The Joint Committee on Tax Reform continues to meet in Oregon, even though it’s facing strong headwinds. Republicans seem unlikely to support any gross receipts taxA gross receipts tax, also known as a turnover tax, is applied to a company’s gross sales, without deductions for a firm’s business expenses, like costs of goods sold and compensation. Unlike a sales tax, a gross receipts tax is assessed on businesses and apply to business-to-business transactions in addition to final consumer purchases, leading to tax pyramiding. proposal in the legislature during this session without significant pension reform and other cost containment measures. Sensing the deadlock—and perhaps to try and pressure Republicans—the public sector unions have introduced another gross receipts taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. ballot initiative, copying the flaws of last year’s Measure 97.
Initiative Petition 27 (IP27) would alter Oregon’s tax code. IP27 includes several major components. It would:
- Increase the state’s corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. to $4,001 plus 0.95 percent of gross receipts over $5 million.
- Lower the individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. rates from 5, 7, 9, and 9.9 percent to 3, 5, 9 and 9.9 percent.
- Apply the new minimum tax to S corporations.
- Dedicate the revenues to education, 80 percent to K-12 education and 20 percent to higher education.
IP27 would follow the structure of last year’s Measure 97, which also proposed to increase the state’s corporate minimum tax. IP27 would keep the complex corporate income tax in Oregon, but require the firms remit the higher of their corporate tax liability or gross receipts tax liability. This is a break from the ideas being discussed by the Joint Committee on Tax Reform, which envisions repealing the state’s corporate income tax.
This proposal is also striking in that the increased minimum tax would be retroactive to January 1, 2018, even though it wouldn’t appear on the ballot—pending signatures—until November 2018. Tax planning would be difficult for firms as they’d be unsure until almost the end of the tax year whether the liability would be due, and the Department of Revenue would quickly need to implement the changes.
IP27 does differ from Measure 97 in several ways. First, it would include S corporations; Measure 97 didn’t include any sort of pass-through entity. IP27 will also apply at a much lower level of sales, $5 million, compared to Measure 97’s $25 million. These two changes mean that many more businesses in Oregon would be caught in the gross receipts tax’s grasp.
IP27 would also slightly lower individual income tax rates in the state, but the tax savings would be small for taxpayers. Oregon’s 5 and 7 percent brackets are quite narrow, meaning a filer would save $169 a year. Any potential individual income tax savings would only offset the impact of the gross receipts tax on individuals in the state. Oregon’s Legislative Revenue Office has stated on numerous occasions that gross receipts tax proposals in the state would result in higher prices for consumers. It is not immediately clear, however, if the price increase for individuals would be smaller or larger than the $169 in tax savings.
Following the resounding defeat of Measure 97, gross receipts tax proposals in Oregon are not ending. The legislative approach seems to be stalling, so now public sector unions are taking matters back into their hands, proposing another ballot initiative in their desperate attempt to increase taxes on Oregon businesses.
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