The past few weeks have been intense times in the Legislature and at Oregon Business & Industry, as the OBI team has been rigorously working to protect member interests in scores of bills impacting business. And, this year, no issue looms larger than taxes.
Last week the House, with a 37-21 vote, passed HB 3427, the $2 billion preK-12 education spending and tax package. It is now in the Senate, where a vote is expected soon.
Taxes are the most difficult and far-reaching issue facing our members. And this year is tough. With a supermajority of Democrats in both houses of the Legislature, it has been clear to us since last fall that a major new tax was likely to pass, so OBI has done its best to mitigate the impact on business.
What passed the House and is expected to clear the Senate is a new commercial activity tax, based on gross receipts, with the following characteristics:
- Tax rate of 0.57 percent on in-state sales over $1 million
- A 35 percent deduction for cost of goods sold or labor inputs
- Exemptions for groceries, gasoline, hospitals and long-term care
As we saw this new tax had a good chance of passing this year, OBI and many of our partner business organizations pushed hard to enable businesses to deduct their input costs. Our concern was the “pyramiding” impact of a gross receipts-based tax, where many products get taxed multiple times before they reach the final consumer. As a result, many businesses wind up paying two, three, four or even more times the actual statutory rate. We didn’t get everything we asked for in our push to address that pyramiding problem, but the ability to deduct 35 percent of cost of goods sold will provide some relief.
I want to make something clear: OBI did not support this new tax. We have long stated our concern about taxes on sales, the gross receipts tax concept, and that has not changed. But, as I said, given our belief that a major tax bill was going to pass this year, we thought it made sense to work with lawmakers to address as many of our concerns as we could. For example, the bill in its current form will preclude local governments from piggybacking on this tax with their own local gross receipts taxes. That is very important to many OBI members. (The Portland tax, which we opposed, is grandfathered in so it is not impacted by the language.)
As the negotiations wound down, OBI signaled that it would be neutral on the tax provisions of HB 3427. We did that after negotiating agreements with legislative leaders not only on the tax mechanism, but also on other costly bills impacting business this year. This included an agreement on paid family leave legislation, as well as a bill that would have created a brand new assessment on employers to fund Medicaid and a new state healthcare program. We also have agreement that SAIF’s reserves will not be raided to fund PERS relief. As you recall, Gov. Kate Brown had recommended taking almost $500 million from SAIF to pay for PERS; at our annual meeting this week, she acknowledged that proposal is “off the table” as a result of our negotiated deal.
What I am most proud of is that OBI did not act alone as we worked on this negotiated deal. In fact, our team assembled a broad group representative of the Oregon business community and, since before the Legislature even convened, worked with them to develop a strategy for how to deal with the tax increase we knew was coming at us. We built a strong partnership and, when the discussions culminated last week, knew we were acting in concert with several partners representing a wide swath of Oregon business and industry.
Let’s be honest. This is a tough session for business. We are still working on a number of bills that will impact how you operate, doing our best to protect your interests. We are engaging, because we think that’s the best way to represent your interests at the Legislature. Yes, there are times to draw a line and say a firm no. We have done that on several bills and undoubtedly will again. But sometimes it makes sense to engage and shape outcomes as much as possible. We are choosing those opportunities carefully.
Thank you for your support.