Over the last year, we have put together several useful resources for understanding Oregon Measure 97 (formerly Initiative Proposal 28) and gross receipts taxes more broadly.
Below, we have compiled that research as a one-stop resource for legislators, voters, and journalists interested in understanding the details of Measure 97 and what impact it would have on Oregon’s economy.
Oregon Measure 97: The Threat to Oregon’s Tax Climate
This report provides a comprehensive look at what Measure 97 is and how it would affect Oregon’s economy, businesses, and voters. Key findings of the report include:
- Measure 97 (M97) would establish a new 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. on Oregon corporations. The new 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. would charge firms 2.5 percent for all sales in excess of $25 million.
- If adopted, the tax would raise an estimated $6 billion per biennium, a 25 percent increase in the Oregon state budget.
- Gross receipts taxes result in tax pyramidingTax pyramiding occurs when the same final good or service is taxed multiple times along the production process. This yields vastly different effective tax rates depending on the length of the supply chain and disproportionately harms low-margin firms. Gross receipts taxes are a prime example of tax pyramiding in action. , the process of taxes stacking on top of other taxes as goods are refined in the structure of production.
- Oregon would join just five other states in assessing a state-wide gross receipts tax, and Oregon’s version would be the most burdensome. It would be the highest rate in the country, save for the tax on radioactive waste in Washington, and the tax would not include provisions to limit its distortionary effects like in other states.
- The gross receipts tax proposed in M97 is in addition to the 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. , not a replacement.
- Oregon would fall from the 11th best to the 17th best ranking in the State Business Tax Climate Index, but its corporate tax structure would fall to 50th. Oregon’s corporate tax climate would be the worst in the nation.
Read the full report here.
The Economic Effects of Measure 97
In May 2016, Oregon’s Legislative Revenue Office (LRO) released a detailed report analyzing the economic effects of M97. Below, you will find links to our overview of that analysis as well as deep dives into several key findings.
Reviewing Oregon’s Legislative Revenue Office (LRO) Report
Oregon’s LRO released a detailed, 20-page analysis of Measure 97 in May 2016. The report outlines estimated revenue effects, analysis for how the tax would affect different income groups, a look at how Measure 97 would affect jobs, and more. Our overview highlight’s the LRO’s most important findings, providing a quick look at exactly how Measure 97 would impact Oregon’s economy. The research linked directly below takes a deep dive into several of these findings.
Read the full post here.
Oregon’s Gross Receipts Tax Proposal Would Increase Consumer Prices
Proponents of Measure 97 argue that this tax will ensure that large, out-of-state businesses “pay their fair share,” but economic analysis finds that consumers, wage earners, and shareholders would bear the true economic cost of the tax. By 2022, the LRO predicts that prices would increase by 0.9 percent.
Read the full post here.
Yes, Really. Measure 97 Would Raise Prices
Proponents of Measure 97 released a report in July arguing that the tax would not increase prices for consumers. Their report attempts to prove that no relationship exists between prices and corporate income taxes, but fails at the task. This report is subject to a number of methodological issues and finds a result that is out of line with economic literature. The response linked directy below thoroughly discredits the argument that Measure 97 would not increase consumer prices.
Read the full post here.
Shifting the Cost of Measure 97 Forward
C corporations could decide to pass the burden of Measure 97 on to consumers by including a surcharge directly on receipts. Businesses have done this in other contexts, such as after Seattle raised its minimum wage. In the post linked directly below, Nicole Kaeding runs through one hypothetical example of how that might work.
Read the full post here.
Oregon’s Gross Receipts Tax Proposal Would Be the Largest Tax Increase on Residents in the State’s History
If adopted by voters in November, Measure 97 would enact a gross receipts tax in the state, costing each Oregon resident $600 per year.
Read the full post here.
Oregon’s Gross Receipts Tax Proposal Would Hurt Job Creation
Estimates show that passage of Measure 97 would result in 38,200 fewer jobs being created in Oregon between 2017 and 2022.
Read the full post here.
Oregon’s Gross Receipts Tax Would Be Regressive
Not only would Measure 97 be the largest tax increase on Oregon residents in the state’s history, it would also disproportionately impact low-income residents.
Read the full post here.
Supporters of Measure 97 Mislead On Corporate Taxes
As supporters work to convince Oregonians to support Measure 97, they continue to use the same talking point: Oregon ranks last among the states on corporate taxes. This talking point, however, is misleading.
There are a number of different ways to attempt to quantify Oregon’s relative rank on corporate taxes. One could compare Oregon’s top marginal tax rateThe marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax. (the 18th highest nationally), consider how much money Oregon’s corporate income tax raises in revenue on a per capita basis (26th highest in the nation), or refer to our State Business Tax Climate Index (which ranks Oregon 37th for corporate income tax structure), but supporters of Measure 97 do not do any of these things. Instead, they are using a report that quantifies business tax burdens, suggesting that it is the same thing as corporate tax burdens. Businesses and corporations, in this context, are not the same thing.
Read more here.
Gross Receipts Taxes: Lessons from Previous State Experiences
Despite broad agreement that gross receipts taxes cause economic problems, some states like Oregon continue to consider them a serious policy option. This study compares the details of gross receipts taxes in four states—Indiana, New Jersey, Kentucky, and Michigan—and discusses why those states recently decided to repeal them. The report also documents the firsthand experiences of legislators, lawyers, economists, and business groups, showing how gross receipts taxes harmed their state’s economy.
Read the full study here.
Gross Receipts Taxes: Theory and Recent Evidence
This comprehensive review of the theory and evidence surrounding gross receipts taxes, creates a powerful case against them. The literature shows that gross receipts taxes fall short of many characteristics of sound tax policy: they lack economic efficiency, treat firms differently based on their structure, and are problematically nontransparent.
Read the full literature review here.
For more information on Oregon Measure 97, please contact Nicole Kaeding at nmk@taxfoundation.org or 202-464-5112.
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