In November, Oregon taxpayers will vote on Measure 118, which calls for a 3 percent gross receipts tax on corporations with more than $25 million in annual sales. If passed, the tax collected — an estimated $6.8 billion — would be redistributed to Oregonians as a rebate. Proponents of Measure 118 estimate that each Oregonian could receive $1,600 each year, regardless of income or age, starting in 2027. Measure 118 would go into effect on Jan. 1, 2025, however, which means businesses would start to incur the tax within four months.

Many Oregon businesses, organizations, and leaders (Republicans and Democrats alike) oppose Measure 118 for a variety of reasons. Ultimately, Measure 118 could cost most Oregonians a lot more than the $1,600 they might (or might not) receive. Consider these potential impacts:

• Oregon companies would take a direct hit in the form of the 3 percent tax on their gross receipts (which means they would be taxed on all their revenue, not just profits) exceeding $25 million. For many companies that do business in Oregon, 3 percent of gross receipts would eat into any potential profit. This means that to remain as profitable as before, businesses would have to increase the prices for their goods and services and pass those on to their customers.
• The effect on construction and real estate would be even higher than other industries because of the multiple layers of suppliers and subcontractors that build a project or develop a property. This layering or pyramiding is best demonstrated by the example of normal construction of a new home or apartment complex:

A window manufacturer might have to pay the 3 percent tax on the sale of the windows to a window distributor. Then the distributor might have to pay the 3 percent tax on the sale of the windows to the window retailer. Then the retailer might have to pay the 3 percent tax on the sale of the windows to the window supplier and installer. Then the installer might have to pay the 3 percent tax on the subcontract price of the windows to the general contractor. Then the general contractor might have to pay the 3 percent tax on the contract price of the windows to the project owner.

Although the tax rate would apply to gross revenues exceeding $25 million, this example shows how the project owner might bear the burden of those five layers of contracting — or as much as 15 percent more than without the tax — on the windows. That additional cost would then have to be passed to the end user, decreasing the feasibility of middle-class Oregonians buying a new home or renting an affordable apartment.

• In addition to the financial effects, the measure is drafted to allow the Oregon Legislature to amend and/or redistribute the amount collected, or use the money for other purposes, without a vote of the people. Thus, voters could be deprived of their rebate long before the checks are even in the mail.
• Even the Oregon Center for Public Policy opposes Measure 118 because the tax would take funding from existing taxes that are currently used to support K-12 education and other vital services.
• Additionally, rebates would be sent to every Oregonian, whether needed or not. So, a family of four with a household income of more than a million dollars each year would still receive $4,200, the same as for a family of four with a more modest income.
• Finally, because public benefits (such as SNAP or WIC) are based on income, many low-income Oregonians (especially seniors and children) might be disqualified from obtaining other much-needed social benefits because, after the rebate, they would make “too much.”

Measure 118 looks a little like 2016’s Measure 97, which sought to impose a 2.5 percent gross receipts tax on certain corporations with gross annual sales in Oregon greater than $25 million. Measure 97 was defeated because it was unclear who would essentially pay the tax (corporations or consumers) and how much the cost would be. Those same concerns and unknowns apply to Measure 118.

The unknowns about Measure 118 present the greatest risk for Oregonians, especially when the costs of housing, food and basic needs are at all-time highs. Though a rebate might sound appealing in the short term, it could end up costing each Oregonian far more than the estimated $1,600 they could receive each year.

Businesspeople with questions about the tax implications of Measure 118 should consult an experienced tax attorney or CPA.

This article summarizes aspects of the law and opinions that are solely those of the authors. This article does not constitute legal advice. For legal advice for your situation, you should contact an attorney.

Column first appeared in the Oregon Daily Journal of Commerce on September 13, 2024.