New Oregon Business Tax Measure Could Hurt, Help Southwest Washington

New Oregon Business Tax Measure Could Hurt, Help Southwest Washington
The economy of metro Portland (seen here) and Oregon would suffer if the corporate gross receipts tax measure, Initiative Petition 28, is passed by voters this fall, say opponents. Effects would be felt across the Columbia River from Portland in Clark County, Washington, as well. Photo: svpportland.org

If Oregon’s Initiative Petition 28 (IP 28) is approved by voters this November, the corporate gross receipts tax will drain from the Oregon economy $3 billion a year, and up to 38,000 new private sector jobs in just five years. That’s according to a recent state report from Oregon’s Legislative Revenue Office (LRO). Additional job losses could bleed over to Washington State’s Clark County. Up to half of employed Clark County residents work elsewhere, with most going across the Columbia River to Portland.

IP 28 would impose a 2.5% gross receipts tax on corporations earning more than $25 million. The Moss Adams accounting firm says, “most gross receipts tax rates around the country are relatively low when compared with IP 28’s 2.5 percent rate. In Washington, it ranges from 0.138 percent to 1.5 percent…If passed, the tax burden of operating in Oregon would increase dramatically when compared with other states.”

Big Private Sector Job Impacts

On job impacts, the LRO report stated, “IP 28 slows private sector employment growth and accelerates public sector growth….Private sector employment is reduced by 38,200 in 2022 compared to the current law forecast, thereby reducing projected private sector employment growth from 148,200 to 110,100 over the 2017-2022 period. Over half of the reduction in private sector employment growth is expected to occur in three sectors: retail trade, wholesale trade and health services.”

The potential jobs hit to workers based in Clark County from IP 28 is real, said John Topogna, president of the economic consulting firm ECONnorthwest. “Any headwind facing the Oregon economy will likely have depressing effects on Vancouver as well,” he said.

Vancouver, Washington is the hub of Clark County, which was Washington state’s second-fastest growing county in 2015 and is the fifth most populous of 39.

A ‘Consumption Tax’ With Big Effects

There may be an upside, of sorts. Clark County could also experience a retail surge and over time, greater gains in technology sector growth if Oregon voters okay IP 28.

The state LRO report found that the measure was expected to act largely as a “consumption tax” that would raise an estimated $3 billion dollars a year through price increases on Oregon consumers. These projections were bad enough for The Oregonian to declare IP 28 “the worst of all possible worlds.”

Clark County residents have often looked across the state border not only for jobs, but also shopping bargains at retail centers like Janzen Beach and Cascade Station. They’ve been drawn by Oregon’s lack of a sales tax. That would change under IP 28, encouraging many to forgo the added commute time and instead visit businesses closer to home.

Tax Will Be Baked Into Higher Prices

Some 1,000 Oregon companies would be directly affected by IP 28, and the effects on consumers who buy in Oregon would be considerable. Moss Adams explains the measure could comprise a defacto sales tax of up to 7.5 percent, with three increments of the 2.5 percent being added to the ultimate purchase price at the manufacturing, wholesale and retail levels.

IP 28’s far-reaching effects would occur across the economy, and one more case in point would be utility companies, LRO’s Paul Warner told KOIN-TV. “One we can see is through utilities. If they get an increase in their gross receipt tax, that will work its way through the system and (to) our retailers and wholesalers. We expect those sectors to experience some price increases,” he said.

‘No’ Campaign Feels Vindicated

The LRO’s report issued last month has sparked a loud reaction from No campaign. They see it as vindication of what they have been saying about the initiative since it was first proposed in July of 2015. “It (the LRO report) practically makes our case for us,” Rebecca Tweed of Defeat the Tax on Oregon Sales told Lens. The coalition is made up of over 800 business groups and trade associations in the state.

Her organization has been calling the measure a “hidden sales tax” that would ultimately be paid by consumers and small businesses, and not by the large out-of-state corporations claimed by supporters.

Teachers Union, SEIU Top Donors To “Yes’ Side

The Initiative is being advanced by a group which calls itself A Better Oregon. Their top donors include the Oregon Education Association and the local branch of the Service Employees International Union (SEIU). Both have given $25,000 in cash contributions. Also heavily involved is Our Oregon, a campaign consulting shop with the backing of public sector unions. It has so far made $300,000 in in-kind contributions to the initiative.

A Better Oregon has argued that IP 28 would provide the necessary funds to “increase Oregon’s high school graduation rate to the national average, make health care more affordable, and allow seniors to stay in their homes longer.”

How the money would be spent isn’t firm yet and would depend on the legislature. Still, if IP 28 is approved it’s clear benefits would accrue more to the public sector in Oregon, and perhaps over time to the private sector in Clark County.

Better Tax Climate Across The River

Though initial job losses in Oregon cited by LRO could be mirrored to a lesser degree in Clark County, the new tax could eventually spark corporate relocations from Portland to Clark County.

Oregon law currently levies taxes on a “cost of performance” basis. Services are taxed based on where they are performed, not on who the ultimate recipient is. So if a large Vancouver IT firm performs work for an Oregon company remotely, those transactions wouldn’t be subject to Oregon’s existing corporate tax. It runs as high as 7.6 percent, and is applied more broadly than would be IP 28.

This has already led Portland software firms to lower their tax burden by moving across the river to Vancouver, says Tapogna. He expects that trend to accelerate if IP 28 passes. The measure would leave this cost of performance method intact while at the same time substantially raising the rate that some tech firms would have to pay, should they stay in Oregon.

Given the nature of technology services, many firms would be able to provide the same level of service for their customers in the Portland market from tax-advantaged Vancouver.

VCs Say Clark County Will be ‘Worth Another Look’ If IP 28 Wins

“Venture capitalists and financiers have already stated this (IP 28) will affect where their money goes, and should it pass, Vancouver would be worth another look,” says Topagna.

A poll conducted in November of last year found 60% of Oregonians were supportive of IP 28. The LRO’s projections of higher prices and fewer jobs may turn many voters against it, however.

A Better Oregon reported on May 20 that it had already raised the required 88,184 signatures for their initiative to qualify for the ballot. Once signatures are confirmed by the Secretary of State after July 31, the measure can be certified for November. A Better Oregon has raised $364,341 in cash and in-kind contributions in support of IP 28, through June 5.

Defeat the Tax on Oregon Sales officially filed with the state on June 9th, after IP 28 proponents turned in signatures. There are no indications yet of how much the campaign has raised. The Oregon Business Association Political Action Committee, which has pledged to help fund the No campaign, has raised $90,100 in cash and in-kind contributions during 2016, with the last contribution received on May 10.

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