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No Senate GOP support for Democrats' biz tax plan

Democrats in the Legislature have proposed raising more than $500 million a year with a new tax on businesses sales.

PAMPLIN MEDIA GROUP - Sen. Mark Hass, D-Beaverton, is one of the architects of a plan to raise more than $500 million a year by implementing a new corporate activities tax. The plan has no support among Republicans who want more cost savings before they will back additional taxes.SALEM — A major tax proposal is facing continued resistance from the Oregon Senate GOP.

Democrats are pushing changes to business taxes, dropping the corporate income tax in exchange for a tax on annual sales.

The proposal could raise more than $500 million a year in new revenue as legislators attempt to close a $1.4 billion gap between expected revenues and the cost of state services for the next two years. Closing the gap is a feat they are required to accomplish in order to balance the state's budget.

In both the Oregon House and Senate, Oregon Democrats are one seat shy of a three-fifths majority required to raise new taxes. Any tax measure will require some Republican support.

Some Senate Republicans interviewed Wednesday said they are still "no" votes. They contend the tax is unfair to small businesses and that cost containment proposals laid out by Democrats aren't sufficient to warrant major changes in business taxes.

An architect of the plan, Sen. Mark Hass, D-Beaverton, expressed confidence Wednesday that he could gain support by educating legislators about the bill, which some detractors have characterized as a descendant of a failed ballot measure that attempted to raise taxes on certain businesses.

"When people start to say, 'Oh, maybe this isn't what we thought it was,' that will have a lobbying effect of its own," Hass said.

But Sen. Alan DeBoer, an Ashland Republican who previously was amenable to business taxes such as the one now proposed, expressed doubt about it Wednesday morning.

A spokesman for Senate Republicans said by opposing the corporate activities tax, the caucus is heeding the wishes of voters who rejected Measure 97, the November ballot measure that would have taxed the gross receipts of certain corporations.

The Democrats' plan is what tax wonks call a corporate activities tax, not a gross receipts tax. It would also tax more businesses at a lower rate: Depending on the sector, it would charge a varying rate at or below .75 percent of a company's sales in Oregon for companies with at least $3 million in annual sales.

Companies with receipts between $150,000 and $3 million would be charged a flat tax of $250.

The proposal represents a compromise between House Democrats and Hass, a longtime advocate for revenue reform.

DeBoer said Wednesday that while he was initially open to a new tax based on business sales, he wants to see the state cut $1 billion from the next budget before raising new taxes.

Sen. Tim Knopp, a Bend Republican, agrees.

"I think there's a path to new revenue, but that path starts with over a billion dollars in structural spending reform and cost containment," Knopp said.

Hass and other legislators have been working for years to restructure the state's tax system in a effort to offset what he describes as the state's volatile revenue stream and the narrowing tax base of the corporate income tax.

"We have a policy problem that we're trying to fix," Hass said. He was critical of raising the corporate income tax. "...No one's come forward with anything different, other than, 'Let's double down on a broken system.'"

Hass said he spoke with members of the board of the Oregon Forest Industries Council and had to explain the distinction between his plan, Measure 97, and yet another tax plan based on business sales that the Oregon Education Association, a teachers' union, wants to get on the ballot in November 2018.

"About 40 or 50 of the toughest hard right business guys in the state, and they were asking questions like, 'Why would you want to do 97 again?'" Hass said. "...By the time we got through, there were some head nods...I think once they got down to it, they realized, OK, this isn't a half bad plan, and if it's the last stop before a ballot measure that is bad, we should take a harder look at this."

Hass added he is now advocating for an exemption for the low-margin agricultural, forestry and fisheries sector.

"A farmer in Union County can't do anything about the glut of wheat as a result of prices in China or Chile or Peru," Hass said, "and they can't change their prices, and I think that's a compelling reason to exempt agriculture."

Agriculture and forestry are significant sectors of Oregon's economy, especially in rural areas represented by Republican legislators.

But Sen. Bill Hansell, R-Athena, was skeptical of the potential exemption for agriculture and forestry Wednesday, saying that creating a new tax could still allow lawmakers to change the rates later, a change which requires merely a simple majority.

"You've created a mechanism, then, in the following session where you don't require a supermajority vote to pass it," Hansell said. "You can just come in and tweak what has already been accepted."