Why Oregon doesn't need a sales tax

I read with great interest this opinion piece in the Oregonian of July 6.  The author, E. Walter Van Valkenburg, is a prominent Portland lawyer and the chairman of the Oregon Economic and Community Development Commission.  He suggests, very mildly, that Oregon should add a sales tax to its financial arsenal.

His mild argument is not, on examination, very compelling.  Mr. Van Valkenburg writes, "While we compete with states that draw revenue from property taxes, income or gross receipts taxes and sales taxes, Oregon stubbornly clings to a system that generates revenue from only two of those three sources. . . we simply can't generate enough revenue from the two sources we do tax to make up for the loss from not taxing the third."

Let's look at the facts.  From 1971 to 1990, Oregon's local governments raised in property taxes an amount about equal to five percent of Oregonians' personal income.  (The actual percentage paid by most Oregonian individuals would be lower, because property tax revenues include taxes on property owned by businesses and non-residents, but personal income doesn't include income attributed to incorporated businesses and non-residents.)  Measures 5 and 50, the tax limit initiatives, combined with increases in personal income, cut the property tax bite to about 3.5% of personal income.  Exhibit 6 in this document from the Department of Revenue shows the property tax trend.  The fact is that we did generate enough revenue from these two sources to make up for not having a sales tax; it's just that in 1990 we chose to cut property taxes and not replace the lost revenue.  The state itself didn't and doesn't generate any revenue from property taxes; it all goes to local governments.

Mr. Van Valkenburg (who despite our differences on tax policy is a very likable and engaging guy) adds that not having a sales tax "seems a particularly ill-advised strategy for a state in which tourism is a leading industry," implying that we are missing out on tax revenues by not nicking (nickeling?) tourists on their purchases here.  Again, let's consider some facts.

How much retail spending comes from tourists?   The Census Bureau estimates that total retail spending in Oregon in 2002 (the latest year I could find) was $37 billion.  A fair guess is that it's above $40 billion now, but let's say $40 billion to be conservative.  A study for the Oregon Tourism Commission estimated that in 2006, visitors spent $1.6 billion in restaurants and bars in Oregon, and that this was 23% of total visitor spending.  This would put total visitor spending at about $6.5 billion a year.  "Visitor spending" includes imported dollars (dollars from visitors to Oregon) and domestic dollars (dollars from Oregonians on vacation within Oregon). For example, the dollars that I spend at an Astoria restaurant are "visitor spending" even though they're not coming from out of state.  I couldn't find a breakdown of how much of Oregon's visitor spending comes from out of state, so let's say that three quarters does.  That makes the out-of-state tourist dollars about $4.8 billion a year, or about 12% of retail spending. 

Allowing that these are rough estimates, they indicate that "let's tax the tourists" is a poor reason to adopt a general sales tax.  Seven-eighths of the tax burden falls on Oregonians; one-eighth hits the tourist pocketbook.  Indeed, the opposite should be true; if high income taxes discourage high-income persons from moving to Oregon, then high sales taxes should discourage tourists from spending in Oregon.  A state in which tourism is a leading industry should, to encourage tourism, avoid enacting a general sales tax and play up this difference as a reason to visit.

Let's take up one more of the arguments for a sales tax.  Mr. Van Valkenburg phrased it as follows: "If Oregon continues to position itself as a high income tax state, jobs will ultimately be lost to states that have a tax structure more favorable to businesses and the people who run them."  I agree; however, we also have to consider the jobs that will be lost if Oregon adopts a sales tax. 

Oregon has an unusually high level of retail sales per capita.  The Census Bureau estimated that in 2000 Oregon's retail sales per capita was 1% above the national figure even though Oregon's personal income per capita was 3% below the national figure.  This is not because we're profligate consumers, but because our border areas -- principally Astoria, Portland, Hermiston, and Ontario -- attract shoppers from the neighboring states who want to avoid paying the Washington or Idaho sales tax.  In 1993 an economist who opposed the sales tax proposal of the day estimated that Oregon would lose 16,000 retail jobs if it adopted a 5% general sales tax, based on his estimate that Oregon picked up about $1.6 billion in retail sales and that retailers had 1 employee for each $98,000 in sales. 

We don't need a sales tax.  We need to do a better job of exploiting our freedom from a sales tax.

Comments

[Van Lease]

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[Jack Rubinger]

Urgent Message to Taxpayers: Remember October 15

Portland, Oregon -- Portlanders who might have Halloween on their minds in October may have another important date to remember this Fall -- Thursday, October, 15th.

If you filed for an automatic tax extension back in April, your tax forms need to be filed by October 15th, reminds Eve Davis, In or Out Tax Services, 3725 SE Division Street.

Ms. Davis is concerned that many are not aware or have forgotten about this upcoming deadline because for years it was August 15. If the October 15 deadline is missed further penalties will be assessed.

“Get your books together -- particularly if you’re self-employed. Taxes are normally due on April 15 every year, but taxpayers are eligible to file for an automatic extension if they need more time to prepare their tax return,” she explained. “It’s been my experience that while the extensions do give people more time, they also tend to suspend reality. I have found this to be problematic because as time passes they tend to lose, misplace or forget some important tax information.”

Even if you file an extension, your taxes are due April 15th, whether or not your tax forms have been completed and filed. If you filed an automatic tax extension form, it is best to include any estimated taxes owed to avoid penalties and interest (as long as you send the IRS 90% of your actual tax obligation you will not owe late filing or late payment penalties). If you overpay, you will receive a refund.

“Getting your taxes done doesn’t have to be torture,” she explained. “We’ve helped clients get over $1.9 million in refunds from the IRS. Remember, the last day to electronically file (e-file) your 2008 Income Tax Return for tax extension and late tax e-filers is also Thursday, October 15th. If you file your taxes electronically and you’re expecting a refund, you’ll receive that refund in as little as 10 days -- compared to a paper refund which can take up to 2 to 4 months.”

Ms. Davis offers the following tips to save money on your 2009 taxes:

Go through all your closets and get rid of all the things you haven’t used in a while and donate to a qualified 501 (C) (3) charity. Make sure you write everything down and check out what comparable things sell for in a thrift store, then write that down next to it. You will probably not give yourself a big enough deduction if you try to guess the value. Also, any miles you drive for charitable purposes can be deducted at 14 cents a mile.

Give up to $50 ($100 for a joint return) to a candidate or measure on the Oregon ballot for a credit on your Oregon taxes only.

If you make estimated tax payments to Oregon, make your January 15th, 2010 payment by December 31st, 2009 to get the deduction in 2009.

Pay any medical bills you have before the end of the year for you, your spouse and your dependents. Also, keep track of all your medically related mileage. The deduction for 2009 has increased to 24 cents a mile. Go through all your receipts including insurance, co-pays, dental, glasses and prescriptions. There is a minimum amount you have to spend to get this deduction, but your efforts could be worth it because of the high cost of health care now. You can include alternative care provider costs such as acupuncture, chiropractic and naturopathic as well.

If you are self-employed look at what you spent on supplies in January and February and think about buying them in December.

Put up to $5000 in your traditional IRA and if you are over 50, you can put up to $6000 (you have until April 15th, 2010 to still get this deduction.) If you are self-employed and don’t have a SEP IRA, think about opening one because the amount you can put in pre-tax can be much higher than a regular IRA but the account has to be opened by December 31st, 2009.

All About Eve and In or Out Tax Services
When Eve Davis decided to open her own tax practice 10 years ago, she thought of her grandmother and mentor, Evelyn Johnson, who owned the In or Out Beauty Salon in Denver, Colorado. Grandmother would go to your home or hospital if you couldn’t come to her. Ms. Davis is carrying on that tradition of customer service. In or Out Tax Services is located at the site of Indigine Restaurant, 3725 SE Division Street, Portland. Ms. Davis teaches small business owners about requirements for income tax filings and payroll filings through the Small Business Development Commission. For more information, visit www.inorouttax.com, email eve@inorouttax.com or call 503-239-0659.

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