Oregon's Measure 97: An Analysis but No Advice

Oregon's Ballot Measure 97 would impose a 2.5% gross receipts tax on any business doing more than $25 million in sales in the state. This will affect manufacturers, retailers, energy providers, tech companies and others. The measure is supported by unions, the League of Women Voters and by Governor Kate Brown. The opposition includes most industry groups, Chambers of Commerce and many others. Advertising both for and against is vigorous.

I analyze the measure below and have concluded that either vote -- for or against -- is justifiable, even if you share my exact values. Good luck on this one, voters.

Pro:

1. Our current two-legged revenue stool (income and property taxes) is very vulnerable to economic swings, as we saw in the recent recession when schools and services were decimated. 

2. A gross receipts tax for sales in Oregon is possibly the best way to capture revenue from out-of-state corporations. 

3. Generally, cost-plus inflation is not the dominant model, so the scare tactics about a sales tax in disguise are misleading. There could be one exception (see below). 

4. There are many more businesses that exceed $25 million than you'd think. Probably most of what you throw in your shopping cart is produced by a company in that category. Chain stores, energy and communications suppliers, internet companies (think Amazon) and so on would be affected. 

5. The revenue jump would be substantial, increasing Oregon's general fund by over 25%. 

6. The money must be spent on K-12 education, health care, and senior citizens. Period. 

7. Oregon is #10 on the "business tax climate" scale from the Tax Foundation, meaning we have some of the lowest taxes. California is #48 and has some of the highest. Do you see businesses fleeing California? 

8. There is currently a .1% gross receipts tax in Oregon. This is not an entirely new creature to us, but it's a far cry from .1% to 2.5%. 

9. Five other states have gross receipts taxes, including Washington. 

10. After studying C Corporations (included) and S Corporations (not included), I'm no longer bothered by that distinction. S Corporations pay more overall but do not pay corporate income taxes. Instead, their owners/shareholders pay on their personal taxes. It all comes out in the wash. 

11. This is not a constitutional amendment so problems can be fixed in the legislature, as needed. 

12. The measure could encourage small local businesses and encourage you and I to look more often to them for what we need. 

13. The increased business climate (law enforcement, roads, parks, higher education) from state investments could potentially draw new business.

Con:

1. The 2.5% level is considerably higher than what any other state charges, except on an industry-by-industry basis. This is a big tax, no matter how tiny it may seem. 

2. For some businesses, the 2.5% is perfectly fair. For others it is not. That's because different industries operate with different profit margins. Grocery stores have the thinnest margins, often less than 2% profit compared to their gross receipts. That means the 2.5% gross receipts tax could render them unprofitable. Generally, retail businesses have the narrowest profit margins. 

3. Washington has 31 different levels of gross receipts taxes that take profit margins into account. Measure 97 imposes a single level on all, regardless of profit margin. 

4. For retail businesses, in order to survive they may well have to pass the 2.5% on to consumers, confirming the scare tactics about a hidden sales tax. Still, that's a pretty puny sales tax and it would be in the price, not an add-on. I can deal with that. (On the other hand, if you want Wal-Mart and Costco and Macys to go away so our local retailers come back, this may be the ticket.)

You can check the average profit margins for any industry, displayed in a simple chart, here.

This is the information we need to consider. The tax is unsustainable for some whole industries. To check profit margins for your favorite businesses, Google "Costco profit margin" or "REI profit margin" or any other business. Ycharts.org has great readable charts.

So what do you do? In my case, it's ignore the scare tactics and overblown promises in political ads now dominating our airwaves and mailboxes and do my own analysis.