What Oregon's QSBS decoupling means for your startup exit
SB 1507 is part of a larger package disconnecting Oregon from three federal tax provisions introduced in H.R. 1, including bonus depreciation and an auto loan interest deduction. The QSBS provision accounts for approximately $39 million of the estimated $311–342 million in preserved revenue. Proponents say the funds will support low-income Oregonians through an expanded EITC. Critics argue it penalizes the founders and investors Oregon needs to retain.
Both perspectives, along with cited sources, are available in the research sections below.
SB 1507 has passed both chambers but has not yet been signed into law. If this issue affects you, here are ways to engage.
Background, both sides of the debate, and the data behind the numbers
Qualified Small Business Stock (Section 1202) allows founders and early investors who hold stock in a qualifying C-corporation for 5+ years to exclude up to $10 million (or 10x their cost basis, whichever is greater) in capital gains from federal taxes. Originally enacted in 1993 under President Clinton, expanded under President Obama in 2010, and further expanded under President Trump in 2025 — it has had bipartisan support for over 30 years.
When a state “couples” with federal tax code, it honors this exclusion at the state level too. When a state “decouples,” it ignores the federal exclusion and taxes the full capital gain at the state rate — even though the IRS says those gains should be tax-free.
Where Things Stand
SB 1507 has passed both chambers and is on Governor Kotek's desk. Here's how we got here:
Key Details
Goes beyond disconnecting from the 2025 expansion. Section 5 completely eliminates Oregon's conformity with the entire QSBS regime — including the original 1993 Clinton-era and 2009 Obama-era provisions. This is not a targeted disconnect from recent changes; it's a full repeal of the state-level exclusion.
Retroactive to January 1, 2026. Sales of qualifying stock that occurred this year are subject to the new treatment, including those that took place before the bill was introduced.
Revenue impact: The QSBS provision preserves approximately $39 million in state revenue as part of a larger ~$311-342 million package that also addresses bonus depreciation and an auto loan interest deduction.
Revenue redirect: SB 1507 directs preserved revenue toward boosting Oregon's Earned Income Tax Credit (from 9% to 14% of the federal credit) and a new business hiring tax credit ($1,000 per new employee for businesses paying 150%+ of minimum wage).
Presented so you can form your own informed opinion
94% of QSBS excluded dollars go to households earning over $1 million annually. The median annual QSBS claim is just $2,810, but the 90th percentile is $590,940 — the benefit is extremely concentrated at the top.
The revenue is being redirected to lower-income Oregonians. The $39M preserved funds a boost to Oregon's EITC (benefiting working families) and a hiring tax credit for businesses paying living wages.
Despite the name “small business,” QSBS applies to companies with up to $75M in gross assets and only to C-corporations, which make up less than 5% of all businesses. Prominent beneficiaries include early investors in companies like Zoom and Uber.
77% of VC-backed startup founders are white; only 2.8% are Black or Latino. Critics argue QSBS reinforces existing inequities in who gets to build wealth through startup equity.
California decoupled from QSBS years ago and still dominates venture capital nationally. CA companies attract more VC investment than the rest of the country combined, suggesting decoupling alone doesn't kill a startup ecosystem.
Organizations across the political spectrum have criticized QSBS. The Tax Foundation called it a poor way to encourage investment. AEI's Kyle Pomerleau and Equitable Growth's David Mitchell jointly called the expansion “inefficient, complex, and unfair.”
The bill is retroactive to January 1, 2026. Founders and investors who made financial decisions based on existing law now face a different tax reality for transactions that already occurred. Rep. Ed Diehl: “Changing the deal midstream is not stability — it is moving the goalposts.”
It goes far beyond the stated purpose. Section 5 doesn't just disconnect from the 2025 Trump-era expansion — it eliminates conformity with the entire 30+ year QSBS regime, including Clinton-era and Obama-era provisions. Testimony called this “wholesale revocation.”
It only hits Oregon residents. A non-resident selling the same QSBS pays zero Oregon tax. This creates a direct incentive for founders and investors to move — and with Vancouver, WA 15 minutes from Portland, the migration path is trivially easy.
Oregon's startup ecosystem differs significantly from California's. Oregon VC deployment in H1 2024 was at 49% of 2019 levels, lagging the national average. Analysts have described the ecosystem as “fragile.” Whether the California comparison is applicable is debated.
Academic research shows QSBS works. A peer-reviewed study found the 2010 QSBS expansion increased firm births by 10% and patenting by 23%. Removing the incentive could reverse those gains in an already fragile ecosystem.
New Jersey conformed to federal QSBS in June 2025, moving in the opposite direction. Several states have recently adopted or expanded QSBS conformity, suggesting a competitive dynamic among states for startup capital.
Key Statistics
How Other States Are Handling QSBS
| State | Direction | Details |
|---|---|---|
| Oregon | Decoupling | SB 1507 awaiting Governor's signature. Full QSBS repeal, retroactive to Jan. 1, 2026. |
| California | Decoupled | Decoupled since 2013. Full gain taxed at up to 13.3%. Remains dominant VC state nationally. |
| Washington | Considering | SB 6229 / HB 2292 would tax QSBS gains under the state's 7-9.9% capital gains tax. Facing $2.3B shortfall. |
| Maryland | Considering | HB 801 introduced in 2026. ITEP estimates it would protect $27.2M in state revenue. |
| D.C. | Overturned | Voted unanimously to decouple in late 2025, then U.S. Senate voted 49-47 to overturn the decision. |
| New Jersey | Just Conformed | Signed full QSBS conformity in June 2025 — going the opposite direction to attract startups. |
| Pennsylvania | Decoupled | Never conformed. Full gain taxed at flat 3.07% rate. |
| TX, FL, NV, WY, SD, TN | No Income Tax | QSBS is effectively federal-only. Qualifying exits can be entirely tax-free for residents. |
Note: Ownership percentages and investor scenarios in the “Real Exits” tab are illustrative estimates used to model the QSBS impact at different roles and scales. Actual founder/investor ownership stakes were not publicly disclosed for these exits.