Oregon lawmakers got their first look Tuesday at a proposed business tax that's meant to help bridge a $1.6 billion budget shortfall.
The proposal, sometimes called a "gross receipts tax" or a "commercial activities tax," would tax companies based on the amount of their annual sales in Oregon.
That's a fairly significant change from the way it's done now. Currently, if a company can show it didn't turn a profit, then it doesn't have to pay the corporate income tax. Under this proposal, the current corporate income tax in Oregon would disappear at the end of 2017.
Businesses with less than $150,000 in Oregon sales would not have to pay the gross receipts tax. Businesses with more than $150,000 in sales, but less than $1 million in sales, would pay a flat rate of $250.
Related: 4 Things To Know As Oregon's Tax And Budget Wars Heat Up
Companies with gross receipts of more than $1 million would pay $250 plus a still-to-be-determined percentage of the sales greater than $1 million.
The tax plan was developed by a six-member, bipartisan legislative work group led by Sen. Mark Hass, D-Beaverton. It was presented to members of the Joint Committee on Tax Reform, which kicked off a series of public meetings Tuesday.
"You'll be feeling the heat over the next two months," said Hass, who co-chairs the committee. "But this is what you all signed up for."
Critics of a gross receipts tax say companies will pass the cost along to consumers, effectively making it a sales tax.
Oregon voters rejected a gross receipts tax last year in the form of Measure 97. The proposal released Tuesday differs from Measure 97 in that it would apply to a broader range of businesses, but likely at a lower overall rate.
It would also offset potentially higher consumer prices by increasing the standard deduction and exemptions on the Oregon personal income tax form. For lower income households, their tax rate would be cut by an amount to be determined.
The actual rate that businesses would be taxed is still being negotiated. A sheet listing possible revenue estimates used a variety of tax rates that ranged from 0.25 percent to 1 percent.
The Legislative Revenue Office estimates the tax would generate $288 million to $3.1 billion during the next budget cycle, depending on the actual rate at which business sales are taxed. Those figures take into account the proposed elimination of the corporate income tax.
Reaction from lawmakers and interest groups was mixed.
"Rather than 'modernizing' Oregon’s tax system, adding a gross receipts tax would be a step backwards," said Sandra McDonough, president and CEO of the Portland Business Alliance.
McDonough added that lawmakers should balance the budget by making "adjustments" to the current tax code, and "a longer-term look at structural tax reform can begin after the session adjourns."
That drew immediate fire from the left-leaning group that pushed for the passage of Measure 97. Our Oregon Director Ben Unger accused the business community of "moving the goal posts."
Unger pointed to previous statements by McDonough and other business leaders that suggested the business community would be open to overhauling the state's corporate tax code following the defeat of the initiative. Our Oregon called the legislative proposal unveiled Tuesday "a positive first step."
In April, lawmakers also released a plan to reel in the cost of providing state services.
Supporters of the gross receipts tax pointed to that as evidence the Legislature is examining ways to balance the budget that don't solely rely on business taxes.
House Majority Leader Jennifer Williamson, D-Portland, said the combination of "cost containment" proposals and the gross receipts tax "could finally allow us to make investments in our schools that will create the future our kids deserve.”
But Republicans lawmakers aren't convinced.
Senate Republican Leader Ted Ferrioli of John Day issued a simple statement: "No gross receipts tax, period."
