Will lawmakers disappoint taxpayers with their corporate minimum tax “fix?”

Chuck Sheketoff

When you take your cat to the veterinarian to be “fixed” you expect it to be permanent. You’d be disappointed if the vet told you your cat could get pregnant again in six years.

Well, taxpayers ought to be disappointed with how the Oregon legislature is trying to “fix” the corporate minimum tax loophole that allows hundreds of corporations to avoid paying Oregon’s corporate minimum tax.

As you may recall, two years ago the Oregon Supreme Court sanctioned an end-run around the minimum tax by allowing corporations to apply unused tax credits against the minimum tax, sometimes lowering their liability to zero. The case, brought by trucking company Con-way, found an error in the minimum tax statute drafted by the legislature’s lawyers. That error has allowed hundreds of corporations to game the minimum tax to avoid paying anything in state corporate income taxes.

Now lawmakers are claiming to fix the drafting error (see HB 2171A or sections 43 to 45 in the -6 amendment to HB 2171), but they are placing a sunset on the minimum tax fix. That’s right: the legislature is claiming to fix the problem, but only for six years.

The fix is part of larger bill that creates, amends and extends the life of some tax credits and tax expenditures. The bill itself, even with the loophole fix component, will have a negative impact on state revenues; HB 2171 will cost the state millions. That’s why it is not a bill for raising revenue requiring a three-fifths vote of the legislature.

Some people involved with the legislation think the minimum tax fix component needs a sunset so the bill can pass with a simple majority vote.

History proves them are wrong. Just look at what happened with a tax credit bill in the 2013 session, HB 3367. That package had two provisions other than tax credits that each brought in more revenue to the state (changing the senior medical deduction and the federal tax subtraction for married-filing-separately), mitigating some, but not all, of the costs of the other provisions in the bill. And those two provisions were not subject to a sunset. The 2013 bill was not subject to a three-fifths majority because overall it did not increase revenues to the state.

Just as that bill was not a bill for raising revenue, the bill in the current session containing the minimum tax provisions is not a bill for raising revenue. Legislative Counsel didn’t require the 2013 bill to have sunsets on the revenue raising sections, so there’s no good reason for them to require a sunset on the minimum tax fix provision in HB 2171.

Placing a sunset on the corporate minimum tax fix makes no sense from a policy perspective. Sunsets are appropriate when the legislature has some doubt about whether the policy is good. In such situations a sunset forces the legislature to revisit the issue. That’s one of the reasons all tax expenditures are supposed to have sunsets – the sunsets guarantee the policies are revisited every six years.

Here, there's no question that making the minimum tax truly a minimum tax is good policy. There’s no question that corporations should not be allowed to use tax credits to escape the minimum tax. Six years from now, the policy that “minimum” means minimum will still be good policy. The alternative, letting corporations get away with paying nothing, will still be bad for Oregon.

Sunsets on tax expenditures allow the legislature the freedom to eliminate a tax expenditure after a period of time by doing nothing (not extending the sunset) or by modifying the tax expenditure with a simple majority vote for the period following the sunset. Here, the sunset offers no such freedom or ease to the legislature. Placing a sunset on the corporate minimum “fix” is ill-advised because it means the corporate minimum end run will return, only it could be harder to eliminate the second time around. Adding a sunset to a measure that closes a loophole means legislature might need three-fifths vote (not a simple majority) to extend the protection beyond the sunset period.

If lawmakers really want to claim they fixed the problem that’s letting hundreds of corporations game the system and avoid paying anything in taxes, they must not sunset the fix. They should kill the corporate minimum end-run once and for all. They shouldn’t disappoint taxpayers who want the loophole fixed.

Oregon Center for Public PolicyChuck Sheketoff is the executive director of the Oregon Center for Public Policy. You can sign up to receive email notification of OCPP materials at www.ocpp.org.

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