Herb Rothschild Jr.: Corporate taxes
This is the second of three columns on Measure 97 which, if passed, will raise funds intended for education, health care and senior services by increasing the minimum tax on corporations with $25 million or more in annual Oregon sales. Peter Buckley, our outgoing state representative, says it would solve the state’s fiscal problems for the foreseeable future. He should know. His long service on the Joint Ways and Means Committee has made him an authority on Oregon’s finances. I’ve been running these columns by him to avoid factual errors.
I'm covering two subjects in two more columns: the taxes corporations now pay, and whether consumers, not large corporations, will pay for Measure 97. Both are points of contention. This week, taxes.
Proponents of Measure 97 claim Oregon has the lowest corporate taxes in the nation. Opponents deny this, citing our statutory rates of 6.6 percent on taxable income up to $1 million and 7.6 percent on income greater than $1 million. If corporations paid at those rates, Oregon would rank in the mid-range nationally. But they don’t. Corporations enjoy 51 tax credits created by the Oregon Legislature. That’s in addition to the corporate income tax breaks in federal tax rules, which matter because Oregon uses a corporation’s federal return as the starting point for figuring its state tax obligation. Other Oregon rules changes and some corporations’ use of tax shelters have also lowered corporate tax bills. (See the 2016 report “The Gaming and Decline of Oregon Corporate Taxes” on Oregon Center for Public Policy’s website.)
Because of these fairly recent federal and Oregon tax breaks, corporations have succeeded in shifting an ever-increasing share of state income taxes and property taxes onto individuals. In the mid-'70s, corporations paid 18.5 percent of Oregon’s total income taxes; last year it was 6.7 percent. In the 1987-88 fiscal year, businesses paid about half of all property taxes levied in Oregon and households paid about 42 percent. By the 2014-15 fiscal year, the business share of property taxes was about 40 percent, the household share 54 percent.
Oregon has an alternative to its business income tax. It’s the minimum tax based on a corporation’s sales. We must understand this tax and who pays it, because the minimum tax is what Measure 97 would raise.
In 2013 more than two-thirds of the 29,475 corporations that paid Oregon income taxes paid only the minimum tax. Included among them were 398 corporations with Oregon sales of at least $25 million. And of those, 78 had Oregon sales in excess of $100 million. Currently the minimum tax starts at a paltry $150 on sales up to $500,000. It rises to $30,000 on sales of $25 million to $50 million; $50,000 on sales of $50 million to $75 million; $75,000 on sales of $75 million to $100 million; and $100,000 on sales above $100 million. This means corporations like Walmart are probably paying Oregon taxes equivalent to 1/10 of 1 percent of their sales here!
Measure 97 would require all C corporations (shareholder-owned and taxed separately from their owners’ income taxes) to pay a minimum tax of $30,000 and also pay 2.5 percent on their Oregon sales of $25 million or more. If it passes, large corporations will finally bear a fair share of funding the public good.
Next week: Will consumers, not corporations, foot the bill?
— Herb Rothschild's column appears in the Tidings every Saturday.