How to Reduce your Portland / Multnomah County Tax via Additional Nexus

Portland and Multnomah are one of the only jurisdictions which impose three levels of business income tax, Federal, Oregon and Portland/Multnomah County.  This can dissuade business from new business owners from setting up a business in Portland/Multnomah County and head for the tax friendlier Washington or Clackamas Counties, which don't impost a local income tax.  But what about companies that are already in Portland/Multnomah County? Are there any tax savings opportunities?

The most overlooked tax savings opportunity that I've encountered is the non-apportioning of gross receipts. What does that mean?  Businesses only need to pay tax on a percentage of their income based on their relative percentage of sales to customers located in Portland/Multnomah County. However, there's one caveat: sales of tangible personal property may be apportioned only if a business has payroll or property outside the jurisdiction . In other words, if the company doesn't have payroll or property outside of Portland/Multnomah County it must to pay tax on 100% of its income to Portland/Multnomah county even if 99% or even 100% of its sales are to customers outside of these jurisdictions. Conversely, a company could be based out of Portland/Multnomah County and have a small presence outside of the jurisdictions, and if 100% of its sales are to customers outside of the jurisdictions, then the company would only pay the minimum taxes of $100 each to Portland/Multnomah County.

Establishing a property presence outside the jurisdiction can be done very easily through renting a PO box or even data storage outside of Portland/Multnomah County.  In tax terminology, this typically refereed to a establishing "Nexus" or a taxable presence.

Let's run through a scenario.  Imagine an cannabis producer located in the city Portland and Multnomah County.   This grower has an exclusive contract with a processor/extractor in Clackamas County.  The company's Portland/Multnomah County taxable income is $1,000,000. If the company has not established nexus outside of Portland/Multnomah County, it would pay tax on 100% of this income resulting in $36,500 in tax.

Now, let run the numbers to see what the tax liability if the company did have property outside of the jurisdiction.  The same company would have a Portland/Multnomah County tax liability of only $200 if it had established nexus outside of the jurisdiction.

This may seem too good to be true, however it is an often overlooked opportunity by many unsuspecting taxpayers based in Portland/Multnomah County.

The same concept may often be applied at the state level in order to minimize the income allocated to higher tax states and shift to lower tax rate states. For example, an Oregon based company would want to establish Nexus in Washington (which has no business income tax) in order to shift a portion of its income based on the relative gross receipts to Washington. 

Cannabis State Tax Series - Introduction

Executive Summary

Ben Condon, CPA, Founding Partner of BC Consulting, LLC kicks off his blog series which will define the jargon, provide a general conceptual overview, and implications of state and local taxes on cannabis businesses. 

Albert Einstein once said "The hardest thing to understand in the world is the income tax." Well, he was right!!! That was even before code section 280E, and most states didn't even have income taxes back then, yet.

Early in my career as a tax CPA, I was often confused how federal and state taxes intertwined, and any research left me more confused and created more questions than I started with.  I hope to share my understand with the readers of this blog. My philosophy is not to keep my knowledge secret, but to share it, even if that means competitors learn a few things. You should be weary of any CPA that has a "secret" calculation or does not wish to share with you their "proprietary" methodologies. A great CPA should help further their clients' understanding of the tax implications of any transaction by providing a clear logical, legal framework from which to operate. That is my goal.

In this blog series we'll cover the State Taxes 101, and and the more advanced topics of how they specifically relate to cannabis business, dare I say State Taxes 420?

The general topics to be covered:

The various types of taxes that apply to all types of businesses, including but not limited to: income, minimum, alternative minimum, real property, personal property, business and occupancy, franchise, excise, sales, capital, cultivation, transfer, withholding, and margin taxes.  In addition, Cannabis specific taxes will be covered, such as the Oregon marijuana sales tax or the California cultivation and excise taxes. 

We will walk through the conceptual road-map of income from the profit and loss statement to the Federal tax return to State tax return, and possibly a locality tax return. We will also discuss common Federal, state, and local differences along the way, such as:

• Federal 280E Disallowed Deductions allowed for States
• Depreciation Adjustments
• Loss Carryforward / Carryback differences
• Statute of Limitation differences

We will also cover multistate tax concepts, such as:

• Nexus & Economic Nexus
• Allocation and Apportionment
• Flow-through Entity withholding and Composite Returns
• Income Sourcing and throwback

In parallel with this blog series, I will also deep dive into specific states' taxing regimes and discuss the taxes levied on cannabis business in those states and provide tips on how to stay compliant.  "How Oregon/California/Washington/Nevada Taxes Cannabis" 

I'm happy to focus on any topics or specific states depending on your level of interest. 

Hit me up in the comment section and stay tuned!