Proposed 2.5 percent tax on gross receipts over $25 million would hurt but not kill discount cell phone company, according to CEO.

JAIME VALDEZ - John Marick, co-founder and CEO of Consumer Cellular, stands in the lobby at his new location in Tigard.John Marick, co-founder and CEO of Consumer Cellular,

John Marick is the co-founder and CEO of Consumer Cellular, one of the longest operating and largest mobile virtual network operators of cellular phone service in the United States.

With two million customers (compared the Verizon Wireless’s 120 million and AT&T’s almost 100 million, the company has a niche serving seniors and low income cell phone customers. Its new offices and warehouse are based in Tigard. It has call centers in Redmond in Central Oregon and Tempe, Arizona. Consumer Cellular's wireless phones and plans are sold nationwide at retailers including Sears and Target, as well as direct to consumers.

Marick founded the firm with COO Greg Pryor in the belief that everyone should have access to the safety and convenience of cellular service. He began in marketing with McCaw Communications, which became the country’s first wireless service provider. He noticed cellular operators were focused on providing cellular service to high-use business clients and early adopters, which left individuals with lower use needs struggling to find affordable cellular service. Marick says his vision for Consumer Cellular is to help everyone obtain affordable cellular service that is easy to understand and use.

How will Measure 97 affect your tax bill?

“We’re just over the $25 million (revenue level), but that’s the tip of the iceberg. We are a company focused on growth, and for 20 years we have grown by reinvesting in the business. But with a gross receipts tax it doesn’t matter whether we make or lose money, we still pay 2.5 percent (on all sales over $25 million).”

COURTESY CONSUMER CELLULAR - Consumer Cellular will be hit hard by Measure 97, particularly its customers, fixed income seniors.

Are there other costs headed your way?

“Anything we buy here in Oregon will mean costs passed down to us. I mean taxes will be passed down to us on costs that help us service our customer base throughout the country. Everything comes into our warehouse here in Oregon, the handsets, and we distribute them across the country. We’re like the razor industry: the handset is subsidized. We buy them at full value from the manufacturer. For an iPhone 6 we pay $650. Apple says you should be happy that you get to sell their products! The nice thing about Android is you have got variation. Some we purchase and sell for less than $100, on up to iPhone price level. Anyway we sell phones at a loss to attract customers, or we finance them interest free. So if Apple sells more than $25 million worth of phones in Oregon, they’re going to get hit with 2.5 percent and they’d pass that on to who ever is purchasing the products. It’s frustrating for us, we choose to do business in Oregon but their taxes flow down to us. We are working without accountants, but it’s hard to identify which vendors are impacted. We don’t know everyone’s revenues in the state of Oregon, so we have to make assumptions.

“It’s also not clean when it comes to the cell service we purchase from AT&T and T-Mobile and resell. AT&T is selling it to us in Oregon, so 100 percent of it would look like Oregon revenue. Or do we parcel it out to the state it is being used in? A Consumer Cellular customer in New York, is that part of their service taxed in Oregon or New York?

And things like rent: if our landlord takes in more than $25 million, do they get taxed at the higher rate? It then becomes this arbitrary number, where you are a small business, it might not apply one year to the next.

“I think if you upped the number from $25 million to $50 million or $100 million, that just falls into this belief that the bigger company you are, you’re this fat, happy company that has all this money that can afford this stuff. And it doesn’t take into account margins, whether you are making a profit. It’s on sales not profit.”

“All these costs will be passed down to consumers anyway. Even if the number were higher than $25 million, it would just allow a few companies to skate out but the consumer still gets hit. Ultimately it all flows downhill.

“It’s a cumulative tax. By the time it hits consumers the vendor has paid 2.5 percent and passed it on, then we get hit and it’s 5 percent and we need to pass it on to customers, in the price of the service or the handset.

“Pretty much everything we do is targeted to the 50-plus. Seniors and low-income people are disproportionately impacted by this tax. It’s that group that gets hit hardest as their bill goes up.

"The worst-case scenario is it’ll be about $1 million extra in direct taxes. We’ll pay them and then we get hit by additional costs, and ultimately the customer gets impacted, and they may have less money to spend on wireless service. Then we’re not about to meet or growth plans. It hits us on all sides. Senior pocket books will be impacted by organizations who pass it on, for example, utilities, gas and groceries will cost more, which will leave them with less money to spend. Then they see what they can cut out, which might be wireless service."

Can you survive?

“Quite honestly I don’t see us going out of business because of it, but it slows the growth and it forces us to look at decisions, such as where we have our employees base. It’s possible we would move our distribution out of Oregon, our Tigard warehouse. Maybe move it across the river (into Washington), it doesn’t have to go too far. It wouldn’t affect our revenues, but some of the costs from the vendors supplying us we would be able to avoid.”

How does this jibe with your personal politics?

“The biggest concern for me is it feels like the measure is trying to trick people. The headlines sound great, it’s all butterflies and rainbows. Of course we’d love it if our schools were better and we could take care of our seniors. But if you dig below, you find out it’s a sales tax, and it will flow down hill and will hurt the people it purports to help.

“And there is no guarantee that the money will go to schools. We know things don’t always go that way. I think the measure borders on deception. There’s not too many people that look at it and say it’s a still a great idea. You soon start seeing the holes.

“If want to raise more taxes there are better ways. A tax that applies to all businesses based on profits not gross receipts. The state has tried to get a sales tax and Oregonians keep voting it down. I’m not completely opposed to one — Oregon is the last hold out — but you’d have to look at whole tax structure.”

What can you do about it between now and November?

“We’re working with the No on 97 group, and finding ways to educate our employee base. We first got in touch with them through some economic development folks in Redmond, where we have 500 people and are a bigger part of the community. Ultimately we feel it’s important everyone understands exactly what the measure is and makes an intelligent decision and stops looking at the headlines. We’ve met with them and they’re putting together the war chest. It’s unfortunate that’s what politics has become; it’s fought in the media.

“It’s not talking up a lot of time, it’s more the worry about what’s going to happen and figuring out how we are going to mitigate the effects.”

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