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Oregon's corporate activity tax tax 'stacks up pretty fast'

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Oregon's corporate activity tax tax 'stacks up pretty fast'

Businesses, such as restaurants, which have $1 million in "modified gross receipts" per year, are getting hit with a CAT tax, and that is now being passed down to customers.

ONTARIO — After receiving a tip from a reader that an Ontario business had charged a person tax on their purchase, the newspaper set out to find out how such a thing could be happening on an item that doesn’t appear to have another tax, such as some goods in the state, including marijuana, alcohol, cigarettes, hotel and motel rooms, and new vehicles and bicycles.

What was discovered along the way was that the corporate activity tax now imposed by the state of Oregon on businesses which have $1 million in gross receipts can be recouped from the consumer as a tax. Additionally, the modified gross receipts tax does not allow businesses to subtract “total labor costs” from their commercial activity, but they can subtract a portion. Robin Maxey, public information officer for the Oregon Department of Revenue, said in an email on Monday that businesses can subtract 35% of “either their total labor costs or their cost of goods sold.” He furthermore explained that unitary groups, such as businesses which own multiple properties in different states, would only be taxed on commercial activity that takes place in Oregon.

Pay it ‘whether you win or lose’

A local restaurateur spoke with the newspaper on the condition of anonymity so that his business does not get targeted for doing something many might perceive as illegal.

He said under House Bill 3427, which was passed in 2019, it doesn’t matter if a business makes a profit or not, it still must pay the tax.

In 2020, due to having to go through multiple weeks-long shutdowns because of the pandemic, the business owner says he did not “make a single dollar.” Many times over he had to take all the food in the freezer and give it to charity and to his employees, bringing his losses for 2020 into the thousands, he said.

“We have been through a lot of pain, but on the other side, we have to pay this CAT tax,” he said, emphasizing that no breaks were given even for enduring multiple shutdowns during the pandemic.

For his business, the CAT tax amounted to $12,000 for the 2020 tax year. On top of this, he still has to pay the loan that he took out to run the business.

While the state is calling the CAT tax a modified gross receipts tax, the restaurateur says it’s not.

“It’s a sales tax, indirectly. They’ve given it another name because they want to put [the tax collecting] on the corporation, so the corporation gets the blame,” he said.

District 30 Sen. Lynn Findley also agrees.

So about 4 to 6 weeks ago, after paying the state, the restaurateur reached out to his CPA and the Department of Revenue to see what, if anything, he could do.

And what he found when he called his CPA was that “everybody” is passing the cost on to customers now.

Maxey mentioned last week that the way HB 3427 was written, it does allow businesses to recoup that cost, and does not specify in what ways they can do it.

The restaurateur said that nothing collected from customers for the CAT tax will be kept in the business’ pockets.

“We collect on behalf of the state,” he said. “And now, we have to fight with customers.”

Restaurants operate on very thin margins, he said, making it a very hard business to operate without the CAT tax.

“Then you have to pay that and not on income? This is not on profit. This is on revenue, whether you win or lose,” he said.

He said these kinds of disguised taxes are making it incredibly challenging to do business in Oregon.

“That is why a lot of Oregon businesses are basically fleeing out,” he said. “They are making it so tough for business owners. The conditions here are completely unfair.”

Findley ‘glad’ to hear they are putting it on receipts.

Calling the CAT tax an “incredibly complex system,” Findley, a Republican from Vale said he and his Republican colleagues fought hard against the bill.

And although it was designed so that businesses can recoup costs, he says “there was no thought most people would put it on a sales receipt.”

“I am glad they are,” Findley said. “It raises awareness.”

He said most consumers probably don’t realize the tax easily doubles or triples, and that a restaurant now pays a CAT tax to the person who sells them the loaf of bread, and pays it again when they sell the food to the consumer, causing the tax to easily double and triple.

Findley said he made two attempts this legislative session to make exemptions on the bill, including for pharmacies, another business which operates on thin margins, according to Findley. He said with prescriptions, Medicaid, Medicare or other insurance sets the cost, and the CAT tax eats into the profitability.

“When you take a razor thin margin and reduce it, it just becomes even harder to compete,” Findley said.

In addition, once a tax is set, it is nearly impossible to do away with it. Which is why Findley and GOP colleagues now focus on exemptions. And there are a few exemptions, including marijuana. However, for the most part, the CAT tax can be applied in addition to other taxes, such as the luxury tax.

“There is no desire from the majority party in this state to reduce taxes in any manner, and they will continue to raise taxes even when we have $3.56 billion more in revenue than anticipated,” he said. “And we just looked at how we can raise more money by disconnecting from federal tax guidelines, when there is no valid reason for it.”

He said the authors of the package were betting and hoping most consumers wouldn’t figure it out and not see the 5, 10 or 15 cents being taken out.

“But when you take 15 cents repeatedly, it stacks up pretty fast,” he said.

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