Further tax and regulatory burdens could not come at a worse time in our state's history
The Oregon State Legislature returned to work this month. NFIB Oregon is working the halls of the State Capitol preparing to battle against harmful proposals to Main Street enterprises and to fight for the passage of good ones. The following 10 issues are small businesses’ radar.
Modifications to the Corporate Activities Tax (CAT)
The Oregon Legislature passed the new Corporate Activities Tax (CAT) during the 2019 session. It was estimated to bring in an additional $1 billion per year in dedicated funding for K-12 education, although that figure has since been reduced due to the impact of COVID-19 on the economy. During the 2021 session, there will be opportunities to make policy adjustments to the tax in an effort to provide clarity to taxpayers, but we will need to remain vigilant against attempts from legislators to “recover” any lost revenue from the pandemic.
Small Business Tax Rates
In 2013, the legislature enacted preferential tax rates for certain pass-through entities (PTE’s). Those changes took effect starting in 2015, and every year since, anti-small-business forces have been trying to undo this deal. This year, like every year, there will be proposals seeking to restrict the policy’s future use or even eliminate it altogether, as Gov. Kate Brown has proposed in her Governor’s Recommended Budget (GRB) for the 2021-2023 biennium.
HB 2498 was introduced in 2019 and would have significantly altered Oregon’s current multi-part test to determine who is considered an employee versus an independent contractor by adopting parts of the Dynamex decision issued in April 2018 by the Supreme Court of California – a decision that created a restrictive “ABC” test that continues to jeopardize work opportunities for millions of independent contractors in California. HB 2498 would have changed the current test to determine who is considered an employee versus an independent contractor in Oregon. It would have done so by adding a new question to the test: Is the worker’s service outside the usual course of business? If the answer is ‘NO’ then the individual would no longer be considered an independent contractor and will be reclassified as an “employee.”
Employer Health Care Assessments
In an effort to raise revenue for the Oregon Health Plan (OHP) which provides health care coverage to more than one million low-income Oregonians, the Oregon Health Authority and labor unions have proposed legislation that would require private employers to pay an assessment if their employees choose to be covered by OHP/Medicaid, or in some versions of the proposal, if their employees access any form of state government assistance. The most-current proposal asks employers to pay 50 cents per hour, per employee who works eight or more hours per week. Altogether, the proposal is estimated to generate $500 million in new revenue for the state.
State-Level Overtime Rule
There have been recent efforts at the state and federal level to significantly increase the threshold by which an employee could start earning overtime pay. In September 2019, the U.S. Department of Labor announced its final rule, raising the overtime-exempt salary threshold for executive, administrative and professional employees from $23,660 to $35,568 annually (or from $455 to $684 per week.) In Oregon, legislation has been introduced going even further, changing the annual overtime threshold to two times the state minimum wage (or between $47,840 and $55,120, depending on the regional state minimum wage, until July 1, 2021, when all three state minimum wage tiers increase again.)
Private Attorneys General Act
Common violations of Oregon’s labor laws include not paying overtime, failing to pay the minimum wage, or more specific technical violations such as printing the wrong date or incomplete corporate name on a paystub. When this occurs, civil penalties are assessed by the Bureau of Labor and Industries (BOLI) and typically paid to the state. First enacted in California in 2004, the Private Attorneys General Act (PAGA) allows employees to hire private trial lawyers and sue their employers directly to collect a share of penalties associated with the violations. As a Private Attorney General, an aggrieved employee can seek civil penalties not only for violations suffered personally by the employee, but also for violations toward other current or former employees, similar to a class-action lawsuit.
Prohibition of Drug-Free Workplace Policies
Since Oregon legalized recreational cannabis in 2015, efforts are underway by marijuana advocates to prohibit “discrimination” by employers for their employees’ off-duty use of legal cannabis. The only problem here is that there is still no test to detect impairment for marijuana, so the only way that employers can guarantee a drug-free workplace, which is required for some employers under federal and state law, is to have drug-screening policies in place to ensure that their employees are not impaired on the job. The passage of this legislation would put employers in a legal dilemma: face a potential negligence lawsuit when an accident occurs on the job or face a discrimination lawsuit for firing (or not hiring) someone that tests positive for cannabis. We’ve beat this one before and we can do it again.
Liability Protection from COVID-19 Lawsuits
As long as the risk of exposure to COVID-19 remains, businesses face potential liability when they allow customers, vendors, and other parties to enter their premises and engage with their employees. Our coalition (a broad one, including businesses, school districts, and non-profits) has been very close to getting this done in Oregon, but the trial lawyers have thus far thwarted our efforts. We still have a chance to get this done in 2021, especially now that progress has been made on this front by the school districts.
Workers’ Compensation Presumption for COVID-19
Some states have taken action to extend workers’ compensation coverage automatically to workers who test positive for COVID-19. Organized Labor groups in Oregon have been pushing hard for this, but our coalition has been successful in fending off this proposal. The issue seems linked in the minds of legislators to the Liability Protection issue (above) and it’s likely that the fate of both will be tied together.
Disconnections from the Internal Revenue Code
In 2018, the Oregon Legislature unnecessarily disconnected from one of the key features of the federal Tax Cuts and Jobs Act – the 20% small business pass-through deduction. Now lawmakers are considering a similar disconnection from the bipartisan CARES Act relating to net operating losses. We’ll also need to pay close attention to how Oregon will tax (or not tax) PPP loans and qualified business expenses, especially if Congress takes action to restore the intent of the original legislation to clarify that expenses paid with PPP funds can be deducted like a regular business expense. Oregon’s “rolling reconnect” will automatically adopt changes to the internal revenue code that impact an individual taxpayer’s federal taxable income, so Oregon may try to actively disconnect. Governor Brown has also proposed this change in her 2021-23 GRB.