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Where the $38.9 million QSBS estimate comes from

SB 1507 ends Oregon's use of the federal tax break on small-business stock gains. Here is how the Legislative Revenue Office estimated what that raises, how it compares with a national think tank's estimate, and what the public record does not explain.

Based on public records released by the Oregon Legislature (request PRR 881), LRO documents, and published ITEP research

The short version

What LRO estimatedTaxing these gains again in Oregon raises about $28.1M for tax year 2026. That works out to $38.9M in the 2025-27 budget period, rising to $83.0M in 2029-31.
How LRO got thereLRO took the share of capital gains that Oregon taxpayers excluded under this break in 2018-2023 (about 1.5%). It raised that share to 2.2% to cover amounts it believes the data missed. It then applied 2.2% to the state's capital-gains forecast and taxed the result at 9.5%.
How it compares with ITEPITEP, a national think tank, estimated $18.4M in Oregon state revenue for 2026 ($18.9M including local taxes) using national data. LRO's method gives nearly the same figure before its 2.2% adjustment. The two used different data and different methods, and the records show no sign that either used the other's number.
What is not explainedThe step from 1.5% to 2.2% has no published calculation. It accounts for about a third of the estimate. LRO describes how it added the 2025 federal expansion from 2029 on, but not the numbers it used. The switch from an earlier method is undocumented.

The numbers LRO published

LRO estimates revenue two ways. A tax year is the calendar year in which income is earned. A biennium is Oregon's two-year budget period, which runs July to June. Tax for 2026 is mostly paid in 2027, so each budget period collects pieces of different tax years.

Tax year202620272028202920302031
Revenue ($M)28.127.227.731.442.753.8
How tax years add up to each budget period ($ millions)
2025-2738.92027-2956.52029-3183.00$ millions →
60% of the prior tax yearAll of the first tax year40% of the second tax year
Each budget period = 60% of the prior tax year + all of the first tax year + 40% of the second. This split reproduces all three published totals to within $0.1M (rounding). It's our reconstruction; LRO did not publish the split. Example: 2025-27 = 28.1 + 0.4 × 27.2 = 38.9. The law starts in 2026, so the first budget period has no prior-year piece.

Because of this split, half of the $38.9M budget figure (about $19.5M) isn't a yearly number. The fair yearly comparison is the $28.1M for tax year 2026.

How LRO built the 2026 figure

LRO described its method in a short note released through a public records request. These are the steps, using LRO's inputs. The dollar amounts in the third and fourth steps are our arithmetic from those inputs.

1.5%

Share of Oregon capital gains excluded under the break, as found on Oregon tax returns, 2018-2023 (weighted average).Source: Oregon personal income tax returns (not public). About 475 returns a year claimed it in 2018-2023, excluding about $160M a year on average (from $100M to $250M). LRO calls this data incomplete but treats it as a representative sample.

→ 2.2%

Adjusted upward "to account for exclusion amounts estimated to not be included in that examination," then held constant for every year.No calculation or source given for this step.

× $13.4B

Oregon capital gains forecast for 2026, from the state's Office of Economic Analysis. LRO says the forecast is about 25% above the 2018-2023 average and grows about 2.4% a year after that.We back-calculated $13.4B from LRO's other inputs. LRO did not state it.

= $296M

Estimated gains that would become taxable in Oregon in 2026.

× 9.5%

Effective tax rate. Oregon's top rate is 9.9%, and some claimants pay less.

= $28.1M

Estimated revenue for tax year 2026.

What the 1.5% → 2.2% adjustment adds ($ millions)
Tax year 202628.12025-27 period38.919.2+8.926.5+12.40$ millions →
Using the 1.5% found on Oregon returnsAdded by raising the share to 2.2%
Same method and inputs, with only the share changed. The adjustment accounts for 32% of the estimate. Before 2029, the whole estimate scales with this one share.

How ITEP's estimate differs

The Institute on Taxation and Economic Policy (ITEP) published state-by-state estimates in October 2025. It did not use Oregon tax returns. Instead it:

  1. Estimated the national total of excluded gains for 2026, using U.S. Treasury data and the Congressional Budget Office's capital-gains forecast.
  2. Gave Oregon a slice based on Oregon's share of all U.S. capital gains (IRS data for 2022).
  3. Applied Oregon's top tax rate (9.9%).
  4. Reduced the result to allow for investors changing when they sell when taxes rise. ITEP says this lowers its estimates by 18% compared with a static estimate.

LRO's method note mentions no adjustment of this kind.

Oregon, tax year 2026: two methods side by side
Gains that become taxable ($M)LRO, Oregon returns (1.5%)202ITEP (back-calculated)≈227LRO final (2.2%)296Revenue ($M)LRO, Oregon returns (1.5%)19.2ITEP (after −18%)18.4LRO final (2.2%)28.1
ITEP's figure is its state-only column (Appendix A.1). Its table also shows $0.6M in local taxes, for $18.9M in total. ITEP's taxable-gains figure is our estimate, worked backward from that revenue: $18.4M ÷ 0.82 ÷ 9.9%. ITEP's base sits between LRO's two. Its 18% behavioral reduction brings its revenue close to LRO's unadjusted figure. The two land close mainly because both start from the same federal and IRS capital-gains data, not because one used the other.
A common misreading. ITEP's report mentions "1 percent." That is not a share of capital gains. It refers to the congressional Joint Committee on Taxation's estimate that the 2025 federal expansion of the break costs, in 2026, about 1% of what the existing break costs. ITEP's report never states a QSBS share of capital gains.

One link between the two estimates does appear in the record, and it runs from LRO to ITEP. In April 2026, ITEP's article on Oregon quoted LRO's "$39 million" and "$83 million" and linked to LRO's document. The released emails never mention ITEP.

Why the later years rise faster

LRO's note says capital gains grow about 2.4% a year after 2026. If that were the only driver, revenue would stay near $28-30M. Instead it reaches $53.8M by 2031. LRO's note explains the difference. Beginning in 2029, LRO adds the effect of the 2025 federal law (H.R. 1), which expanded the break. It took the congressional Joint Committee on Taxation's federal revenue estimate for the expansion and divided it by a federal tax rate to get the gains excluded nationally. It then gave Oregon about 1.25% of that and applied an Oregon effective tax rate. The note doesn't say which federal estimate years, federal rate or Oregon rate it used.

LRO tax-year estimate vs. growth from capital gains alone ($ millions)
020406028.131.442.753.829.7≈ $24M gap202620272028202920302031
LRO estimate2028 level grown at 2.4% a year (our illustration)2025 federal expansion add-on (method described, inputs not given)
LRO says individual years vary, so the dashed path is approximate. The shaded gap is roughly $3M in 2029, $14M in 2030 and $24M in 2031. LRO's note describes the method but not the inputs. For comparison, ITEP's 2031 table puts Oregon's state revenue at $31.4M: $19.3M from the original break plus $12.1M from the 2025 expansion. LRO's 2031 figure is $53.8M.

How the estimate developed

From LRO emails released under public records request PRR 881, plus published documents.

  1. A legislator's office asks LRO to estimate the revenue from disconnecting from several federal tax breaks, including QSBS.
  2. LRO's first table: disconnecting only from the 2025 federal expansion raises about $0 through 2028. For scale, LRO cites the state's Tax Expenditure Report figure for the whole break: $77M for 2025-27.
  3. LRO's preliminary full-disconnect estimate: a flat $35M a year, "taken from the 25-27 TER," with a note that LRO will "work to refine the estimate."
  4. The method changes from the flat $35M to the trend-and-forecast method above. The released emails contain no record of this change.
  5. LRO's official revenue impact statement for SB 1507: $38.9M / $56.5M / $83.0M by budget period. It gives no method.
  6. Answering a lobbyist's question, an LRO economist explains the method in an email: a trend in Oregon claims, scaled to the state's capital-gains forecast, with the federal expansion near the decade's end, "based on unpublished information."
  7. ITEP's Oregon article quotes LRO's $39M and $83M figures.
  8. LRO writes up its method in a one-page note (full text below), released through an information request. It is not posted on the Legislature's site.

What the public record does not explain

None of these gaps show the estimate is wrong. They mark where a reader has to take LRO's word.

The 1.5% to 2.2% adjustment

Oregon tax returns for 2018-2023 show the break at 1.5% of capital gains. LRO used 2.2%. Its note says the increase covers amounts "estimated to not be included" in the tax-return review, but it doesn't say which amounts or how they were estimated. The increase accounts for $12.4M of the $38.9M estimate for 2025-27.

The 2029-31 increase

Revenue nearly doubles from 2028 to 2031. LRO's note says this comes from an add-on for the 2025 federal expansion, built from a federal estimate scaled to Oregon at about 1.25%. It doesn't give the federal figures or tax rates it used, so the add-on can't be rebuilt from public information. ITEP's 2031 estimate puts the expansion's effect in Oregon at $12.1M. Backing out LRO's figures suggests roughly $24M, but that is our approximation.

Would resolve it: the federal estimate years and the tax rates LRO used.

No allowance for investor behavior

LRO's note holds the 2.2% share constant and applies no adjustment for investors who might delay a sale, move or restructure in response to the tax. ITEP's adjustment of this kind lowered its estimates by 18%. Whether one is warranted is a judgment call, but the note doesn't address it.

Would resolve it: whether LRO considered a behavioral response, and why it chose none.

The switch from the earlier method

In November 2025 the estimate was a flat $35M a year based on the Tax Expenditure Report. By February 2026 it was $28.1M from a different method. The released emails reference a working spreadsheet, but the records do not include it or any discussion of the change.

Would resolve it: the spreadsheet's QSBS calculations and their revision history, November 2025 to February 2026.

A volatile base period

2018-2023 includes 2021, a record year for these gains nationally. The note calls the 1.5% a "weighted average" but doesn't give the weights or the year-by-year shares.

Would resolve it: the share for each year from 2018 to 2023, and the weights used.

What we checked

We read all 198 pages of LRO email released under PRR 881, searching for ITEP, its authors, its figures and every mention of QSBS. We rebuilt LRO's budget-period totals from its tax-year figures, and LRO's 2026 figure from its method note. We compared both with ITEP's published methodology. ITEP's state tables are interactive embeds on its page. We read the Oregon rows from the tables' published data files.

Sources

LRO's method note, full text

Oregon Legislative Revenue Office, August 2026. Reproduced verbatim. The original is one page with no letterhead or signature: view the PDF.

Method used for estimating disconnect from Qualified Small Business Stock (QSBS) Gain Exclusion per estimate prepared for SB 1507 (2026)

Estimate begins with an examination of recent historical personal income tax returns filed in Oregon where the QSBS gain exclusion was reported. This examination is based on unpublished information and data limitations make this a non-comprehensive dataset though for estimation purposes the information is assumed to be a representative sample (with subsequent adjustments made).

Analysis of the non-comprehensive Oregon personal income tax returns identifies about 475 returns on average claiming the QSBS exclusion per year for the years 2018 through 2023 with about $160 million in exclusion amount claimed on average. Variability by year exists with a low of about 350 returns claiming the exclusion and a high of about 625 ($100M and $250M exclusion amounts respectively). The amount of excluded QSBS gain correlates with the overall amount of capital gain income reported on tax returns filed in Oregon. A weighted average of years 2018 – 2023 yields a QSBS exclusion amount equal to about 1.5% of overall reported capital gains. After adjusting the amount from the personal income tax return analysis to account for exclusion amounts estimated to not be included in that examination, the estimated excluded QSBS as a percentage of overall reported capital gains increases to about 2.2%. This 2.2% (held constant) is then applied in years moving forward to the capital gains forecast prepared by the Office of Economic Analysis (OEA). OEA's capital gains forecast in 2026 is about 25% higher than the average capital gains from the 2018 – 2023 period. The average annual growth in capital gains in subsequent years is about 2.4% though individual years vary (as reflected in estimates table below). The forecasted revenue change is estimated by applying a 9.5% effective tax rate to the forecasted excluded income amount.

Beginning in 2029, the estimate includes changes to the QSBS contained in federal 2025 legislation, H.R. 1. The expansion of the QSBS was estimated as an add-factor to the baseline estimate. This incremental add-factor was based on the federal H.R. 1 estimate produced by the federal Joint Committee on Taxation (JCT). The process converts the federal JCT revenue estimate to a QSBS exclusion amount by dividing the revenue estimate by an applicable federal tax rate yielding the federal income excluded. This federal exclusion amount is then apportioned to Oregon (Oregon is generally around 1.25% of a federal amount, be it measured by population/income/etc.). This Oregon shared exclusion amount is then applied to an Oregon effective tax rate.

The table below displays the revenue estimate by tax year. The biennial estimates reflect the tax year estimates adjusted for expected timing of revenue flows.

Policy ($M)2026202720282029203020312025-272027-292029-31
QSBS stock gain disconnect28.127.227.731.442.753.838.956.583.0

LRO – August 2026