Consideration of a New Gross Receipts Tax Moves Forward in Oregon

Speaker Tina Kotek (D) and Senate President Peter Courtney (D) recently announced the creation of a Joint Committee on 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. Reform to examine Oregon’s current 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. structure. The new committee hopes to help close the state’s $1.6 billion budget deficit, while adding stability and predictability to Oregon’s tax code and tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. . During its first hearing this week, the committee was presented with a framework for business tax reform. The plan, if adopted by the committee, would work to establish a gross receipts tax in Oregon.

The framework is the conclusion of several months of private negotiations of a tax working group led by Senator Mark Hass (D). It includes several key components:

• Establish an Ohio-style gross receipts tax
• Repeal the corporate income tax
• Reduce individual income taxes

However, the details would still need to be finalized. The committee was presented with revenue options for a gross receipts tax with rates ranging from 0.25 percent to 1 percent, starting on January 1, 2018. It would apply to sales in excess of $1 million.

Gross Receipts Tax Revenue (Projected)

Source: Oregon Legislative Revenue Office
Millions of Dollars
	2017-19	2019-21	2021-23	2023-25
Rate of .25%	$948	$1,469	$1,543	$1,615
Rate of .5%	$1,883	$2,920	$3,067	$3,213
Rate of .75%	$2,820	$4,371	$4,592	$4,811
Rate of 1%	$3,757	$5,821	$6,115	$6,409

The information provided by the Legislative Revenue Office (LRO) described the potential side effects of establishing a gross receipts tax: “…gross receipts taxes generally put upward pressure on consumer prices. Because the ratio of consumption to income falls as income rises, consumption taxes are generally regressive.” The LRO also provided industry impacts under a proposed gross receipts tax. As expected, the manufacturing, retail, and wholesale industries would be the most impacted. These three industries would bear 60 percent of the cost of the new tax.

The framework would also envision repealing the state’s corporate income tax. In the 2019-21 biennium, that repeal would cost just north of $1 billion. Setting the gross receipts tax rate would need to account for the loss of this revenue source.

The framework as presented would seek to mitigate the regressive nature of the gross receipts tax by reducing individual income taxes. Four options were presented to the committee: reducing 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, increasing the standard deductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. It was nearly doubled for all classes of filers by the 2017 Tax Cuts and Jobs Act (TCJA) as an incentive for taxpayers not to itemize deductions when filing their federal income taxes. , increasing the personal exemption credit, or expanding the Earned Income Tax CreditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. .

This framework is far from a done deal. A number of important questions must be answered, such as what the gross receipts tax rate would be and the economic impacts of such a tax swap. It’s also not clear that the committee would endorse a gross receipts tax. Objections from Republicans in the legislature and the Oregon business community were swift, though many other groups rallied to its defense.

Oregon continues to flirt with gross receipts taxes, even with the substantial downsides. This is a much more thoughtful proposal than Measure 97, but the inclusion of a gross receipts tax is still quite worrisome.

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