Tax hike worries business owners

What the ballot title for Measure 67 didn’t tell voters is that the measure, one of two voters endorsed, includes a gross receipts tax on C Corporations, a change that Bob Black, owner of Black Distributing in Baker City, contends is like a back door sales tax.

Based on the history of Oregon voters soundly rejecting sales taxes, Black said he believes voters would also have rejected Measure 67 if the gross receipts provision was included in the ballot title and more fully explained.

He also blames public employee unions, which spent more than $4 million for the Yes on Measures 66 and 67 campaign, which he believes misled voters by portraying Measure 67 as a minimal increase in corporate filing fees from $10 to $150.

“They lied to the people. It’s a value added tax. It’s a sales tax,” Black said.

During a town hall meeting Sunday in Baker City, Rep. Greg Walden, R-Ore., read a comment made by Chicago Mayor Richard M. Daley, published in The Oregonian, that after voters passed both Measure 67 and Measure 66, which raises income taxes on higher-earning Oregonians, he was planning to send recruiters to Oregon to lure businesses and investors away from the Beaver state.

“I fear for the future of this state,” Walden said.

“To me the biggest danger with measures 66 and 67 is there are going to be a number of businesses that refuse to come to Oregon because of it,” Baker City Mayor Dennis Dorrah said. “It is going to be harder to create new jobs, and there are going to be businesses that leave Oregon.”

Dorrah said he believes government has gotten so big, with so many people either getting their paychecks, government benefits, contracts or support checks from the government, that the private sector no longer has enough voters to block tax increases and higher government spending.

“I think passage of measures 66 and 67 might have been the tipping point where we no longer have control,” Dorrah said. “The people who are paying the taxes have less and less representation.”

“I think the real problem is the mentality that appears to be prevalent right now, that something is free if somebody else has to pay for it, and ultimately that somebody is the taxpayers,” Dorrah said.

He said increases in taxes will make it even tougher for owners of small family businesses like his to survive tough times.

At his grocery and sporting goods store, Dorrah said he has already laid off one employee to cover retroactive taxes he’ll face, and if that doesn’t do it he said he’ll have to cut business hours.

“You can’t keep sucking in your gut every time you get more costs from the government,” Dorrah said. “It’s not like in these times that businesses are doing great.”

Like owners of other Oregon businesses registered as C Corporations, Black said he’s worried about the new taxes, retroactive to Jan. 1, 2009, due to passage of Measure 67.

Black contends that Measure 67 discriminates against longtime family businesses like his that incorporated in the 1970s or earlier, when C Corporations were the only form of corporation available.

Because Measure 67 applies to C Corporations but not to S Corporations or LLCs or partnerships, Black said older businesses such as his have been put at a competitive disadvantage.

 “It’s unfair. How are we going to compete with LLC or S Corporations when we have to pay the tax and the other guys don’t?” Black said.

 Even small family-owned companies involved in potentially hazardous endeavors need the liability shield provided under laws governing C Corporations “so lawyers and government regulators can only come after the assets of your corporation and can’t come to your door and take your house and all of your personal property,” Black said.

 In addition to gas stations and fuel distributors, other types of businesses typically registered as C Corporations for liability protection include construction companies, plumbing and electrical companies, farms, ranches, food processors and manufacturers.

For small-town car dealers like Baker City’s Dennis Wright, co-owner of Gentry Ford and Powder River Motors, and Randy Daugherty, an owner of Baker Garage Inc., Measure 67 is worse than a sales tax, because the dealer either has to absorb the new taxes or tack them onto the sales price of a vehicle, Wright said.

By comparison, he said the sales taxes levied in Idaho and Washington are collected by auto dealers from residents of those states, on top of the sales price of a vehicle  

Wright said people buying cars nowadays often shop and compare prices in newspaper ads and on the Internet, and his concern is that Oregon customers will be lured out of state by dealers that aren’t taxed on their gross receipts.

Contrary to claims that car dealers can afford to absorb the gross receipts tax, Wright pointed out that there’s so much competition among auto dealers that the average profit margin is between 2 percent and 3 percent, nationwide.

 If Oregon auto dealers absorbed the gross receipts tax imposed under Measure 67, Wright said they’d be lucky to break even.

Given recent publicity about federal bailouts to keep the nation’s auto manufacturers operating, and the fact that more than 2,000 auto dealers went out of business in 2009 due to the recession and plunging car sales, Wright said now is not the time to exacerbate the industry’s problems with a gross receipts tax. 

Daugherty said that tax doesn’t apply to his Chevrolet/GMC dealership in Baker City because the business isn’t registered as a C Corporation.    

However, Daugherty said he is subject to the filing fee increase from $10 to $150, which he also believes was misrepresented by the Yes on Measures 66 and 67 committee.

He said the filing fee, despite the implication in TV ads, is hardly the only tax that S Corporations, LLCs and partnerships pay.

At the end of the year any profit those types of corporations or partnerships earn becomes part of the personal income of the owners and stockholders, which Daugherty said is already taxed at 9 percent.

Measure 66 increases the income tax rate to 11 percent for individuals who earn more than $125,000 per year, and for households with incomes higher than $250,000.