Stimulus Checks Incorrectly Sent to Deceased People – What To Do Now?

The recently passed CARES Act included many provisions to provide economic aid, relief and stimulus for America. As a part of the new law many Americans will receive stimulus checks officially called Economic Impact Payments.

US citizens and permanent residents qualify to receive $1,200 for single and head of household filers, and $2,400 for married couple filer, with an adjusted gross income (AGI) up to $75,000 for individuals who file as single or married filing separately, $112,500 for head of household filers, and $150,000 for married couples filing joint returns. Reduced amounts will be sent to those who have a higher AGI. However, those with an AGI over $99,001 for single or married filing jointly, $136,501 for head of household, and $198,001 for married filing jointly, will not receive any money.

Recently, I have received calls from my clients who have received checks from the IRS that are written to family members who have died. And my clients want to know if they can keep the money. The answer is no.

The IRS has been incorrectly sending money to deceased individuals. The stimulus checks are only meant for people who are still alive. If you receive a check from the US Treasury payable to someone who is deceased, then you need to send back the entire payment. The exception is if the check is made to joint filers and a spouse is still alive. Then only a portion of the payment needs to be returned.

If you received a paper check, then write “Void” in the endorsement portion on the back of the check. The IRS requests that you include a note stating that you are returning the check because the person named on the check is deceased. Please do not staple or clip the note to the check, and don’t bend the check. Then send the voided check and note back to the IRS. If you live in Oregon or Washington, the address to use is Fresno IRS, 5045 E. Butler Ave., Fresno, CA 93888.

If you have already cashed the check, then send the IRS a cashiers check or money order for the same amount as deposited. The check should be made payable to the U.S. Treasury. And then on the memo line write 2020EIP and the deceased person’s social security number. Then follow the same procedures as addressed in the previous paragraph.

For more information, please see: https://www.irs.gov/coronavirus/economic-impact-payment-information-center#more

If you have more questions or want to talk about the CARES act or other estate planning issues, contact one of our estate planning attorneys.

Anastasia (Stacie) Yu Meisner is a member of the SYK Estate Planners practice. Her practice focuses on estate planning, mediation, probate, trust and estate administration. In addition, she also works with guardianships and conservatorships, as well as business transactions and formation.

Where’s My Stimulus Check?

The IRS sent out the first wave of stimulus payments this  past week to around 80 million Americans. In order to speed up the process, the IRS has prioritized sending payments to Americans that have previously submitted their direct deposit information with the agency. Those that have not authorized a direct deposit account with the IRS will receive their stimulus payment in paper check form. However, the IRS estimates that it only has the capacity to mail out 5 million checks a week, so many Americans will not receive their payment until likely August or later.

Based on the income level eligibility requirements, at least 90{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} of Americans should qualify for at least some amount of stimulus payment. If you think you should have received your stimulus payment by now, here are several reasons why the IRS has delayed your payment.

Social Security Recipients

For recipients of Social Security and Supplemental Security Income (SSI), the IRS has announced that payments will appear alongside normal monthly benefits. Recipients are not required to file a tax return to receive payment and will receive their stimulus payment in the same format (direct deposit or paper check) of their normally received benefits.

Direct Deposit Not Authorized

Even if you filed your tax return electronically the last two years, the IRS may still not have direct deposit information saved for you. The IRS has only saved direct deposit information for those that have received a federal refund in 2018 and/or 2019. If you owed the IRS in either of those years, your direct deposit information may no longer be stored. The IRS is not using bank account information it used to withdraw from your account if you owed money. To check if you need to submit your direct deposit information, the IRS has set up a web portal for entering that information and checking on the status of your payment.

Change of Filing Status or Bank Account Information

Even if you received a refund and filed electronically, a change of filing status or a change in your direct deposit account could also delay your stimulus payment. For example, if you got married in 2019 and filed married jointly for the first time, or got divorced in 2019, and filed single for the first time in a while, the IRS may no longer have accurate direct deposit information on record. Similarly, if you changed banks or switched account numbers, the IRS will no longer have correct direct deposit information for you. Using the IRS Get My Payment Portal can verify if the IRS needs updated banking information.

Current Return Still Processing

Though the IRS extended filing of individual federal returns until July 15, 2020, many Americans still made efforts to file their 2019 returns in line with the normal April 15 due date. Due to the shutdown, the IRS has prioritized processing stimulus payments for Americans and has largely slowed down return processing for the next few weeks. Many service centers across the country have also closed entirely. If the IRS has receipt of your 2019 return but has not processed it yet, this may also delay your stimulus payment.

Non-filers

Millions of lower-income Americans who do not normally meet the income thresholds required for filing will need to also contact the IRS. Through use of a separate web portal entitled Non-Filers: Enter Payment Info Here, non-filers will need to confirm their identities and provide bank account information or address information to receive a stimulus payment.

Watch for Fraud

Remember that the IRS will never call you, email you, or otherwise contact you directly for your sensitive personal information. The IRS web portals will require you to enter information such as your social security number, your routing and bank account numbers, and other personal information. Otherwise this information should not be shared through any other method.

Nicholas Rogers - Attorney

Nicholas D. Rogers joins SYK Estate Planning and Taxation practice with a passion for helping individuals, small business and nonprofits. His practice includes a focus on estate planning, federal and state tax controversy, business formation and planning, as well as trust and estate administration.

How to Prepare for Bankruptcy

This sudden economic downturn will cause a large number of individuals and corporate entity debtors to consider bankruptcy in order to get a better handle on their financial situation. While many associate declaring bankruptcy as an admission of failure or destitution, bankruptcy can actually offer debtors a path toward recovering from a devastating financial situation. When considering whether bankruptcy is the right option for your situation, it is essential to have a basic understanding of how bankruptcy works and the initial actions you should take should you need to proceed with bankruptcy.

Understand the Different Types of Bankruptcy

The different types of bankruptcy are referred to as “Chapters”, and likely only one form will apply to a specific situation.

  • Chapter 7 Liquidation
    • The simplest and most common bankruptcy, a “straight bankruptcy”.
    • Individuals and most corporate entity debtors can qualify for Chapter 7.
    • Debtors are not required to submit to a repayment plan, but it does require liquidation of all nonexempt assets to payback creditors.
  • Chapter 11 Reorganization
    • Form of bankruptcy for both individuals and corporate entity debtors.
    • Rather than liquidation, the debtor submits a reorganization plan that explains how it will be able to repay creditors over a period of time.
  • Chapter 13 Debt Adjustment
    • Form of bankruptcy for individual debtors only.
    • The individual debtor must have a certain level of income to qualify.
    • Rather than liquidating all assets, it allows the debtor to protect certain property and have enough time to pay off your debts within a monthly payment plan.

There are other much less common chapters of bankruptcy, but 7, 11 and 13 are the most utilized.

To properly prepare for bankruptcy, there are also a number of steps we recommend.

Gather Financial Statements

Regardless of the form of bankruptcy applicable to the situation, the first step requires getting financial statements in order. Order copies of all banking and financial account statements, obtain past filed federal and state tax returns, and figure out your income level from pay stubs, Form W-2 and Form 1099 and more. Depending on the amount of disposable income available, a debtor may or may not qualify for different chapters of bankruptcy.

Prepare an Asset List

Bankruptcy also requires a list of all assets and property owned. This does not mean listing out every piece of furniture or article of clothing, but rather a list of every significant asset that has actual value. Real property, bank accounts, investment accounts, retirement accounts, vehicles, luxury items all need inclusion on an asset list.

Get Current with Taxes

Debtors not current with their federal and state taxes will often encounter great difficulties in qualifying for bankruptcy. Tax returns determine past and current earning and asset holdings, and inform the IRS whether a debtor owes any additional taxes beyond W-2 withholding or past payments made. Any tax owed on returns not yet filed is also not dischargeable in bankruptcy.

Prepare a List of Creditors

Bankruptcy requires a debtor’s complete disclosure of all debts not only to the court, but also to all creditors. Any creditor left out will not be included in the bankruptcy, which could cause massive complications for a debtor thinking it will get a clean slate. Ordering a credit report from one of the three major credit agencies is a good way to confirm that no creditor is left off the list. The creditor list needs to include all secured, unsecured, and priority unsecured creditors. If you owe back taxes, the IRS is also considered a creditor.

Avoid Fraudulent Transfers

In the period leading up to a bankruptcy, a debtor’s actions and transfers will receive heavy scrutiny from both the court and creditors. If one attempts to sell, transfer or hide assets before a bankruptcy, the court may block the discharge of any debts and the debtor may even be subjected to criminal penalties. Payments in the ordinary course of business are permitted, and transfers or sales made in furtherance of paying debts and expenses are also allowed, but may require additional explanation and verification from the court and creditors. Also avoid preferential transfers to family member debts as those will also be potentially considered fraudulent transfers.

Retain Qualified Counsel

Navigating the complex bankruptcy laws also requires having effective legal representation. Our team of experts at SYK can help you make the right decisions and provide the advice you need in the event of bankruptcy.

 

Nicholas Rogers - Attorney

Nicholas D. Rogers joins SYK Estate Planning and Taxation practice with a passion for helping individuals, small business and nonprofits. His practice includes a focus on estate planning, federal and state tax controversy, business formation and planning, as well as trust and estate administration.

COVID-19: Changes in Federal Tax Law You Need to Know

In response to the COVID-19 pandemic, the last few weeks have seen an unprecedented series of legislative actions by Congress, as well as a number of significant administrative actions by the Internal Revenue Service. Here is a brief synopsis of federal tax extensions and changes due to COVID-19.

Federal Filing and Payment Deadlines Extended

Initially, the IRS only offered a payment deadline extension in response to COVID-19. However, after much pressure, the IRS in response has instead provided much more comprehensive relief to mostly taxpayers in the U.S.

All taxpayers refers to: individuals, trusts, estates, (some) partnerships, associations, companies (including LLCs), corporations, nonprofits, and more that have a filing date of April 15, 2020.

  • For all taxpayers who are required to file a federal income tax return and/or submit a federal income tax payment for the 2019 tax year, due on April 15, 2020, the due date for both filing and paying is extended to July 15, 2020. This applies to all taxpayers regardless of the amount of their federal tax obligation.
  • This applies to all filers of Forms 1040, 1040-SR, 1040-NR, 1040-NR-EZ, 1040-PR, 1040-SS, 1041, 1041-N, 1041-QFT, 1120, 1120-C, 1120-F, 1120-FSC, 1120-H, 1120-L, 1120-ND, 1120-PC, 1120-POL, 1120-REIT, 1120-RIC, 1120-SF, 8960 and 8991.
  • For self-employed taxpayers, relief is also provided for making federal estimated income tax payments.
  • The period of April 15, 2020 through July 15, 2020 is considered disregarded for the purposes of calculation of any interest, penalty, or addition to tax for failure to file the income tax returns or pay the income tax owed. Interest, penalties and any additions of tax will begin to accrue again on July 16, 2020.
  • No extension is provided for the payment or deposit of any other type of federal tax- including federal estate and gift tax.
  • Important to note that any taxpayer returns that were due on March 16, 2020, which include Form 1065, 1065-B, Form 1066, and Form 1120-S, are not included in any of the COVID-19 extensions for both filing and payment. However, any timely filed extensions will still extend the due date six months as normal.
  • For fiscal year taxpayers, if their federal income tax return for the fiscal year ending during 2019 is due on April 15, 2020, whether that is the original due date or the extension date, the taxpayer’s filing due date is postponed to July 15, 2020.

For taxpayers that qualify for extension, no additional form is required for the July 15, 2020.  Any additional extension beyond July 15, 2020 will require filing Form 4868 as usually required.

Business Tax Credits

On March 18, 2020, President Trump signed into law the Families First Coronavirus Act which eases compliance burdens on businesses. Additional business credits were then signed into law through the Coronavirus, Aid, Relief and Economic Security Act (CARES) on March 27.

Payroll Sick Leave Credit

The Emergency Paid Sick Leave Act (EPSLA) requires private employers with fewer than 500 employees to provide 80 hours of paid sick time to employees who are unable to work for virus-related reasons (certain exceptions may apply to less than 50-employee businesses). The pay is up to $511 per day with a $5,110 overall limit for each employee directly affected by the virus and up to $200 per day with a $2,000 overall limit for an employee providing care for someone with the virus.

The employer is allowed to receive a tax credit against their 6.2{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} of the Social Security (OASDI) payroll tax (commonly known as the Railroad Retirement tax). This credit amount tracks to the per-employee limits described above. This credit can also be increased by both the amount of expenses in connection with a qualified health plan if the expenses are excludible from employee income, and the employer’s share of the payroll Medicare hospital tax imposed on any payments required under the EPSLA. Any credit amounts earned in excess of the 6.2{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} Railroad Retirement tax are refundable. The credit applies to wages paid in a period beginning no later than April 2, 2020, and ending on December 31, 2020.

Self-Employed Sick Leave Credit

Self-employed persons also qualify for a sick leave credit.  The credit treats the self-employed person as both the employer and employee for credit purposes. The $5,110 and $2,000 limits as described above in EPSLA, also apply here unless the self-employed person has insufficient self-employment income based on a formula. The credit applies to wages paid in a period beginning no later than April 2, 2020, and ending on December 31, 2020.

Payroll Family Leave Credit

The Emergency Family and Medical Leave Expansion Act (EFMLEA) requires employers with fewer than 500 employees to provide both paid and unpaid leave. This leave occurs when an employee must take care of a minor child due to a COVID-19 related emergency. The first 10 days can be unpaid, but then paid leave is required, based on the employee’s pay rate and pay hours. The leave cannot exceed $200 a day or $10,000 total per employee.

The corresponding tax credit functions substantially similar to the payroll tax credit described above. The credit is against the same 6.2{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} Railroad Retirement Tax, and tracks to the $200 and $10,000 dollars employee limits described above.

Self-Employed Family Leave Credit

The Act also provided the self-employed a similar refundable income tax credit for family leave. The self-employed person is treated as both employer and employee for purposes of the credit. The credit is subject to a $10,000 limit, and may be reduced if there is insufficient self-employment income determined by formula.

Wage Exemption

Any wages paid as required sick leave payments for either EPSLA or EFMLEA are not considered wages for purposes of the employer’s 6.2{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} portion of the payroll tax, again often referred to as the Railroad Retirement Tax.

Employee Retention Credit for Employers

For eligible employers who have their operations fully or partially suspended as a result of government order, or who have experienced a greater than 50{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} reduction in quarterly receipts, measured on a year-over-year basis, the provision provides a refundable payroll tax credit for 50{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} of wages to certain employees. Employers receiving Small Business Interruption Loans do not qualify for the credit. The qualifying wages depend on whether the employer has an average number of full-time employees in 2019 of 100 or fewer, if so, all employee wages are eligible.  If over 100 full-time employees, only the wages of furloughed employees or faced a reduction of hours as a result of employer’s closure or reduced gross receipts are eligible for the credit.

Other Changes in the Federal Tax Code

Recovery Rebates for Individuals

The CARES Act provides individuals with a refundable credit against income taxes they owe for the 2020 tax year equal to $1,200 ($2,400 for joint filers), not to exceed the tax liability for the year. Any taxpayer that has qualifying income (earned income, social security, and/or pension income), taxable income greater than zero, and gross income greater than the standard deduction, then the taxpayer is entitled to a refundable credit of at least $600 ($1,200 for joint filers), plus $500 per qualifying child. The phase-out begins at $75,000 ($150,000 for joint filers).

Payroll Tax Deferment

The CARES Act also allows employers and self-employed individuals to defer paying the employer portion of certain payroll taxes through the end of 2020. Half of the deferred amount of payroll taxes will be due December 31, 2021, and the remaining half will be due December 31, 2022. Any taxpayer receiving a Small Business Act Loan are excluded from this deferral program.

Deductibility of Interest Expenses Temporarily Increased

The Cares Act temporarily and retroactively increases the limitation of the deductibility of interest expense under Code Sec. 163(j)(1) from 30{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} to 50{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} for tax years 2019 and 2020.

Temporary Repeal of Taxable Income Limitation for Net Operating Losses (NOLs)

The Cares Act temporarily removes the taxable income limitation to allow an NOL to fully offset income. This will apply to the 2018, 2019 and 2020 tax years, allowing taxpayers to file amended returns and receive refunds for those that qualify.

Net Operating Loss (NOL) Rule Changes

Any losses arising in 2018, 2019, and 2020 can be carried back to the five preceding years. For any NOLs arising in tax years before 2021, those carrybacks may offset 100 percent of income for the prior 5 years. An amended return may be filed to claim the benefit back to the 2013 tax year.

Cancellation of Indebtedness Income

For small businesses that receive certain loans from the government under the CARES act, any such forgiveness of the loan granted to these taxpayers shall not be considered income.

More Changes Likely to Come

As the situation develops, we will continue to document additional changes made at the federal level.

Michael D. Walker is a business, tax and estate planning attorney who has worked with individuals and small to medium-sized businesses for nearly 30 years. A careful listener, Michael skillfully guides his clients to meet the wide variety of legal challenges they face in our current complex world.

Nicholas Rogers - Attorney

 

Nicholas D. Rogers joins SYK Estate Planning and Taxation practice with a passion for helping individuals, small business and nonprofits. His practice includes a focus on estate planning, federal and state tax controversy, business formation and planning, as well as trust and estate administration.

The COVID-19 Oregon Special Session

For those of you who are following the Oregon Legislature’s response to the COVID-19 pandemic, we expect the Governor to announce a special session in the next day or two. Topics that we expect the legislature to address include: provisions for rent and mortgage assistance, bans on evictions, loans to small businesses, food benefits, and expanded healthcare access. The Salem Statesman Journal has been doing a great job tracking the proposals for this emergency session:

https://www.statesmanjournal.com/story/news/2020/03/30/coronavirus-oregon-legislative-response-covid-19-special-sessions/2928604001/

We also expect that the Oregon Laws Commission’s remote notary proposal to be included in the proposal.

As expected, it doesn’t sound like Oregon corporate activity estimates made the cut to address, so Q1 estimates will need to made as usual.

Valerie Sasaki specializes in jurisdictional tax consulting, working closely with Fortune 50 companies involved in audits before the Oregon or Washington Departments of Revenue. She also works with business owners on tax, business, and estate planning issues in Oregon or Southwest Washington.

Changes to Charitable Giving Limits in the CARES Act

The newly passed Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) contains two provisions that will be of interest to folks who want to help their communities this year.  Section 2104 creates an above the line deduction of up to $300 for contributions made in 2020. This is important because after the Tax Cuts and Jobs Act (TCJA) a couple years ago, many folks no longer itemize, which means that they are not eligible to receive a tax benefit for the charitable deductions that they make over the course of the year. So, if you now claim the standard deduction, individual taxpayers can claim a deduction for the amounts up to $300 that they donate to charity. They don’t let you double-dip though, so if you itemize, you would claim your deductions on Schedule A as usual.

Additionally, Section 2105 of the CARES  Act eliminates the cap on individual charitable contributions. Previously, taxpayers couldn’t deduct contributions over 60 percent of their adjusted gross income.  The corporate cap was raised from 10 percent to 25 percent (including the food donation cap, which had been 15{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6}). Section 2105 only applies to contributions made in 2020.

A link to the two sections is here.

Valerie Sasaki specializes in jurisdictional tax consulting, working closely with Fortune 50 companies involved in audits before the Oregon or Washington Departments of Revenue. She also works with business owners on tax, business, and estate planning issues in Oregon or Southwest Washington.

Mnuchin Announces Deadline to File Extended by Tweet

In a tweet at about 10 am Eastern Time this morning, Treasury Secretary Mnuchin announced “We are moving Tax Day from April 15 to July 15. All taxpayers and businesses will have this additional time to file and make payments without interest or penalties.”

This has not posted to the Internal Revenue Service or Treasury Department newsroom at this time. Internal Revenue Code Section 6081 gives the treasury secretary the authority to grant a reasonable extension of time for filing any return. IRC 6161 allows the treasury secretary the authority to extend payment of taxes for periods less than six months, which Secretary Mnuchin did on Tuesday, March 17.

Oregon is, per a statement on the Revenews listserv yesterday, still considering whether and how to conform to these extensions.

Valerie Sasaki specializes in jurisdictional tax consulting, working closely with Fortune 50 companies involved in audits before the Oregon or Washington Departments of Revenue. She also works with business owners on tax, business, and estate planning issues in Oregon or Southwest Washington.

Extension: 90 Day Extension to Pay Taxes

Treasury Secretary Mnuchin announced today that individual taxpayers will now get a 90 day extension of time (through what Excel tells me is Tuesday, July 14, 2020) to pay 2019 income taxes, up to $1 million owed. Corporate filers will get the same period of time to pay up to $10 million in taxes owed.  During the period of time from April through July 14, taxpayers will not be subject to additional interest and penalties on amounts due for 2019. Individuals and businesses will still have to file their income tax returns by April 15, unless they file a request for extension. As usual, if taxpayers are getting a refund, they may not want to extend the deadline to file their income taxes. Secretary Mnuchin said that the delay will free $300 billion of liquidity in the economy.

The Oregon Department of Revenue earlier stated that it will automatically connect to the extended filing and payment dates for individuals. The IRS has not yet ruled on whether it will extend the deadline for 2020 first quarter estimated tax payments. This extension is in addition to the proposed $850 billion stimulus package that is before the Senate.

For more information, see Bloomburg’s article on this.

Valerie Sasaki specializes in jurisdictional tax consulting, working closely with Fortune 50 companies involved in audits before the Oregon or Washington Departments of Revenue. She also works with business owners on tax, business, and estate planning issues in Oregon or Southwest Washington.

ODR: Rules for Oregon’s new Corporate Activity Tax (CAT)

The Oregon Department of Revenue has posted a schedule of public meetings on its website. These meetings are intended to provide information to business taxpayers and tax professionals about the recently-adopted Temporary administrative rules for Oregon’s new Corporate Activity Tax (CAT). We encourage all business owners who anticipate having more than $1 million in gross receipts to learn about this new tax system in Oregon, which will not only apply to corporations.

They have also posted new FAQ’s on their website relating to how the CAT will apply to: (1) wholesale sales made for resale outside of Oregon and (2) the retail and wholesale sale of groceries.

The schedule of meetings is located here: https://www.oregon.gov/DOR/programs/businesses/Documents/MarchEducationTourSchedule.pdf

The Department’s page on the CAT is located here: https://www.oregon.gov/DOR/programs/businesses/Pages/corporate-activity-tax.aspx

If you have any questions about how this new tax will apply to you, please contact Valerie Sasaki at 503-226-2966.

Valerie Sasaki specializes in jurisdictional tax consulting, working closely with Fortune 50 companies involved in audits before the Oregon or Washington Departments of Revenue. She also works with business owners on tax, business, and estate planning issues in Oregon or Southwest Washington.

Ballot Measure 104: Oregon Gets Down & Dirty With What It Means To Raise Revenue

Vote - Oregon Ballot Measure 104

All summer we have been talking about the fallout from the Supreme Court’s decision in South Dakota v. Wayfair. We analyzed the opinion when it came out; we looked at the initial state responses in August; and we looked at one of the early Federal proposals in September. It’s been an exciting ride!

One of the things we’ve come to realize is that the Wayfair decision signals a convergence of the disparate state nexus thresholds for different types of tax. Correctly or not, the Commerce Clause and Due Process nexus thresholds for sales tax and income tax regimes are converging around the idea that a taxpayer needs to have “minimum contacts” with a taxing jurisdiction and must “purposefully avail” themselves of the jurisdiction’s economic market. Thanks to Public law 86-272 (codified at 15 USC §§ 381-384), nuance still exists in the areas of sales of solicitation of sales of tangible personal property. Also, the requirements of internal and external consistency help limit the deleterious impact of having thousands of taxing jurisdictions each doing their own thing.

The challenge, of course, is that there isn’t a good definition of how to distinguish a “fee” from a “tax.”

Because there are all of these limitations and restrictions on a state’s ability to tax activity within its borders (however that may be defined), states in the last few years have been relying more and more heavily on “fees.” The challenge, of course, is that there isn’t a good definition of how to distinguish a “fee” from a “tax.”

Much like obscenity, jurists tend to think that they should be able to identify a fee when they see it (apologies to Justice Stewart). However, it’s not that simple. A fee payment may be defined as a “fixed charge” or “a sum paid or charged for a service.” From practical perspective, what this means is that specific line items in a governmental budget need to be tied to a charge or schedule of charges. Taxes, on the other hand, are typically understood to be general assessments to pay for government services. Taxes are subject to constitutional limitations. It remains to be seen if the same restrictions apply to fees.

The Oregon Constitution, Article I, §32 states: “No tax or duty shall be imposed without the consent of the people or their representatives in the Legislative Assembly; and all taxation shall be uniform on the same class of subjects within the territorial limits of the authority levying the tax.”  At Article IV, §25(2), the Oregon Constitution states: “Three-fifths of all members elected to each House shall be necessary to pass bills for raising revenue.” Courts have generally limited the impact of this to legislation defined as tax increases. There are no corollaries for fees. Certain things, such as state level professional licensure and county inspection services seem directly tied to benefits provided in a way that would be difficult to capture with what we commonly think of as a tax. The bigger issue comes when a fee looks a lot like a tax assessment in disguise.

For example, when the City of Tigard decided that it wanted to enter into a massive water project with the City of Lake Oswego, it was able to enact a rate increase in the guise of a fee to pay for that project. What this meant in practical terms was a hypothetical, impoverished baby lawyer who had only paid $85 every other month for water/sewer service now had to pay that same amount every month. When that hypothetical baby lawyer contacted the City of Tigard to ask why this wasn’t funded through a separate property tax assessment, which would have been more appropriate, she was told that the City didn’t have to go that route so it didn’t. As an aside, it was a pretty facile and not very satisfying answer to provide to a beleaguered, hypothetical baby tax lawyer.

Oregon’s Nonconformity

This long-simmering issue has come to a head in the debate over Ballot Measure 104 (“Measure 104”), on the November 6, 2018 ballot. This would add a definition to the Oregon Constitution’s §25 of “raising revenue” to include changes to tax exemptions, credits, and deductions that result in increased state revenue, as well as the creation or increase of state taxes and fees. Interestingly, the impetus for this measure doesn’t seem to be primarily fee increases. Rather, it was Oregon’s nonconformity with the Tax Cuts and Jobs Act’s addition of IRC 199A, which in most cases decreased the effective tax rate on pass through entities.

A recent article by Oregon Public Broadcasting highlights some of the issues associated with Measure 104, including the challenges involved in our system of conformity to the federal definition of taxable income. The authors correctly highlighted the issue that an opt-out of a federal tax exemption could be construed in Oregon as legislation to raise revenue. Therefore, the legislation specifically opting-out of the federal exemption may be seen as revenue raising and subject to a 3/5 majority approval requirement.

Proponents of Measure 104 have argued that politicians have created a climate that is not friendly to taxpayers because it is not predictable how much a taxpayer will have to pay over to state government from one year to the next. Opponents of Measure 104 have made a variety of arguments that mostly seem to come back to “if you pass this, it will tie the hands of legislators to do what needs to be done.” It may be that both sides are correct. At the end of the day, Oregon voters will have to decide how much they trust the politicians (that they elected) to protect both their wallets and the various things that the state does.

Valerie Sasaki specializes in jurisdictional tax consulting, working closely with Fortune 50 companies involved in audits before the Oregon or Washington Departments of Revenue. She also works with business owners on tax, business, and estate planning issues in Oregon or Southwest Washington.