What Does Measure 67 Mean to Healthcare Organizations?

State Income Tax Planning for Clinics

On January 26, 2010, Oregon voters passed Measure 67, which increased the C-Corporation tax rate on taxable income and created a minimum tax which is required regardless of taxable income. Since then, physician owned clinics and other healthcare organizations have struggled to determine how this tax affects them.

Summary Of The New Law

• There are two tax changes at work with C-Corporations. First there is now a minimum tax, which is paid regardless of whether or not there are taxable profits or tax losses in the corporation. Second, there are rate increases for C-Corporations with taxable profits.
• The C-Corporation tax rate on taxable income rises from a flat 6.6% to a two tiered system: a 6.6% tax rate on the first $250,000 of taxable income and a 7.9% tax rate on taxable income in excess of $250,000.
• The minimum tax is payable by all corporations, regardless of income. If a corporation has taxable income in a particular year, it determines its "regular" Oregon income tax as well as its Oregon minimum tax and pays whichever amount is greater. If a corporation has no taxable income in a particular year, it must still pay its Oregon minimum tax.

How Does This Affect Healthcare Clinics

• "Pass through" entities (S-corporations, LLC's and partnership) are not subject to the Oregon minimum tax (other than a small increase in tax to $150). As such, the only effect that the new law has on them is the increase in individual tax rates for the physician owners.
• Clinics which are taxed as corporations will generally be subject to the minimum tax because most tof them "zero out" their net income to zero (or close to zero) by making physician distributions. However, these same clinics will likely have large gross revenue numbers. For instance, a practice with zero taxable income and $25,000,000 in revenue will pay $30,000 in state income taxes.

What Should I Do?

For questions regarding your situation please refer to our healthcare experts at: mmoll@aktcpa.com.