Washington Businesses More Highly Taxed than Oregon Firms

As lawmakers consider the message from Oregon, they should consider an often overlooked difference between the two state tax structures. Washington relies much more heavily on business taxes than does Oregon, a fact that may have played into voter willingness to boost business taxes.

A study released by the Council on State Taxation last year makes the difference clear (Table 7, page 15). In Washington, businesses pay 51.3 percent of all state/local taxes, with a total business tax burden claiming 5.5 percent of Gross State Product. Oregon businesses pay just 38.2 percent of s/l taxes for 3.7 percent of GSP.

Nationally, the business share of s/l taxes is 44.1 percent and the share of GSP paid by business in taxes is 4.9 percent. 

The 2002 Tax Structure Study Committee noted Washington's high reliance on business taxes.

The finding is that Washington's tax system places a relatively high tax burden on low profit margin firms mainly because of the B&O tax.  Due to the B&O tax, low profit margin firms and firms that are new or expanding may suffer a competitive disadvantage compared to their competitors in other states. 

Firm location studies show that taxes matter in location decisions when other factors are equal.

Oregon, with an unemployment rate of 11 percent compared with Washington's 9.5 percent, chose to boost taxes on job creators, a category that includes wealthy individuals as well as businesses. I doubt they've helped their economy much.

UPDATE The editorial page of the Columbian understands what the Tax Structure Study Committee was saying about "taxes matter in location decisions" (and what Oregon voters apparently don't get). They offer an open door to Oregonians looking for relief. (h/t Jason Mercier).

What we’re talking about here is an overall message from voters and politicians to entrepreneurs, venture capitalists and small businesses: “We’re going to sock it to you good, and we’ve got the public employee unions’ voter base, plus the deep campaign-spending pockets of those same unions, to pull this off.” And then, legislators will not only skate on their responsibilities to rein in an extravagant system of public employee pay and benefits, they’ll skate on their duty to reform government overall.

...Here’s one last offensive message that was imparted to Oregon businesses: “We’re even willing to launch this assault on companies during the worst business climate in seven decades.”

That's a message our lawmakers should do their best not to repeat.