Don C. Brunell: Oregon’s Tax Measure Potential Boom for Washington

Washington’s next economic development plan may be written by Oregon voters next November.

The plan’s centerpiece is a new gross receipts tax which would transform Oregon from one of the nation’s lowest business tax burden states to one of the nation’s highest.

IP28 (Initiative Petition) would create a 2.5 percent tax on total sales for companies operating in Oregon. The threshold is $25 million or more each year.

If enacted, it would set a $30,000 annual minimum tax for these corporations and then tack on another 2.5 percent on sales above $25 million.

According to Oregon’s Legislative Revenue Office (LRO), a non-partisan state agency, the initiative impacts more than 1,000 businesses and is projected to raise $6 billion each biennium – a whopping five-fold hike in corporate tax collections.

IP28 is sponsored by Better Oregon, a labor union coalition led by the Oregon Education Association, and targets “big business.” Proponents claim it would tap a tiny portion of Oregon businesses while bringing a huge revenue boost to cash-strapped public education, health care and senior services.

LRO reports LP28 would have the exact opposite impact. Rather than soaking the rich and large businesses, passage would result in more than 38,000 private sector job losses. Most notably, the accompanying price increases harm small and medium-sized businesses and consumers, particularly people earning less than $21,000 a year.

"Oregon would have the worst corporate tax climate in the country," Nicole Kaeding, an economist for the Tax Foundation, Washington, D.C., told Fox News. “That's (IP28) a sales tax on steroids. It taxes sales at each level of production rather than only when, say, consumers buy milk at the grocery store.”

While proponents also may point to Washington, which has a gross receipts tax (business and occupation or B&O) and generates a more consistent flow of revenue to the state than Oregon’s income taxes, IP28 is much different and more draconian.

IP28 does not repeal the income tax; it adds another layer of taxes. Washington’s B&O was put in lieu of its income tax. It was necessitated by a 1933 state Supreme Court decision which invalidated the personal and corporate income taxes.

Our state’s B&O rate only reached 2.5 percent in 1993 when Washington lawmakers raised it temporarily to balance the state’s budget. It is important to note it only applied to the service sector – banking, financial management, accounting and legal services. By 1996, it was rolled back to the traditional rate of 1.5 percent.

The key reason the services B&O tax is the highest category is because our sales tax is not charged on services. Since Oregon is one of five states with no sales tax – unless IP28 passes – its approach has been to tax all business based on income after expenses.

For manufacturers, the B&O rate is vastly lower. It is just below a half of one percent. Levying a five-fold gross receipts tax on manufacturers would be crippling for Oregon industry.

When Washington found it was not competitive in attracting manufacturers, it granted a sales tax exemption for purchases of machinery, equipment and replacement parts. The incentive was established in 1996 to stimulate manufactures to invest in Washington.

The bottom line is Oregon voters need to remember that Washington and California have heavy concentrations of large businesses and stand to benefit from passage of IP28. While all parts of Washington would gain, the corridor between Vancouver and Longview could be the biggest winner.

With no personal or corporate income taxes, lower property assessments and access to sales tax free Oregon, the “IP28 migration” across the Columbia River could be an economic boom to our state.

(Don C. Brunell is a business analyst, writer and columnist. He retired as president of the Association of Washington Business and now lives in Vancouver. He can be contacted at theBrunells@msn.com.)