Oregon Manufacturers and Commerce was the most vocal opponent of a 2019 law that established a Commercial Activity Tax in our state. OMC opposed the proposal due the disproportionate burden this tax structure places on the manufacturing industry and over concerns that deductions for labor and input costs would be reduced over time. Despite our objections, Oregon lawmakers adopted the tax, which took effect in January of 2020. OMC has remained active as the Department of Revenue has adopted compliance rules related to the CAT, consistently urging policymakers to provide taxpayers with greater clarity and flexibility under the program. OMC has also urged Governor Brown and state lawmakers to temporarily suspend the tax or adopt alternative CAT-relief measures in the wake of the COVID-19 outbreak and its subsequent impacts on our economy.
As the state looks to shore up significant declines in revenues due to the coronavirus, OMC intends to remain very active in potential attempts to increase taxes even further. State revenues are expected to decline by $2.7 billion in the current two-year budget cycle and $4.3 billion in the next. This decline, combined with the overall decline in general fund revenues, will be particularly painful for state leaders. It is highly likely lawmakers will look for opportunities to shore up this decrease by making adjustments to the Corporate Activity Tax. Potential changes include reducing or eliminating the 35% cost of inputs/labor deduction, lowering the $1 million sales threshold that triggers the tax or increasing the .57% tax rate. OMC will strenuously oppose any such proposals and will be extremely active in educating legislators on the perils of further tax increases during this extremely vulnerable time for our economy. We will remain in frequent communication with OMC members as these policy debates begin to play out.