State is clueless on taxes

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Steve Strauss
Friday, June 12, 2009
News that the Oregon Senate passed two bills to raise almost $1 billion in revenue simply reinforces the conclusion that when it comes to taxes, especially business taxes, this state is clueless.

The new tax increase is the proverbial good news/bad news. The good news for small business especially, is that the tax is designed to effect individuals making more than $250,000 a year, and large corporations. Indeed, Senate majority leader Richard Devlin specifically stated that “This legislation protects the middle class by ensuring that households making less than $250,000 a year will not pay any additional taxes and it protects small businesses by focusing the increase on large corporations.”

Look, no one likes paying taxes, but it is equally true that 1) we are in a bad economy and revenue is drying up faster than ink at a newspaper, and 2) in a civilized society, we all have to pony up and pay our joint bills — for schools, roads, etc.

But that brings us to the bad news. What is the deal with the lack of planning in this state? Our over-dependence on income and property taxes ensures that the state coffers will go through boom and, like now, bust. Is it not the job of leaders to lead, even when it's difficult? Did not our governor get elected promising, at least in part, tax reform?

Watching the Legislature here deal with the economy and taxes is sort of like watching Groundhog Day, except it seems that unlike Bill Murray, we will never get out of this endless loop.

 

Comments   

 
Eric Williams
0 #1 Gross Receipts vs. IncomeEric Williams 2009-06-12 13:09:36
Great post, Steve. I would like to clarify one other issue about one of the tax increases. House Bill 3405-A taxes Gross Receipts not net income. This seems to be something that many people don't understand. This bill will require small businesses with more than $250,000 in gross receipts to pay more taxes. For some readers there may be confusion about the difference between gross receipts and net income. Gross receipts is the money you get from selling something, before you subtract out expenses for what the product or service cost you to make, sell, and deliver. For example, if a business sold an ice cream cone to a customer for $1.50, that $1.50 would be the gross receipt. Yet, the business may have had expenses for each ice cream cone sold of $1.35 to include the cost of the ice cream, building rent, employee wages, interest on an equipment loan, insurance, utilities, advertising, supplies, etc. So, the business owner's net income may have only been $0.15 on that ice cream cone. So, if the business owner sold enough ice cream cones to have gross receipts of $250,000 he may only receive income that he can spend of $25,000. In a recession it is not uncommon for a business to have high revenue or gross receipts but to be actually losing money or only breaking even. Therefore, a business owner could be charged a tax for which the business simply doesn't have the money to pay. Consequently, I believe that basing a tax on gross receipts is highly unethical. Furthermore, a tax increase of any type and on anyone during the greatest recession our nation has experienced since the great depression seems like a bad policy decision. We should be encouraging small business right now, not penalizing it. So what's the solution to our state's problem? I would suggest that government spending needs to be curtailed. Here's some interesting information that leads me to believe that this shouldn't be too difficult. From 1999 to the present Oregon's population has grown by about 12%, yet according to usgovernmentspe nding.com during the same time frame state of Oregon government spending has increased by over 60%. Even if you adjust for inflation we have had spending growth that far outpaces growth in the state's population.
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Keith Gibson
0 #2 One ExampleKeith Gibson 2009-06-16 11:23:09
My company is in the freight logistics business. We employ 27 people and our volume of business is DOWN nearly 40%. Our gross receipts will probably be in excess of $10 million this year, which means that under the new structure, I will pay a minimum of $15,000 in state income tax.

As a freight broker, we pay out the vast majority of our sales to the carrier actually hauling the freight, so the money just passes through our hands. At this point, my company is losing money for the year and I don't see it turning around before the end of the year.

So here's the net: I'll end the year losing money AND owing $15,000 to the state for the privilege of having my business in Oregon. Does that seem like a fair tax system?
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L Parks
0 #3 CEOL Parks 2010-02-08 11:46:22
I am the CEO of a small mfg business in CA. I no longer think CA is the top killer of small businss. Oregon is going to win the prize. At one time I thought about moving our business to Oregon. That will no longer be the case. During this depression we will have gross receipts of 7 Million dollars and will be lucky to break even. Why should we pay income taxes. During this difficult time I have managed to keep all my employees working, on health insurance and match their 401K's. Is that not more important than giving money to a state where their employees have a free retirement package and free health insurance with little standard of efficiency?
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Sam Jensen
0 #4 Examples or bad with business model?Sam Jensen 2010-06-05 01:26:01
I know this is old news and most of you who were going to move your company to WA found their B&O tax was higher and really the only reason to move your company is if you want to sell it then move it to TX or WA to skip the income tax....

So what you are saying is that if the person selling the ice cream cone sells it for $1.50 He will go broke because the added gross receipts tax will cost $0.00225 cents per cone? Hmm, could he raise the price of the cone by 1 cent to cover it and make a lot more profit (I bet he could lower the cost to $1.49 if there was an advantage so he must have some pricing flexibility, I mean why did he chose $1.50)? Wait perhaps he could add sprinkles as an option for ten cents then if 1 out of 30 customers add the sprinkles this would more than cover the tax or maybe sell only deluxe cones for $1.55 always with choice of one topping (3c for the topping GRT and an extra 1.775c pure profit). Could he find somewhere in is his business model a way to cut the cost of the cone by a penny and make a lot more?

To the man with the freight business. I am sorry to hear your business is down by 40%. Unfortunately Oregon swings from one extreme to the other with no phase in time to allow you to add 0.0015 cents per dollar to your orders (where a $5000 invoice only needs $7.5 added to it for this tax). However Since you have been doing business in Oregon for the last 20 years you know how they work... Oh and how much has the company paid in taxes over the last 20 years and how many company cars are there (leased or owned)? I know it is tough and truly unfair that this law which is mainly to get Albertsons, Wal-mart, Exxon, and Fed-ex to pay a little more also affects you who just passes most of the money straight through to the contractors you hire and your salaries.

Finally I hope that anyone with a business model that can not suck up 0.0015 cents on the dollar cost of doing business-- isn't shrink in most businesses estimated around 2%--not get a loan because they are going to go broke even without the VAT.

Things to do: Oregon spends more on Corrections than Higher education now. Perhaps repeal some of those mandatory minimums that are blowing the public safety budget from almost nothing to 1/4 of the budget. Education is over 1/2 the budget. Perhaps the money should be taken out of the local tax district and not out of the state general fund since the state has no say over how the funds are used just a bill at the end of the year to send to out (unfortunately without true local levies for k-12 most of the local property taxes are bloated with options that are for K12 but by law cant be used there and local tax deferrals for businesses and mega condos) . And if you really feel those golden state wages are over the top then fire your elected officials and put in a new system for all new hires and while they are at it kill the Kicker and revamp the entire state code ( really there are 49 others just chose one). Sure state workers will leave for other Jobs when they have low salaries and no benefits but then you can hire new people with no pension plan or just not hire as they are not needed in your opinion anyway.
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