23 Apr City of Portland Tax

City of Portland Tax

For entrepreneurs in the Portland, Oregon area who are looking to start up a new business, one consideration to keep in mind is whether to locate the business in the City of Portland, or in Multnomah County, each of which charge relatively hefty business taxes. Being subject to these taxes is often a surprise for new business owners, and the taxes are yet another reason why, before starting a business, the prospective owners should speak with both an attorney and a qualified CPA.

Many business owners in the Portland area choose to avoid these taxes altogether by locating their businesses just outside of Portland and Multnomah County. For those business owners who choose to remain within Portland and Multnomah County, there is another tax issue to keep in mind: it’s an issue concerning the definition of “controlling shareholders,” which I’ll explain in the next section.

Controlling Shareholders

The controlling shareholder issue arises in the context of family owned businesses, and, to be more specific, in family owned businesses in which there are high wage earners. The City of Portland auditor’s office defines “controlling shareholders” here, but does not clearly explain the implications of that definition.

Essentially, as a result of how the City of Portland defines controlling shareholders, family owned businesses should consider trying to set up their business so that there are at least two controlling shareholders, in order to get the best benefit from the compensation allowance deduction. As opposed to having one person own 100% of the voting shares in the business, the family should consider splitting ownership of the voting shares so that more than one person owns more than 5% of the voting shares in the business.

As an example, in a family owned business in which there is a husband and wife, they could split ownership 94% / 6% (that way each owns at least 5% of the voting shares), as opposed to having the husband or wife own all 100% of the voting shares.

This may seem like a minor issue at the start of the company, but it will likely become more important as the company becomes profitable and starts paying out higher wages. Like so many other legal and tax issues, the later they are addressed, the harder and more costly they will be to fix.

Author: Andrew Harris

Learn More

To continue reading more about the laws that might affect your business, please see the Articles page, or to simply see a list of helpful legal resources for Oregon startups and businesses, please see the Legal Resources page.

If you need assistance with a particular legal issue affecting your business – especially if your business is in or around Portland, Oregon – please contact us and we will get back to you as quickly as possible.