Oregon Partially Disconnects State Tax Code from Federal Changes

Lawmakers vote to preserve $291 million in state revenue over 18 months by selectively disconnecting from federal tax cuts.

Published on Feb. 26, 2026

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Most Democratic Oregon lawmakers voted to disconnect parts of the state's tax code from recent federal tax code changes, in order to preserve an estimated $291 million in state revenue over the next 18 months. The bill, which now heads to the governor, would keep the state from replicating certain federal tax cuts on businesses and auto loan interest. Republicans have threatened to send the issue to Oregon voters via a ballot measure.

Why it matters

Oregon is one of a few states that automatically ties its tax code to the federal tax code, rather than selectively connecting to changes later. This bill allows Oregon to maintain funding for schools, healthcare, and community services, while also providing tax credits for businesses that boost in-state hiring and low- to moderate-income Oregonians.

The details

The bill would disconnect the state from federal tax cuts on business equipment purchases, auto loan interest, and the sale of qualified small business stocks. This is expected to preserve about $342 million in state revenue over 18 months. The bill also includes new state-level tax credits for businesses that increase in-state hiring and for low- and moderate-income Oregonians.

  • The Oregon House voted 34-21 to pass the bill on Wednesday, February 26, 2026.
  • The Oregon Senate passed the bill 17-13 on February 16, 2026.
  • The bill now goes to Governor Tina Kotek, who is expected to sign it.

The players

Oregon House of Representatives

The lower chamber of the Oregon state legislature that voted to pass the bill along party lines.

Oregon Senate

The upper chamber of the Oregon state legislature that passed the bill on a party-line vote, with one moderate Democrat voting against it.

Governor Tina Kotek

The Democratic governor of Oregon who is expected to sign the bill into law.

Rep. Ed Diehl

A Republican from Scio, Oregon who is running for governor and has threatened to send the proposed tax code disconnections to voters via a ballot measure.

Sen. Mark Meek

A moderate Democratic state senator from Gladstone, Oregon who voted against the bill.

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What they’re saying

“These straightforward policies protect funding for schools, health care and community based services, while allowing us to lower taxes for working families and support jobs, with an eye on supporting job growth.”

— Rep. Nancy Nathanson, Bill Sponsor, D-Eugene (salemreporter.com)

“Colleagues, I'm confused, I'm frustrated, because well over 90% of farms are run by working families in the state of Oregon, and a 'yes' vote' today takes away one of the tools that we depend on, and it would not have made a difference in the total budget amount of this bill.”

— Rep. Mark Owens, Republican from Crane (salemreporter.com)

What’s next

Republicans have 90 days after the legislature adjourns to gather the necessary signatures to put the proposed tax code disconnections on the November 2026 ballot for voters to decide.

The takeaway

This bill highlights the ongoing debate in Oregon over the state's automatic connection to the federal tax code versus a more selective approach. While it preserves funding for key services, it also faces opposition from some Republicans who argue it takes away important tax deductions for businesses and individuals.