The state’s largest business organization made a stunning pivot Monday night in pulling its opposition to the largest tax proposal in front of the 2019 Legislature.

Oregon Business & Industry is now “neutral” on a business tax that would fund massive reform to the state’s education system.

For months, OBI was vocal in its opposition to the plan, but said it got enough concessions in private meetings with House Speaker Tina Kotek, D-Portland, that it will no longer try to stand in the way of the tax.

The move left a deep split in the business community.

“A deal implies we actually got something,” said business lobbyist Shaun Jillions, who heads the trade association Oregon Manufacturers and Commerce.

“We don’t feel positive about it at all,” he told the Oregon Capital Bureau.

Under a proposal approved by a legislative committee Monday night, most Oregonians would see their income tax rate dip slightly, while many businesses would pay more.

The tax plan attached to House Bill 3427, which is scheduled for a House vote May 1, requires most businesses to pay about half a percent of their annual sales over $1 million.

OBI preferred a different tax that would have allowed businesses to deduct more of their costs from the sales figure used to calculate the tax. Its concession to the tax deal gave Kotek a huge political win.

The business lobby has warned that taxing gross receipts would create an effect known as “pyramiding,” in which businesses with more complicated production processes end up paying more because every intermediate transaction — business-to-business sales — is taxed.

However, following some tweaks to the tax proposal to increase deductions, OBI is staying neutral on the tax proposal, according to Sandra McDonough, its president and chief executive officer.

“Our biggest concern was pyramiding, and we wanted something that would address pyramiding,” McDonough said. “We didn't get as much as we wanted, but we got something.”

OBI represents a range of businesses from Freres Lumber Co. in Lyons to the GPS giant Garmin.

To get the business group to move, Democrats agreed to increase from 25% to 35% the amount of labor or production costs that can be deducted as well as how that deduction is calculated.

Sen. Mark Hass, D-Beaverton, said he and other lawmakers crafting the tax plan tried to balance feedback from various groups. He’s glad to have the agreement with OBI.

“It acknowledges a compromise and avoids a protracted, divisive fight that Oregon doesn't need,” Hass said.

That’s not to say the entire business community approves.

Jillions was incensed by the result.

He spent Monday at OBI’s Salem office, getting updates from McDonough and Jodi Hack, CEO of the Oregon Home Builders Association, who walked the block between OBI and the Capitol, where they met with Kotek on and off in her office. When Jillions heard about the deal, he got up and walked out.

Jillions wasn’t alone. Unified Business Oregon, a nonprofit that lobbies on behalf of business, bashed the deal in a press release Tuesday. The National Federation of Independent Business, representing smaller businesses across Oregon, is also “a solid ‘no,’” said Anthony Smith, NFIB Oregon state director.

Negotiations between the business community and Kotek picked up last week. When it was clear on Thursday that OBI still opposed the tax plan, legislators set aside a planned vote that evening. Talks went through the weekend and all day Monday.

At lunchtime, the sides remained at a stalemate, Jillions said. Then circumstances changed.

Aside from the tweaks to HB 3427 itself, in exchange for OBI’s neutrality on the education bill, Kotek agreed to kill legislation that would tax employers whose employees’ low wages qualify them for Medicare. Many in the Capitol, including Jillions, had already considered the idea a political corpse.

Interviews established that negotiators on Monday also agreed on a paid family leave proposal that would slightly favor employers in a cost sharing agreement.

Kotek also agreed that a proposal to take money from the state-run workers’ compensation insurance company, SAIF Corp., could go forward only if the insurer’s board approved. The directors are appointed by the governor and it was Gov. Kate Brown who suggested taking money from SAIF to offset PERS costs.

Instead, Democrats and OBI agreed to otherwise reform the state’s public employee pension system, but no specifics were discussed.

Kotek declined to comment, but her office didn’t dispute the account of Monday’s politics.

“From a manufacturing perspective, this is a big hit,” Jillions said.

Jillions said he’s organizing a coalition of business groups to lobby against the education funding bill.

“Unfortunately, the business community is not unified in the position that OBI took,” he said.

Although OBI declared itself neutral, McDonough nonetheless took the unusual step of testifying on the tax plan before it passed out of committee.

“Historically, when you’re neutral on something, you just sit quietly,” Jillions said. “That’s what neutral means. You don’t go up and testify and say, ‘Yeah, we’re good with it’ because that’s not neutral. That’s actually supporting it.”

Asked if OBI’s position could shift further, McDonough didn’t directly answer.

“I said that we are neutral, and that's where we are,” she said.

The Portland Business Alliance is on board with the version of HB 3427 that is now before the full House, according to a spokeswoman.

“The compromise that's moving forward, we're supportive of,” Amy Lewin said.

The Coalition for the Common Good, a group that includes major labor organizations, Washington County-based Nike Inc. and some other businesses, also cheered the bill’s advancement.

“This measure also raises more than $2 billion per biennium in investments dedicated to education, is administratively feasible, and can win the support of key business leaders, advocates, the state Legislature and Oregonians,” declared the coalition, which has been backing the proposal.

Three-fifths of the House and Senate are needed to raise taxes in Oregon, and unless Democrats can win cross-party support, they need all 18 of the votes they have in the Senate.

But some of the major players are already looking beyond the Legislature.

Over the past month, Nike has quietly pumped $110,000 into the Common Good Fund, a political action committee controlled by Nike lobbyist Julia Brim-Edwards, as The Oregonian/OregonLive.com first reported.

Jillions’ Oregon Manufacturers PAC, meanwhile, is sitting on a $32,000 war chest. Another political action committee with which Jillions is associated, called Defeat the Tax on Oregon Sales Now, was set up just last week.

Hass said it’s still “very, very possible” that the education package is referred to the ballot next year, although he added, “I know it won't be OBI leading the charge.”

“This is the most powerful education bill I've been involved with in 17 years,” Hass said Tuesday. “This is going to help kids reach their highest potential. And I think if what we saw yesterday is any indication, we've got business groups, who are usually violently opposed to taxes, standing down because they know how important this is. And I feel good about that — I feel very good.”

Although frustrated by the turn of events, Jillions gave Kotek credit for her skillful negotiating.

“It was always going to be difficult to keep the business community unified this session,” Jillions said. “I think the speaker did a good job figuring out where she could drive a wedge.”

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