Newsletter: Backdoor Sales Tax

 
 
Representative Shelly Boshart Davis

HOUSE PASSES MASSIVE HIDDEN SALES TAX

On Wednesday, the House passed a massive $2.8 billion tax on commercial activity along a party line vote. Because tax bills require a 2/3 majority vote in the legislature, the Democratic super majority's exercise of raw political power was on full display. And it was ugly.

The Joint Committee on Student Success was established in 2017 and tasked with finding ways to support Oregon's public school system. Given our school system has been failing our kids for more than a decade, it is high time this issue is finally being addressed.

Not only did Oregonians vote down this same kind of tax three short years ago, in Measure 97, but the process chosen to address school funding was rushed and secretive.

I believe Representative Wilson captured the correct attitude toward this situation when he spoke on the House floor:

"Madam Speaker, I think my good friend from the Central Coast needs to not say things like, "Why did we wait so long?" I guess I would ask, "Yeah, why did you?" It is not my party that has been in charge of this process for the last four budget cycles? So yeah, why did we wait so long?... We don’t want Oregon schools or students to fail. Why would I? My grandchildren go to public schools… but there are other ways… there are budget priorities. You know, budgeting is about priorities, and you show your priorities by how you budget. And for 4 consecutive budget cycles, we haven’t done all that much for schools, have we?”

HB 3427 Remonstrance

Here is the abridged version of my remarks on the house floor: 

I wear many hats: Job creator, international businesswoman, farmer, legislator… but mom is my favorite. I have three daughters, all in school. There is nothing more I want to do than vote ‘yes’ on an equitable bill where all Oregonians can fund our schools because students are counting on us. They are also counting on us to cultivate an economy where jobs are available and an environment ready for them to excel once they are ready to enter the workforce. I had hoped that wasteful spending, reducing expenses, prioritizing cost containment, and reforming the runaway PERS train were part of this conversation today. But instead, it pits legislators who are concerned about the cost of living impacts on working families against the message of “student success.” There is a better way, and that better way depends on the mechanism we are using. A mechanism that takes time to answer all questions. The better way includes fixing issues that won’t put us in this same position in two years looking to throw more money at the same problem.

Here’s what is interesting… Lottery was promised to take care of schools. It was FOR THE KIDS. Marijuana money was promised to go to schools. It was FOR THE KIDS. Fast forward to a 2019 supermajority, and we need more money. We still have runaway spending, and we still have a PERS problem. Fast forward to 2019 and the national word of the year, collusion, has come to Oregon. We now have big government colluding with big business.

Not one Republican House member was at the table this weekend. Our Republican caucus leaders were left out of the conversation. Working families were not at the table this weekend. The Salem Reporter documented, “For months, OBI was vocal in its opposition to the plan, but said it got enough concessions in private meetings, that it will no longer try to stand in the way of the tax.” Does anyone find that interesting? Disgusting? A little stinky?  The Salem Reporter again, quoting a Senator: “And I think if what we saw yesterday is any indication, we've got business groups, who are usually violently opposed to taxes, standing down because they know how important this is.” Do they? Do they all of the sudden know how important this is? Or did they get a carve out and so they are now standing down?

I addressed some major concerns with this bill…

First, let’s talk about pyramiding... This report was commissioned by the State of Washington. Let’s look at the first line, food. If the gross receipts tax rate is .30%, by the time you get that food to market, the effective tax rate is 2.03%. It has been taxed 6.7 times. That’s called pyramiding. Agriculture and businesses with more complicated production processes end up paying more because every intermediate transaction — business-to-business sales — is taxed.

Pyramid Taxation in Washington

I provided a flow chart illustrating the pyramiding, or stacking, of taxes on one ton of straw. I used grass straw, because that is what I know… I understand supply chain…. Each blue arrow represents a transaction. In the case of grass straw, the one ton of grass straw will have been taxed 8 times…

Pyramid Taxation

Here are the common questions or comments I have gotten when I explain the supply chain to other legislators:

Question: Which one of these is the co-op?

My response: Well, there are no co-ops in this supply chain.

Another comment I heard: Well, this will just incentive companies to vertically integrate.

My response: Since when do we incentivize getting rid of the little guy? Why would we incentivize cutting out small business?

The next comment: Well, that “little guy” must be under $1 million in gross sales.

My response: What if they aren’t?

Next question I have received: If they are a unitary grouping, meaning owned by the same people, then you’ll be okay.

My response: They aren’t. In some cases, one family or farm owns multiple parts of the supply chain. In some cases, they do not. I am not okay with picking winners and losers in this case.

I believe, by exempting groceries, it is the intent to not increase the cost of food for Oregonians. However, the definition of groceries in the bill is tied to the federal SNAP definition which defines a grocery as, “food for home consumption.” This leaves many local food products exposed to increased prices. For example, raw liquid milk leaving the farm is not a grocery. As that raw milk goes to become local dairy products, it will be taxed multiple times and ultimately raising the cost of a staple food product for many of my fixed income families in my district.

There is a better way. Using a mechanism that does increase the cost of staple goods is necessary for our working families and for those on fixed-incomes, and vulnerable Oregonians. Recognizing the supply chain is a better way. In order to do this, this process would have taken longer than the mere one or two weeks the Student Success Committee was given to vet this concept and to ask questions to see how it would impact Oregon families.

We in Oregon have long prided ourselves on local food and products we grow here in the state. We love farm to table! We love our local farmers markets! Cows in Tillamook eat hay from Harney county, whose beef is then supplied to Portland restaurants; This is true to the Oregon Way. Under this bill, by stacking taxation and pyramiding, we are incentivizing our locally grown food to leave the state… we are incentivizing exporting our local products to wholesalers out of state.

The current language in this gross receipt tax scheme encourages our food products, forest products, and other natural resource products to be sold out of state, a loss of Oregon’s local product identity. The market is like water – it flows to the areas with least resistance. We ask our local farms and business to pay higher wages for our workforce, protect our environment, and follow strict regulations, only for those same businesses to be undercut by out-of-state competitors who do not produce these products with the Oregon ethos. Why would this happen? Out-of-state or out-of-country food production hasn’t had the pyramid taxing like Oregon has. We’ll see more broccoli coming from Mexico rather than a farm outside of Salem.

Let’s talk winners and losers in this tax package. We start talking winners and losers, and you’ll understand why this tax bill is being rammed through.

Winners: Big Business.

Apparently huge campaign donations equal a carve out in the arguably largest tax bill of the session. Let’s talk about a fictional business…. Say a shoe company. Let’s say the majority of this businesses’ sales are out of state, and most of their in-state costs are labor. This fictional shoe company is mainly exempt because of out-of-state sales and can deduct some of their labor costs. What would this fictional company that sells shoes be paying in this new gross receipt tax scheme? Does anyone want to know? Maybe I’m the only one… And maybe I’m wrong. But I do know this: Supporting this bill while negotiating yourself a carve out does not fund schools!

This bill treats businesses inequitably. Retailers or manufacturers who sell products primarily out-of-state receive favorable tax treatment over those who sell those products locally. Businesses that process locally are subject to pyramiding while those that process outside of the state do not.  I’m concerned that local businesses that produce and sell their products locally are penalized under this tax structure.

Losers: Oregon families, small and medium-sized businesses and their employees, and family farms

At the end of the day, consumers are the ones to bear the costs at over $600 per Oregon family. At the end of the day, a sales tax on essentials, makes life less affordable for families. These same families have voted down a sales tax and a gross receipts tax time and time again.  The essentials in life that will become more expensive: Diapers, medicine, clothing, school supplies, lumber, feminine hygiene products, birth control, and the list goes on. At the end of the day, business is not paying for this. Business will be passing this onto us. Business will be passing on these increased costs to working Oregon families.

The Oregon Way should be finding a way to fund schools without risking jobs or damaging our economy. There’s a better way. There’s an equitable way.



MY BILL FOR BASIC NECESSITIES TAX EXEMPTION

Basic Necessities

Simply put, this massive tax hike will hurt working families by making Oregon a more expensive place to live. 

I am introducing legislation that will not solve the problems with HB 3427, but should ease the cost of living increase by exempting items that families use everyday. Diapers, soap, tampons, over the counter medications, and toilet paper would be among those items exempted if my bill passes. 

Read more here.



REPUBLICANS OFFER COST-EFFECTIVE PERS AND EDUCATION SOLUTIONS 

Republicans offer cost-effective PERS and Education solutions

The legislature is putting the cart before the horse. PERS could potentially eat up most of this increase in tax revenue. The result: our kids do not get the help they need. The day after HB 3427 passed on party lines in the House, Republicans introduced cost-effective PERS and education bills that would be a step toward making sure all this new money will get to class rooms and essential services for our children. I hope that these measures will be entertained.



Talk soon, 

Rep. Boshart Davis

Capitol Phone: 503-986-1415
Capitol Address: 900 Court St NE, H-389, Salem, OR 97301
Email: Rep.ShellyBoshartDavis@oregonlegislature.gov
Website: http://www.oregonlegislature.gov/boshartdavis

Dru Draper