provide clear guidance to certain industry specific apportionment methods and to simplify administration of the code.

8.  The Revenue Bureau shall continue the review of the Business License Law as previously directed by Council in Resolution #36473. This includes the analysis of the impacts of a tiered minimum tax structure to offset the impacts of increasing the Owner’s Compensation Deduction to $125,000. Options and impacts will be reviewed with council during 2009.

NOW, THEREFORE, the Council directs:

a.  Amend PCC 7.02.860 C. as follows:

Once the credit amount is determined, the Bureau will apply 20 100 percent of that amount towards tax payments due and owing for the next five license tax years, beginning with the 2008 license tax year. If a taxfiler files a “final” tax return before the fifth year (due to ceased business activity within the City), the Bureau will apply the full amount of the remaining credit towards the amount owing on the final tax return. If that credit amount exceeds the final tax amount due for the 2008 license tax year, the City will issue a refund for the difference or credit the overpayment forward to the next tax year if requested by the taxpayer.

b.  Amend PCC 7.02.610 D. as follows:

Certain industries or incomes are subject to specific apportionment and/or allocation methodologies. Such methodologies are described in administrative rules adopted in accordance with Section 7.02.210. Industry specific or income specific apportionment methodologies required by Oregon Revised Statutes for apportionment of gross sales, will be used in cases where no rule has been adopted by the Bureau regarding the apportionment of such industry or income. When gross sales as reported to Oregon are used for apportionment purposes, such gross sales shall be defined as gross income for apportionment purposes herein. All apportionment methodologies directed under this subsection shall be a single factor gross income apportionment as directed under Subsections 7.02.610 B and 7.02.610 C. In those specific cases where Oregon has directed allocation of income, such income will be apportioned for purposes of this Chapter, unless allocation is otherwise allowed in this Chapter.

c.  The provisions of Portland City Code Chapter 7.02, passed by ordinance #182137 shall apply to various taxfilers as follows:

1. Tax filers reporting taxable income or income-producing activities within the City occurring on or after January 1, 2008, and which is reported on a return for license tax years beginning on or after January 1, 2008, are subject to the new code provisions passed by ordinance # 182137.

2. Tax filers filing initial returns on or after the effective date of September 19, 2008, are subject to the new code provisions passed by ordinance #182137 for all returns required regardless of the license tax year.

3. Tax filers that (1) ceased business activity in Portland prior to January 1, 2008; (2) did not pay a first year adjustment on their initial City return; and (3) that have one or more tax returns that were not filed prior to the effective date of September 19, 2008, are subject to the new code provisions passed by ordinance #182137 for all tax returns filed after September 18, 2008.

Mayor Tom Potter

Commissioner Sam Adams

Commissioner Nick Fish

Commissioner Randy Leonard

Commissioner Dan Saltzman

Terri Williams

December 4, 2008

BACKING SHEET INFORMATION

AGENDA NO. 1706, 1752-2008

ACTION TAKEN:

DEC 10 2008 PASSED TO SECOND READING DEC 17 2008 9:30 A.M.

ORDINANCE/RESOLUTION/COUNCIL DOCUMENT NO. 182427