It does not happen often, but occasionally some good news comes out of the COVID-19 pandemic. Such is the case with a recent Columbian report about Washington residents who are employed by Oregon companies but have been working remotely during the pandemic.
The gist: Because they are not working in Oregon, they don’t have to pay that state’s income tax. With a top rate of 9.9 percent, Oregon’s personal income tax is one of the highest in the nation — and a frequent source of frustration for people who live on the north side of the Columbia River but work to the south.
While the situation is beneficial for Clark County residents, 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, does not have a personal income tax. It also does not yet have a capital gains tax on items such as the sale of stocks; last year’s Legislature passed a capital gains tax, which is being challenged in the courts.
In Washington, government revenue is dependent mostly on sales tax and property taxes. The state sales tax is 6.5 percent, and municipalities may tack on local taxes (the total sales tax in Vancouver, for example, is 8.5 percent). There also is a gas tax of 49.4 cents per gallon — the eighth-highest in the nation.
Oregon does not have a statewide sales tax, but there is that income tax. Oregon’s gas tax is 38.3 cents per gallon.
While their paths are different, Washington and Oregon eventually arrive at similar destinations when it comes to taxation. According to WalletHub.com, Washington ranks 24th among the states with an overall tax burden of 8.34 percent; Oregon ranks 27th with a tax burden of 8.29 percent.
When it comes to paying for government services, we think that being somewhere near the middle is probably the sweet spot, and both states manage to land there.
(As an aside, Alaska has the lowest tax burden, and also has the 50th-best economy, according to U.S. News and World Report. There is more that goes into a strong economy than the mantra of “low taxes.”)
The interesting thing in all of this is the impact on people who were working in Oregon and now are 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.
“As far as the income tax is concerned after moving to a work-from-home agreement, the HR department stated that they are still required to withhold the Oregon state income tax from our paychecks because our building we are based out of is physically in Oregon, therefore we are still employees in said state, but we can claim it on our yearly tax returns and will get it all back,” one such employee wrote in an email to The Columbian. “I did this last year already and did not run into issues.”
Which brings up a question: Why does Oregon charge income tax to Washington residents? The answer, of course, is because it can. More than a decade ago, congressional representatives from Washington tried to use the power of the federal government to change that law; they did not succeed.
Meanwhile, Washington residents do reap some benefits from those taxes — paved streets, police and fire protection, the criminal justice system — if they spend much time in Oregon. But for now, we’re guessing, they don’t miss paying that Oregon income tax.