Opponents and supporters of a proposed $6 billion tax on Oregon sales are preparing for a knockdown, drag-out fight before the measure comes to voters in November.
“This is probably the biggest political fight we’ll see in decades,” Oregon Chamber of Commerce Executive Director Alison Hart said.
The proposal, known as IP28, will place a 2.5 percent tax on sales over $25 million at Class C corporations. An analysis by the nonpartisan Legislative Revenue Office estimates the tax will raise approximately $6 billion for state services each biennium but also increase the cost of living for Oregonians.
Hart visited with a handful of Hermiston Chamber of Commerce members on Wednesday, asking them to spread the word of the potential harm if IP28 is approved by voters.
“It will hurt our entire economy,” she said. “Oregon is too small of a state to absorb a $6 billion tax increase.”
Supporters of the measure — backed by public employee unions — disagree. They point out that only an estimated 1,051 companies in Oregon will see their taxes raised.
A Better Oregon, which collected enough signatures to place the measure on the November ballot, says it will force large national corporations that do business in Oregon to pay their “fair share” to help struggling local schools and seniors.
According to their website less than one percent of Oregon businesses will see their taxes raised, and more than 85 percent of the tax will be paid by corporations with more than $100 million in Oregon sales.
“Companies like Bank of America, Comcast, Wal-Mart and Monsanto make hundreds of millions of dollars from the business they do here but pay taxes that are so low — the lowest in the country — that our schools and critical services are badly underfunded,” their website states.
Hart said far more than 1,051 businesses will be affected, however, by the “pyramid” effect of the tax. A restaurant may not have more than $25 million in sales, she said, but still be hit by higher prices on utilities, ingredients and equipment they purchase from companies that do fall under IP28.
The Legislative Revenue Office’s report estimates the law will result in 38,200 jobs lost in the private sector but 17,700 added in the public sector, for a net decrease of 20,500 jobs statewide.
A list of businesses that will be taxed is not public record, but Pacific Power has already stated publicly that it would see its tax bill raised by $40 million per year and would have to raise rates 3-4 percent to cover the cost.
The gross receipts tax proposed in IP28 is not a “sales tax” in the traditional sense of the word. Consumers will not see, for example, a five cent tax added directly to their $2 gallon of milk. But if the farm where the milk was produced, the plant where the milk was packaged and the store where the milk was sold are class C corporations with at least $25 million gross sales, they will each have to hand over 2.5 percent of their sales to the government — in effect taxing the same milk multiple times.
Hart pointed out that the tax is on sales, not profit, which means that a business must pay the same amount whether it is making huge profits or losing money.
She said that IP28 is being marketed as an increase in money for schools, seniors and health care, but once the money is in the general fund it can be used for anything.
“There’s no plan, no accountability for how that money will be spent,” she said. “In the bigger picture, I couldn’t agree more that schools need more money, but tax policy does not belong on a ballot measure.”
The coalitions being formed on both sides of IP28 show the ballot measure is shaping up to be a fight between public employee unions and businesses. But Hermiston assistant city manager Mark Morgan was at Wednesday’s meeting and said some public employers also have reservations about the initiative. He said the tax hike could be passed on through higher prices from contractors completing multimillion dollar projects like the new wastewater treatment plant and airport taxiway realignment.
“We’d be paying for this tax, ultimately,” he said.
A report from Oregon’s Office of Economic Analysis, obtained in draft form and published online by The Oregonian, estimates that the average Oregon-based corporation affected currently pays $200,000 in taxes but will see their tax raised to $2.2 million by IP28, while the average qualifying business based outside of Oregon pays $300,000 under current law and would pay $3 million under IP28.
A Class C Corporation is taxed on its net income and then shareholders are taxed separately on distributions. An alternative is to become an S corporation, which sees its profits taxed just once, at the shareholder level. C corporations can convert to an S corporation, but only if they have fewer than 100 shareholders.
Contact Jade McDowell at email@example.com or 541-564-4536.