Downtown Portland, March 2, 2023.
Kristyna Wentz-Graff / OPB
Tax burdens are piling up for small business owners in Portland as they face fees from the city, county and state. Some owners say they regret investing in Portland and wish they had set up shop in Washington instead. For those who choose to stay in Oregon, tax burdens are smaller in Lake Oswego and Beaverton. And in Multnomah County, a May ballot measure could mean more taxes for businesses. Pete Danko reported on these issues for the Portland Business Journal. He joins us with details.
Note: This transcript was computer generated and edited by a volunteer.
Dave Miller: This is Think Out Loud on OPB. I’m Dave Miller. Local tax burdens for small business owners based in Portland are higher than those in Lake Oswego or Beaverton, let alone in Vancouver. In fact, they’re some of the steepest tax rates in the country. They’re high enough that some business owners are considering getting out of Portland completely. That’s according to Pete Danko, a reporter for the Portland Business Journal who wrote a recent article about local tax burdens. He joins us now with the details. Pete, welcome back.
Pete Danko: Great to be here, Dave. And I’ll just point out I wrote it with Brandon Sawyer, our excellent data editor.
Miller: I appreciate you pointing that out. I apologize for not mentioning his name myself.
How much have local taxes on businesses increased in recent years?
Danko: Well, there have been several new taxes that have been put in place by voters in recent years. The Preschool for All tax, the supportive housing tax. Now these aren’t strictly business taxes, but they’re taxes that, as we’ll talk about, do impact a lot of businesses. Also at the state level there’s been the corporate activity tax. And there’s some others too that we actually didn’t even get into: the payroll tax for family leave, also a new tax. So they certainly have been coming pretty quickly.
Miller: And the possibility of a capital gains tax at the county level that voters will weigh in on in just a few weeks.
Danko: Yeah, we didn’t focus in on that one with this article, but it did come up in conversations that we had with business owners and the accounting folks that we talked to, there was a sense of “oh my God, here’s another one coming,” a particularly complex one with a lot of uncertainties surrounding it.
Miller: You focused mainly on small businesses. Why?
Danko: Well, one of the things that I was interested to learn, Brandon and I both, was that a lot of small businesses pay taxes as individuals, this “pass-through” concept, where their business income ends up on their individual tax return. And so in recent years, voters have adopted these new taxes in the area that are focused on so-called “high earners,” but those end up impacting businesses because this is where business income ends up, on these individual forms.
Miller: Obviously, tax burdens are complicated. They vary based on the kind of business a company is in, where their customers are, how they’re incorporated, and more. We can’t get into the details of tax law right now or tax brackets, but you did ask some folks to help you crunch some numbers for sample businesses in different places. Can you give us a sense for how much more a Portland-based business owner might have to pay than one in Beaverton or Lake Oswego or Vancouver?
Danko: We asked Moss Adams, the accounting firm, to help with this little project. We found pretty striking differences in what a business owner would end up paying based on where their business is located and where they’re located. In Portland, in this example that we presented, we had a company that began with $15 million in total receipts. And at the end of the day, the Portland entity would be paying $429,000 in state and local income taxes; the entity and the owner, I should say. Beaverton: $361,000. Vancouver: $116,000. So the difference between Portland and Vancouver is $312,000.
Miller: The gigantic difference there, that’s attributable to the lack of the personal income tax in Washington State?
Danko: That’s a big chunk of it, absolutely. There’s $22,000 for the Metro supportive housing services tax, there’s $67,000 for the Preschool for All tax also.
Miller: It’s not just the difference between income tax. And obviously, it’s not just Portland that has to pay some of these, if it’s Metro or Multnomah County, but Portland overall has the highest.
Danko: Exactly.
Miller: How does the tax burden on Portland-based businesses compare to other cities or states around the country?
Danko: It’s not easy to determine that. You see a lot out in the literature there about state tax rates and state tax burdens. But there has been a study that did find that the highest marginal rates in the country are in New York City, with Portland a close second. And in fact, Portland’s highest rate kicks at $125,000, whereas in New York City it’s $2.5 million. So in Portland, you’re much more likely to pay that highest marginal rate than you are in New York City. So we’re certainly right at the top.
Miller: It’s not unusual for business owners, or for a lot of people, to complain about tax burdens. Is it possible to know if frustrations with tax rates have increased along with tax rates?
Danko: It seems like it. It’s certainly something we hear more about, and the reaction to the story seems to suggest that that is the case. We’ve received a lot of feedback after the story was published from business owners who said “yes, yes, thank you for putting this out there, for letting the world know about this struggle that we face.” And I think that at the same time, I think what makes it a particular issue for business owners now is the sense that they’re not getting what they need in return.
Miller: What did people say along those lines?
Danko: We talked to one business owner in particular, Thad Fisco, owner and CEO of Portland Kettle Works.
Miller: You noted they make gear for brewers.
Danko: Exactly. And you know, I think he really wouldn’t disagree, he really loves being a Portander, he loves being a Portland business.
Miller: And he recently expanded within Portland?
Danko: He did, a few years ago he moved from a North Portland location to a Northwest Industrial District location. But as we said in the story and as Thad told us, if he was doing it again he would think about going to Vancouver. He feels like the chaos is just too much in Portland. The vandalism, the break-ins. He’s suffered a lot of damage, hundreds of thousands of dollars of losses at his business, and feels like he’s just not getting what he should be getting in return. And he feels also too, I think, that businesses are being asked to bear too much of the burden for the societal challenges that Portland and the region are trying to address.
Miller: What he is talking about there, and what you’re summarizing, are two, I think, distinct, maybe related issues. If I remember correctly, in the survey you did looking at business concerns, concerns about safety or vandalism were much more likely to have people raise their hand about than concerns about taxes. But what did you hear as the connection between these two?
Danko: Well, you’re right. All of this I should say was based on our Advancing Portland series, based to a degree on a survey that we had done of readers. Nearly 500 readers responded to it, and I think homelessness was the number one issue that was cited, 91%. And I think taxes was down maybe fourth on that, maybe around 50%. But when we began to scratch at that tax issue, again, what we really found was this is not such a great place to be, to put up with these taxes. That was the feeling that we were getting from business owners. There’s a lot that they love about Portland, and there’s a lot of great reasons to be in Portland. But the balance seems to have shifted now where it’s like those great things are going away, and there’s all these bad things at the same time.
Miller: Is it possible to actually quantify what that means in terms of a real exodus? I guess there’s different ways, even as you note in the article, to think about this. Maybe the hardest thing would be people who might have considered moving here but won’t. There’s also people who might have considered expanding here, but didn’t or won’t, or people who actually are here now and are gonna pick up stakes. How much is all of this happening?
Danko: Well again, it’s really hard to say. We’re kind of in real time, and these are the kind of issues that if you really want to rigorously explore them, they do take time and probably some distance to understand.
Miller: You mean, ask me in ten years?
Danko: Maybe five. Or ask a real economist. I think it could take some time to see. But we have seen indications. We’ve seen the population decline in the area. We’ve seen some census data showing a net decrease in businesses in Portland, things like that. I think you had Jonathan Bach on here last year talking about businesses leaving downtown or the area. So there’s certainly a lot of anecdotal evidence. But truly understanding the impact I think will take some time to know.
Miller: Pete Danko, thanks very much.
Danko: You’re welcome.
Miller: Pete Danko is a staff reporter for the Portland Business Journal. He joined us to talk about the local tax burden for small business owners in Portland and how it is higher than for businesses based in outlying but close-in areas, places like Lake Oswego or Beaverton or across the river in Vancouver.
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