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Oregon among top states for business taxes

The nationally-based Tax Foundation ranked Oregon 12th in their 2014 State Business Tax Climate Index


When it comes to taxes, an annual study conducted by a national research organization determined that Oregon is among the top states to do business.

The Tax Foundation, a nonpartisan group based in Washington, D.C., recently released its 2014 State Business Tax Climate Index. The rankings examine and rank the tax rates for corporations, individual income, sales, unemployment insurance, and property, then determine an overall pecking order.

Oregon was ranked 12th of the 50 states on the strength of its lack of a sales tax and a relatively low property tax.

“Going without one of the major taxes is a boon to the state's index score,” said index author Scott Drenkard. “If you go without one of those major taxes, you lose all of the compliance burden associated with levying one of those taxes.”Drenkard went on to point out that eight of the states ranked in the top 10 lack one of the major taxes examined for the index. Washington, for example, is ranked sixth overall primarily because of its lack of an individual income tax, despite ranking 48th for sales tax. Oregon, on the other hand, ranks fourth for sales tax (due to some excise taxes that prevent a number-one ranking) and 31st in individual income tax with a rate that varies from 5 to 11 percent depending on income.

As it turns out, income tax is weighted more than other categories when determining overall ranking. Drenkard explained that categories are weighted according to their variation from the mean average.

“The components that score very similar between the 50 states, those don’t matter as much for business location decision,” he explained.

Consequently, of the five subcategories examined, individual income tax comprises 32 percent of the overall ranking because of how much it varies from state to state. By contrast, unemployment insurance tax rates, which are not as different throughout the country, account for 11 percent of the formula.

Oregon also ranks near the top at 15th for property tax rate, a byproduct of Measure 50, which was passed in 1995 and limited property tax increases to 3 percent per year. However, they don’t fare as well with corporate tax (32) and unemployment tax (34).

Oregon Senator Doug Whitsett (R-Klamath Falls) and Representative Mike McLane (R- Powell Butte), who both represent Crook County in the state Legislature, have not seen the tax index, but dispute the notion that Oregon should be ranked 12th in the states.

“Usually, what those tax studies don’t take into consideration is the amount of fees and charges and so forth that run parallel to the taxation,” Whitsett said. “If you look at our entire state budget, about 50 percent of the revenue comes from ‘other funds.’”

He explained that some of those funds include PERS, unemployment, and workers comp trust funds, but the lion share of them are the fees charged by various natural resource agencies.

Drenkard confirmed Whitsett’s belief, noting that state fees are so varied throughout the country, it becomes too difficult to include them in the tax index.

McLane does not consider Oregon worthy of its No. 12 ranking because the state has one of the highest capital gains tax rates in the nation.

“Anyone in business who sells a capital asset or stock is taxed in Oregon disproportionately high,” he said. “The fact that Oregon is being acknowledged for not having a sales tax or not having a tax on professional services is being used to make a case that just doesn’t exist.”

McLane did go on to point out recent developments in the Legislature have improved the state’s business tax climate. He singled out the 2013 special session in particular, which resulted in a bill that brought tax relief to small businesses.

Nevertheless, he still sees room for improvement.

“In order for Oregon to remain competitive with our sister states, we have to focus on what the tax rate adjustments are to retain our competitiveness for growing businesses,” McLane concluded.




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