Oregon Would Tax Oregonians (and Only Oregonians) on All Gain From the Sale of QSBS Under Proposed Bill

Like its neighbors to the north (Washington), and south (California), Oregon has developed a reputation for being unfriendly to businesses. This reputation has its roots in several areas, but unfavorable tax policy is chief among them. On Monday, February 16, 2026, the Senate passed a bill, SB 1507, on party lines (with one Democrat voting with the Republicans against the bill) that would punish Oregonians (and only Oregonians) who sell successful businesses. Specifically, under Section 5 of the bill, Oregon would no longer conform to the federal exemption for a capped amount of gain from the sale of qualified small business stock (QSBS).

A detailed discussion of the QSBS regime is beyond the scope of this alert. At a high level, the regime encourages creation of, and investment into, startup C corporations by excluding some or all of the gain from a future sale of the stock. The regime was created under President Clinton and significantly expanded under President Obama (with the benefits related to QSBS curtailed by then-Speaker Newt Gingrich and President George W. Bush).

Despite this Democratic pedigree, with its clear incentive to create new businesses with new jobs, Democrats in Salem now seek to impose Oregon tax on Oregonians with gain from the sale of QSBS—this new Oregon tax would not apply to a nonresident selling the same QSBS (including a nonresident who was a resident of Oregon shortly before the sale). If the law is enacted, Oregonians would have to add to Oregon taxable income gain excluded by the QSBS regime with respect to sale of QSBS on or after January 1, 2026, (including gain that would have been excluded if the Oregonian sold the QSBS before 2026).

On a more positive note, SB 1510 would extend Oregon’s Pass-Through Entity Elective Tax (PTET) regime that sunset at the end of 2025 so that it would apply in 2026 and 2027. At a high level, this regime provides a workaround to the federal cap on the deduction of state and local taxes with respect to Oregon income taxes owed on income from businesses operated through pass-through entities (partnerships and S corporations). Extending this sunset date is an important, business-friendly move for businesses operated through pass-through entities that stands in stark contrast to SB 1507 increasing tax on businesses operated through C corporations. It also is noteworthy that Oregonians and non-Oregonians doing business in Oregon all benefit from the PTET regime (because it allows a federal tax deduction for Oregon taxes related to the business). On the other hand, the additional Oregon tax imposed by SB 1507 only applies to Oregonians.

The bill is now in the Oregon House of Representatives. We will provide updates as developments unfold.

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