Special Session Ends; Annual Session decision referred to Voters

The Oregon Legislature adjourned the one-month “emergency” special session on Feb. 25, 2010. The primary purpose of the emergency session was to persuade voters that lawmakers should meet annually and to refer a constitutional amendment to voters that would allow annual sessions. After heated arguments over the precise number of days the Legislature needed to meet, the final compromise, which if approved by Oregon voters this November, will bring the Legislative Assembly together for a regular session in odd-numbered years of no more that 160 calendar days, with the off-year session in even-numbered years limited to 35 calendar days. It would require a two-thirds vote of both House and Senate to extend a regular session for a period of five days and it could be extended more than once.

If voters approve the constitutional amendment, the start of session would be delayed until the first of February, with an organizational session held during the month of January for the purpose of introducing legislation.

Local Option Tobacco Tax (SB 1042)
Members may recall that ONSA was instrumental in defeating a proposal during the 2009 Oregon Legislative Session designed to allow local governments to independently impose their own taxes on tobacco products.  This legislation, if enacted, would have wreaked havoc on convenience stores and the market for tobacco products in Oregon. For example, if Multnomah County were to enact a local tax on tobacco products, retailers in Multnomah County would be forced to raise the prices of their tobacco products. Meanwhile, retailers located just outside the borders of Multnomah County would not be subject to the new tax and would be able to obtain a competitive advantage by keeping their prices low.

During the 2010 special session, lawmakers once again gave serious consideration to allowing local governments to independently tax tobacco products. This time Multnomah County championed the taxing proposal, arguing that it would generate desperately needed new revenue for the county. ONSA took the lead in opposing the legislation and succeeded in persuading lawmakers that a local option tobacco tax was not an appropriate means of providing additional revenue to local governments.
 
Tax Increase On Chewing Tobacco (HB 3682)
One of the more devious and potentially harmful pieces of legislation introduced during the February session was a proposal to more than double the existing tax on chewing tobacco products. The legislation was introduced on the heels of HB 2672, which was enacted during the 2009 Legislative Session and moved Oregon to a weight-based system for taxing “moist snuff”. Prior to the 2009 legislation, moist snuff was taxed at 65% of the wholesale price, but pursuant to HB 2672 (2009) the tax was changed to $1.78 per oz or a minimum of $2.15 per container.

HB 3682 was introduced during the 2010 session as a “technical fix” to HB 2672. Specifically, lawmakers asserted the 2010 legislation was necessary to “clarify” that the weight-based tax created in 2009 by HB 2672 applied not only to “moist snuff,” but chewing tobacco as well. The fact of the matter, however, was the 2009 legislation did not impose a weight-based tax. Instead, chewing tobacco products such as Redman, Levi Garrett, and Beechnut continue to be taxed at an amount equal to 65% of the wholesale price pursuant to the express language of HB 2672 (2009) and administrative rules adopted by the Oregon Department of Revenue implementing the 2009 legislation.
Thus, HB 3682 was not a small “technical fix” to legislation adopted in 2009, but rather a substantial tax increase on chewing tobacco products such as Redman, Levi Garrett, and Beechnut. In fact, under HB 3682, the tax on the above-named chewing tobacco products would have gone from approximately $2.00 per unit to $5.34 per unit ($1.78 per oz X 3.0 oz package).

Under the Oregon Constitution, “bills for raising revenue” (i.e. tax increase measures) must receive approval by three-fifth majorities in both houses of the Legislative Assembly in order to become law. Although HB 3682 would have more than doubled the existing tax on chewing tobacco, lawmakers in the Oregon House of Representatives refused to acknowledge that HB 3682 was a bill for raising revenue subject to the three-fifth-majority vote requirement. Instead, lawmakers argued they had intended to subject chewing tobacco to a weight-based tax when they adopted HB 2672 in 2009 and therefore, HB 3682 was merely a “technical fix,” not a tax increase measure. The House of Representatives then proceeded to approve HB 3682 on a simple majority vote, without obtaining the three-fifth-majority needed to comply with the Oregon Constitution.

ONSA took a leading role in opposing HB 3682 in both the House and the Senate. Although the House of Representatives approved HB 3682, ONSA succeeded in persuading Senate lawmakers that HB 3682 was indeed a tax increase measure and that by more than doubling the existing tax on chewing tobacco, the legislation would effectively drive chewing tobacco from the Oregon marketplace. Eventually, after extensive lobbying efforts by ONSA, Senators came to see HB 3682 for what it really was and defeated the bill on the Senate floor by indefinitely suspending debate. The defeat of the legislation in the current political environment was a remarkable victory, as most political observers thought the legislation was certain to be enacted during the February 2010 session. 

Plastic Bag Ban (SB 1009)
The idea of prohibiting retailers from using plastic bags in their business operations is an idea that has repeatedly resurfaced over the past several years at both the state and local levels of government. During the February 2010 session, the idea obtained a significant boost when larger grocers expressed interest in developing legislation at the state level to address the issue. Senator Mark Hass (D-Beaverton) and Senator Jason Atkinson (R-Grants Pass) aided the large grocers in their effort to develop such legislation.

For a period of time during the February session, it appeared the legislation proposing to ban the retail use of plastic bags (SB 1009) was gaining some momentum. However, larger grocers were essentially the only industry group supportive of such legislation and the momentum in favor of the plastic bag ban soon eroded. Though SB 1009 was ultimately defeated and did not become law, ONSA members should expect proposals to ban the use of plastic bags in retail establishments to resurface during the 2011 regular session.

OLCC Licenses (SB 1026)
Senate Bill 1026 was introduced for purposes of granting the OLCC greater power to place restrictions upon the licenses of on-premise licensees to curb ongoing problems with disorderly behavior. As drafted, SB 1026 was limited only to on-premise licensees and would not have granted the OLCC expanded powers over off-premise licensees.

SB 1026 ultimately died in committee after receiving one public hearing. However, the issue is expected to return during the 2011 Oregon Legislative Session, when there will undoubtedly be a debate as to whether the OLCC should be granted expanded power to impose restrictions upon off-premise licensees in addition to the on-premise licenses.

Bottle Bill – Oregon Beverage Cooperative Recycling (HB 3704)
 The February 2010 Session saw the passage of HB 3704, which allows two or more beverage distributors or importers to establish a cooperative to collect container refunds from distributors to refund dealers the amount paid for value of empty containers. The law is significant in that it requires the cooperative to service a majority of dealers in the state.

Fuel Signage (HB 3677)
Lawmakers made changes to Oregon’s fuel signage law through passage of HB 3677. The new law eliminates the requirement that service station signs visible from the street show the price for all grades of fuel. Under the new law, station owners will be permitted to have signs showing only the price of the lowest grade fuel. However, the law creates a new requirement that service station operators display the prices for all grades and types of fuel on signage that is visible from the dispensing device.

Budget Outlook
Although voters gave their approval to both the corporate tax increase and the increase for high income earners, the budget outlook for the State of Oregon is still not bright. The Revenue Forecast presented to legislators early in February predicted the General Fund revenue for the 2009-2011 biennium down $182.8 million from the earlier forecast released in December 2009. In comparison to the forecast released at the close of the 2009 Session, estimated revenue is down $365.4 million. Nearly all of the decrease is associated with lower expectations for personal income taxes.

To offset these losses, the Legislature approved HB 3680 to curb the use of the Business Energy Tax Credit program, which was costing the State far more than anticipated due to the dramatic growth in wind energy projects. HB 3680 placed limits on wind projects, but also made electric vehicle manufacturers eligible for the available manufacturing credits. The overall impact of HB 3680 will save the State $54.4 million in the current biennium and $86 million in the 2011-2013 biennium. The Legislature also addressed the budget shortfall by “sweeping” funds from 22 separate agency accounts and dedicating the resources to the state’s General Fund.
 
Unemployment Issues
On the question of whether the special session did anything to improve the job situation, opinions vary. The Legislature did pass HB 3655 to extend unemployment benefits by $19 million; however, in terms of job creation efforts, accomplishments were small, at best.

One measure to receive legislative approval was HB 3627 to allow taxpayers to subtract severance pay if it is invested into a new or existing small business. To be eligible, the investment must occur on or before the due date of the tax return and continue for at least 24 months following termination. The taxpayer must materially participate in the business and may claim the subtraction only once. According to national economic data, approximately 8.6 % of laid-off employees chose to start their own businesses. If this remains true in Oregon, the estimated revenue loss to the State would be about $100,000 per year.

Also approved was HB 3698, which establishes the Building Opportunities for Oregon Small Business Today (BOOST) program to provide grants and loans to small businesses (less than 100 employees) in order to create full-time positions and fill the positions with employees who had been unemployed for at least 60 days. The bill was funded with $3.5 million from the Tax Amnesty Fund. This amount will go back to the Department of Revenue for increased tax enforcement activities. It is estimated the increased tax enforcement efforts will provide $7 million in additional revenue for 2009-11 biennium.  Up to $5 million of these additional collections will be transferred to the BOOST account.

 The increased funding to the Department of Revenue will add two audit units to focus on corporate and personal tax compliance related to Oregon business activity. One unit will expand current audit capacity of C-Corporations doing business in Oregon, many of whom are headquartered out-of-state. Audits of these corporations typically result in increased tax due to under reporting of income from affiliates, or apportionment, or non-business adjustments. The other unit will focus on domestic C-Corporations that reside entirely in Oregon who often have few owners, and typically have adjustments to personal income tax returns as a result of the domestic C-Corporation audit because the business paid for personal expenses. The department will need 27 permanent full-time positions to support this effort, which will continue to support BOOST into the 2011-13 biennium.

 

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