January 14, 2016

On the ballot: Unbalanced Increase of Oregon Corporate Tax

By Rory B. Tosh, CPA

“Our Oregon,” a Portland-based group, has filed two proposed measures for the 2016 ballot seeking to raise corporate taxes. C corporations with Oregon gross receipts of more than $25 million would face an increase to their minimum tax.

Initiative Petitions (IP) 22 and 23 would establish a corporate gross receipts tax on corporations with sales of at least $25 million per year. The tax would be $30,001 plus 2.5 percent of the excess over $25 million.

For instance, grocery stores Net Income as a percent of Gross Receipts is typically around 1.5%. A grocery store with gross receipts of $50 million under IP22 & 23 would pay Gross Receipts tax of $655,001. This same entity would normally have Net Income of $750,000, with tax of $49,500. Now their Net Income is reduced to $94,999, but their tax has increased by over 13 times.

One of the tenets of a good tax system is equality. According to this tenet, every person/corporation should pay to the Government according to his/its ability to pay. These IPs fall short here as gross receipts are not always a good indicator of ability to pay.

We only have to look to our neighbors to the north to find an example of a gross receipts tax on business. Called the Business & Occupation Tax, the “B&O” is loathed with the intensity usually reserved for your college football team’s archrival. B&O tax is often reviled as complicated (it started out as a simple) and unfair. The Washington Policy Center, an independent public-policy think tank, says the B&O tax is nationally recognized as one of the worst ways to tax businesses.

Visit the Oregon Secretary of State website for additional information about the initiative as well as the chief petitioners’ contact information. I urge you to contact the petitioners and share your thoughts on this initiative.

Rory Tosh is a tax professional with 20+ years of experience in public and private accounting. He is a member of the American Institute of Certified Public Accountants and the Oregon Society of Certified Public Accountants (OSCPA.) He is also a longtime member of the OSCPA Tax Strategy Committee. More about Rory here.