SALEM — Before Oregonians even cast their vote on a $3 billion corporate sales tax proposal on the Nov. 8 ballot, state lawmakers are considering ways to redesign the tax in the 2017 legislative session.
The “gross receipts” tax, contained in Measure 97, requires “C” corporations to pay the state 2.5 percent of their annual Oregon sales exceeding $25 million.
If Measure 97 passes, “this will be the dominant issue of 2017,” said Sen. Mark Hass, D-Beaverton, chairman of the Senate Finance and Revenue Committee. Hass’s committee already has filed placeholder bills to address the measure after the election.
While Gov. Kate Brown released some general goals in June to dampen the negative impact on certain businesses, this is the first time lawmakers have spoken publicly about possible proposals they could offer next session.
Lawmakers could make small fixes to the law, such as repealing exemptions for benefit companies, or a complete overhaul such as replacing the gross receipts tax with a different corporate tax scheme.
As long as none of those proposals raise more money than Measure 97, the Legislature needs only a simple majority to approve any changes, lawmakers said.
As written, the ballot measure would bolster state revenue by nearly 30 percent, or an estimated $3 billion annually, and avert a projected $1.35 billion state budget shortfall for 2017-19.
Proponents say the measure would help reverse a trend in which Oregon residents pay an increasing share of state revenue, while businesses pay less.
Opponents argue the tax plan raises prices for consumers and creates inequity in what different kinds of corporations are required to pay in taxes. The measure would tax only “C” corporations with an excess of $25 million in annual sales, while leaving “S” corporations with the same amount of sales untouched.
If the measure passes, lawmakers in 2017 can expect “a cavalcade of 10,000 lobbyists from every industry with valid stories about why their rates should be lower,” Hass said.
The legislation required to redesign the tax measure will likely “be the biggest bill you’ve seen in your life” because of the complicated fixes that might be needed, said Sen. Brian Boquist, R-Dallas.
Lawmakers will have to decide whether they want to consider each of those requests and possibly design different rates for different industries.
Some lawmakers favor overhauling the tax by reducing the rate and expanding the base of businesses that would have to pay.
Hass proposed an alternative to Measure 97 in the 2016 session that would have raised $500 million annually by lowering the tax rate and applying it to a broader group of businesses. However, business and union groups refused to negotiate on an alternative, and Hass said he did not have the needed support in the House of Representatives to advance the proposal.
Other lawmakers are suggesting eliminating the gross receipts tax entirely and replacing it with a different corporate taxation scheme.
While five other states have gross receipts taxes, the one proposed in Oregon imposes the highest rate on the smallest number of corporations.
Our Oregon, a public employee union-backed group, wrote the measure with the intent to target large, out-of-state corporations such as Walmart and Comcast. But the tax also affects nearly 200 Oregon corporations — including the iconic Powell’s Books, Nike, Columbia Sportswear and Intel. Because the tax applies to sales, rather than profits, it would hit high-volume, low-profit outfits particularly hard, said Sen. Ginny Burdick, D-Portland.
Burdick, who is part of a group of lawmakers looking at potential Measure 97 changes, said she would prefer to do away with the gross receipts tax and replace it with something else that would raise equal or less revenue. Burdick said she has no particular kind of tax in mind.
“I’m really trying to keep an open mind at this point,” she said.
Lawmakers also could try to devise a law that would prevent Measure 97 from taxing the same item or service more than once, another problem associated with a gross receipts tax, Boquist said.
Brown recently has been mum about what changes she would make to the measure, saying she is focused on getting the measure passed.
She suggested Wednesday, Oct. 12, at a meeting of the Pamplin Media Group and EO Media Group editorial boards that an exemption in the measure for benefit companies is problematic. Businesses can registered as a benefit company with the Secretary of State’s Office to show customers they have higher standards of transparency and accountability.
The designation was not meant to give businesses a tax advantage, Brown said.
Pat McCormick, spokesman for the “No on Measure 97” campaign, said the problems with the measure has “created a platform for a lot of lobbying activity” in the 2017 session.
“People can’t really be sure what they’re voting on if the Legislature is planning on changes,” McCormick said. “We don’t know what the changes will be.”
The Yes on Measure 97 campaign opposes “any attempt to let big corporations off the hook to pay their fair share, especially if the business lobby attempts to make our small businesses and consumers pay more,” said Katherine Driessen, spokeswoman for Our Oregon.
The controversial proposal has fueled one of the most expensive ballot measure battles in the state’s history. Businesses opposed to the major have raised an arsenal of more than $16 million and counting, and both campaigns for and against the measure have bombarded voters with advertising slots on social media and airwaves.
If the measure doesn’t pass, lawmakers will face the prospect of either making cuts in services or coming up with their own tax package to boost revenue, lawmakers said.
Without additional revenue, those cuts could be 10-12 percent across the board, Brown said.