Key Takeaways

  • Oregon LLCs are typically treated as pass-through entities for tax purposes, meaning profits flow to members’ personal tax returns.
  • LLCs may elect corporate taxation (C-Corp or S-Corp) if it provides advantages.
  • Oregon imposes a Corporate Activity Tax (CAT) on businesses with more than $1 million in Oregon commercial activity.
  • LLC members must also account for self-employment tax on income unless electing S-Corp taxation.
  • Oregon has no state sales tax, but businesses may face local payroll taxes (like in Portland) and property tax obligations.
  • Minimum excise tax applies to corporations, but not typically to standard LLCs unless taxed as corporations.
  • Strategic planning—such as choosing pass-through taxation, claiming available deductions, or electing S-Corp status—can reduce overall liability.

An Oregon business tax, also commonly referred to as a corporate excise tax, is imposed on businesses in this state when a small business incorporates itself as an LLC or a C Corporation. Basically, it's a corporate tax that must be paid by all corporations operating in the state of Oregon.

Many small businesses are not actually categorized as C Corporations. And the ones that are LLCs are not normally treated as corporations, but this tax is still pertinent to understand because it has to be paid. More importantly, a lot of small businesses end up turning into corporations over an extended period of time.

How Is the Oregon Business Tax Calculated?

The tax itself is based on the income of the business that is operating in Oregon. As you can deduce, the higher the income, the higher the tax. Generally, the tax will be calculated according to either of the following, with the greater value being the amount that is to be paid by the business:

  • Percentage of the business's income
  • A minimum tax amount that is determined by Oregon

Oregon Corporate Activity Tax (CAT) for LLCs

Oregon imposes a Corporate Activity Tax (CAT) on businesses with more than $1 million in Oregon-sourced commercial activity. For LLCs, this means that if gross receipts from Oregon sales exceed the threshold, the business must register and pay the CAT. The tax rate is 0.57% of Oregon commercial activity above $1 million, plus a flat $250 fee.

  • Commercial activity includes most gross receipts from transactions in Oregon but excludes certain items like interest income, stock sales, and some intercompany transfers.
  • If an LLC has less than $1 million in Oregon commercial activity, no CAT applies, but the business must still track receipts to ensure compliance.

What Is the Marginal Rate Used to Calculate Oregon Business Tax?

There are two marginal rates that determine what the calculated tax will be. A higher tax rate applies to those businesses that do over one million dollars in business. As of 2018, the Oregon business tax is as follows:

  • Those with an income of $1 million or less will have to pay a tax of 6.6 percent.
  • Those with an income of more than one million will have to pay $66,000 plus an additional 7.6 percent on the amount that exceeds one million.

As you can see, it can be quite expensive to operate a business in Oregon. On the upside, though, if you sell products or services outside of the state of Oregon, you don't have to include them as part of your income when calculating the Oregon business tax amount. Instead, you only include the amount that relates to products and services being sold to Oregon-based consumers.

LLC Tax Classification Options

LLCs in Oregon are flexible in how they are taxed:

  • Default Pass-Through Taxation: By default, single-member LLCs are taxed like sole proprietorships, and multi-member LLCs are taxed like partnerships. Profits “pass through” to members, who pay Oregon personal income tax on their share.
  • Electing S-Corp Status: LLCs can elect S-Corp taxation to reduce self-employment tax liability. This allows members to pay themselves a reasonable salary (subject to payroll taxes) while receiving remaining profits as distributions taxed only at the personal income tax level.
  • Electing C-Corp Status: Some LLCs choose C-Corp taxation if corporate tax treatment is more advantageous, though this triggers the corporate excise tax and potential double taxation on dividends.

What Are the Tax Rates for Personal Income Returns?

To determine the amount that has to be paid in this type of situation, you would take your ratio of sales that are based out of Oregon to other sales and apply the ratio to what is known as consolidated federal income. The amount that you are left with is what you must include as taxable income for state purposes.

As of 2018, in Oregon, the state tax amount on a personal return starts at 5 percent. It can rise up to 7 percent if you are filing jointly. These rates apply if your income is between $3,450 and $6,900. If your income is greater than $8,700, the tax rate is 9 percent. If you have income over $250,000, the tax rate is 9.9 percent. If, however, you have nonpassive income, the tax rate that you will have to pay may be lower, especially if the income is associated with a pass-through business.

Member-Level Oregon LLC Taxes

In addition to Oregon personal income tax, LLC members must consider self-employment tax at the federal level, which is 15.3% on net earnings. Oregon does not impose its own self-employment tax, but members still owe state income tax on their business profits.

  • LLC owners can deduct business expenses—such as rent, utilities, and employee wages—before income passes through.
  • Oregon’s progressive income tax system means that higher-earning LLC members may face a top rate of 9.9% on their share of profits.
  • Pass-through income from an Oregon LLC may qualify for the reduced state tax rate on nonpassive income, provided the LLC meets specific employment and operational requirements.

What About Property Taxes?

The property tax that you will have to pay for your business in Oregon is not going to be over 3 percent of its fair market value. There are several tax abatement programs you can take advantage of, such as the Strategic Investment programs, that will help mitigate your property tax liability. Some of these programs can even completely eliminate the amount of money you would pay for property taxes. It is your responsibility to research the programs and see which ones can be of the most benefit to you.

Other Oregon LLC Taxes and Fees

While Oregon does not have a statewide sales tax, LLCs may encounter other tax obligations:

  • Payroll Taxes: LLCs with employees must withhold and remit state income tax and may be subject to local payroll taxes, such as the Portland Metro Supportive Housing Services Tax.
  • Annual Report Fee: Oregon LLCs must file an annual report with the Secretary of State and pay a $100 fee.
  • Local Business Taxes: Some cities, like Portland and Multnomah County, impose their own business income taxes separate from the state’s.

Do All States Have Business Tax?

Almost all states have some sort of requirement in place that mandates businesses pay a state tax. Many of the states, however, will base this tax on the type of business a company is formed as. For example, corporations are often subject to certain corporate taxes, whereas LLCs and partnerships are subject to a different type. For sole proprietorships, the taxes are usually the same as those applied to partnerships and LLCs. If you conduct research, you will see that tax rates vary widely from one state to the next.

Tax Advantages of Forming an Oregon LLC

Oregon offers some tax-friendly features that can benefit LLC owners:

  • No Sales Tax: Oregon is one of the few states without sales tax, reducing the overall tax burden on consumer transactions.
  • Tax Flexibility: The ability to elect S-Corp taxation gives LLCs more control over how earnings are taxed.
  • Limited Liability Protection: Beyond tax considerations, LLCs provide personal asset protection for owners, combining flexibility with reduced personal risk.

Frequently Asked Questions

  1. Does an Oregon LLC pay state income tax directly?
    No, unless the LLC elects corporate taxation. By default, profits pass through to members, who pay Oregon personal income tax on their share.
  2. What is the Oregon Corporate Activity Tax (CAT) threshold?
    The CAT applies once Oregon commercial activity exceeds $1 million in a calendar year. Businesses must register, file, and pay the tax on amounts above that threshold.
  3. How can an Oregon LLC reduce self-employment taxes?
    Electing S-Corp taxation allows members to take part of their earnings as salary (subject to payroll taxes) and the rest as distributions, which are not subject to self-employment tax.
  4. Are Oregon LLCs subject to property tax?
    Yes, if the LLC owns real estate or personal business property. Rates vary by county, but exemptions and abatement programs may lower the burden.
  5. Does Oregon have a franchise tax for LLCs?
    No. Unlike some states, Oregon does not charge a general franchise tax on LLCs, but LLCs must pay the annual report fee and may owe CAT if gross receipts exceed the threshold.

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