OBI Releases Report on Oregon’s Business Tax Burden

Oregon’s state business taxes increased by $3.4 billion – 77% – between 2019 and 2023, according to an analysis of Oregon’s state and local business tax burdens commissioned by the Oregon Business & Industry Research and Education Foundation. The study, conducted by consulting firm EY, also found that local taxes paid by Portland businesses have increased a stunning 82% since 2019.

Leading drivers of state-level tax increases include the corporate activity tax, which taxes gross receipts, and the Paid Leave Oregon program, which taxes payroll. These and other taxes have increased Oregon’s effective business tax burden by 33% since 2019. The state business tax burden now exceeds the national average by 12%, according to EY. A state’s effective tax burden is the ratio of business taxes to private-sector gross state product.

The tax burden shouldered by businesses in and around Portland has increased even more dramatically as the result of several local, county and regional taxes. These include a gross receipts tax imposed by Portland to support its clean energy fund, an increase in Multnomah County’s business income tax and a Metro business tax for supportive housing.

Oregon’s combined state and local effective business tax burden has increased by 18% since 2019. This combined rate – equivalent to 4.9% of gross state product – exceeds the national average as well as corresponding tax burdens in California, Washington and Idaho.

Taxes remain notably high for individuals in Portland as well. The city’s combined state and local tax rate for marginal income is the nation’s second highest, exceeded only by New York City’s. But New York City’s highest bracket for single filers kicks in at $25 million in income while Oregon’s kicks in at only $125,000.

The findings of EY’s report echo those of the 2022 tax-burden report EY conducted for OBI, as do their implications. The steep increase in state and local business taxes discourages business investment in the state. Tax increases on businesses and individuals, meanwhile, have eroded Oregon’s appeal for workers, contributing to stagnating population and chronic workforce shortages.

Given the state’s eroding tax climate, it is no surprise that Oregon ranked only 45th nationally in manufacturing job growth between June 2023 and June 2024, according to an analysis of the state’s manufacturing sector released by the OBI Research and Education Foundation Oct. 4. During this period, in fact, Oregon ranked among the bottom 10 states for job growth in several sectors, including construction and professional and business services.

Put simply, Oregon’s reputation as a place to do business is suffering badly. Oregon plummeted seven places in CNBC’s America’s Top States for Business ranking between 2023 and 2024. In terms of its business friendliness, Oregon ranks only 48th. According to CNBC, only New Jersey and New York are less business-friendly than Oregon.

The health of Oregon’s private sector is vitally important, as businesses employ hundreds of thousands of people and generate the tax revenue state and local governments need to provide public services. Later this year, OBI will release a collection of recommended policy changes that will address the underlying causes of Oregon’s slipping competitiveness. They will address the state’s tax climate, its regulatory climate and the political culture that has contributed to their erosion.