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On The Scene: Startups prepare for tax battle

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On the Scene
Friday, October 23, 2009

Tucked away among the restaurants and shops in Portland’s Old Town is NedSpace, a co-working office space for startups that combines old red brick architecture with a contemporary Ikea feel. A small crowd was gathered there last night for what looked like an after-work party, but the ambience was in contrast to the serious reason for the meeting. Most of the people were members of the startup community and were there to hear arguments against the controversial business taxes recently passed by the Legislature.

The meeting was organized by members of Oregonians Against Job-Killing Taxes, a coalition of businesses and individuals that collected double the amount of signatures required to get the measures onto January’s ballot — the first time Oregon will vote on a statewide referendum since 2004. Two tax measures are at issue: One raises the minimum corporate tax and one raises personal income tax on the highest-earning individuals.

Bob Wiggins, managing partner of Mount Hood Equity Partners, named several reasons why the issue should matter to startups. In addition to the implications of the taxes themselves — raising the personal income tax alone would make Oregon’s the highest in the country — Wiggins mentioned Oregon’s lack of capital-gain deduction in its income tax and the tax-free appeal of nearby Vancouver, Wash., as added factors that will drive business out of Oregon if the measures are not defeated. “This is as bad as it could possibly get for the startup community,” Wiggins said. “All [these factors] are designed, it seems, to shoot us in the foot.”

While the effect of the taxes continues to be debated, the message at this particular meeting was clear: Increasing taxes is not the answer. “There is never going to be enough money for the state for what they want to do,” said Tim Boyle, Columbia Sportswear CEO. Boyle and the other speakers, which included the heads of Routeware and the Oregon Home Builders Association, called for alternative ways for the Legislature to fill the budget shortfall instead of increasing taxes (the two business taxes would bring in $733 million). “What I’d rather see the Legislature do is take a serious look at the overall economic and tax structure in the state, rather than doing Band-Aid approaches that seem to be in the path of least resistance,” said Learning.com CEO Bill Kelly.

Before the meeting I talked with Perry Gruber, an Intel veteran who uses NedSpace to nurture his bottled-water startup, NedWater. Gruber was there to learn more about the tax issues; he only had a vague idea about what they would mean, but had heard the taxes would harm startup investment. “We haven’t had a lot of luck in having venture investment in this state, especially in Portland,” Gruber said. “One of the things that my partners and I are trying to do is create startups that attract more investment here. This tax kind of runs counter to our efforts.”

Kevin Manahan is the online editor for Oregon Business.



0 #1 MJ 2009-10-24 09:47:36
There are several respected studies that show that the per capita state taxes in Oregon are less than in a majority of other states. In particular, the US Census Bureau ranks Oregon at 40th in per capita state taxes (for 2004),

CNN ranked Oregon per capita taxes as 36th in the nation,

And in 2008, Oregon ranked 26th in per capita taxes paid to the state per the Tax Foundation.

I doubt that the increase in taxes on top earners and an increase in the minimum corporate tax from $10 to $150 will seriously change those figures.

If taking "a serious look at the overall tax structure in the state" is code for adding a sales tax to Oregon's mix, then I'll note that technology professional (and oft-time startup worker) much prefers paying higher personal income taxes over having sales taxes. Sales taxes penalize the poor for being poor by requiring that a higher percentage of their total income goes to the state. If technology entrepreneurs choose to start their businesses elsewhere, I would say they’re both lacking compassionate for those of lesser means, and uneducated in the facts of Oregon taxes.
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Charles Blair
0 #2 Parts ManagerCharles Blair 2009-10-26 11:45:48
How many business's do our legislators have to drive out of our state before they understand the problem. Taxes are not the solution.
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P. Howard
0 #3 Revenue Business Tax Is Wrong!P. Howard 2009-10-26 14:04:24
My company sells big ticket items at very low margins. So we have very high revenue but very low net profit. This year we lost money. But under this new law, we would have to pay $100,000 in tax!!!!! That fact seems to be ignored by MJ's comment above and by the legislative proponents of this bill. This new tax would severely hamper our future.

Who gets hurt? Our employees who get laid off as a result of this unreasonable tax. There has to be a better way.

Why is it that government employment is the only sector that has shown gains in number of employees?
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