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MailTribune.com
  • Measuring up

    A look at measures 66 and 67, and how they will affect the community
  • EDITOR'S NOTE: This is the first of a two-part series on measures 66 and 67, up for a vote Jan. 26. Ballots go in the mail Friday. Tomorrow: Local schools talk about the impact on their budgets if the measures fail.
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  • EDITOR'S NOTE: This is the first of a two-part series on measures 66 and 67, up for a vote Jan. 26. Ballots go in the mail Friday. Tomorrow: Local schools talk about the impact on their budgets if the measures fail.
    By PARIS ACHEN
    Mail Tribune
    When Ashland's Town and Country Chevrolet lost money in 2008, the corporation had to pay the state of Oregon just $10, the amount of the state's corporate minimum tax.
    Owner Alan DeBoer says his car dealership operated at a loss again in 2009. Unlike the year before, however, Town and Country is expected to pay $15,000 in state corporate taxes on gross sales if voters approve Ballot Measure 67 in the Jan. 26 special election.
    "We are weathering the storm," DeBoer says. "When does it break the camel's back when you have to pay $15,000 even though you didn't make any money, just for the right to do business in the state of Oregon?"
    Measure 67 would increase the state's corporate minimum tax to $150 and would include other increases intended to raise $255 million in revenue to help fill a shortfall in the state's 2009-11 biennial budget. Its failure would mean cutbacks in services such as education, public safety and health care.
    Companion Measure 66 would raise a 9 percent income tax for high-wage earners to 10.8 percent for those making $125,000 or more and to 11 percent for individuals earning at least $250,000. The changes would raise about $472 million for the shortfall.
    "That puts us in the second-highest tax bracket in the nation (for high-wage earners), after Hawaii," says Medford certified public accountant Dan Kosmatka, who helped petition to place measures 66 and 67 on the ballot.
    "The detrimental side of that is it starts a trickle-down effect. People can choose to live anywhere they want, and it's the people who spend money that provide the fuel that keeps the economy running. If they choose to live elsewhere, we lose that stream of income."
    State legislators passed the tax increases last session to help fill a $733 million revenue shortfall in its current budget, but a petition campaign by the opposition landed the measures on the ballot.
    Under Measure 67, S-corporations, partnerships, limited liability corporations and limited liability partnerships would be assessed an annual corporate tax of no more than $150, regardless of their profits or sales.
    Other parts of the measure directly affect only C-corporations, such as Town and Country Chevrolet, Medford's Harry & David and Portland's Nike.
    The tax rate for C-corporations would remain at 6.6 percent on the first $250,000 of profit, then climb to 7.9 percent of profit in excess of that amount. What some businesses strongly oppose is Measure 67's addition of a minimum tax on gross sales regardless of profit. The corporations pay whichever tax is higher.
    C-corporations making between $500,000 and $1 million, for example, would pay a minimum tax of $500. Those making $100 million or more would pay $100,000.
    Opponents say a tax on gross sales could take a toll on corporations that make large sales but reap few or no profits.
    Town and Country's some 30 employees made about $14 million in gross sales in 2009, DeBoer says. Under Measure 67's sliding scale, the car dealership would have to pay a minimum of $15,000 in taxes, despite not turning a profit.
    "Our average sale is $42,000," DeBoer says. "We have one of the lowest profit margins, but our gross sales are huge."
    He says he already pays about $200,000 in state payroll taxes as well as unemployment taxes and fees and about $300,000 to the federal government.
    "If a dealership like this were to close — and we are not going to close — then the state doesn't get that $200,000 in taxes, and the state has to pay unemployment for laid-off employees," he says.
    Ken Trautman, chief executive officer at Medford's People's Bank of Commerce, says the tax on gross sales could cripple some small businesses that aren't able to pass the expense on to consumers.
    The privately held bank paid the $10 state corporate minimum tax last year for nearly $95,000 in profit. In 2009, if Measure 67 passes, the bank expects to pay $4,000 in state corporate taxes and make about $400,000 in profit, according to Trautman.
    "We need to stay away from taxes on the gross income of businesses, which is a great way to stifle incentives for business to invest in growth and employment," Trautman says. "History has shown us that if you want to increase tax revenue, you decrease taxes. The increases in economic activity caused by a tax decrease will more than make up for the initial reduction in the tax rate."
    Supporters of the measures say the changes would preserve education, health care and public safety services and create a fairer tax system in which those who are most able to pay would contribute more of their share.
    The Medford School District, which serves about 12,000 students, estimates that if the measures fail, it likely would have to carve a $6 million chunk out of its $90 million budget in the next two years.
    "From my perspective, I hope it passes because the district can't take any more hits," says Jeff Thomas, a Medford School Board member and general manager of Connecting Point, a computer store in Medford. "We are already at a funding level where it's hard to sustain our programs."
    Thomas says Connecting Point would pay $150 in corporate taxes instead of $10 under Measure 67, but the company's owner would be paying more in personal income taxes under Measure 66. The vast majority of corporations fall in that category, according to the Oregon Center for Public Policy.
    "For some small businesses, that could mean the difference between offering health insurance to employees next year and not," Thomas says. "I can understand the fear out there. Vendors I've been working with for 20 years have just gone away."
    But the benefits of the measures outweigh the impact on what is a small percentage of businesses, supporters say.
    "It will be brutal to schools if it doesn't pass, assuming that the Legislature doesn't step in," Thomas says.
    Reach reporter Paris Achen at 776-4459 or e-mail pachen@mailtribune.com.
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