Brown to sign tax bill; calls for special session

Gov. Kate Brown says she will sign a bill that keeps owners of small businesses from taking a 20 percent deduction created by federal law on their state tax return.

SALEM — Oregon Gov. Kate Brown says she'll sign a controversial business tax bill into law and wants to convene a special session of the Legislature to extend a tax break to sole proprietorships.

Oregon automatically conforms to the federal tax code unless state lawmakers pass legislation specifically to modify it. That's what lawmakers did with Senate Bill 1528. The legislation prevented owners of so-called pass-through businesses — sole proprietorships, partnership, limited liability corporations and S-corporations — from deducting up to 20 percent of their business income from their 2018 state tax return. The deduction was created by the recent federal tax overhaul.

Brown wants lawmakers to convene to tweak Oregon law so that owners of sole proprietorships can receive special tax rates offered to other "pass throughs" since 2013.

Brown contends that making those changes and disallowing the 20 percent deduction would make the tax system for small business more equitable.

"Through my review and analysis it has become apparent that Oregon's existing preferred rate structure for pass-through entities, which is relatively new, is not perfect and has some inequities in it," Brown, a Democrat running for reelection, wrote in a bill signing letter Friday to Oregon Secretary of State Dennis Richardson. "...It is clear to me that sole proprietors ought to be allowed to participate in this preferred rate structure."

Lawmakers passed the bill in the last days of the recent short session to blunt the effects of the federal tax overhaul on Oregon's revenues. It is expected to raise $244 million in the current two-year budget cycle, which concludes in mid-2019.

Many Republicans in the Legislature and some members of the business community had been vocal about their opposition to the bill and called on the governor to veto it.

In a press conference Friday, Brown noted that those business owners already receive special rates from the state and will be able to use the deductions on their federal returns. Brown said signing the bill "prevents a third tax break at the expense of our schools, our children and our seniors."

Senate Republican Leader Jackie Winters, of Salem, disagreed, saying in a statement after Friday's announcement that "the right thing to do would be to veto this partisan tax increase on small business."

"Start-ups, mom and pop shops, and young entrepreneurs are doing great things for Oregon, but the majority party insists on passing an unfair tax increase that will stifle their growth, and harm the very Oregonians we should be helping," Winters said. "There is no budgetary need to raise taxes on small businesses."