Smaller businesses receive wiggle room on Student Success Act tax, still must pay
Friday, May 1, 2020
Smaller businesses received some leniency this week on paying the tax supporting the Student Success Act, but the bill will still come due.
The corporate activity tax applies to all businesses with more than $1 million a year in Oregon revenue. Expectations that it would produce roughly $1.6 billion this biennium for preK-12 public education withered away when the coronavirus slammed the brakes on Oregon’s economy.
Since the outset of the state closures, the business community has been lobbying to delay or suspend the tax, saying hard-hit businesses were cash-strapped. The Legislature and Gov. Kate Brown resisted delaying the tax, but on Monday, the Department of Revenue at Brown’s behest provided some wiggle room.
The first quarterly payments were due Thursday, April 30, based on estimated revenue for all of 2020. The Department of Revenue revised rules Monday to waive penalties for businesses that could show they were not able to pay on time.
The rules also raised the threshold for making quarterly payments this year. Businesses that estimate they would owe less than $10,000 don’t have to pay until April 2021. The previous threshold was $5,000.
According to the Department of Revenue, businesses would need 2020 gross receipts of more than $4 million before having to make quarterly payments.
“By adjusting this payment threshold, we strike a reasonable compromise to grant the small businesses that feed Oregon’s economy some relief, while ensuring we can continue to invest in Oregon’s future,” said Senate Majority Leader Ginny Burdick, D-Portland, in a news release. “It remains critically important that our state puts necessary funding toward our schools and our students.”
Estimates before the downturn showed nearly 15% of businesses operating in Oregon, about 40,000 entities, would owe the tax. More than half won’t have to make quarterly payments.
The Department of Revenue cannot estimate how many businesses the rule changes will affect or how it will affect the state’s revenue, according to a spokesperson. Reports next week from this first quarter’s collections aren’t expected to tell the department much more.
“One of the challenges is that it’s a brand-new tax,” said Legislative Revenue Officer Chris Allanach. “We haven’t even experienced a normal year for it.”
This year is far from normal.
The new tax is capturing some revenue from sales into Oregon that weren’t taxed before, including online sales, Allanach said. The tax, called a consumption tax by economists, was designed to tap more businesses and to help steady Oregon’s personal income-tax reliant state budget when a recession reduces paychecks. Typically, consumers keep buying things, even during a recession.
The statewide closure has not only put people out of work but it has also drastically reduced spending activities.
The state will know more when the Legislature receives its quarterly economic report on May 20.
Brown told state agencies to prepare plans for 8.5% budget cuts, which would translate into a $653 million blow to the State School Fund. The Student Success Act was expected to provide hundreds of millions of dollars to schools through direct grants as well as statewide initiatives such as Measure 98.
The public has until a hearing May 26 to comment on the CAT rules. The Department of Revenue expects to adopt permanent rules by June 28.