Corporate taxation bill could test constitutional case law – Capital Bureau

Republicans accuse Democrats of ‘trampling on the constitution’ by passing tax measure without a supermajority.

SALEM — A bill passed in the House of Representatives Monday to change the way corporations are taxed for services could serve as a test for new case law on what constitutes a new tax.

Senate Bill 28 would tax national corporations on the percentage of their services they sell in Oregon instead of the existing “all-or-nothing” system of taxing only national corporations who perform the bulk of their business in the state.

The change would yield about $5.5 million in the next two years and $11.1 million the two subsequent years, according to an estimate by the Legislative Revenue Office.

Corporations already are taxed on the proportion of tangible items they sell in Oregon, but taxes on sales of services or intangibles are only levied on corporations where a majority of their services are performed in Oregon.

“The Senate Bill 28 would move away from that and toward a market-based policy that mirrors that for tangible products and is more in line with the policy intent of a single sales factor,” said Chris Allanach, senior economist with the Legislative Revenue Office, during a hearing on the bill last month.

In the past, Legislative Counsel would have considered the bill to be a new tax or a “revenue-raising” proposal. Under the Oregon Constitution, a revenue-raising proposal requires a three-fifths majority vote in both legislative chambers, and the measure must originate in the House.

An Oregon Supreme Court decision in 2015 changed Legislative Counsel’s interpretation of what qualities define a revenue-raising measure.

The court ruled in City of Seattle v. Department of Revenue that a bill to remove a tax exemption for out-of-state utility companies did not need a three-fifths majority because it didn’t have the “essential features” of levying a tax.

Hence, Legislative Counsel now…

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