Since it was passed by the Oregon Legislature last year as part of its education reform package, we’ve been hearing producers and vendors express concerns over the state’s corporate activity tax.

The tax requires businesses that generate more than $1 million annually to pay in addition to their regular income tax a 0.57% tax on that “excess” revenue. It is expected to raise $2.8 billion over the 2021-2023 biennium for schools.

It is a gross receipts tax.

The plan is similar to the ill-fated Measure 97, an initiative petition voted down in 2016 that would have imposed on “C” corporations an additional 2.5% tax on gross receipts from sales in Oregon exceeding $25 million. It would have raised $3 billion per two-year budget cycle.

While the corporate activity tax is only slightly less ambitious than Measure 97 in terms of the revenue it seeks to raise, it sweeps far more businesses into its net. C and S corporations, partnerships, sole proprietorships and other entities are subject to the tax.

And any business that generates $750,000 in revenue must register with the Oregon Department of Revenue.

Advocates like the gross receipts tax because they claim businesses use recognized deductions to avoid corporate income taxes.

The biggest problem with a gross receipts tax is that it must be paid regardless of whether the business in question makes a profit. High-volume, low-margin businesses such as farming can be on the hook for a big tax bill without making a dime.

The impact of the tax is cumulative, with each vendor in a supply chain adding to its price to help cover the cost. The end user of a product — a farmer with a piece of farm machinery — pays the full load without necessarily being able to pass that expense along to whoever buys the crop.

The legislature exempted out-of-state sales. In theory that should work in favor of Oregon agriculture, which sends as much as 80% of its product out of the state. But in reality, agricultural exports are often commingled — such as grain or berries that are sold to the same processor or wholesaler. That makes it difficult to certify what is actually exempt from the tax at the farm level.

The Oregon Farm Bureau is lobbying to get the legislature to exempt agriculture from the tax. That would clear up the confusion and would also create an even playing field between producers who often don’t have a say on where their products are sold.

We wish it luck, for once the state latches onto a tax dollar it is loath to let it go.

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