Legislative panels previews Son of 97 tax ideas — Gross Receipts Tax & Corporate Activity Tax
By Taxpayer Association of Oregon
A Joint Committee of the Oregon Legislature met yesterday to continue efforts to reform Oregon’s business tax system. The Joint Committee on Tax Reform has been looking at major taxes in light of voters rejecting the billion dollar Measure 97 tax last November.
A replacement for Measure 97 – i.e. a Gross Receipts Tax (GRT) that taxes all of the income a business earns at a low rate whether the business is profitable of not – is one of the options discussed. The other would be a “Corporate Activity Tax” (CAT) which would be similar to a system adopted by Ohio in 2006. It would also seek to charge a low rate, but only on Oregon sales. It would apply to any Company that sells products in Oregon, even if it located elsewhere.
Legislative Revenue Office Director Paul Warner noted that these business taxes – like the current business income tax – would, by some degree, be passed along to consumers. Knowing that lower income and middle class consumers would be hit with higher prices led to discussed ideas of ways to reduce the regressive nature of these taxes by including an increase in the State’s Standard Deduction, providing a lower bottom personal income tax rate or increasing the personal exemption. The Gross Receipts Tax would put Oregon Companies who export a lot of product or services at a competitive disadvantage and the idea is also not very popular on the State level. Only one other State currently has a Gross Receipts Tax with New Jersey and Indiana recently repealing theirs.
The Corporate Activity Tax’s weakness is it leaves open the possibility of “pyramiding” wherein the tax is charged at each step of a process from raw materials purchase, to manufacturing, to retail sale. In addition, the tax makes no distinction based on an industry’s profit margin. As noted during questioning, grocery stores operate at very low margins, sometimes in the 1 – 2 percent range, and even a small tax on all their sales can be a large burden.
A Corporate Activity Tax could raise a net increase of $288 million in the current biennium if instituted in January of 2018 at a ¼ of 1 percent rate. It would then generate about $450 million in succeeding biennia, not including any reductions in personal taxes to offset the regressive nature of the tax.