Certain Washington Businesses and Professional Services Now Subject to Oregon Income Tax

Certain Southwest Washington businesses and professionals, who provide services to clients located in Oregon, may be subject to reporting and paying Oregon income tax.

Previously, payment for some businesses and professional services provided at the professional’s Washington office, or over the phone or internet, was merely subject to Washington business and occupation (B&O) tax. As of January 1, 2018, if the client is located in Oregon, even if the professional doesn’t maintain an Oregon bank account nor is registered to do business in Oregon, the income will be subject to Oregon income tax, requiring the professional to file an Oregon income tax return. This new rule applies even if the services have nothing to do with Oregon.


The types of services that fall within the new law are broadly defined to include:

Professional services are services that require specialized knowledge and in some cases require a professional certification, license, or degree. These services include the performance of technical services that require the application of specialized knowledge. Professional services include, without limitation, management services, bank and financial services, financial custodial services, investment and brokerage services, fiduciary services, tax preparation, payroll and accounting services, lending services, credit card services (including credit card processing services), data processing services, legal services, consulting services, video production services, graphic and other design services, engineering services, and architectural services. [emphasis added][1]

In deciding if the client is located in Oregon, it must first be determined if the client is an individual or a business.

If the client is an individual whose primary residence or billing address is in Oregon, the income received from the client will likely be subject to Oregon income tax.

If the client is a business and the contract with the professional is managed in Oregon, income for the services will be taxable by Oregon. If the location of the contract management cannot be determined but the services are ordered from an Oregon location, the income received for the service will be subject to Oregon income tax. Lastly, if the “customer place of order is not reasonably determinable,”[2]and the client’s billing address is in Oregon, the service provider must pay Oregon income tax on receipts from the client. If a client has a multi-state business, the analysis gets more interesting.

A word of caution.

The Oregon Department of Revenue has access to IRS 1099 filings and thus will easily be able to monitor compliance with income tax reporting and payment by southwest Washington professional service providers. We urge you to consider and review this new rule with your accountant and tax preparer.

 

OR Income Flow Chart with logo

Click here for a full view of the easy reference flow chart (PDF)

[1] OAR 150-314-0435(4)(d)

[2] OAR 150-314-0435(4)(d)(C)(i)(II)

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Categories: Business

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