Powell's City of Books

Some prominent Oregon businesses, including the iconic Powell's Books, face whopping tax hikes if voters approve a new gross receipts tax in November. Business is gearing up to defeat the $6 billion tax measure.

(John M. Vincent)

Pacific Power claims it faces a $40 million-a-year tax hike if a controversial new corporate tax measure is approved in November. The Portland utility said it has just one way to recover those costs: A 3-4 percent electricity rate hike to consumers.

In Mt. Angel, agricultural co-op Wilco is bracing for a tenfold increase in its state corporate taxes -- from $250,000 to $2.5 million a year -- if Initiative Petition 28 becomes law.

Powell's Books claims IP 28 would jack up its tax bill to 20 times the current level.

The tax measure would send a vast river of additional funds into state coffers -- $6 billion per biennium. But a new report obtained by The Oregonian/OregonLive bolsters the business community's complaints that IP 28 takes a heavy toll on a relatively small number of companies.

The report from Oregon's Office of Economic Analysis states the larger Oregon companies subject to IP 28 could see their corporate taxes multiply ten, 30, even 68 times. On average, the report concluded, the 230 Oregon-based corporations subject to the new tax would see their tax bill swell by more than 1,000 percent, from an average of $200,000 to $2.2 million.

"All industries are home to some large firms, and as a result, all would see their average tax bill rise sharply under IP 28," the report states. "Aside from C-Corporations in agriculture and natural resource industries, all would see their average tax bills more than double under the proposal."

State economists on Tuesday hurriedly backed away from the report, saying their findings were only preliminary estimates. But companies quizzed by The Oregonian/OregonLive have also run the numbers. They confirm the eye-opening tax hikes.

Backers of the tax measure dismiss this talk as predictable. They argue that IP 28 would generate vital new revenue at a time when Oregon's schools and sagging infrastructure are in desperate need of investment. It would finally overhaul the state's volatile tax mix, which is prone to wild swings as the economy booms and busts.

Katherine Driessen, spokesman for Our Oregon, the left-leaning political consortium that created IP 28, said the new study backs up proponents' claims that most of the new money -- 82 percent -- would come from large, out-of-state corporations.

As for the big increases, "when you're dead last in the nation in corporate taxes, any increase is going to feel like a big jump. We're not surprised by the numbers in the report or the reaction of the business community."

Driessen pointed out that even after the implementation of IP 28, Oregon would go from 28th to just 20th in the nation in terms of overall tax burden by state.

For Gov. Kate Brown, the measure sets up a messy political balancing act. Our Oregon and its public employee union allies are among her closest allies. But business is ringing the alarm bell, demanding face-to-face meetings and warning of harsh economic consequences.

Generating more than $6 billion every two years, the new tax would fundamentally change the state's budget picture. The state expects total general fund revenue of nearly $18 billion in the 2015-2017 biennium.

Though she still hasn't taken a position on the measure, the Governor last week released a spending plan for the new cash that also contained some measures to mitigate the overall impact. Some software companies would be shielded. In hopes of protecting jobs, Brown also proposed to allow businesses subject to IP 28 to subtract a portion of their payroll costs from their corporate tax obligations.

Executives are asking for a lot more.

Dr. Nick Denton heads the Corvallis Clinic, a large, eight-office medical practice in Benton and Linn counties. He figures the clinic is facing new taxes of $1.875 million a year on top of the property tax and income tax it already pays. The clinic will have little choice but to pass along the increases to its customers, he said.

"I'm a Democrat, I'm pretty much a bleeding heart," Denton said. "I don't mind paying my taxes. At the same time, I've got to run this business."

Scott Bolton, of Pacific Power, echoed Denton's sentiments that consumers will foot the bill in the end. As a regulated utility, PacifiCorp has the right to increase electricity rates to cover taxes. It would require a 3-4 percent rate hike to match the estimated $40 million-a-year additional cost posed by IP 28, he said.

"This will ultimately be borne by Oregon electricity customers," Bolton said. "Frankly, that's what makes this so regressive. It's consumption based. It hits the most vulnerable customers."

For Powell's Books, the 20-fold tax increase under IP 28 poses a more significant challenge. In an industry under siege by Amazon and other digital competition, Powell's wouldn't have the luxury of passing along its seven-figure new yearly tax obligation to customers, Emily Powell argued.

"We don't have an answer on how we're going to pay this tax," Powell said. "We employ 550 people. We try to offer good jobs, competitive pay... all that would be threatened by this measure."

-- Jeff Manning

503-294-7606, jmanning@oregonian.com