After Oregon Measure 97’s drubbing at the polls in November 2016, for many, it suggested the quashing of any notion of a gross receipts tax in the state. For Oregon Senator Mark Hass (D) and Representative Mark Johnson (R), it got them thinking creatively about alternatives to such an approach, spawning Legislative Concept 3548, and subsequently, the births of Senate Joint Resolution 41 and House Bill 2230. Both resemble the now defunct Measure 97—and in the same way can be viewed as a hidden sales tax, essentially. While finding a palatable path to reform is certainly a tall order, the new tax proposals could pose a serious threat to the Oregon business community and present a thorny solution to addressing the state’s budgetary needs.
In an April 2017 State Tax Notes article, titled “The Idea That Would Not Die: Beyond Oregon’s Measure 97,” my colleague Michelle DeLappe and I discuss these new Oregon tax proposals and their key differences with Measure 97, the benefits and shortcomings of a gross receipts tax, and the likelihood of a gross receipts tax in Oregon becoming a reality.
Genesis of a New Tax Plan
Since publication of our April State Tax Notes article, Senator Hass has reported that he is close to introducing a new plan to totally replace the Oregon business tax system. He says the proposal contains a business tax based on sales over $3 million (so, it’s not really a new plan). The proposal, however, gives low and middle class Oregonians a personal income tax cut or credit to offset increased consumer prices that will likely follow the implementation of the new business tax (this part of his plan may be new but it is clearly aimed at one thing—attracting voter appeal).
Senator Hass further reports his new gross receipts tax would have two tax rates. A lower tax rate would apply to manufacturers, wholesalers and retailers, while personal service providers (such as physicians, healthcare providers, attorneys, accountants, architects, and realtors) would be faced with a higher rate.
Senator Hass believes his new proposal will not hurt the Oregon economy. I am not so sure of that conclusion. Caution!
Like prior tax proposals promoted by Senator Hass, lots of unanswered questions follow.
- Would businesses with gross sales under $3 million totally escape Oregon tax under his proposal? If so, why?
- What policy supports taxing personal service providers (on a gross receipts basis) at a higher rate than manufacturers, wholesalers and retailers?
- How does the proposed tax impact businesses with high gross sales but with low net profits?
- Will such a tax impact a business’s decision whether to come to Oregon when it can choose a more tax friendly state?
- Will a proposal like the one Senator Hass is now touting impact the number of jobs available to Oregonians?
- Will the lower personal tax rates be permanent, or can lawmakers raise them down the road once the dust settles?
I am looking forward to seeing the answers to these basic questions.
It is hard to debate the statement that we need to adequately fund our schools, police, fire and other government services. Is a gross receipts tax the best way to accomplish that?
It seems that some of our local lawmakers are stuck on this one theme – getting a gross receipts tax passed. The voters made it clear with the demise of Measure 97 that they do not want a gross receipts tax in Oregon. Rather than listen to the voters and look for viable alternatives to fund our schools, police, fire and other government services, it appears the same tax is once again being presented, but this time, it has been repackaged with new wrapping paper (lower personal income tax rates that may be temporary) to obtain broader voter appeal.
We are living in interesting times!
Larry J. Brant is a Shareholder in Garvey Schubert Barer, a law firm based out of the Pacific Northwest, with offices in Seattle, Washington; Portland, Oregon; New York, New York; Washington, D.C.; and Beijing, China. Mr. Brant practices in the Portland office. His practice focuses on tax, tax controversy and transactions. Mr. Brant is a past Chair of the Oregon State Bar Taxation Section. He was the long term Chair of the Oregon Tax Institute, and is currently a member of the Board of Directors of the Portland Tax Forum. Mr. Brant has served as an adjunct professor, teaching corporate taxation, at Northwestern School of Law, Lewis and Clark College. He is an Expert Contributor to Thomson Reuters Checkpoint Catalyst. Mr. Brant is a Fellow in the American College of Tax Counsel. He publishes articles on numerous income tax issues, including Taxation of S Corporations, Reasonable Compensation, Circular 230, Worker Classification, IRC § 1031 Exchanges, Choice of Entity, Entity Tax Classification, and State and Local Taxation. Mr. Brant is a frequent lecturer at local, regional and national tax and business conferences for CPAs and attorneys. He was the 2015 Recipient of the Oregon State Bar Tax Section Award of Merit.
Upcoming Speaking Engagements
- "Planning Using IRC Section 1031 Exchanges," Oregon Society of Certified Public Accountants (OSCPA) Forest Products ConferenceEugene, OR, 6.22.18
- "Evaluating the Built-in Gains Tax for C to S Conversions After TCJA," New York University Summer Institute in Taxation – Advanced Conference on Subchapter SNew York, NY, 7.26.18-7.27.18
- "S Corporation Distributions – The Ins and Outs," New York University 77th Institute on Federal TaxationNew York, NY, 10.21.18-10.26.18
- "The Tax Cuts and Jobs Act – What It May Mean to Your Clients," Estate Planning Council of Portland Mini-SeminarPortland, OR, 11.7.18
- "S Corporation Distributions – The Ins and Outs," New York University 77th Institute on Federal TaxationSan Diego, CA, 11.11.18-11.16.18