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About The Observer. (La Grande, Or.) 1968-current | View Entire Issue (Sept. 13, 2019)
4A FRIDAY, SEPTEMBER 13, 2019 The Observer On the Fence How will Oregon’s new gross receipts tax impact small businesses and rural Oregon? ‘The rich should contribute to the public expense’ Well-intentioned policy will burden or extinguish local businesses “It is not hard to make decisions when you know what your values are.” — Roy Disney No aspect of state tax policy has been more controversial, or caused more dis- comfort for the rich, than allegations that some corporations, individuals and income groups don’t pay their fair share. On Jan. 1, 2020, Oregon businesses and individuals with annual in-state revenues exceeding $1 million in revenues will begin paying the new Corporate Activity Tax (CAT). The Legislature through bipartisan negotiations and with no opposition by Oregon Business and Industry, the state’s largest business group, recognized what many Oregon businesses and residents al- ready knew: “We were failing our children.” In a U.S. News 2019 ranking of states report in Willamette Week based on how well states perform for their citizens, Oregon ranked number 27. This was a sharp decline from the 2018 Best States report, where Oregon was number 16. Oregon’s below-average rating is due to low rankings in education and opportu- nity. A rating that business and education leaders recognize as not good for Oregon, its business community and certainly not its citizens. One bright note: Oregon did place higher than most U.S. states in terms of infrastructure (energy, internet access and transportation) and economy. Who benefi ts from the CAT gross receipts tax? Education — the new tax is expected to add upward of $1 billion to our schools and educational system. Clearly some- thing that parents, teachers and school districts in Union County will use to elevate Oregon and our children’s chance at a better life. Working families — this new law low- ers tax rates for Oregon personal income taxes. Personal income tax rates, on average, will drop 0.25% across income tax brackets below $125,000 on Oregon- sourced income. This will directly benefi t working people in Union County who needed relief. Business — every industry, including insurance companies and fi nancial insti- tutions, will see their proportion of tax in- crease unless they are “excluded persons,” a term that covers governmental entities In rural communities, sometimes even well-intentioned policies decided from afar can have particularly devastating and often unforeseen impact. The domino effect from ill-conceived laws can have an exaggerated infl uence where there is less “cushion” than in larger markets. This is true of Oregon’s new “gross receipts tax” law, which has the potential to cripple local businesses, which, by extension, will harm all of us who rely upon those businesses, whether as employ- ees or consumers. On May 16, 2019, Gov. Kate Brown signed House Bill 3427 into law, which im- posed a new Corporate Activity Tax (CAT) on companies with annual in-state rev- enues of more than $1 million. The new law is set to take effect on Jan. 1, 2020, unless a special election halts its implementation. This new tax applies to virtually all forms of business, including C and S corporations, individuals, joint ventures, partnerships, trusts, estates and any entity that is dis- regarded for income tax purposes, such as certain LLCs. Sound familiar? Oregon voters rejected a similar “gross receipts tax” just three years ago, when they overwhelmingly voted down Measure 97. Experts on both sides of this issue agree this new tax is likely to be put back before voters in a special election, which is likely to occur in early 2020. Despite a strikingly clear mandate from the people with the defeat of Measure 97, lawmakers made a dramatic end-run around the express will of the people. Aside from misjudgment in doing so, the practical effects of pursuing such a course of action will be long felt. So just what is a gross receipts tax? His- torically (and uniformly elsewhere), busi- nesses are taxed on their actual/net income, after business expenses. Under the new law, a business will be taxed on its gross receipts (yes, you read that right). Many small- and medium-sized businesses carry a signifi cant proportion of overhead (e.g., payroll, licensure, etc.). To tax these busi- nesses on their gross revenues — rather than their income — will have a dramati- cally disproportionate effect when com- pared to large corporations, as their mar- gins are smaller and there is less “cushion” to absorb such a signifi cant burden. This equates to downsizing and lost jobs and RANDY KNOP UNION COUNTY PROGRESSIVES/DEMOCRATS as well as certain nonprofi ts, hospitals and long-term care facilities. Protecting these services that provide medical care, nonprofi ts that support good causes and care facilities that aid and provide for those in our community with the greatest of needs was a priority and will continue to be under this new tax. But, do not think for one second that businesses were not able to lobby our representatives in Salem to get some favorable terms from this new tax. There are 43 types of excludable gross receipts under the CAT. Just to name a few: interest income (other than interest on credit sales); receipts from the disposi- tion of IRC Sec 1221 and 1231 assets; dividends, partner/shareholder’s distribu- tive share of income from a pass-through entity; sales to Oregon wholesalers who certify that the property will be resold outside of Oregon; and intercompany transactions among members of a unitary group. In addition, there are special exclusions for many specifi c industries such as gas and fuel sellers, grocery stores, utilities, telecommunications service providers, heavy equipment providers, vehicle dealers and agricultural cooperatives. Clearly, your legislators understood where in our com- munity those businesses that deal directly with consumers in product delivery and agriculture needed and should be excluded and did so by providing special exclusions. In conclusion, I leave you with a few sage words from Adam Smith (1723- 1790). The Scottish philosopher and economist who is best known as the author of “An Inquiry into the Nature and Causes of the Wealth of Nations” (1776), one of the most infl uential books ever written. Echoing the message in Luke 21 that a few pennies from a poor woman’s purse costs her more than many pieces of gold from a rich man’s horde, Smith wrote in “The Wealth of Nations”: “It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but some- thing more than in that proportion.” SUBSCRIPTION INFORMATION Stopped account balances less than $5 will be refunded upon request. Subscription rates per month: By carrier...............................................$11.80 By mail, all other U.S. .............................. $15 A division of UNION COUNTY REPUBLICANS would be a signifi cant deterrent to growing the economy by expanding and succeeding in increasing revenue and tax base. Proponents of this new tax emphasize that it “only” applies to businesses with gross revenues over $1 million annually. Because the new measure looks at gross revenue, it casts a net that captures a signif- icant portion of the local businesses you and I frequent on a daily basis in Union County. Moreover, if a small business owner is work- ing hard, doing well and growing to add jobs for a small community, this bill would kill any motivation to continue to grow and add benefi t to the community, knowing that this leviathan of a tax lurks just around the corner once he or she hits the smaller-than- it-sounds $1 million gross revenue mark. What’s more, a medium-sized business that is newly past that threshold would likely be gutted by this burden. If you burden or extinguish local busi- nesses, you also kill local jobs and the tax base for our communities. This law will have a direct impact on our local busi- nesses; thinking that this is a nebulous revenue source far removed from home is perilous. “Businesses” are your neighbors, your family members, your employers or even you. This law has the potential to cripple employers, manufacturers, suppliers and service providers in our community in myriad ways. I think we can all agree that funding education is vitally important. However, the issue here is not whether education is a de- serving recipient of state funds; the issue is the cost and casualty of jobs and revenues in attempting to chase a solution that can- not be sustained. Experience tells us that eviscerating the economic building blocks of a community can be hard, if not impossible, to come back from. Eliminating even more jobs by burdening small- and medium-sized businesses is very likely to actually harm the schoolchildren we are trying to help, who may fi nd there are no jobs for them available here when they are ready to fi ll them. Let’s not make our qualifi ed students and children our greatest export. May we learn this lesson before it is too late. STAFF Phone: SUBSCRIBE AND SAVE NEWSSTAND PRICE: $1.50 You can save up to 34% off the single-copy price with home delivery. Call 541-963-3161 to subscribe. LAURA ECKSTEIN 541-963-3161 An independent newspaper founded in 1896 (USPS 299-260) The Observer reserves the right to adjust subscription rates by giving prepaid and mail subscribers 30 days notice. Periodicals postage paid at La Grande, Oregon 97850. Published Mondays, Wednesdays and Fridays (except Dec. 25) by EO Media Group, 1406 Fifth St., La Grande, OR 97850 (USPS 299-260) COPYRIGHT © 2019 THE OBSERVER The Observer retains ownership and copyright protection of all staff-prepared news copy, advertising copy, photos and news or ad illustrations. They may not be reproduced without explicit prior approval. Toll free (Oregon): 1-800-422-3110 Fax: 541-963-7804 Email: news@lagrandeobserver.com Website: www.lagrandeobserver.com Street address: 1406 Fifth St., La Grande POSTMASTER Send address changes to: The Observer, 1406 Fifth St., La Grande, OR 97850 Periodicals postage paid at: La Grande, Oregon 97850 Publisher........................................Karrine Brogoitti Home delivery advisor.................Amanda Fredrick Regional circulation director ....................Kelli Craft Customer service rep ......................... 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