Oregon ballots, which include Measure 97 (M97), will hit mailboxes this week. Voters will finally answer the question: Should this flawed 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. take effect in Oregon on January 1, 2017? We’ve written extensively on Measure 97 over the last nine months, and engaged in multiple debates with Our Oregon, the group pushing for Measure 97’s passage. Many of the debates have centered on the likely increase in prices due to Measure 97. While price increases are quite likely, there is another way that the tax could be shifted forward to consumers: explicit listing on consumer receipts.
C corporations affected by Measure 97 could respond to their new, increased tax liability in a few ways, which have been detailed previously. Corporations could raise prices for consumers, shift costs to their employees through lower pay, fewer benefits, or less opportunities, or reduce payments to shareholders.
However, it’s also possible that C corporations would decide to list some sort of Measure 97 surcharge directly on a consumer’s receipt. Businesses have done this in other contexts, such as after Seattle raised its minimum wage. There is nothing in Oregon’s tax code that would prohibit this from happening, unlike in Washington State, where firms are prohibited from listing the state’s gross receipts tax (the Business & Occupation tax) on the receipt. In fact, this exact issue has been the source of years of litigation in Washington State.
The downside to a business listing the M97 surcharge is that their total revenues would increase, as the surcharge would be considered part of their gross receipts. But, their share of the tax liability would decrease. Here is a hypothetical example to illustrate the point.
Imagine a firm sells $100 in goods to a consumer. That $100 in purchases would be considered receipts under M97 (assuming the firm is a C corporation with $25 million in Oregon-based sales), resulting in a M97 tax liability of $2.50.
|
Example One (No Surcharge) |
|
|
Goods Sold |
$100 |
|
Measure 97 Tax |
2.50% |
|
Measure 97 Tax Liability |
$2.50 |
Now imagine that the same firm decides to list a M97 surcharge on the consumer’s receipt.
|
Example Two (With Surcharge) |
|
|
Goods Sold |
$100 |
|
Measure 97 Surcharge |
$2.50 |
|
Total Paid by Consumer |
$102.50 |
|
Measure 97 Tax |
2.50% |
|
Measure 97 Tax Liability |
$2.56 |
The firm’s tax liability increased by $.06 ($2.56-$2.50) under this example, but $2.50 is now paid directly by consumers. The firm is now paying much less by shifting the tax visibly to the consumer.
Given that C corporations in Oregon could see tax increases in the millions of dollars, many in excess of their profit margins, it is logical that they would explore ways to shift the tax in this way. This shifting seems more likely in situations where direct price shifting isn’t feasible, such as tight price or labor competition.
All of Tax Foundation’s resources on Measure 97 are available here.
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