Benefit companies wince over tax exemption

SALEM — Companies that would be exempt from a proposed corporate gross receipts tax say the exemption could undermine the reputation of a movement to encourage environmentally and socially responsible businesses.

The union-backed tax measure planned for the 2016 ballot would require certain corporations to pay a 2.5 percent tax on sales in Oregon greater than $25 million. The measure exempts companies registered with the state as “benefit companies.”

Legislation passed in 2013 allows corporations to register with the state as “benefit companies” in order to put shareholders on notice that the company will not only seek profits, but will also pursue other goals such as sustainability. These companies are supposed to work with a third party, such as the certification nonprofit B Lab, to assess their operations, and then document positive impacts in annual reports. Registering for the corporate status currently does not affect companies’ Oregon tax bills.

The proposed tax exemption generated concern among some proponents of the benefit company model, who said it could damage the program’s reputation if the designation becomes popular as a strategy to avoid taxes.

The tax break would apply to benefit companies, which have special status under state law, not to B corps certified by B Lab, which are part of an international movement of environmental minded companies. Many companies in Oregon seek both designations, which causes some to conflate the two terms.

“The B corporation movement is about having socially responsible companies, not getting tax breaks,” said Tom Kelly, president and owner of the remodeling and custom home construction company Neil Kelly. Neil Kelly is a registered benefit company, and Kelly said the exemption could impact “the B corp brand.”

“It certainly has the potential to attract companies that will become B corporations whose only intention is to get a tax break, which will dilute the value of the B corp movement pretty significantly,” Kelly said.

Nik Blosser, CEO of Celilo Group Media and chair of the board at Sokol Blosser winery, said he is also concerned about the exemption. Both businesses are registered benefit companies.

“We certainly didn’t become a B corp to get tax benefits, and I think that somewhat undermines the point for B corps,” said Blosser, who has not yet taken a position on the corporate sales tax proposal. “If the measure passes, I think we would want to advocate that the Legislature modify that part.”

Blosser said the current lack of enforcement by the Secretary of State’s Business Services Division could make it easy for corporations to register as benefit companies to get the tax exemption, without demonstrating positive social impacts. “There’s no one checking to see if you’ve done that,” Blosser said.

Ben Unger, executive director of Our Oregon and a chief petitioner on the tax initiative, dismissed the idea that the exemption could provide a loophole for corporations looking for ways to avoid the corporate sales tax.

“I don’t think we are,” Unger said. “I guess my point is there’s nothing that’s going to stop large, global corporations from avoiding taxes.”

Unger said Our Oregon included the exemption in the proposed measure to distinguish between huge multinational companies that avoid taxes and companies that are “doing their best to be a good corporate citizen.”

“U.S. corporations are hiding $2.1 trillion overseas that they owe taxes on in the U.S.,” Unger said. “But there’s a difference between those folks, those corporate boardrooms, and the small businesses in Oregon that fuel our economy and hire our employees.”

Our Oregon is gathering the necessary 88,184 signatures ahead of a July deadline to get the measure on the November ballot.

State Rep. Phil Barnhart, D-Eugene, said he supports the tax measure, even though lawmakers who passed the law to create benefit companies did not intend to create a tax benefit. “Most of the companies I’ve heard from, or we’ve heard from collectively, were not asking for a tax benefit,” Barnhart said. “They were trying to deal with this other issue, which is making sure that stockholders know that when you buy shares in this company, they’re going to be trying to do some other things in addition to trying to make you money.”

Barnhart said it is not yet clear corporations would register as benefit companies to avoid the tax, but “I can assure you that if it matters, we will be acting on it, probably in (2017) is my guess.”

There are currently more than 700 corporations registered as benefit companies in Oregon, according to a state database. However, the state has not tracked the amount of taxes paid by these companies or analyzed whether the benefit company exemption would cut into anticipated tax revenue.

The Legislative Revenue Office has estimated the tax could generate $2.6 billion annually.

Robert Manicke, a lawyer at Stoel Rives LLP who specializes in state and local tax law, said companies that sell high volumes of items with low profit margins such as grocery stores “would be affected strongly” by the tax plan.

Oregon is home to New Seasons Market, the first grocery store chain to be certified as a “B corp” by B Lab. Although the company has already done much of the work necessary to qualify as a “benefit company” in Oregon, the grocer has not registered with the state to become one. Staff were unavailable to comment last Wednesday, due to the Thanksgiving shopping rush.

Many existing benefit companies would avoid the corporate sales tax even without the exemption, either because they are too small or because they are not registered as “C” corporations, the only type obligated to pay the tax.

For example, Kelly said his business would not benefit from a corporate sales tax exemption because Neil Kelly is organized as an “S” corporation.

Shareholders of “S” corporations report profits and losses on their personal tax returns, while profits at “C” corporations are taxed both at the corporate level and when distributed as dividends to shareholders.

Celilo Group Media and Sokol Blosser winery would not have to pay the corporate sales tax because their annual sales are less than $25 million, Blosser said.

Kelly, who said he would probably oppose the tax measure even without the exemption for benefit companies, has been trying to meet with Gov. Kate Brown about options to remove the exemption.

“(Brown) was real instrumental in having this thing happen when she was secretary of state,” Kelly said. “She’s definitely invested in it.”

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