Senator Mark Hass and his corporate tax reform work group has released an outline of a gross receipts tax that would replace the current Oregon Corporate tax. The tax rate hasn’t yet been agreed to, but would fall within 0.25% – 1%. Legislative Revenue Officer Paul Warner estimates that after accounting for a loss of revenue from the repealed corporate income tax, various rates would product the following approximate net income per biennium
- rate of 0.25% would bring in $288 million
- rate of 0.5 % would bring in $1.2 billion
- rate of 0.75% rate would raise close to $2.2 billion
- rate of 1% rate would bring in $3.1 billion
Here is the framework:
- Broad base and low rates to minimize economic distortions.
- Destination based tax to keep export businesses competitive.
- Simplify business taxes by repealing complex corporate income tax and replacing with one page corporate activities tax form.
- Maintain balanced treatment for different business entities by allowing partial credit for pass-throughs.
Establish corporate activities tax 1-1-18
- Based on gross receipts derived from destination based sales in Oregon.
- All business entities are subject to the corporate activities tax.
- Business entities with annual gross receipts less than $150,000 in Oregon are not required to file a corporate activities tax return.
- Businesses with gross receipts greater than $150,000 but less than $1 million must file a return and pay a $250 flat amount.
- Businesses with annual Oregon gross receipts greater than $1 million are subject to a corporate activities tax equal to $250 plus _____% of gross receipts greater than $1 million.
- Financial institutions are subject to the corporate activities tax with the definition of gross receipts in Oregon determined by rule.
- Gross receipts derived from the sale of motor fuel is calculated separately with the revenue placed in the Highway Fund.
Exemptions from the Corporate Activities Tax
- Government transactions.
- Donations received by non-profit organizations.
- Transactions among closely related business entities.
- Gross receipts of qualified distribution centers.
- Pass through entities are allowed a credit equal to ______% of corporate activities taxes paid at the entity level.
Repeal of Corporate income tax starting with 2018 corporate tax year
- Unused corporate tax credits can be applied to corporate activities tax liability and carried forward up to three years.
Tax Base Description
- Estimated businesses below $150,000 threshold=100,000
- Estimated number of filers paying $250 flat amount=37,000
- Estimated filers paying corporate activities tax rate =18,000
- % of corporate activities tax paid by filers with gross receipts above $25 million=74%
- % of corporate activities tax paid by filers with gross receipts above $100 million =55.7%
Strategies to minimize pyramiding
- Keep rate low and base broad.
- Exempt transactions among closely related business entities.
- Exempt qualified distribution centers.
Personal income tax adjustments targeted at low income households
- Expand earned income tax credit.
- Lower bottom personal income tax rates. o Increase standard deduction.
- Increase personal exemption credit.