As we have been discussing these past several weeks, the Tax Cuts and Jobs Act (“TCJA”) drastically changed the Federal income tax landscape. The TCJA also triggered a sea of change in the income tax laws of states like Oregon that partially base their own income tax regimes on the Federal tax regime. When the Federal tax laws change, some changes are automatically adopted by the states, while other changes may require local legislative action. In either case, state legislatures must decide which parts of the Federal law to adopt (in whole or part) and which parts to reject, all while keeping an eye on their fiscal purse.
The Tax Cuts and Jobs Act (“TCJA”) creates the need for tax planning with respect to several major life-changing activities individuals may encounter, including marriage, divorce, home ownership, casualty losses, medical expenses and parenting. More specifically, the TCJA makes major changes to the existing framework of personal exemptions and itemized deductions, the child tax credit, the tax treatment of alimony and spousal maintenance payments made as a result of divorce, and the alternative minimum tax (“AMT”).
The primary focus of this blog post is the provisions of the TCJA that significantly impact families and individuals. Many of these provisions have been exhaustively reviewed by other commentators in the past several weeks. In those instances, our discussion is brief. Rather, we decided to place the bulk of our discussion on the less obvious provisions of the TCJA that may have significant impact on families and individuals.
On April 9, 2014, Oregon Governor John Kitzhaber signed into law House Bill 4138 (“HB 4138”). Effective June 8, 2014, the methodology by which an “Interstate Broadcaster” apportions its business income for purposes of the Oregon corporate excise tax changes in at least two (2) ways:
1. Method of Apportionment. Prior to June 8, 2014, an Interstate Broadcaster included in the numerator of the “sales factor” gross receipts from broadcasting in the ratio that its audience and subscribers located in Oregon bear to its total audience and subscribers located within and without Oregon. On or after June 8, 2014, Interstate Broadcasters will no longer use this method of apportionment. Rather, they will include in the numerator of the “sales factor” only those gross receipts from customers (i.e., advertisers and licensees) that have their commercial domicile in Oregon, or (in the case of individuals) who are residents of Oregon.
2. Definition of Interstate Broadcasters. HB 4138 amends the definition of “Interstate Broadcaster” to include anyone engaging in the for-profit business of broadcasting to persons located within and outside of Oregon. Prior law referred to broadcasting to subscribers or to an audience. I am not sure this change to the law is significant other than it reduces the verbiage by four (4) words.
For purposes of the statute, broadcasting is limited to transmission of any one-way signal by “radio waves, microwaves, wires, coaxial cables, wave guides or other conduits of communication.” HB 4138, as originally proposed, expanded the definition of “broadcaster” to include anyone transmitting film or radio programming by any means. Lawmakers chose, however, to retain the existing definition of broadcaster.
HB 4138 becomes law in Oregon on June 8, 2014. If, however, Oregon lawmakers do not act, the law will revert back to pre-HB 4138 law on January 1, 2017. In the interim, the Oregon legislature has directed the Legislative Revenue Officer to confer with the Oregon Department of Revenue and issue a report as to the impact of HB 4138 on revenue.
The stated intent of HB 4138 is to more accurately reflect the Oregon income of Interstate Broadcasters. Given the directive to the Legislative Revenue Officer, one could easily suspect the intent is really to increase Oregon income and the corresponding tax revenues. Time will tell. The upcoming report of the Legislative Revenue Officer (due by February 1, 2017) should be an interesting read.
Larry J. Brant is a Shareholder in Garvey Schubert Barer, a law firm based out of the Pacific Northwest, with offices in Seattle, Washington; Portland, Oregon; New York, New York; Washington, D.C.; and Beijing, China. Mr. Brant practices in the Portland office. His practice focuses on tax, tax controversy and transactions. Mr. Brant is a past Chair of the Oregon State Bar Taxation Section. He was the long term Chair of the Oregon Tax Institute, and is currently a member of the Board of Directors of the Portland Tax Forum. Mr. Brant has served as an adjunct professor, teaching corporate taxation, at Northwestern School of Law, Lewis and Clark College. He is an Expert Contributor to Thomson Reuters Checkpoint Catalyst. Mr. Brant is a Fellow in the American College of Tax Counsel. He publishes articles on numerous income tax issues, including Taxation of S Corporations, Reasonable Compensation, Circular 230, Worker Classification, IRC § 1031 Exchanges, Choice of Entity, Entity Tax Classification, and State and Local Taxation. Mr. Brant is a frequent lecturer at local, regional and national tax and business conferences for CPAs and attorneys. He was the 2015 Recipient of the Oregon State Bar Tax Section Award of Merit.
Upcoming Speaking Engagements
- "Planning Using IRC Section 1031 Exchanges," Oregon Society of Certified Public Accountants (OSCPA) Forest Products ConferenceEugene, OR, 6.22.18
- "Evaluating the Built-in Gains Tax for C to S Conversions After TCJA," New York University Summer Institute in Taxation – Advanced Conference on Subchapter SNew York, NY, 7.26.18-7.27.18
- "S Corporation Distributions – The Ins and Outs," New York University 77th Institute on Federal TaxationNew York, NY, 10.21.18-10.26.18
- "The Tax Cuts and Jobs Act – What It May Mean to Your Clients," Estate Planning Council of Portland Mini-SeminarPortland, OR, 11.7.18
- "S Corporation Distributions – The Ins and Outs," New York University 77th Institute on Federal TaxationSan Diego, CA, 11.11.18-11.16.18