A real break

[May 9th, 2007] A bill introduced by the Oregon Association of Realtors to extend a local income-tax exemption to more of its members could backfire on the whole industry.

The aim of House Bill 2541 is simple: to give principal real-estate brokers the same break on local taxes, such as Portland’s business license fee, that rank-and-file real-estate brokers already enjoy.

Principal brokers are distinguished by their supervisory positions and by their “ownership” of listings, says the Realtors Association’s government affairs director, Jana Jarvis.

But the bill, now in a Senate committee after the House approved it last month, raises a more fundamental question for Portland City Commissioner Sam Adams: Why aren’t all real-estate agents paying local business taxes just like other independent contractors?

“I am searching for a legitimate reason why Realtors should be exempt from the business license fee, and other professional service providers, such as lawyers, doctors or physical therapists, should not,” Adams says.

Currently, most businesses that operate in Portland, from sole proprietorships to large corporations, pay a 2.2 percent business license fee on net business income. The fee last year generated $62 million, or about 17 percent of Portland’s discretionary general fund, according to Terri Williams, the city Revenue Bureau’s license and tax division manager.

According to the City Attorney’s office, the real-estate agents’ tax break harks back to the early 1980s, when industry lobbyists persuaded legislators to classify brokers as contractors rather than employees.

The city responded by charging brokers an annual license fee on net income. But in 1987, the industry took care of that by getting an exemption from the Legislature. That exemption, however, did not include principal brokers.

Real estate is a big business locally. In 2006, according to the Regional Multiple Listing Service, 13,986 properties worth more than $4.3 billion sold in Multnomah County.

The RMLS says 3,276 brokers and 420 principal brokers do business in the county. The former are already exempt from paying the city tax, which Williams says costs the city up to $250,000 annually.

Ironically, Jarvis says, the impetus for the bill doesn’t come from Portland. It comes instead from Medford, which has been trying to tax out-of-town brokers.

Nonetheless, Adams, who wrote changes this year that will reduce the BLF’s impact on some small businesses, says it’s time to examine the break for real-estate brokers.

“We spent months trying to reform the BLF last year and one of the questions that kept coming up was, why are real-estate brokers exempt?” Adams says.

Adding to the perception of inequity, Adams says, is that all real-estate brokers pay the Multnomah County business income tax, a substantially similar tax that costs nearly all companies doing business in the county 1.45 percent of their net business income.