In our opinion: COVID offers an Oregon income tax cut
It doesn’t happen often, but sometimes good news comes out of the COVID-19 pandemic. Such is the case with a recent Colombian report on Washington residents who are employed by Oregon companies but have worked remotely during the pandemic.
The bottom line: Because they don’t work in Oregon, they don’t have to pay that state’s income tax. With a top rate of 9.9%, Oregon’s personal income tax is one of the highest in the country and a frequent source of frustration for people who live on the north side of the Columbia River but work in the south.
While the situation is beneficial for residents of Clark County, it also provides an opportunity to examine the vastly different tax structures between two states that otherwise have so much in common.
Washington, of course, has no personal income tax. It also has no capital gains tax yet on things like the sale of stocks; Last year’s legislature passed a capital gains tax, which is being challenged in court.
In Washington, government revenue depends primarily on sales tax and property taxes. State sales tax is 6.5% and municipalities can add local taxes (total sales tax in Vancouver, for example, is 8.5%). There is also a gasoline tax of 49.4 cents per gallon – the eighth highest in the nation.
Oregon does not have a statewide sales tax, but there is income tax. Oregon’s gasoline tax is 38.3 cents per gallon.
Although their paths are different, Washington and Oregon end up arriving at similar tax destinations. According to WalletHub.com, Washington ranks 24th among states with an overall tax burden of 8.34%; Oregon ranks 27th with a tax burden of 8.29%.
When it comes to paying for government services, we think being somewhere near the middle is probably the sweet spot, and both states manage to land there.
(By the way, Alaska has the lowest tax burden and also has the 50th best economy, according to US News and World Report. There’s more to a strong economy than the “low taxes” mantra. )
The interesting thing in all of this is the impact on people who used to work in Oregon and are now working from home. In addition to saving money on gas and possibly parking and lunch break meals, many Clark County residents are saving money on taxes that previously went to Oregon.
“In regards to income tax after switching to a work from home arrangement, the HR department said it was still required to withhold state income tax from the Oregon on our paychecks, because our building we are based in is physically in Oregon, so we are still employees in said state, but we can claim it on our annual tax returns and we will get it back in full, ”wrote one such employee in an email to The Columbian. “I already did it last year and I had no problems.”
Which raises a question: Why does Oregon charge income tax to Washington residents? The answer, of course, is because it is possible. More than a decade ago, congressmen in Washington attempted to use the power of the federal government to change this law; they did not succeed.
Meanwhile, Washington residents get some benefits from those taxes — paved streets, police and fire protection, the criminal justice system — if they spend a lot of time in Oregon. But for now, we’re assuming they don’t miss paying that Oregon income tax.