SALEM — Lawmakers in the Oregon Senate’s Finance and Revenue committee are expected to release a package of measures next week that will likely include a broad-based tax on business.
Facing a nearly $1.8 billion shortfall to maintain existing services, business tax talks are occurring in the context of a larger discussion legislators are having about the volatility of state revenue.
Most of the state’s general fund comes from income taxes, which rise and fall with changes in the economy and produce what State Rep. Cliff Bentz, R-Ontario, has described as “crazy gyrations.”
The Senate Finance and Revenue Committee Thursday discussed the merits of three main types of business taxes — a gross receipts tax, a value-added tax and a corporate income tax.
As the name implies, a gross receipts tax is applied to a company’s gross sales. It is paid regardless of whether those receipts generate a profit.
Measure 97, a $6 billion state gross receipts tax that applied to certain corporations, was defeated at the ballot box in November. The tax would have required some corporations to pay the state 2.5 percent of their annual Oregon sales exceeding $25 million. Because it only applied to “C” corporation, it would have applied to a relatively small number of businesses.
Legislators and lobbyists have since discussed the possibilities for a smaller tax spread over a broader base of businesses.
A corporate income tax generally taxes gross receipts minus several deductions such as labor costs and operating expenses, and typically at a higher rate than a value-added tax or gross receipts tax.
A group of public finance economists, whose study of Connecticut state taxes lawmakers reviewed Thursday, found that the corporate income tax “has been eroded by intense inter-state competition for economic development,” Oregon’s legislative revenue officials wrote in a summary document.
A value-added tax is collected in increments at each stage of production. It can put companies at a competitive disadvantage if they sell their goods out of state, where they may be taxed again.
A gross receipts tax generally has a broader base, meaning there are few or no deductions from what is taxed. It is also typically simpler to administer than a value-added tax.
A broader base has advantages, said Paul Warner, the head of the Legislative Revenue Office, because it minimizes distortions in the broader economy but can be a “powerful revenue generator.”