A New Approach to Oregon’s State Taxes: IP28

The Oregon Legislature is proposing an interesting approach to state taxes. Initiative Petition 28, or IP28, is designed to raise more than $6 billion in revenue every two years for public education, health care and senior services. How? The petition would raise the state’s business tax rate by creating a gross receipts tax on C corporations of 2.5 percent on sales above $25 million.

3 Positives to IP28

There are a few positives to this approach to state taxes.

1. Analysis reveals that IP28 would reduce Oregon’s revenue from personal income taxes from the highest in the country (69 percent) to 55 percent.
2. Because of increased tax revenues, it’s expected that employment in Oregon’s public sector would increase.
3. Despite increasing state taxes for corporations, more than 28,000 companies would remain unaffected.

7 Negatives to IP28

That being said, IP28 is facing a lot of criticism – especially from the business community. Arguments against this proposed change to Oregon’s state taxes include:

1. Oregon businesses that reach more than $250 million a year in sales would be responsible for about half of the new tax obligations. Analysis showed their increases in costs would likely result in price increases for their consumers.
2. Although the revenue raised is earmarked for public education, health care and senior services, the language of the petition doesn’t mandate it, which means the Legislature could turn around and spend the funds elsewhere.
3. According to legislative analysis, IP28 would result in 38,000 private sector jobs lost in the next 5 years.
4. Oregon would become one of six states in the nation with state taxes like this, plus it would become the second highest rate in the country behind Washington.
5. The proposed legislation adds a gross receipts tax on top of the existing corporate income tax, making an already complex corporate tax structure even more confusing.
6. The state’s corporate tax climate would fall to the worst in the country according to the State Business Tax Climate Index.
7. IP28 would make Oregon companies less competitive than other businesses nationwide because these types of state taxes are on sales, not profits; many products would be taxed multiple times before making it to the consumer – and the more times parts of the product are sold within the state, the more the taxes compound on top of each other. The Daily Journal of Commerce gives an example of this:

“A forest products company selling logs to a mill could be taxed, the mill selling lumber to a retailer could be taxed, the retailer selling lumber to a contractor could be taxed, and the contractor selling the building to the end purchaser could also be taxed…the nonpartisan Legislative Revenue Office has estimated that IP28 would increase taxes on Oregon sales by more than $5 billion per two-year budget cycle.”

Our Take on IP28’s Effect on State Taxes

As you can see, this proposed legislation could negatively impact businesses across the state of Oregon. We think states should generally opt for either a gross receipts type tax or an income tax – but not both, layering on the confusion. We’ll be following this initiative as voters head to the polls in November to see what our neighbor state ends up with when the dust shakes out.

What else is in store for state taxes across the country, and how might they affect your business? Contact us to find out! We’re happy to answer your questions about nexus, multi-state tax issues and more.

Miles Consulting Group, Inc. is a professional service firm in San Jose, California specializing in multi-state tax solutions. Our firm addresses state and local tax issues for our clients, including general state tax consulting, nexus reviews, tax credit and tax incentive maximization, income tax and sales/use tax planning and other special projects, including the new California Partial Manufacturer’s Exemption for Sales Tax. To learn more, contact us today at www.MilesConsultingGroup.com.