Measure 97 would be the biggest tax increase in Oregon's history, generating an estimated $3 billion a year for public education and other state services.
The initiative would levy a 2.5 percent tax on many companies' Oregon sales over $25 million. But Measure 97 exempts some types of businesses and applies differently to others.
The measure's backers say Oregon's business taxes are unusually low, and argue Measure 97 would make large companies pay their fair share for state services. Opponents call the initiative a hidden sales tax, and say consumers would end up paying some of the bill.
It's a complex, unusual initiative. Here are some answers to the questions we frequently hear about the tax.
Are Oregon's business taxes really so low?
Yes, at least relatively speaking. Businesses pay 37.6 percent of Oregon's state and local tax revenue, according to estimates by the Council on State Taxation. That compares to 45 percent nationally.
As a share of total economic activity in the state, Oregon businesses' tax bills are the lowest in the nation.
Those rankings reflect the absence of an Oregon sales tax, which in other states is paid by both consumers and businesses. They also reflect a relatively high personal income tax (which helps compensate for the low business taxes) and Oregon's unusually robust economic output, skewed upward by one extremely large manufacturer: Intel.
A May study by the nonpartisan Legislative Revenue Office found Measure 97 would move Oregon businesses' share of the state's total tax burden to 45.4 percent, on par with the national average.
What happens to the economy if voters raise business taxes?
The legislative study found both positive and negative effects. Oregon would still see employment growth, about 145,000 jobs over five years. But without Measure 97, the state could expect more than 165,000 new jobs, the study found. That's the net effect of more public sector jobs and slower growth in private sector jobs.
Overall, the study said Measure 97 would be a very modest drag on the economy, slowing growth in income, employment and population. In each case, though, growth under Measure 97 would still be within 1 percent of current forecasts.
The study also said additional investment in education could provide a long-term economic boost.
What would consumers pay?
Unlike a conventional sales tax, paid by shoppers, Measure 97 levies taxes on businesses.
Measure 97's authors say the big businesses subject to the tax would absorb the whole cost, insulating consumers. Many others, including Gov. Kate Brown — a Measure 97 supporter — say it's evident businesses would pass on some of their higher costs.
Economists say how much businesses pass along would depend on their market power. Cable television companies, for example, may pass along much of the cost. Private utilities such as Portland General Electric have regulated monopolies and a legal right to pass along higher costs – including taxes – to ratepayers.
Other states exempt wholesalers from consumption and sales taxes, or they tax wholesale trade at a lower rate. Because Measure 97 does not, some economists expect a "pyramiding" effect in which added costs are stacked atop one another for some products and services.
Conventional sales taxes in other states usually exempt food from taxation. Measure 97 does not. So if businesses do pass along higher costs, it could produce higher grocery bills.
The legislative study — which was based on an approximation of Measure 97 — concluded it would both dampen wage growth and raise prices. The effect varies depending on household income:
- Households making less than $48,000 a year would see a 0.9 percent decrease in after-tax income. For a household making $34,000 to $48,000 a year, that's $563 less.
- Oregon's annual median household income is roughly $61,000. For families in that range, Measure 97 means $613 less, a 0.8 percent decline in income.
- The cost would rise in higher income brackets, but the proportion of the impact would decline. For wealthy households, with after-tax income topping $206,000, Measure 97 would cost nearly $1,300 a year – a 0.4 percent hit.
Where does the money go?
Measure 97 could give lawmakers $6 billion more to spend in Oregon's next two-year budget, growing the state's general fund by a third. The measure says it will fund "public early childhood and kindergarten through twelfth-grade education, healthcare; and, services for senior citizens."
Some of the money would go elsewhere, though. The Oregon Legislative Counsel concluded that under Oregon law about $250 million in Measure 97 revenue from gas stations and similar businesses must go to the state Highway Fund.
Because Measure 97 isn't a constitutional amendment, the Legislature could spend the money any way it chooses. As a practical matter, though, lawmakers would likely spend most of the money as prescribed. In the current budget, more than three-quarters of state spending goes to education or social services.
What about rising public pension costs? How much of Measure 97's revenue would that eat?
Some of Measure 97's revenue could help offset a more than $800 million spike in pension costs that followed the Oregon Supreme Court's ruling last year that tossed out prior pension reforms. That's creating a substantial part of the budget deficit Measure 97 would address.
Who supports Measure 97?
It's an initiative, put on the ballot by public employee unions. They maintain their ballot measure would rectify a tax imbalance in Oregon, in which businesses pay a steadily smaller share of state revenue.
The biggest contributors to the "Yes" campaign are public employee unions, especially the teacher's union. The "Yes" campaign has raised more than $12 million. Another union-backed effort, which is supporting Measure 97 and six other ballot measures, has raised more than $1 million this year.
Who's against it?
Retailers are the biggest contributors to the "No" campaign – Costco, Safeway/Albertsons (the two grocers share an owner) and Fred Meyer. The "No" campaign has raised a little more than $25 million.
OK, who would pay the tax?
Of roughly 250,000 businesses registered in Oregon in 2013, the legislative study found that 951 would qualify based on their corporate status, sales volume and income. The study concluded the 100 largest taxpayers would pay two-thirds of the burden.
Here are some industries with the largest potential tax increases under Measure 97, according to the study:
- Wholesalers: Their taxes would jump 583 percent, from $102.1 million to $697.3 million.
- Retailers: Taxes would climb 766 percent, from $69.8 million to $604.8 million.
- Health care: Taxes would leap 1,211 percent, from $7.9 million to $103.6 million.
Within industries, the tax will apply differently to different types of companies. The measure applies to one kind of business (known as a C-corporation) but exempts two others (S-corporations and "benefit companies.")
There are many distinctions among the various types of companies, and different tax implications for each corporate status. For our purposes, think of it this way:
- C-corporations frequently have many investors, like a publicly traded corporation.
- S-corporations have few owners. Sometimes that's a family-owned business, but it can also be a large business controlled by one person or company.
- A "benefit company" is a special category of business under Oregon law, established to create public benefits in addition to profits for the owners.
Is there a list of which companies would be subject to Measure 97?
No. State officials have private tax data that shows the corporate status of each company in the state, but say that information is not subject to the state's public disclosure laws.
So except for large, public companies that disclose their corporate status to investors (most all of those are C-corps), there's no way to know for sure.
Safeway, for example, initially claimed its corporate status exempts it from Measure 97. Then it reversed itself and said it is subject to the initiative. Because Safeway is a privately held company, there's no way to know for sure which statement is accurate.
What about Oregon's biggest companies – Intel, Nike, Precision Castparts and Lithia Motors?
All are subject to Measure 97. But it would affect one of them very differently.
Measure 97's tax generally applies only to sales that take place within Oregon. So Intel, Nike and Precision Castparts – which sell almost all their products to customers outside the state – will likely pay very little under Measure 97. (The tax could affect Intel indirectly, though, if the equipment companies that supply its Hillsboro factories raise prices.)
It's a different story with Lithia, a Medford company that operates a chain of auto dealerships. In its last quarterly report, Lithia warned investors the Oregon initiative represents a risk factor that would raise the company's Oregon tax bill from $3.3 million to $34 million. Lithia reported $183 million in profits last year.
"This tax may have a disproportionate effect on us as certain Oregon dealers we compete against may not be organized as C corporations and would not be subject to this tax," Lithia wrote in its quarterly report.
Why are tech companies so upset about Measure 97?
The initiative taxes most companies based on their sales within Oregon. But it treats software and other services businesses very differently.
Through a quirk of existing state law, Oregon companies' software appears subject to Measure 97 taxes – no matter where companies sell the software.
Gov. Brown has acknowledged the issue and proposed that legislators create an exemption for software and services if Measure 97 passes so those industries are treated the same as others.
Lawmakers have indicated they would do that, but it's impossible to know for sure what would happen as they began weighing trade-offs around other changes to the law.
What happens if Measure 97 fails?
Oregon projects a shortfall of $1.35 billion in its next budget. Without additional revenue, Brown says state agencies would have to cut their budgets by 10 percent.
Measure 97 is the only proposal on the table, right now, to supply additional revenue. Lawmakers have periodically discussed broad tax reform, and, as recently as last spring, some had discussed a legislative alternative to Measure 97.
Those talks are sure to resume if voters reject Measure 97, but it's not clear they have a better chance of success than prior efforts.
Correction: A previous version of this article incorrectly stated Lithia's estimate of the tax impact of Measure 97. The company says the initiative would increase its Oregon tax liability from $3.3 million to $34 million, not from a range of $3.3 million to $34 million.
— Mike Rogoway
mrogoway@oregonian.com
503-294-7699
@rogoway
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