Business Tax Policy: Penalty Assessment
Under Portland City Code (“PCC”) Sections 7.02.700 A through C and Multnomah County Code (“MCC”) § 12.700(A) through (C), penalties will be assessed for two instances of late filing or payment and one instance of underpayment. A taxfiler could face all three penalties at once if deadlines are not met and insufficient payments are made.
Under PCC Section 7.02.700 F and MCC § 12.700(F), the Revenue Division (Division) may waive or reduce any penalty determined under PCC Sections 7.02.700 A through C and MCC § 12.700(A) through (C), for good cause and consistent with written policies. Under this authority, penalties will be assessed in the following order:
- Late payment/filing penalty for filing/paying after the original due date (up to 25% of the total tax liability)
- Late payment/filing penalty for filing/paying after the extended due date (up to 25% of the total tax liability)
- Underpayment penalty (5% of underpaid tax)
Penalties are cumulative. A taxfiler who violates all penalty provisions will be assessed the penalty for each violation. However, it is not the City or the County's desire to assess penalties equal to 55% of the tax. Penalties will be assessed in the above order. Once a penalty is assessed at 25% (5% plus 20%), all subsequent penalties that are due for the tax year are limited to 5% each. The minimum amount per penalty assessment is $5.
For the purposes of the late payment penalty assessed under PCC Section 7.02.700 A.2 and B.2 and MCC § 12.700(A)(1)(b) and (B)(1)(b), this penalty will be assessed on the total underpaid tax liability.
This policy does not limit the 100% penalty for a failure to file for three or more consecutive years. The 100% penalty is a part of the initial penalty calculation, which will be assessed without limitation. Additionally, this policy does not limit penalties assessed on separate tax years, even if returns for multiple tax years are filed at the same time.
An amended Combined Tax Return received by the Division will not be subject to a late payment penalty, if the payment for any additional tax is paid with the amended return. Any changes in tax due to an amended return or an audit that affect “safe harbor” underpayment penalty and/or underpayment interest provisions for other periods may result in the recalculation of underpayment penalties or underpayment interest for those periods.
Example 1: ABC Inc. fails to file an extension and pay their tax liability on 4/15/19. On March 30, 2020, the Combined Tax Return is filed with a Multnomah County Business Income Tax liability of $650 due and a Portland Business License Tax liability of $900 due, for a combined amount due of $1,550. This return will be assessed a late filing penalty for filing after the original due date. There is no penalty assessment for filing after an extended due date, since an extended due date was never granted. Since the delinquency is for four months or more, a total of 25% of the total tax will be assessed. The total late filing penalty is $387.50 (Total tax liability: $1,550 x 25%).
Additionally, an underpayment penalty is due for both programs since 90% of the current tax liability or 100% of the prior year's tax liability was not paid by the original due date of the Combined Tax Return. The underpayment penalty is 5%, so the total penalty will be 30%. In this example, the underpayment penalty is $77.50 (Total underpaid tax: $1,550 x 5% underpayment penalty)
Note that the late filing penalty is based on the total tax liability and the underpayment penalty is based on the underpaid tax liability. There may be a different tax base to be used to calculate these penalties. In this example, however, the late filing penalty and underpayment penalty are assessed against the same amount, since no prepayments were received.
9/29/2020 Thomas Lannom
Date Director, Revenue Division
Revised: 1998 | 2004 | July 2009 | September 2020