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Wednesday, June 28, 2017

Gross Receipts Tax: Oregon Says No

We are not the only state fighting a Gross Receipts Tax. The Register-Guard,  a newspaper out of Eugene, OR, reports:
Oregon’s Democratic leaders have thrown in the towel on their effort to pass a major new tax on businesses this session. Despite months of negotiations and maneuvering and a mountain of different proposals, the defeat came down to simple arithmetic. Majority Democrats couldn’t get the 18 votes they needed in the 30-member state Senate to pass a gross receipts tax. Gov. Kate Brown, House Speaker Tina Kotek and Senate President Peter Courtney conceded in a joint statement on Thursday that the concept was dead. The Legislature will now shelve major tax changes until the 2019 long session at the earliest, they added, essentially ruling out a renewed effort in a special session or in the short 2018 session.
In other words, the Oregon tax hikers have not given up.
They just decided to pull back and regroup. Literally:
“It has become clear that the Legislature will not have the necessary support to achieve structural revenue reforms this session,” they said. That opens the door for a ballot measure fight over corporate taxes in 2018, something public employee unions are already preparing for.
Over at the Tax Foundation, a Washington, DC-based think tank, they are taking credit for having slowed the progress of the GRT in Oregon. That is good. We could need some help doing the same here in Wyoming. I doubt, however, that the Tax Foundation will provide such help: for as long as anyone can remember, they have been putting out their annual tax business-climate studies, which rank Wyoming as best in the country - all the while Wyoming's private sector performs worse than in 48 or so other states. 

I have, over the years, made numerous requests to Joe Henchman and others at the Tax Foundation to explain this discrepancy between "good for business" taxes and terrible business performance. My requests have not only gone unanswered, but has led Mr. Henchman to issue a fatwa within the Foundation's organization: nobody is supposed to talk to me, answer my e-mails, address my phone calls or interact with me at conferences. 

No, I am not kidding. The East Coast, from Times Square to Tysons Corner, is full of tenderfoot conservatives whose first and foremost priority is to have lunch at the University Club. 

I guess it does not help that I have found the Tax Foundation's research to be of deteriorating quality over the years, and sometimes even proposing destructive new taxes. Therefore, it was delightful to see that the Tax Foundation has actually contributed to temporarily stopping the GRT in Oregon. 

That said, since the GRT is only on hold in the Beaver State, we here in Wyoming might want to take a look at it. 

The GRT that they have discussed in Oregon has taken different forms over the past session. The most recent version, says the Register -Guard,
would apply to all businesses’ sales in Oregon over $3 million a year, at a tax rate varying from 0.25 to 0.75 percent.
This rate seems innocent enough, does it not? Well, in order to bring in the "necessary" new revenue here in Wyoming, a GRT would have to be about two percent, in other words three to eight times higher than the tax they have been talking about in Oregon. 

The Oregon GRT is comparable to the Commercial Activity Tax in Ohio, which the Ohio Department of Taxation defines as follows:
The commercial activity tax (CAT) is an annual tax imposed on the privilege of doing business in Ohio, measured by gross receipts from business activities in Ohio. Businesses with Ohio taxable gross receipts of $150,000 or more per calendar year must register for the CAT, file all the applicable returns, and make all corresponding payments. 
Both the Oregon GRT and the Ohio CAT give us an idea of what a Wyoming GRT might look like. For one, there may or may not be an exemption for small businesses. The Ohio exemption for gross sales below $150,000 is a way to alleviate the burden for businesses with only one employee, but it also creates an artificial threshold for business start-ups that want to hire their first employees. 

In Oregon, the proposed $3-million GRT exemption is a way to appease angry electronics businesses who moved to Oregon to escape a Tax Hell we also know as California. Some 15 years ago, that flight was led by Intel, and since then a lot of electronics manufacturing has relocated from the People's Republic to Oregon. 

Will there be an exemption in the Wyoming GRT? On the one hand, an exemption would alleviate the burden and spare small businesses; on the other hand, an exemption creates a threshold that discourages business expansion. Furthermore, it distracts from the real problem with the tax: its very existence. 

Another question regarding our tax is whether or not it would replace other taxes. In Oregon, it would not. It would be slammed on top of existing taxes, which, to be honest, are not very low. The Beaver State does not have a state sales tax, and places tight restrictions on its property tax, but they do grab a big chunk of personal income: couple filing jointly pay 9 percent on anything they earn above $16,800 and 5-7 percent on what they earn there below. If they pull in more than $250,000 they climb into the 9.9-percent income tax bracket. 

In Ohio, on the other hand, the Commercial Activities Tax (CAT) gradually replaced business property taxes and the franchise tax. While the GRT/CAT is a bad idea in itself, its negative effects are at least somewhat alleviated if businesses do not have to pay other taxes. In a sense, it has more of a neutrality profile since it punishes all sales; a property tax is more burdensome for businesses that rely heavily on real estate for their operations, while a franchise tax - obviously - discriminates against one type of business ownership. 

If we get a GRT here in Wyoming - and word has it the Joint Revenue Committee is in favor of it by the votes 11-3 - it would be based on the same tax policy idea as in Oregon: grab sales revenue before businesses have a chance to pay any of their expenses. A GRT would force Wyoming businesses to pay other taxes out of already-taxed sales revenue. 

Lastly, it is worth noting, again, that our GRT would be higher than in Oregon or Ohio. The Oregon GRT rate would fall in the 0.25-0.75 percent range; the Ohio CAT caps out at 0.26 percent. Here in Wyoming we would be hit with a two-percent rate to make the revenue difference the Joint Revenue Committee wants. (And that is before we take into account the negative effects of that tax on the very economic activity that pays the tax.)

At the end of the day, though, the tax rate matters less than the policy behind it, namely the illusion that Wyoming businesses have too much money in their pockets.

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