Oregon businesses don’t pay their fair share of the costs for public services that benefit them, including public safety, highway infrastructure and education. That is the conclusion of a national study on business taxes throughout the country, released in December and presented to Oregon lawmakers Monday.
As the state faces a $1.8 billion funding gap -which it must solve without $3 billion in new revenue it would have received from the defeated Measure 97 – Oregon legislators on the House Revenue Committee are exploring potential changes to business taxes.
In the first of several presentations to the committee this week, Legislative Revenue Officer Paul Warner summarized a study of state taxes from the Council on State Taxation (COST), the State Tax Research Institute and Ernst & Young.
The findings show that Oregon is one of few states where businesses receive more in state services than they pay for in taxes.
For every $1 Oregon businesses receive in the form of a publicly educated workforce, highways and other services, those business pay just 80 cents on average, the study found. That finding was based on an assumption that 50 percent of a state’s education spending benefits businesses, Warner said.
Only two states — Alaska and Maryland — have a lower tax-to-benefit ratio for businesses. Nationwide, the average businesses pay in taxes for $1 of public benefits is $1.10, the study found.
This ratio gets at an essential question, Warner told the committee: How much should businesses pay in taxes? Usually, he said, economists believe this ratio should be $1 for $1.
“From an economist’s standpoint, if the costs and the benefits offset one another – in other words, if you’re paying high taxes but you’re getting high services – then it shouldn’t be a competitive disadvantage,” he said. “The problem for business comes in if you pay high taxes and get low services.”
As a total share of state taxes, Oregon businesses paid 29.9 percent in the fiscal year ending in 2015, the COST study showed. Only Virginia businesses paid a smaller share. On average, businesses paid 39.5 percent of state taxes.
But Oregon businesses paid a larger share of taxes — 37.2 percent — when local taxes are added to the mix, according the report. This compares to 44.1 percent nationally.
One common measure of businesses’ tax burden is to determine what share of the private sector’s gross state product is paid in any form of state or local tax. In Oregon, that figure was 3.6 percent during the fiscal year ending in 2015, sixth-lowest in the nation. On average, U.S. business taxes are equal to 4.6 percent of states’ private-sector gross product.
Oregon continually ranks low for business taxes, the study says, because it doesn’t have a sales tax. If sales tax revenue were removed from the equation, the report says, Oregon would move up to the 26th-lowest rate in the nation.
Throughout the nation, sales tax accounts for 21.3 percent of all state and local business taxes. States and local jurisdictions collected $354.5 billion in sales tax in the fiscal year ending in 2015, the report says. Of that, businesses paid 42 percent, or $150.6 billion.
Businesses pay sales taxes when they buy items from other companies. In some cases, the cost of the sales tax can be passed on to consumers.
As the presentation ended, committee chair Rep. Phil Barnhart, D-Eugene, reminded attendees that the conversation on revenue reform would continue throughout the session.
“Do not expect that we’re going to have complete understanding or unanimity of agreement on this topic,” he said. “It doesn’t happen. It doesn’t work that way.”
— Anna Marum
amarum@oregonian.com
503-294-5911
@annamarum
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