Oregon business owners expected the Legislature to boost the state's corporate minimum tax in its quest to fill budget gaps.
But owners of businesses ranging from mom and pop stores to corporate giants were hoping for something more palatable than the increase the Legislature sent to Gov. Ted Kulongoski last week.
Even if they don't turn a profit, corporations will be taxed based on a sliding scale, beginning at $150 for companies with Oregon revenues of less than $500,000 and rising to as much as $100,000 for those whose revenues top $100 million.
For corporations earning a profit, income tax rates will increase from 6.6 percent to 7.9 percent, before reverting to 7.6 percent in 2011. State analysis says the change will bring in $261 million in taxes during the 2009-11 biennium and $775 million between 2009 and 2015. Under the bill, 125,000 corporations will pay more taxes.
Already dealing with a recession, business owners are doing the math to determine what it means to them — and many are left shaking their heads
"I just don't see the rational argument for taxing gross receipts," said Bruce Hoevet, who operates Rogue Regency Inn. "Just because you are acquiring income, doesn't mean the revenue will equal bottom-line results."
Hoevet and other members of the business community had no qualms about increasing the $10 minimum corporate tax that had been on the books for more than seven decades.
"We were hoping for something in the $300 to $500 range, as opposed to gross receipts," Hoevet said. "We've already had to cut out $148,000 in labor costs in 2009. The people who say we're just paying our fair share of the bill aren't taking into account when people are put out of work. There are unemployment benefits and health care.
"It's a killer for someone specifically in the restaurant business. You can't just raise prices because pretty soon people are not going to go out to eat, it's just too expensive. I was hoping some common sense would come into play."
Brad Hicks, chief executive officer of the Chamber of Medford/Jackson County, said the cost to business is staggering.
"Apparently, Oregon closed for business last week," Hicks said. "The folks who wanted this thing passed did a masterful job of giving Oregonians the impression that corporations don't pay taxes and that is flat wrong. I have already spoken to member companies and this is going to cost particular businesses here anywhere from $15,000 to $100,000, in addition to what they are paying now."
Hicks sees corporate and other taxes raised last week as counter-intuitive to recruiting new business to the state.
"Anytime you create more regulatory burden and more of a tax burden, you remove economic development arrows out of your quiver," Hick said.
Not everyone sees the tax hike as a detriment. Public schools and services provided by state agencies will benefit from the boost to the general fund, which has fallen an estimated $4 billion short of the funds needed to continue services at the current level.
Jacksonville resident Karen Starchvick, an advocate with the national nonprofit group Stand for Children, said the new corporate minimum and income tax surcharge will help keep school budget cuts from becoming even more devastating.
"That's $400 million more for schools, so that they won't be having to cut $400 million more out of their budgets," Starchvick said.
She also agreed with a legislative task force's finding that the tax structure keeps Oregon in a perpetual state of fiscal flux.
"It's so volatile," Starchvick said. "There's such a huge portion reliant on personal income tax, this gives us more diversity in our tax base so that we're better off in terms of stability."
But if Oregon businesses find the numbers intolerable, as Roxy Ann Lanes owner John Larkin suggested, owners may close up shop, leaving the state with less revenue.
"The bridge to Vancouver will be loaded with people and companies moving to Washington," said Larkin, whose bowling center on South Pacific Highway is celebrating its 50th anniversary this summer.
"They're piling this all onto small businesses," Larkin said. "We're in a recession. Our video lottery receipts are down, we've been hit by the no-smoking ordinance, the minimum wage increase has cost us $1,000 per employee for this year, plus there's surcharge for beer and liquor.
"Now there's the corporation tax," he said. "You lump this together and there's going to be devastating consequences for businesses in Oregon. I call it death by a thousand cuts."
Reach Greg Stiles at 776-4463 or email@example.com.