Portland wants to direct some surplus to soften tax burden for small business owners: Portland City Hall Roundup

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Mayor Charlie Hales and Commissioner Nick Fish already expressed support for increasing the owner's compensation deduction

(The Oregonian)

UPDATE: The City Council unanimously approved the increase on Wednesday morning. This story includes some reaction from the meeting.

Portland small business owners will get a welcome dose of tax relief in the 2014 tax year thanks, in part, to the city's decision to pay down some long-standing debt.

The City Council approved an ordinance increasing the maximum amount business owners can deduct prior to paying the city's business license tax to $100,000 annually, up from $90,500. Business owners deduct that amount prior to paying the city's 2.2 percent business license tax on their net income. Multnomah County also has a 1.5 percent business tax.

Portland's Revenue Bureau anticipates 4,100 businesses will benefit, saving them (and costing the city) $865,000 a year in taxes, according to city officials. Last fiscal year, Portland's revenue from the business license tax was $78.1 million.

Mayor Charlie Hales credited Commission Nick Fish for "keeping our eyes on this" issue through the budget process. Council's vote was unanimous.

A budget surplus from the 2012-13 fiscal year, identified after a series of cost cutting measures and belt-tightening instituted by Mayor Charlie Hales and city bureaus earlier this year, will help pay for the tax relief measure.

Portland has $20.8 million to play with in the current budget adjustment process thanks to across the board spending freezes enacted prior to the end of the 2012-13 fiscal year in June. An estimated $8.1 million of that surplus will be dedicated to paying down debt related to City Hall renovations and emergency computer aided dispatch services. That will free up $3.5 million in ongoing revenue, according to city documents, allowing the city to up the owner's compensation deduction.

Local business advocates are thrilled with the move. "It's really the small guys who get whacked by this," Sandra McDonough, president and CEO of the Portland Business Alliance, said of the business license tax.

Portland's business taxes act similar to a personal income tax on small business owners, she said. Businesses that employ fewer than 50 people make up 94 percent of Portland's businesses. They are particularly hard hit by the tax. "The ability to grow those jobs is impacted by this tax," she said.

The tax only applies to income earned in the city of Portland. According to most recent figures, Portland has 64,141 businesses that pay the license tax. Not all businesses pay it. There are exceptions, such as businesses with revenue under $50,000 a year.

For years the owner's compensation deduction was frozen at $60,000 a year. Then in 2007, council bumped the amount up to $80,000 a year, and pledged to get to $125,000 within five years. An annual escalator in place since 1999 ties annual increases in the deduction to the Consumer Price Index.

But the recession hit soon after the 2007 pledge, and the city hasn't been able to stick to its promise. "We've reminded them fairly regularly that they made this commitment," McDonough said.

But McDonough and others are pleased the city is taking the first step to help small businesses.

Commissioner Steve Novick approved the increase, but also cautioned that $865,000 wasn't an insignificant figure. He referenced several high-profile budget battles that didn't approach the $865,00 figure. "That's several times the budget of the Buckman pool," Novick said, citing the public facility that survived budget cuts this year.

Running a small business is difficult, Debbie Kitchin, co-owner of InterWorks LLC, said.

Her general contracting firm has been around since 1994, and they have six employees. They're established, but it doesn't make it any easier to run a small business. "All costs add up," she said. "It's not that this one (the business license tax) is worse than others."

But the increase in the owner's compensation deduction is a start, Kitchin said.

She does know some businesses that have moved their offices just outside the city border to try and save some cash. "It allows the money to be spent on other services,"

Kitchin said she's thankful that the council is taking this issue seriously.

Revenue officials say the annual escalator is still in place going forward, based on the $100,000 figure, if the council approves the increase Wednesday.

Reading:

The Oregonian: Subsidized mystery grocery in Northeast Portland displeases neighborhood activists near and far

The Oregonian: Portland misspent water and sewer money in 2011 to buy office space, Mayor Charlie Hales says

Willamette Week: Flunk factories, the ugly truth about graduation rates at Portland's high schools

Willamette Week: 127th and Hales

-- Andrew Theen

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