A number of clients of my law firm, Tonkon Torp LLP, have asked about the recently-announced city of Portland business license tax break for signing a downtown Portland lease and about the Enterprise Zone tax exemption for downtown Portland. Although not a substitute for legal or tax advice, the information below will familiarize you with the basic requirements for these programs and highlight threshold items you should consider before reaching out to your trusted advisers for more detailed guidance. Be sure to reach out early, before you sign a new lease or invest in new property.
Business license tax break: This exemption is for businesses located in or planning to be located in the urban core of Portland, Oregon. The tax break can bring up to $250,000 reduction of your business license tax spread over four years (current business license tax rate is 2.6% of adjusted net income). The requirements for this tax break are:
- Signing or extending a lease for at least four years, or in some cases owning and occupying a building.
- Having at least 15 employees.
- Requiring employees to work in the leased or owned space for at least half their hours.
The deadline for this exemption is Dec. 31, 2024. It applies to qualified business in Downtown, Old Town, Lower Albina, and Lloyd districts (review this map for more detail).
Enterprise zones: Typically, this exemption is for businesses that provide goods or services to other businesses. No property tax will be imposed for five years on your new capital investments (subject to certain exceptions). The requirements include buying qualified property:
Buy qualifying real or personal property or perform improvements (in some cases you can also move qualifying property into the zone). Qualifying property includes:
- Real property (buildings, structures, and heavy/affixed machinery and equipment) costing $50,000 or more in total; land is ineligible.
- Personal property (such as machinery and equipment that is readily moveable) costing at least: (1) $50,000 per item; or (2) $1,000 per item if it’s used exclusively for the production of tangible goods (which usually excludes furniture, decorations, or most communication, office, or video devices). Forklifts and other self-propelled motorized vehicles are ineligible.
There’s also a special program for electronic commerce investment in a designated E-Commerce Zone.
Additionally, to qualify for the exemption, your business must hire and retain more employees. Specifically, businesses must:
- Increase employment by at least one new employee or 10%, whichever is greater, and maintain these numbers for five years; you are prohibited from simply transferring jobs from outside the zone to inside the zone to satisfy this requirement.
- Before hiring new eligible employees, enter into a “first-source hiring agreement” in which you agree to consider referrals from publicly funded job training providers; contact your local zone manager for more information.
- Total employment cannot go down by more than 85% at one time or by more than 50% in two consecutive years compared to the highest level of employment made in a previous claim (for example, if before the exemption, you had nine employees, in year one of the exemption you have 10 employees, and in year two you have 100 employees, then you can’t drop in year three to fewer than 15 employees).
- You may also be required to pay wages at or higher than Multnomah County’s average wage rate.
Businesses must also file this form to apply for the enterprise zone exemption; file this form other every year during your tax exemption; file this attachment the first year of your tax exemption; and continue to file property tax returns annually.
Business that are ineligible for the enterprise zone exemption include those in: tourism, retail food service, entertainment, child care, financial services, property management, housing or construction, retail sales of goods or services, health care, or professional services.
Those interested in applying for the enterprise zone exemption should apply before buying the real property, performing the improvements, buying or moving the personal property, or hiring new employees (some exceptions apply). Work on improvements may proceed after submission, but before approval. Your first year of exemption will be the year after your new property is placed in service. Subsequent qualified property that is placed in service
during the first year or two of the exemption may be exempted as well; in this case be sure to file an updated property schedule.
As a reminder, the Enterprise Zone consists of downtown Portland and other Portland areas (review this map for more detail).
