Minimum Tax Math: Corporations to pay no more than $1.50 while households on average pay $57.00 per $1000 in revenue
Chuck Sheketoff
Led by fear mongering lobbyists Mark Nelson, Pat McCormick and Jon Chandler, some businesses in Oregon are bellyaching about the new corporate minimum tax. They want to go back to the $10 a year corporate minimum tax that two-thirds of Oregon corporations have been paying.
It’s time to put the new corporate minimum tax in perspective.
According to the Oregon Department of Revenue’s most recent report on the personal income tax, the state’s overall effective tax rate is 5.7 percent as of tax year 2007. That’s a measure of how much individuals actually pay if you take all personal income taxes paid as a percentage of total adjusted gross income (that’s income before deductions, additions and subtractions).
That means for every $1,000 in income Oregonians pay on average $57 in personal income taxes.
In tax year 2006, nearly two-thirds of Oregon’s C-corporations paid just $10 a year in taxes. Among the 5,156 profitable C-corporations that paid just $10 were 31 with over $1 million in Oregon taxable income (that’s net income, not total revenue or sales).
Now comes the new corporate minimum tax enacted by the 2009 Legislature.
Under the new scheme, corporations subject to the minimum tax will pay no more than (and most less than) $1.50 in taxes on every $1,000 in total revenue. Some corporations will pay as little as 40 cents or less on every $1,000 in total Oregon revenues.
$57 vs. $1.50, and big corporations are bellyaching about giving up their $10 minimum tax?
Voters should uphold the new corporate minimum tax.
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Aug 5, '09
Taxable income is the portion of income that is the subject of taxation according to the laws that determine what is income and the taxation rate for that income. Generally, taxable income refers to an individual's (or corporation's) gross income, adjusted for various deductions allowable by statute.
The reason those corporations pay $10 is that they have NO TAXABLE INCOME as defined by the IRS and the State of Oregon
I really hate to break it to you, but the public is not nearly as stupid as you think they are.
Aug 5, '09
Household income brought home is 'profit'. The total revenue taxation methods recently enacted by the state legislature are against gross receipts of the business. So any business with narrow margins (grocery stores and gasoline stations come to mind) ends up paying tax now on gross revenues rather than net revenue and/or profit.
The C-Corporation is also paying taxes on income (FICA/Medicare ~ 7.45%), Workers Compensation (~ 0.75%) and health benefits (1%). This is before any of the income paid out to owners/employees is ALSO taxed at your stated and blended 5.7%; but recently allowed to rise to as high as almost 11%. In the C-Corporation the individual pays taxes in addition to those paid by the Corporation on the same money paid out as income or a dividend.
3:35 p.m.
Aug 5, '09
Chuck,
I hate to say it, but for once I agree with the prior posters that confusing revenues and income is a bad place to go. The anti-tax crowd will be using that argument to confuse voters on what the new income tax rate impact will be.
The real issue is that corporations put a demand on the services of the state and for-profit entities should pay their way and not get subsidized. The changes to the minimum tax help reduce this subsidy.
Aug 5, '09
A couple comments:
If you go to the link Chuck cites (which happens to be an article by Chuck), you'll see that the reason most "profitable" corporations pay only the $10 minimum is that they have net operating loss carryforwards from previous tax years which the law lets them use to offset taxable income in the current year. For example, under current law, if a corporation has a $1 million Oregon loss in 2007, it would pay the $10 minimum in 2007. If it had $1 million of Oregon taxable income in 2008, it could apply the prior loss against the 2008 income, for net Oregon taxable income in 2008 of 0, and it would again pay the $10 minimum tax. Over the 2 year period, the corporation in fact had no net Oregon taxable income. The tax laws recognize a number of situations in which losses in one year can offset gains in another, such as the federal rule that lets individuals offset capital losses against capital gains from other years. Individuals conducting a trade or business also get a net operating loss carryforward.
Chuck's article, that he cites in his post, points out that the remaining "profitable" corporations that pay only the $10 minimum tax had Oregon tax credits. These were created by the legislature for some perceived useful public policy reason. They are legislative efforts to help some corporations (and individuals, since there are credits for individuals as well as corporations) at the expense of others. If the usefulness of these credits has run its course, let's have a discussion of eliminating the individual credits, not adding a new tax to "take back" the benefit of the credit (and hurt others who never even got the benefit of the credit in the first place).
Chuck's article does mix some apples and oranges. The 5.7 percent effective rate on Oregon individuals is apparantly on adjusted gross income. The 0.1 percent rate in the new minimum tax is on corporations' gross revenue, which is very different from adjusted gross income. If a corporation sells something for $1000 that it cost $2000 to purchase (a loss of $1000 before any overhead or other costs), the corporation has $1000 of gross revenue subject to the new tax. If an individual sells an asset for $1000 that he purchased for $2000, he would have no adjusted gross income at all, and would not be subject to income tax at all. The comparison of $57 to $1.50 is very misleading.
Aug 5, '09
That's why I thought we should continue to tax corporate profits as we have, but get rid of the corporate minimum and replace it with a type of licensing fee like the counties have. Base it on the number of employees on a sliding scale. Bigger employers pay a higher fee, which makes sense if you figure more employees require more government services for that company.
Aug 6, '09
Potato Potahto, Tomato Tomahto... their is a huge divide in Oregon between the haves and the have nots. The wealthy should pay more than they are...period
Aug 6, '09
@David McD
The wealthy should pay more than they are...period
Yourself included?
7:59 p.m.
Aug 6, '09
Chuck, you better practice your sleight-of-hand a little more. Judging from the posts above, it looks like people are starting to catch on.
11:21 p.m.
Aug 6, '09
Adjusted gross income is gross income minus several types of deductions, including most business deductions. For most wage earners, AGI is the same as gross receipts, but for self-employed business people, partners in partnerships, and shareholders of S corporations, it isn't even close.
I support the increased corporate minimum tax, but the justification offered here isn't impressive.
Aug 7, '09
Sure... me too. I'm a rich bitch.
Aug 7, '09
Correction Dave McD: rich sunnava bitch.
Gender matters.