Corporations Could Change Structure To Avoid Initiative's Tax Hike

Jul 12, 2016
Originally published on July 11, 2016 6:00 pm

Some Oregon corporations will likely change their structure and behavior to lessen the impact of a tax hike headed for the November ballot. That's according to a report from revenue analysts at the Oregon Legislature.

The initiative would increase taxes on companies with more than $25 million in annual sales in Oregon.

The Legislative Revenue Office estimates the measure could bring in about $3 billion a year. Legislative analysts said that number could be even higher, but they expect some corporations to avoid the higher tax.

One way would be to change from a C Corporation to an S Corporation, which is a behind-the-scenes way of structuring a business for tax purposes. S Corporations generally have fewer shareholders, meaning that option isn't available to most large multinational corporations.

Still the analysts say various changes in corporate behavior could reduce the initiative's revenue impact by up to 10 percent over the next five years.

The state's largest business groups oppose the initiative, saying it would cost private-sector jobs and would result in higher prices for many consumer goods and utilities.

The Legislative Revenue Office said businesses could also attempt to lower their tax burdens under IP 28 these four ways:

  • Subsidiaries: Corporations could spin off some operations into separate subsidiaries to avoid the $25 million sales threshold that triggers the tax.
  • Mergers: Corporations could merge in such a way as to allow them to adjust where certain taxable services are performed
  • Buying suppliers: Corporations could buy up suppliers in order to reduce the number of taxable transactions.
  • Changing to a “benefit company”: Corporations could register as a “Benefit Company,” which allows them to prioritize societal and environmental impact over shareholder profit.

The analysis was discussed during a meeting of the Financial Estimate Committee. The committee, which includes Oregon Secretary of State Jeanne Atkins and Oregon Treasurer Ted Wheeler, crafts fiscal and revenue impact statements for each ballot measure. The statements will appear in the Voters' Pamphlet.

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