Oregonians are experiencing a barrage of pro and con advertising on Measure 97, the corporate gross receipts initiative. Nevadans can relate.
Like most states, Nevada has struggled to raise revenue for its public schools as the state’s full-time population has grown and revenue from gambling operations hasn’t kept pace. Since Nevada’s constitution expressly prohibits a personal income tax, lawmakers have centered their attention on corporations.
They began with what is called a Modified Business Tax (MBT), which roughly resembles a payroll tax that applies to gross wages of employees. The MBT hasn’t generated enough revenue, so in 2014 Nevadans voted on an initiative to impose a “margin tax, modeled after the Texas Franchise Tax, with all proceeds dedicate to public education. They rejected the idea by a 78 percent majority.
Republican Governor Brian Sandoval, who was re-elected in November 2015 by a percentage similar to the margin tax ballot measure defeat that he opposed, convinced the 2015 Nevada legislature to adopt Senate Bill 483, which provides for a “commerce tax” that by any other name is a gross receipts tax. Nevada businesses subject to the tax begin paying it this year. Opponents are trying to repeal the Commerce Tax.
Couched as a tax on the “privilege of engaging in a business” in Nevada, the tax is based on gross revenues, with no subtractions for cost of goods or expenses. The first $4 million in gross revenue is exempt and there is a long list of exclusions that includes complementary goods and services, the value of cash discounts and the sale of exchanges of trademarks or other intellectual property.
Another feature of the Nevada Commerce Tax is varying rates applicable to different business sectors. For example, the Commerce Tax rate for for mining is 0.051 percent compared to 0.091 percent for manufacturing, 0.111 percent for retail trade and and 0.261 percent for waste services.
Passage of Measure 97 in Oregon this fall will likely require legislative action to provide similar kinds of details as contained in Nevada’s Commerce Tax to address a variety of business circumstances. Failure of Measure 97 might result in a corporate tax restructuring with many of the nuances Nevada lawmakers embraced in SB 483. In either case, it will be a Mardi Gras for special interest lobbyists in the 2017 Oregon legislative session.
Some tax experts warn that gross receipt taxes have inherent flaws, not the least of which is being regressive, which accounts for why most of them have been cashiered. Nevada opted for a version of a gross receipts tax because of a political aversion to a corporate income tax.
Oregon already has a corporate income tax. Measure 97 would act in many respects like a corporate minimum tax on corporations with $25 million or more in annual sales in Oregon. In fact, a gross receipts tax has been proposed previously in the Oregon legislature as a corporate minimum tax, but never gained much political traction.
The corporate income tax in Oregon is based on a single sales factor, which means corporations pay a portion of their taxable income based on the percentage of sales they have in Oregon, not on how much property or how many employees they have in the state. The single sales factor was lobbied into law by a coalition of large corporations. Retention of the single sales factor was the reason Nike threatened not to expand here unless it was assured that factor couldn’t be changed in calculating its Oregon income tax liability tax.
Nevada’s experience with the Commerce Tax is just underway in the shadow of a repeal effort that has ben clogged up in court by defenders of the tax. That might presage what life in Oregon will be like regardless whether Measure 97 passes or fails November 8.