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 ......................... Mollie Lynch
News clerk....................................Lisa Lester Kelly
Advertising representative...............Juli Bloodgood
Sports editor .......................................Ronald Bond
Advertising representative...................... Amy Horn
Reporter................................................Dick Mason
Graphic design supervisor................Dorothy Kautz
Reporter....................................Sabrina Thompson
Graphic design ..............................Cheryl Christian
Classifieds ........................................ Devi Mathson
Chris Rush, Regional Publisher