It’s no secret that Oregon is home to a number of tax benefits for both individuals and businesses, with no sales taxes and a variety of incentives, tax deferral programs, and write-off options that make the state an appealing environment for small to medium size enterprises. In fact, in the annual State Business Tax Climate Index for 2017, Tax Foundation ranked Oregon within the ’10 best states’ category, listing the Beaver State at number 10 on its list.
Of course, tax benefits are nothing new to Oregonian businesses, with this being the third time since 2014 that the state has improved its rank on the index. It’s important to note that Tax Foundation’s ranking and report are strictly related to Oregon’s business-friendliness regarding tax obligations, and are not indicative of the state’s quality of life, property prices, or other factors that entrepreneurs may take into account before choosing a place to launch their next business.
To further investigate Oregon’s position as the 10th-best business tax climate in the country, we’ve examined some of the stats and specifics involved in Tax Foundation’s annual index as well as other relevant reports and rankings:
Lenient Tax Requirements and Beneficial Incentives
The most obvious tax advantage you’d notice when visiting Oregon for the first time is the state’s 0% sales tax. To put that into perspective, there are only four other states that don’t have a sales tax – Alaska, Montana, Delaware, and New Hampshire. This not only reduces purchase prices for consumers, but it also drops the price of many goods and supplies that retailers purchase, as those transactions would typically be subject to sales tax as well. An accountant or professional tax preparer using a professional tax software can calculate the exact savings that a retail business could stand to gain by not having to pay sales taxes on any transactions.
Aside from the complete absence of sales tax, there are also a few interesting incentive programs that businesses can take advantage of when operating within the state’s corporate jurisdiction. Perhaps the most unique is the Oregon Investment Advantage, which gives small and medium sized businesses incentive to operate within certain counties. Under the program, a company with as few as five employees in select counties can almost fully deduct or eliminate the company’s state business income tax liability for up to 8 years.
Then there’s the Oregon New Market Tax Credit (NMTC) that the government provides as an incentive for businesses to invest in low-income communities. Although that might not sound like an appealing option, it should be noted that about half of downtown Portland is considered low income, and that’s a very busy and potentially prestigious place to have a storefront because the city’s property prices and population are increasing.
A business that receives an NMTC will get a tax credit of up to 39% of the qualified investment over the course of 7 years. The state allocated $203 million towards the NTMC program in 2016 alone, and it has been largely responsible for a relatively quiet influx of startups into the Portland area.
Best Business Tax Climate in the West
If being on the West Coast is important for a business, Oregon is arguably the best place to set up shop, especially where taxes and business requirements are concerned. The immediate neighbor to the south (California) ranks as one of the nation’s worst business tax climates while also having a much higher cost of living.
Although Oregonian businesses don’t get to enjoy the year-round sunniness of Southern California, there’s a fair trade-off in the Beaver State, with plenty of rain keeping the air moist and the landscapes green, a much lower density of pollution, the experience of 4 well-rounded seasons, and last but not least, a much better business tax climate.
Washington isn’t much better than California, falling into a mediocre gray area regarding tax climate and carrying a number of high taxes, including the highest spirits tax in the country, which is set at $35.22 per gallon. Although Oregon’s spirit taxes are the second-highest, they’re still significantly lower at $22.73 per gallon.
Nevada and Utah would be the closest states that have tax climates comparable to Oregon’s, but even those states have sales taxes and other features that make them not quite as business-friendly in some regards. However, for online businesses and companies that only need a formal headquarters but are selling services and products globally, Nevada remains one of the hardest states to beat.
Ranking High in Other Aspects
While the Tax Foundations Index has states like Alaska, South Dakota, Montana, and Nevada listed higher than Oregon in terms of sheer business tax advantages and tax climate, an entrepreneur or aspiring business owner also has to consider what kind of environment they want to live and do business in.
Furthermore, if you’re planning on operating a brick-and-mortar storefront or providing products or services that aren’t sold online to a global customer base, then you’ll also have to consider the size of the available market share in the area you’re planning on opening the business. Of course, moving to a sparsely inhabited area that severely lacks commerce might not be the best decision for a startup that isn’t operating online. Thus, many businesses find Oregon to be a much more appealing option than some of the higher-ranked states on the Tax Foundation’s Index.
Other organizations have also ranked Oregon higher in terms of the benefits of starting a business in the state. For example, CBS has Oregon listed at the #5 spot on their “Where to Start a New Business” list, citing the state’s high ratio of about 80 loans per 1,000 small business employees, an above average GDP per capita, and the aforementioned low business taxes.
Business Insider also ranks Oregon at #15 on their list of the best states to start a business, noting that the state is appealing to small businesses because of the high availability of well-educated employees. Statistically, Oregon has the 10th-best business survival rate, so a business opened here is more likely to survive than one opened in 40 out of the 49 other states.
Lower Cost of Living an Added Bonus
Since the majority of business owners live in the same state their businesses are based in, it makes sense to start a company somewhere with a decent cost of living. Oregonians spend about 1.2% less than the average American in all 50 states, and this below-average cost of living works out from not only sales tax but also other bargains across the board, from rental prices to the cost of groceries and utilities.
The average pay for employees is also fairly high at about $22.80/hour on average in the private sector, which equates to an average salary of about $47,000/year. Although those wages are slightly lower than California’s, there’s also a wealth gap in the Golden State, which means there’s more poverty, stronger corporate competition, higher office expenses, and a higher chance of launching a failing business.
On average, Oregon’s cost of living is about $6,000 per year cheaper per person than the cost of living in California. It’s possible to use Oregon Live’s cost of living calculator to determine an estimated cost of living for a custom family size and income.
Does Cost of Living Really Matter to a Bustling Business?
If one were to compare Oregon to the lowest-ranked state on the tax climate index, you’d see a stark contrast in states like New Jersey, which is home to some of the worst property taxes and individual income taxes in the country and is one of only two states that has levied both estate tax and inheritance tax. However, maybe such a comparison would be akin to comparing apples and oranges, when you consider how markets and consumer preferences differ in each area.
Plus, the cost of housing is about 44% cheaper in Newark than it is in Portland, and the overall cost of living is about 20% cheaper. Even so, for a business that is doing a high volume of transactions and/or a group or owner with a sufficient line of credit, the cost of living shouldn’t be the biggest concern, as it will seem minor next to the amount of revenue being generated. A business that is successful will wind up having tax liabilities that substantially outweigh the owner’s personal cost of living, so business tax climate is usually a more pertinent concern.
Oregon has an above average density of startups and is seeing particularly strong business growth in Portland and Bend. In fact, Forbes ranked Bend, Oregon in the top spot on its annual list of the Best Small Cities for Business and Careers in 2016. If you look at the 10 worst states and compare them to the 10 best states on the State Business Tax Climate Index, there’s a common theme in that the poorly ranked states all charge exuberant taxes and have low business survival and startup rates.