PUBLIC HEARING:

 HB 3355, HB 3232, HB 3233

WORK SESSION: HB 2629

 

TAPES 92-93 A-B

 

HOUSE REVENUE COMMITTEE

MARCH 29, 2005  1:00 PM  STATE CAPITOL BUILDING

 

Members Present:                      Rep. Tom Butler, Chair

                                                Rep. Vicki Berger, Vice-Chair

                                                Rep. Mark Hass, Vice-Chair

                                                Rep. Brian Boquist

                                                Rep. Sal Esquivel

                                                Rep. Larry Galizio

                                                Rep. Betty Komp

                                                Rep. Andy Olson

                                                Rep. Chuck Riley

 

Witnesses Present:                      Lynn Lundquist, Oregon Business Association

                                                J. L. Wilson, NFIB, Grants Pass

                                                Don Schellenberg, Oregon Farm Bureau Federation

                                                Rep. Dave Hunt, District 40

 

Staff Present:                          Paul Warner, Legislative Revenue Officer

                                                Lizbeth Martin-Mahar, Economist

                                                Barbara Guardino, Committee Assistant

                                               

 

TAPE 92, SIDE A

007

Chair Butler

Calls Committee to order at 1:03 p.m. Opens public hearing on HB 3355.

 

PUBLIC HEARING, HB 3355         

011

Lizbeth Martin-Mahar

Gives overview of HB 3355. See Staff Measure Summary (EXHIBIT 1). Creates a personal income or corporate excise tax credit for new investments in machinery and equipment. This bill contains blanks, and the committee will look at a number of options.

 

035

Martin-Mahar

Discusses table, Preliminary Revenue Loss Estimates (EXHIBIT 2).

 

074

Chair Butler

Asks is there a mechanism in place for the Dept. of Revenue to ration out $30 million maximum? How does the rationing of a credit work?

 

077

Martin-Mahar

Responds, the bill does not specify. Added language might be helpful.

 

096

Chair Butler

Asks for a definition of new equipment.

 

111

Martin-Mahar

The next step is to bring this bill back, along with other proposals, for static impacts.

 

118

Chair Butler

Expresses support for HB 3355.

 

135

Lynn Lundquist

Thanks the committee for sponsoring HB 3355. Oregon Business Association has tried to take a holistic approach through good fiscal policies and essential services that meet the needs of Oregon. Gives reasons for looking at an investment tax credit at this time. Even though Oregon’s economy is growing, it still needs help.

 

152

Lundquist

Addresses reasons for this approach instead of a capital gains or income tax cut. OBA doesn’t oppose those, but prefers this bill because “it’s the most surgical of the types of credits to spur the economy on.” It has a sunset. It is narrowed down from the federal version to minimize the total impact. The percent of impact is up for debate, so is blank.

 

186

Lundquist

Portrays this bill as good for small business. Concludes this is short term and makes a lot of sense for small businesses. This bill also has support from both parties.

 

210

Rep. Galizio

Supports HB 3355 as a Democrat because of its surgical quality. Asks about Chair Butler’s use of the term “rationing”. Asks for suggestions on how this can be done.

 

223

Lundquist

Has not researched other states to see how they do this. Rationing might be a carry-over.

 

232

Chair Butler

Discusses Section 2 paragraph 3, line 16 in regard to rationing.

 

245

Rep. Riley

Likes this bill because if the way it targets.

 

257

Rep. Komp

Asks Lundquist to respond to Martin-Mahar’s schedule (exhibit 2). Follow-up questions.

 

278

Lundquist

OBA tried to design this so businesses across Oregon have an opportunity to participate.

 

297

Chair Butler

Asks Lundquist if he has a feel for the industry sectors that could be targeted.

 

312

Lundquist

Discusses options in targeting various industry sectors.

 

336

J.L. Wilson

Testifies in support of HB 3355 because when you invest in machinery in your business it often translates into expansion and job gain. Explains how his small family radio station in Josephine County took advantage of federal bonus depreciation and attached to the  statewide version, and benefited from this tax credit.

 

373

Chair Butler

Asks how this bill would benefit a radio station. Follow-up questions, comments.

 

387

Wilson

Advises front-loading the provisions of this bill, as suggested by Lundquist.

429

Vice Chair Hass

Supports the idea of HB 3355. Asks Wilson about his investment, which he made without an incentive.

 

433

Wilson

Responds, it was made in light of the bonus depreciation that was granted federally. There was clear incentive, although not this one.

 

 

 

TAPE 93, SIDE A

008

Don Schellenberg

Uses an illustration of his own farming history to show the incentive that an appropriate investment provides. There has to be enough incentive to convince businesses to use it. Oregon Farm Bureau supports the concept of investment tax credits. It stimulates the economy.

 

040

Chair Butler

Comments on bill, page 1, Section 2 (1) lines 7-9.

 

062

Rep. Boquist

Asks Lundquist what he thinks of a 10% figure.

 

066

Lundquist

Responds, he believes in front-loading because he wants the stimulus there. If the dollar amount per taxpayer is controlled, there are more stimuli to make that new investment.

 

074

Schellenberg

Notes, the carry-forward is very important in agriculture.

 

089

Rep. Dave Hunt

Testifies in favor of HB 3355. Likes it because it is front loaded, it has a special benefit for smaller businesses, and it focuses on reinvesting in Oregon. Encourages the committee to find a way to make this bill revenue neutral, to pay for it from existing resources.

 

103

Rep. Galizio

Asks Rep. Hunt for suggestions on how to pay for this bill.

 

107

Rep. Hunt

Responds, there is a bill that would couple this tax credit – the capital gains tax cut – and would pay for both by a corporate minimum increase. That is only one way to achieve this, but it avoids the debate about taking money from schools.

 

118

Lundquist

Responds to Rep. Hunt’s idea. OBA has sponsored a bill for minimum corporate tax. The idea is nobody pays any more, just $10. Upper level payment is stepped up.

 

156

Chair Butler

Would like to explore this idea further, particularly with regard to targeting the industry sectors. The Dept. of Revenue doesn’t issue any credits under a rationing basis. It’s not an unknown concept, but he’s anxious for this credit to be figured out. Discusses a 1% figure and how much investment it would take for it to pay off.

 

195

Chair Butler

Would like to have an ongoing discussion with the business community as to what industries to target. Asks Wilson to be involved in this to represent small businesses. Is looking for a balance and target for sectors that would use this. Asks Lundquist to work with Wilson and Martin-Mahar to find a method to get the maximum amount of good out of this, and at what levels.

 

225

Rep. Boquist

Asks for Wilson’s reaction to the idea of a10% figure.

 

235

Wilson

Working with a $30 million cap, he would work that percentage up as high as possible to get as much good as it as quickly as possible. Job creation now is of the most concern. The definition of small is 50 employees or less.

 

259

Rep. Riley

Agrees, this bill should target the smaller companies.

 

269

Vice Chair Berger

The 50 figure is a little low. Would like to figure out how to target the manufacturing sector. Does not want to make it harder than it needs to be. Is open to suggestions.

 

299

Rep. Komp

Agrees, small businesses are Oregon’s backbone, and she would like this to be one of the strongest considerations.

 

302

Lundquist

OBA considered three things in looking at this bill: small business; making the percentage large enough to create an incentive; and the amount credited to be small enough to spread across $30 million fixed impact.

 

PUBLIC HEARINGS, HB 3232, HB 3233

350

Martin-Mahar

Gives overview of HB 3232. Increases the maximum annual cap on the research and development credit to $1 million. Changes are effective beginning tax year 2008. See Staff Measure Summary (EXHIBIT 3). Directs members’ attention to State Survey of Research and Development Tax Credits – 2004 (EXHIBIT 4); and The Effectiveness of Research and Experimentation Tax Credits, September 1995 (EXHIBIT 5).

 

388

Martin-Mahar

Comments on the last page of the research paper: Distribution of Qualified Research Expenses for the R&E Tax Credit, 1992.

 

433

Chair Butler

Comments, this is eye-opening. Would have figured some significant portion would have gone back into machinery and equipment. The indication is that less than 1% goes toward payments on these. This demonstrates than more than 74% goes back into wages and compensation. Thanks Martin-Mahar for her research.

 

TAPE 92, SIDE B

025

Martin-Mahar

Begins overview of HB 3233. Notes, revenue impact statements for both of these bills will be forthcoming at a later date. See Staff Measure Summary (EXHIBIT 6). Allows corporations, which are eligible to claim a research and development tax credit but have insufficient tax liability, to sell the tax credit. Notes, use of these credits is bound to grow.

 

065

Rep. Riley

Asks Martin-Mahar if she anticipates any compliance issues.

068

Martin-Mahar

That is a Dept. of Revenue question, but there will be additional auditing to meet the various thresholds.

 

078

Chair Butler

There are difficulties, and that would be a fatal defect.

 

081

Vice Chair Hass

Asks, who looks out for the way money changes hands?

 

085

Martin-Mahar

Purchaser and seller have to agree and report it to the Dept. of Revenue. Dept. of Revenue has the tracking authority.

 

WORK SESSION, HB 2629

106

Chair Butler

Appreciates the work of Reps. Riley and Boquist on this bill.

 

123

Martin-Mahar

Begins discussion of HB 2629-1 amendments (EXHIBIT 7). See Revenue Impact of Proposed Legislation (EXHIBIT 8). Increases the gross estate value filing threshold for Oregon estate tax purposes to $2 million in tax year 2007 and beyond. This amendment is revenue neutral.

 

147

Chair Butler

Clarifies, under this method a $10 million estate would pay $1.419 million. A $2 million estate would pay nothing. The rates have gone from 5% up to 22.4%.

 

163

Martin-Mahar

Both sets of amendments are silent on the issue of attaching to the federal definition of taxable estate value. Also, compares differences in filing thresholds in HB2629 -1 amendments versus HB 2629 -2.

 

 

 

206

Martin-Mahar

Begins discussion of HB 2629-2 amendment (EXHIBIT 9). It completely conforms Oregon’s estate tax filing threshold to federal. It also establishes a new Oregon estate tax rate schedule. Discusses page 3 tax rate schedule. Discusses page 4, a 16% tax rate for taxable value in excess of $3.5 million.

 

238

Martin-Mahar

HB 2629-2 amendments have a revenue loss. See Revenue Impact statement (EXHIBIT 10). Reducing state taxes will give certain taxpayers more disposable income so they can invest more. Discusses chart, bottom of revenue impact statement.

 

269

Chair Butler

Asks for an explanation of the feedback effects.

 

271

Martin-Mahar

Explains.

 

 

 

293

Chair Butler

Asks if the bill attempts to try to capture estates that would leave Oregon due to lesser tax rates elsewhere.

 

303

Martin-Mahar

No, that would be pretty difficult to capture.

 

305

Rep. Riley

MOTION: MOVES ADOPTION OF HB 2629-1.

 

308

Rep. Riley

Hopes the committee will approve this revenue neutral version. It’s a good thing to raise the threshold to get smaller estates out of this tax problem. This bill has the advantage of not chipping away at school funding.

 

323

Chair Butler

Summarizes, this amendment would be to use the $2 million exemption beginning in 2007. It does not contemplate the $3.5 million federal exclusion in later years.

 

330

Rep. Boquist

Understands Rep. Riley’s point, but will vote against HB 2629-1 amendment. Would prefer total elimination of Oregon’s estate tax and is interested in phasing it out.

 

368

Chair Butler

MOTION FAILS. ROLL CALL VOTE: 3-6-0

MEMBERS VOTING AYE: GALIZIO, RILEY, HASS

MEMBERS VOTING NO: BOQUIST, ESQUIVEL, KOMP, OLSON, BERGER, BUTLER

 

394

Rep. Boquist

MOTION: MOVES ADOPTON OF HB 2629-2.

 

396

Rep. Boquist

Sponsored the original bill. Thanks Rep. Riley for his hard work. Most of his constituents would like to see the estate tax eliminated. The goal of this bill is to help small property-based businesses so they can be handed down from family to family. Thirty one states are looking at similar proposals. It is revenue neutral in 2005-07, but has a fiscal impact. There is a state flight.

 

438

Vice Chair Hass

This is a tax cut for the top 1% of Oregon families. Of all the problems facing this state, he’s baffled that this is the one the committee is focusing on.

 

461

Rep. Galizio

Echoes Hass’ concerns. Oregon is having trouble covering essential services for schools, human services and public safety. There is no evidence that this has any kind of investment stimulus. Rep. Riley’s bill would have remained revenue neutral. This amendment is not in Oregon’s best interest.

 

 

 

Tape 93, SIDE B

025

Chair Butler

Comments on automobile dealerships leaving Oregon. Oregon will never see the return of those folks to Oregon. Many move out of Oregon to escape income and death taxes. This amendment is the responsible thing to do, to be proactive. These calculations have been based upon estates not growing rapidly in Oregon. Warns, wealth will leave the state of Oregon. For this reason, he favors the HB 2629-2 amendment.

 

069

Rep. Hass

Counters, he appreciates the Chair’s fears but the evidence is not there concerning flight out of Oregon. Many wealthy retired people are moving into Oregon.

 

082

Chair Butler

Counters, many people are coming to Oregon and buying second and third residences but are not living here. They are investing in Oregon property but won’t be taxed here. Oregon has to send a correct message.

 

110

Chair Butler

ROLL CALL VOTE: 6-3-0

MEMBERS VOTING AYE: BOQUIST, ESQUIVEL, KOMP, OLSON, BERGER, BUTLER

MEMBERS VOTING NO: GALIZIO, RILEY, HASS

 

125

Chair Butler

MOTION: MOVES HB 2629 AS AMENDED TO THE HOUSE FLOOR WITH A DO PASS RECOMMENDATION.

ROLL CALL VOTE: 6-3-0

MEMBERS VOTING AYE: BOQUIST, ESQUIVEL, KOMP, OLSON, BERGER, BUTLER

MEMBERS VOTING NO: GALIZIO, RILEY, HASS

 

140

Vice Chair Hass

Serves notice of a possible minority report.

 

WORK SESSION, REQUEST PERMISSION TO HAVE BILLS DRAFTED

150

Chair Butler

House rules require that bill draft requests after the House deadline must come through the committees to the speaker’s office.

MOTION: I MOVE THAT THE COMMITTEE REQUEST FOR BILL DRAFTS NEEDED TO COMPLETE OUR WORK PLAN. IF THE SPEAKER APPROVES THIS REQUEST, THE LC’S WILL COME BACK TO THE COMMITTEE FOR INTRODUCTION.

BILL DRAFT REQUEST:

  • ·         2 ON PROPERTY TAX TREATMENT OF ENERGY PRODUCING PROPERTY
  • ·         INTRODUCTION OF RESERVE FUND AND SPENDING LIMIT
  • ·         MODIFICATION OF POLLUTION CONTROL CREDIT

 

159

Chair Butler

ORDER: THERE BEING NO OBJECTION THE CHAIR SO ORDERS.

VOTE: 9-0-0

MEMBERS VOTING AYE: BOQUIST, ESQUIVEL, GALIZIO, KOMP, OLSON, RILEY, BERGER, HASS, BUTLER

 

164

Chair Butler

Closes work session on language for bill proposal. Notes, Rep. Boquist will carry HB 2629-A. Adjourns meeting at 2:38 p.m.

 

 

 

Tape Log Submitted by:

 

 

 

 

Barbara Guardino, Committee Assistant

 

 

Exhibit Summary:

  1. HB 3355, Staff Measure Summary, 3/29/05, Martin-Mahar, 1 pp.
  2. HB 3355, Preliminary Revenue Loss, 3/29/05, Martin-Mahar, 1 pp.
  3. HB 3232, Staff Measure Summary, 3/28/05, Martin-Mahar, 1 pp.
  4. HB 3232, State Survey of Research and Development Tax Credits – 2004, 3/29/05, Martin-Mahar, 1 pp.
  5. HB 3232, The Effectiveness of Research and Experimentation Tax Credits, September 1995, Martin-Mahar, 5 pp.
  6. HB 3233, Staff Measure Summary, 3/28/05, Martin-Mahar, 1 pp.
  7. HB 2629, proposed -1 amendment, 3/28/05, Martin-Mahar, 9 pp.
  8. HB 2629, Revenue Impact of Proposed Legislation for HB 2629-1 amendments, 3/28/05, Martin-Mahar, 1 pp.
  9. HB 2629, proposed -2 amendments, 3/28/05, Martin-Mahar, 9 pp.
  10. HB 2629, Revenue Impact of Proposed Legislation for HB 2629-2 amendments, 3/29/05, Martin-Mahar, 1 pp.