Oregon's Brand New Business Tax Could See Meaningful Changes

A sizable business tax passed by Democrats earlier this year could see new carve-outs for contractors and large development projects under a package unveiled Tuesday.

The tax, key to Democrats' plan to inject an extra $1 billion a year into K-12 schools, has already been signed into law by Gov. Kate Brown. The so-called corporate activities tax requires businesses to pay 0.57% of all their sales over $1 million, with exemptions for groceries, health care, fuel and other transactions.

Related: Oregon Business Group Tries To Overturn New $1 Billion Tax For Schools

But the precise details of the tax plan are still in play. Lawmakers have long planned a slate of "technical" tweaks, but the first draft of those changes showed some meaty amendments possibly in the works.

Among a host of minor changes is a more meaningful provision that would exempt money paid to contractors in construction projects from the tax, if that money is subsequently paid to a subcontractor. In theory, the change eliminates the possibility of the same money being taxed twice, but legislative revenue officer Chris Allanach said Tuesday in some instances it could ensure the payments aren’t taxed at all.

“We’re looking at this piece for a potential revenue impact,” Allanach said.

Another major addition to the bill would allow the governor to enter into contracts with companies who plan to invest at least $1 billion over a decade into an economic development project in the state and create or maintain a certain number of jobs. Money spent on construction, materials and machinery for such projects would not be subject to the business tax.

“Largely we’re talking about large capital investment that would be associated with employment levels,” Allanach told lawmakers on the Joint Tax Expenditures Committee on Tuesday. “As long as they are meeting those criteria, any of the companies that are their suppliers would be exempt from the commercial activity tax.”

The proposed changes were only starting points, Allanach and committee co-chair Sen. Mark Hass, D-Beaverton, said. That wasn’t enough to hold off questions from lawmakers about the potential sweep of the exemptions.

“If our understanding from the beginning was we’re not going to change policy, we’re just tweaking,” asked Rep. Greg Smith, R-Heppner, “doesn’t this constitute a pretty big policy discussion?”

Sen. Cliff Bentz, R-Ontario, asked whether the economic development carve-out would mean “great big business enjoys a cheaper means of growing than does small business.”

The potential exemptions released Tuesday are uncertain. Hass, a central architect of the new business tax, said after the meeting he was trying to insert concepts that lawmakers had discussed in the past, but that didn’t make it into the final tax bill.

“Believe me there were a lot of them that were more than that,” he said. “There were totally industry carve-outs.”

Still, Hass conceded that the exemption for economic development projects “might be too big.” And he said he’s planning to modify the exemption for subcontractor payments.

“We still have a few weeks,” Hass said. “There will be a few more things.”

The amendments taken up in committee were only the latest changes proposed to the tax bill this week. Lawmakers have introduced two other bills that appear far less likely to go anywhere.

House Bill 3445 was sponsored by a bipartisan collection of 42 lawmakers and would exempt sales of an array of agricultural products from the tax. That includes sales of "agricultural, floricultural, horticultural, viticultural, vegetable and fruit products, livestock and meats, poultry, eggs, fluid milk, bees and honey."

House Speaker Tina Kotek, D-Portland, told reporters Monday that the bill stood little chance.

“I don’t believe we’ll move forward on that bill,” Kotek said. “I’m not surprised it’s out there. We just created a new business tax. Like any time we create something, there’s immediate, ‘Well we could have done it better.’”

Another bill, House Bill 3446, was introduced Tuesday. It would exempt sales of necessities such as toilet paper, feminine hygiene products, soaps, detergents, diapers, pet food and contraceptives from the tax. Those products don't meet the definition of "groceries" which are currently exempt.

Rep. Shelly Boshart Davis, R-Albany, a chief sponsor of the necessities bill, said Tuesday she was trying to ease prices on consumers, who she believes will be hurt by new taxes and assessments passed in the Legislature this year.

“I’m a mom of three girls,” Boshart Davis said. “I know how expensive diapers were years ago. I know how expensive tampons are today. We shouldn’t be taxing groceries ... We should also not be taxing basic necessities.”

Asked about the proposal Tuesday, Hass said it was “well-intended,” but added: “For now, we’re going to stay the course.”

The amendments being proposed by lawmakers aren't the only possible changes to the new business tax. One business group is hoping to convince voters to scrap the mechanism altogether.