Legislature gets look at proposed business tax reform details
Tuesday, May 23, 2017
The Joint Tax Reform Committee debated Tuesday morning a sweeping plan to replace Oregon’s corporate income tax with a commercial activities tax.
The plan is a significant first draft in addressing revenue reform and creating more stable funding for state services, but Rep. Mark Johnson (R-Hood River) says it will be challenging for the Legislature to come together on such far-reaching changes before the end of the session.
“There are a ton of questions that need to be asked and answers that need to be provided about how this can impact our economy and how it impacts the state’s businesses,” said Johnson, who is a member of the Joint Tax Reform Committee.
A commercial activities tax would be based on the gross receipts of business activities in Oregon, not just the profits.
Legislators have proposed rates for such a tax ranging from 0.26 percent to 0.95 percent. The Legislative Revenue Office estimated the tax reform plan using rates somewhere in the middle and said it would increase business tax revenue $1.299 billion for the next biennium.
The legislative concept draft would also decrease individual tax rates by 0.5 percent for all income below $125,000, with a $625 break for incomes over $125,000. The net revenue impact for the state would be a $954 million increase next biennium, according to a Legislative Revenue Office report.
Without revenue reform, Oregon is facing a $1.4 billion shortfall in the 2017-19 budget for maintaining current services.
“Governor Brown is working hard to secure potential new revenue for K-12 schools,” said Lindsey Capps, education policy adviser for Gov. Kate Brown, in an email. “This critical investment will do more to sustain our schools and ensure we keep open the doors of opportunity for all Oregonians.”
The Joint Ways and Means Committee has proposed appropriating $7.8 billion for the State School Fund, $600 million less than school business officials say they need to maintain current services. Increasing state revenue is a key ingredient in being able to adequately fund public K-12 education.
The tax rate could vary by industry, but the legislative concept draft doesn’t have numbers yet. Accompanying materials presented Tuesday include four suggested rates and a flat $250 rate for businesses with sales less than $3 million.
The tax plan draws from systems already in use in Washington, Ohio and Texas. Legislative Revenue Office data shows fewer corporations are paying income taxes in Oregon. This system would try to broaden the base of businesses that pay taxes in Oregon.
Critics of the tax call it regressive. Businesses with low profit margins get hit harder, and many businesses pass the tax on to consumers through increased prices, which fall more heavily on low-income families.