Overview of Major 2009 Legislative Issues for
Oregon Neighborhood Store Association

 

Oregon’s 2009 Legislative Session adjourned sine die on June 29, 2009. The first challenge of the session was to balance the budget for the remainder of the 2007-2009 biennium, which was facing a shortfall of $800 million. Lawmakers were able to balance the budget period ending June 30, 2009 primarily by “sweeping” existing balances from various state funds and allocating these resources to the general fund.

Once the 2007-2009 biennial budget was addressed, lawmakers turned their attention to crafting a balanced budget for the 2009-2011 biennium. The two most significant measures for the session were the proposals to increase corporate and personal income taxes. The corporate tax measure, HB 3405, increases the C-corporation minimum tax from $10 to an amount that ranges from $150 for corporations with less than $500,000 in Oregon sales to $100,000 for corporations with Oregon sales of more than $100 million. In addition, the measure creates a second marginal corporate tax rate of 7.9% that is applied to taxable income greater than $250,000 for tax years 2009 and 2010; reduces the rate to 7.6% for tax years 2011 and 2012, then applies the top tax rate of 7.6% to net income greater than $10 million for tax years after 2012. HB 3405 also increases the minimum tax on S-corporations to $150 and imposes increases on business filing fees, Uniform Commercial Code financing statements, and notary public fees paid to the Secretary of State. HB 3405 is expected to generate approximately $261 million for the 2009-2011 biennium.

The other tax measure, HB 2649, imposes a personal income tax increase on “high-income” households, namely single-filers earning $150,000 or more and joint filers earning $250,000 or more. HB 2649 is expected to generate an estimated $472 million during the 2009-2011 biennium.

The legislatively approved budget for the 2009-2011 biennium hinges on passage and implementation of both HB 3405 and HB 2649. Under the Oregon Constitution, both HB 3405 and HB 2649 are subject to citizen referendum. Opposition to the tax increases began mounting even before session adjourned, with business groups and conservative “pro-taxpayer” organizations vowing to collect the necessary 55,179 signatures to place both tax measures before Oregon voters at a special election to be held January 26, 2010.

If one or both of the tax increases are defeated, the 2009-2011 budget will be thrown into complete disarray and lawmakers will be forced to reduce spending and/or look for politically palatable alternate sources of revenue. The two most likely alternate revenue sources are “sin-taxes” on tobacco and alcohol. Under such circumstances, any tax increase imposed on tobacco products, malt-beverages, or other alcoholic products would most likely be substantial, due to the revenue needs facing the state.

At this point in time, it is impossible to know whether opponents will succeed in referring one or both of the tax increases to voters and how voters will respond. What is certain, however, is that defeat of these measures will result make the neighborhood store industry and its suppliers the next tax target.

 

Oregon’s Beer Tax

Proposals to increase Oregon’s malt beverage tax received serious consideration during the 2009 legislative session, as lawmakers looked for ways to address the state’s budgetary problems. The proposal receiving the most attention was contained in HB 2461, sponsored by Representatives Ben Cannon and Michael Dembrow, as well as Senators Jackie Dingfelder, Bill Morrisette, and Diane Rosenbaum.

House Bill 2461 proposed to increase Oregon’s beer tax to $49.61 per barrel, representing an increase of 1,908%. Proponents billed the measure as a “prevention, treatment, and recovery tax,” since revenue from the measure was largely dedicated to substance abuse treatment and prevention. If approved, it was estimated the measure, if would generate well over $100 million per year. Proponents argued this level of increase was appropriate considering Oregon’s lack of funding for substance abuse and mental health treatment and prevention, plus the fact that Oregon’s existing beer tax had not been increased since 1977. Proponents attempted to put the tax increase in perspective by arguing the increase amounted to a mere 15 cents per 12 ounce glass.

Although, HB 2461 did not receive legislative approval and died in the House Revenue Committee upon adjournment, it is important to recognize that legislative leaders consciously choose to promote the corporate and personal income tax increase measure, rather than the beer tax primarily because of the greater revenue stream generated by the corporate and income tax increases. It is important to keep in mind that should these two measures be successfully referred to voters in January 2010 and if, as expected, votes reject the tax increases, then the Legislative Assembly will return in February 2010 facing the prospect of either making substantial cuts to the state’s budget or finding other sources of new revenue. Should this chain of events occur, an increase in the beer tax, as well as increases to tobacco taxes, will very likely become the next target to help resolve the state’s economic woes.

 

Local Taxation

One of ONSA’s most important victories during the 2009 Legislative Session was the defeat of HB 2616. This measure, if enacted, would have allowed cities, counties, and other municipalities to tax tobacco products.

The effect of HB 2616 on small retailers would have been enormous. Right now, the State of Oregon taxes tobacco products. Two percent of the revenue collected by the state goes to cities, counties, and public transit districts, which are prohibited from separately imposing their own tobacco taxes. Though the state-imposed tobacco tax is high, the state tax at least has the benefit of ensuring that all tobacco products are taxed uniformly.

Allowing local governments to adopt their own tobacco taxes would completely disrupt the marketplace for tobacco products. Retailers in cities with low cigarette taxes would have an arbitrary advantage over retailers selling the identical product in different cities with higher tobacco taxes. Distributors and/or retailers would be burdened with the difficulty and expense of appropriately labeling tobacco products and remitting the appropriate amount of tax to each separate jurisdiction. Enforcement of the local taxes would become a practical nightmare.

The devastating consequences of local tobacco taxes on the tobacco marketplace made it imperative for ONSA to defeat HB 2616; yet, this was no easy task. Democrat lawmakers in the Oregon House of Representatives strongly supported the legislation. These lawmakers believed that authorizing local governments to tax tobacco would provide local governments with an easy source of additional revenue. For the most part, these lawmakers were unconcerned with the effect such legislation would have on tobacco retailers. Thus, the Oregon House of Representatives, on a close 32-27 vote, ultimately approved HB 2616.

Passage of HB 2616 in the Oregon House made ONSA’s task of defeating the legislation in the Senate extremely difficult, and in many ways, unlikely. Nevertheless, ONSA persisted in opposing the legislation by speaking with lawmakers directly and providing letters of opposition from storeowners. In addition to arguments regarding the effect on retailers and distributors, ONSA argued that it did not make sense from the State of Oregon’s perspective for local governments to be able to tax tobacco products. For example, ONSA argued that granting local governments taxing authority would cause the State of Oregon to lose control over its own tobacco tax revenues. Upon passage of HB 2616, the effective tobacco tax rate in Oregon would be determined by the independent actions of Oregon’s several hundred political subdivisions, not the state itself.  Increasing the price of tobacco products reduces demand and/or causes consumers to seek less costly alternatives through gray or black market sources, such as the Internet. If Oregon’s numerous political subdivisions substantially increased tobacco taxes, demand for Oregon cigarettes would be diminished, as would the net tobacco revenue to the state. The State of Oregon would then be powerless to control its own tax revenues because the amount of revenue the State of Oregon is able to generate from cigarette taxes would be dependent upon the independent actions of hundreds of local governments.

ONSA’s arguments and aggressive informational efforts ultimately persuaded key lawmakers in the Oregon Senate not to move forward with HB 2616. While this was an important victory for small storeowners across the state, it remains to be seen how long this victory will last. The strong support for local tobacco taxes in the Oregon House of Representatives will cause the lawmakers who introduced HB 2616 to reintroduce a similar proposal in the special session, which is scheduled for February 2010, and/or the next regular Legislative Session commencing in January 2011.

Oregon’s Bottle Bill

The Bottle Bill Task Force met throughout the 2008 interim to develop a set of recommendations, which were introduced during the 2009 Session in HB 2184. As originally introduced, HB 2184 proposed to increase Oregon’s deposit from 5 cents to 10 cents per container and expand the program to include sports drinks, coffee, tea, juice, distilled liquor, wine and similar noncarbonated beverages. The bill also proposed a recovery goal of 80 percent to be achieved by 2015 and directed the Oregon Department of Environmental Quality, stakeholders, and the Oregon Liquor Control Commission to study the necessity of a statewide system of redemption centers and the issue of unredeemed deposits.

HB 2184 was amended to remove distilled liquor and wine bottles from the list of covered containers. In addition, the bill was amended so the redemption rate would increase from five cents to 10 cents, only if it was determined that Oregon’s container recovery rate fell below 80 percent in any calendar year. The amended bill also contained provisions stating that if the OLCC established a redemption center, then dealers served by that redemption center would still be required to accept 24 container returns per day per customer. This version of the bill, HB 2184-A was sent to the House floor, but was returned to the House Environment and Water Committee. The measure was further amended to remove the provisions dealing with redemption centers and the requirement for dealers to accept a certain number of containers. This version of the bill, HB 2184-B, was again sent to House floor, but did not receive a floor vote. Instead the measure was referred to the House Revenue Committee, presumably for lack of votes. Upon adjournment, HB 2184 remained in the House Committee on Revenue.

The other significant legislative proposal relating to the Bottle Bill was HB 3465. This measure proposed to make unclaimed deposits the property of the state, not beverage distributors as they are under current law. Under the measure, distributors would have been required to keep records of deposits paid and received, and return all excess funds to the state’s General Fund every quarter. The measure received a public hearing before the House Revenue Committee, but remained in committee upon adjournment.

Oregon’s Bottle Bill has been a focal point of ONSA’s legislative efforts since the organization’s inception more than ten years ago. During the past several sessions, lawmakers have been intent on “modernizing” the bottle bill to address criticisms that it does not cover a sufficiently expansive list of containers and does not impose a high enough deposit. During the 2007 Legislative Session, lawmakers did expand the list of covered containers to include bottled water. Lawmakers were not successful in 2007, however, in their efforts to increase the deposit. To ensure that expanding the container list did not overwhelm small stores, ONSA persuaded lawmakers to incorporate language into the 2007 legislation that limited the number of returned containers a small store must accept to 50 containers per customer per day.

ONSA played a key role in preventing HB 2184 and HB 3464 from being adopted in 2009. One of the more compelling arguments ONSA used to defeat this legislation was that it remains to be seen how expanding the bottle bill to include water will affect the recycling system. Until the full effect is known, it is premature to expand the list of covered containers further or increase the deposit amount. Advocates for expanding the list of containers covered by the bottle bill and for increasing the deposit will inevitably continue their efforts to secure legislation to make these changes. ONSA and other retailer organizations will inevitably be facing similar proposals during future legislative sessions.

 

Tobacco Taxes

Several measures were introduced during the 2009 Session to increase the state’s excise tax on cigarettes or other tobacco products. Only one measure, HB 2672, received final approval. HB 2672 changes the method of taxation on moist snuff to a weight-based tax and sets the tax rate at $1.78 per ounce (minimum tax of $2.14 per retail container), which will generate an additional $5.51 million in revenue for 2009-11 biennium. The measure also requires the tobacco companies that did not enter into the Smokeless Tobacco Master Settlement to comply with the marketing agreement or place amounts similar to the agreement into an escrow account (40 cents per can). Other provisions of the measure require tobacco companies to regularly report to the Attorney General; prohibits the sale of unreported products; provides penalties for failure to comply with the sale prohibitions; and, restricts the distribution of free samples of smokeless tobacco products.

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