Portland’s annual arts tax would increase, fewer people would pay under new proposal

Portland’s arts tax is headed for a makeover. But the fix might not address everyone’s grievances with the long-lamented fee.

“We’ve not identified a way to make [the tax] not annoying,” said Council President Jamie Dunphy, the architect of the new policy. “But we’ve found ways to make it less annoying.”

Under the proposed change, far fewer people will be required to pay the tax – but those who do will have to pay nearly twice as much. If approved by council, it would bring in roughly the same amount of money annually in the short term.

“There have been some fundamental flaws with this law since it was passed in 2012,” said Dunphy. “We’ve wandered so far from the original mission of what this is supposed to be, and in the process we have burned public trust. And there are some simple ways to fix it.”

The Arts Education and Access Tax, commonly called the arts tax, is a $35 tax on Portlanders who earn over $1,000 per year. The tax generates around $12 million annually. It’s largely dispersed to public school art programs and art nonprofits, and bemoaned by taxpayers due to its clunky collection process.

The tax rate has remained $35 since it was adopted by voters in 2012, meaning its ability to support as many grants or teachers as it did at the start has declined. Dunphy’s proposal will change that by increasing the annual rate to $50 for individuals and $100 for joint filers.

The policy would also ensure that low-income people won’t have to pay the tax. Under the new system, individuals with an Oregon taxable income of $20,000 or less (or joint filers with a taxable income of $40,000 or less) are exempt from paying.

How a person’s taxable income relates to annual income can vary, based on their deductions and exclusions. The city shared with OPB several scenarios of households that wouldn’t have to pay, including a single parent with three kids who earns around $40,000 annually, and a couple with a joint income of $64,000.

In all, this change would mean 151,000 Portland residents who must currently pay the arts tax will no longer need to – about one-third of those who currently pay.

This realignment won’t change how much revenue the tax brings in each year. But the policy charge requires the tax be adjusted annually to match inflation.

The proposal also won’t alter how the tax is distributed to arts programs. The tax will still cover the salary of one public school arts teacher for every 500 elementary school students in the Portland area, with what’s left over going to city administrative costs and grants for “non-profit organizations and schools to provide high-quality arts access for kindergarten through 12th grade students and to make arts, culture experiences available to underserved communities.”

A recent city audit found that the city hasn’t really defined what “high-quality arts” or “underserved communities” are, making it hard to measure success. Dunphy’s proposal includes new definitions and directs the city’s Office of Arts & Culture to more thoroughly examine programs.

“We’re now actually looking back to what the voters told us to do,” said Dunphy. “And we’re doing it.”

One common complaint about the arts tax is how people pay it. This proposal won’t change that either.

Portlanders are required to pay the arts tax independent of their annual tax returns, often resulting in people forgetting they need to pay and missing the deadline. That’s led to late fees, collection agencies getting involved, and general frustration.

Dunphy says that improving this process remains the biggest hurdle in reforming this tax. His proposal directs the city’s revenue department to study ways to make the tax easier to pay.

But Dunphy knows this won’t be enough to quash taxpayers’ complaints. He said that those still frustrated with his solution are free to repeal the tax or lobby councilors to come up with another fix.

“You know, I’m wedded to outcomes,” said Dunphy. “I’m not wedded to the process. If there’s a better conversation to be had, we can have them.”

Another issue this proposal won’t solve: The fact that it doesn’t effectively fund city arts organizations.

While public schools have seen their revenue stay level over the years, the remaining dollars left for arts organizations continue to shrink. In the past year, arts organizations saw a 44% decrease in the amount of grant funding they could apply for through the arts tax. Last month, arts organizations successfully lobbied city council to shore up $1.6 million in arts tax reserves to help keep their programs afloat.

Dunphy has a different plan to keep the city’s arts organizations supported by the city. Later this year, Dunphy plans to ask councilors to adopt a new fee on streaming services, like Netflix, Spotify, and even platforms like OnlyFans, to support local arts and entertainment. Dunphy said the fee would be structured similarly to a decade-old Chicago tax.

He said that “if everybody is staying home and watching Netflix instead of going to the local theater,” the city’s economy and arts ecosystem suffer.

“If the city wants to be able to fund artists and support the performing arts, which I know that they do, we need to look at what that revenue source might come from,” Dunphy said.

That proposal is expected to arrive in City Hall in the fall. But Dunphy hopes the arts tax overhaul will advance through council before the summer, in time to change how the tax is paid next year. Councilors will discuss the proposal at Tuesday’s morning’s City Life Committee meeting.