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Paying the Price for Crossing City Lines

Principal broker Anne has listed and sold homes in the city of Portland for more than 14 years. She is a sole practitioner with no licensees working for her, and maintains an office in Portland. She is contacted one day by a homeowner who would like Anne to list his home in the city of Milwaukie. Anne enters into a listing agreement with the seller, places the home on RMLS, and fulfills all other responsibilities of a listing agent. The house sells, and Anne is paid her commission.

Approximately one month later, Anne returns to her office in Portland to find a letter addressed to her from the city of Milwaukie. In that letter, the city states that it is aware she has been doing business in the city, that a city ordinance requires payment of business taxes for conducting any business in the city, and that violations of the city ordinance are subject to fines. Anne is confused as to why she has received this letter, as she does not maintain and is not associated with an office in Milwaukie. In addition, Anne has never conducted business in Milwaukie before, and has no other contacts there.

Have you or anyone you know experienced such a situation? This problem is more common than one might think in that principal brokers are being required by cities to obtain business licenses, even if they are conducting only minimal business in those cities.

For instance, Milwaukie Municipal Code 5.08.030A states that “[n]o person shall maintain, operate, engage in, conduct, or carry on any business within the city without first having paid the business tax as established by this chapter.”

However, city ordinances are overruled by conflicting state laws, and Oregon state law addresses city and county business taxes as they relate to professional real estate activities. Pursuant to ORS 696.365, cities and counties may not require real estate brokers to pay business license taxes when they are conducting licensed real estate activities under the supervision of a principal broker. Although real estate brokers are not required to pay business license taxes, their principal brokers are required to pay them for their brokers’ activities. Additionally, the law does not currently contain an exception from paying business license taxes for sole practitioners.

In the 2007 Oregon legislative session, the Oregon Association of Realtors requested the Committee on Business and Labor to sponsor a house bill which would further limit cities from imposing business license taxes on real estate licensees. House Bill (“HB”) 2541 does just that – it limits cities and counties from imposing business license taxes on certain real estate licensees. Specifically, HB 2541 states that ORS 696.365 shall be amended to state the following:

(1) A city or county may not impose or collect a business license tax from a person licensed as a real estate broker who engages in professional real estate activity only as an agent of a principal real estate broker or from a person licensed as a principal real estate broker unless the principal real estate broker employs, engages or supervises one or more real estate brokers.

(2) Notwithstanding subsection (1) of this section, a city or county may impose or collect a business license tax from a sole practitioner or a principal real estate broker if the sole practitioner or principal real estate broker maintains a main or branch office within the city or county imposing or collecting the business license tax.

(3) As used in this section, “business license tax” has the meaning given that term in ORS 701.015.

Although ORS 696.365 already limited a city or county’s ability to impose a business license tax on a real estate broker associated with a principal real estate broker, it did not impose the same limitations on solo principal real estate brokers. This seemingly minor change may have significant financial benefits to solo principal real estate brokers, as they will not be required to pay business license taxes to a city merely by having listings in a city in which they have no office.

It is important to note that brokers who actually maintain a main or branch office in the city or county imposing the tax will be required to pay. In addition, a principal real estate broker supervising others will be liable for paying business license taxes on behalf of their brokers.

Brokers may benefit from monitoring the Oregon legislature and the Oregon Association of Realtors’ activities, as brokers’ professional lives are frequently impacted by changes in Oregon Revised Statutes and Oregon Administrative Rules resulting from house bills such as HB 2541.

 
This column contains general information only and must not be construed as legal advice. Questions may be submitted directly to Maylie & Grayson by fax at (503) 775-1765, by email at or by mail at 7959 SE Foster Road, Portland, Oregon 97206.

7959 SE Foster Road Portland, Oregon 97206 T. 503.771.7929 F. 503.775.1765 
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