Oregon Democrats Unveil Gross Receipts Tax Framework

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By Paul Shukovsky

Oregon’s majority Democrat lawmakers are pushing a proposal to shift the state’s corporate tax regime from one based on net income, but Republicans say it’s dead on arrival.

The framework to adopt a gross receipts tax—not yet memorialized into a bill—calls for repealing the corporate income tax and subjecting businesses with annual Oregon receipts in excess of $1 million to a $250 tax plus an as-yet-unidentified rate of 0.25 percent to 1 percent on receipts over $1 million.

If enacted at a rate of 0.75 percent, the gross receipts tax would result in about $2.2 billion in additional revenue for the remainder of the 2017-19 biennium for a state that is facing a $1.6 revenue shortfall, Legislative Revenue Officer Paul D. Warner, an economist, told the Joint Committee on Tax Reform on May 2. The shortfall represents revenue needed just to keep state services at current levels.

Other states facing budget deficits, including Oklahoma and West Virginia, are also considering a gross receipts tax amid a growing push away from corporate income taxes. A similar proposal already has died in Louisiana this year.

The Washington Democrats are just one vote shy in each chamber of the three-fifths majority required to pass the tax measure, and there is a Democrat residing in the governor’s mansion.

‘No Votes’

But Republican leadership says the tax proposal is doomed.

“There are no votes in this Republican caucus, no votes in the building on the Republican side, for a gross receipts tax,” Senate Minority Leader Ted Ferrioli told Bloomberg BNA May 3.

Ferrioli said Oregon voters rejected the concept of a gross receipts tax last November when about 59 percent of the electorate rejected Measure 97, which would have imposed a gross receipts tax of $30,001 plus 2.5 percent on Oregon sales of more than $25 million.

Democrats differentiate their proposal from Measure 97 by pointing at its much lower rates and broader base, which are intended to minimize economic distortions.

About 100,000 businesses in the state with revenue under $150,000 wouldn’t have to file, Warner said in briefing lawmakers. And about 37,000 businesses with revenue under $1 million would pay a flat $250. There are about 18,000 businesses with revenue above $1 million that would have to pay an additional tax based on the rate adopted in a final bill.

Impacts Consumer Prices

Businesses with gross receipts above $25 million would pay about 74 percent of anticipated revenue, while businesses with gross receipts above $100 million would pay about 55.7 percent of the revenue, Warner said.

Corporate income tax is very cyclical and volatile and has shrunk over time as a percentage of the economy, Warner said. A gross receipts tax isn’t as volatile. Advantages include “the broadest base; it’s destination based; it’s not subject to federal nexus standards, meaning you are going to able to tax more entities that are selling into the state.”

On the downside, a gross receipts tax will lead to some partial shifting to consumers, Warner said. “We would expect that any broad-based gross receipts tax would have some impact on consumer prices.”

The framework addresses concerns about consumer prices—which is generally accepted as the main factor behind the death of Measure 97—by considering the adoption of tax adjustments targeted at low-income households, including a possible expansion of the earned income tax credit, lower bottom personal income tax rates, an increased standard deduction and an increased personal exemption credit, which now stands at about $193.

Voters Were ‘Tricked’

Rep. Rob Nosse (D), a member of the tax reform committee, believes voters will support the gross receipts tax “if we take care of some of the concern that some of this would be passed on to consumers” through personal income tax adjustments.

Ferrioli’s opposition is “disappointing,” Nosse told Bloomberg BNA. “Just because Measure 97 got voted down in November doesn’t mean people don’t think businesses need to pay their fair share. They got tricked into believing it was a sales tax. It is not a sales tax.”

House Majority Leader Jennifer Williamson (D) said in a prepared statement that the revenue system is outdated and broken, and “has forced us to piece together years of inadequate, unstable budgets. Without bold action now, it’s going to get much worse over the next several years.”

The gross receipts proposal, combined with cost-containment efforts, “could finally allow us to make investments in our schools that will create the future our kids deserve.”

Ferrioli said spending discipline, cuts to the burgeoning costs of the Public Employees Retirement System, and making “some adjustments to the tax code if we need new revenue and can agree to it” would be a road map to a compromise budget and revenue plan.

‘Happy to Do Heavy Lift’

“Republicans in Oregon don’t want to see the end of managed health care; we want to see how to make it sustainable,” Ferrrioli said. He added that targeted spending increases for education and health care might be possible. “We are happy to help do a heavy lift on a provider tax, a hospital tax.”

But the gross receipts tax is a non-starter.

“The Legislature will not approve a gross receipts tax, and, if referred, the voters will defeat it,” he said.

To contact the reporter on this story: Paul Shukovsky in Seattle at PShukovsky@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

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