Washington Insider-- Friday

Oregon Corporate Tax Referendum

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

Grassley Presses DOJ to Scrutinize Proposed Bayer-Monsanto Deal

More scrutiny by the Department of Justice (DOJ) of the proposed Bayer-Monsanto merger is being urged by Senate Judiciary Committee Chairman Chuck Grassley, R-Iowa.

"A combined Bayer-Monsanto could vertically integrate traits, seed and chemicals; raise barriers to entry in the market for smaller companies," Grassley noted. His concern is that the merger "will curtail chemical and seed choices," raise prices for farmers and consumers, and "harm research, development and innovation."

Grassley, head of the Senate Judiciary Committee, wants the Justice Department (DOJ) to scrutinize the proposed Bayer-Monsanto deal "as it continues to examine other proposed mergers and acquisitions in the agrochemical and seed industries."

Meanwhile, Australia's corporate watchdog is concerned about the effects of the proposed merger between DuPont and Dow Chemical may have on "competition for... insecticides, seeds, and materials science products." A final decision by the Australian Competition and Consumer Commission will be made on February 2. The tie-up is also being scrutinized by regulators across the globe, with EU antitrust officials expected to decide on the deal by February 6.

Landowners Have Right to Sue over Wetlands Determinations: US Army Corps

Landowners may sue over findings by federal regulators that their properties contain wetlands or waterways that fall under Clean Water Act (CWA) protections, according to a Nov. 1 regulatory guidance letter issued by the U.S. Army Corps of Engineers.

The letter confirms the right of property owners to sue over wetlands findings that could require them to get a Clean Water Act permit. The guidance came in response to the US Supreme Court's June ruling in U.S. Army Corps of Engineers v. Hawkes Co.

In Hawkes, the Supreme Court held that Clean Water Act jurisdictional determinations (JDs) issued by the corps are final agency actions subject to judicial review under the Administrative Procedure Act (APA). "The guidance takes effect now, and it was signed yesterday and posted today," Doug Garman, corps spokesman, told Bloomberg BNA November 1.

Although the Clean Water Act or the Rivers and Harbors Act do not require JDs, such a finding indicates that the corps will require the landowner to obtain a Section 404 dredge-and-fill permit for activities that may affect any wetlands or waters on the property.

The corps explained that approved and preliminary JDs specify what geographic areas will be treated as subject to regulation by the corps under either the Clean Water Act or the Rivers and Harbors Act, or both. The letter described differences between the two types of findings and noted when it may be appropriate to issue an approved finding versus a preliminary or informal finding. The underlying definitions of jurisdictional determination remain unchanged, the agency added.

The difference now is that "the Hawkes decision made all approved [jurisdictional determinations] able to be challenged in court without going through permit process or even the administrative appeal process," Garman explained. "However, the recipient of an approved JD can still go through the corps administrative appeal process if they so choose, despite the Hawkes decision. They do not have to go to court to challenge the approved JD if they choose to proceed with the administrative appeal."

Washington Insider: Oregon Corporate Tax Referendum

While there are many, many issues before the voters next week, one of the more important is in Oregon, Bloomberg says. There, a proposal is being considered that could transform Oregon's corporate tax base from one determined mostly by net income to one determined mostly by Oregon sales or gross receipts. The focus of the referendum is a "relatively small" group of large corporations.

"If Measure 97 passes, it will extract $6.1 billion in revenue from about 1,000 corporations over the 2017-19 biennium" the state's Legislative Revenue Office says. If it had been in force for the 2013 tax year, the state would have collected about $2.9 billion as opposed to the current $461 million. The purpose of the change is to expand support for early childhood and K-12 education, health care and senior services.

The corporations targeted are worried by the proposal, of course, and are spending more than $22 million to defeat it. In just three days, Oct. 14-17, Costco Wholesale Crop., Albertsons-Safeway and Kroger/Fred Meyer made donations of $900,000 each, the Oregon Secretary of State reports.

The initiative was brought by public employee unions who are donating heavily in support. For example, the Oregon Education Association has donated $3.15 million, followed by $2 million from Service Employees International Union (SEIU) Local 503, $1.85 from the National Education Association, $1.5 million from the Oregon American Federation of State County and Municipal Employees Council 75, $1 million from the SEIU and $500,000 each from the American Federation of Teachers and the AFT Oregon Issue PAC.

As you might expect, there is a bitter fight underway about future impacts of the tax on consumers.

The state has no general sales tax, the Tax Foundation, told Bloomberg, "This is a sales tax on steroids. It has the potential to pyramid where the tax cost is embedded in the final price of products many times over" as each level of the supply chain passes on the tax cost to the next level until reaching retail. Not everyone agrees.

For example, Chuck Sheketoff, executive director of the progressive think tank Oregon Center for Public Policy, says the proposal isn't a gross receipts tax, "it is an income tax." Only those who have "nexus" to the state are taxed. The vast majority of the items sold in the grocery store are manufactured by companies that are never taxed in Oregon. "Kellogg may sell tens of millions of dollars of corn flakes in Oregon, but if they don't have nexus, then Kellogg doesn't pay the tax. So how could there be pyramiding?"

Proponents also maintain that competition, particularly online competition, will prevent the costs of the tax being passed on to consumers.

The state's Legislative Revenue Officer Paul Warner told Bloomberg that if the measure passes, the impact on prices is estimated to be "a little less than 1 percent increase," resulting in what he called "a marginal change towards regressivity. The change is pretty minor." His report also projects an increase in income stemming from an increase in public-sector jobs.

"The measure will also create a competitive advantage for out-of-state C-Corporations that sell into the state but... do not meet corporate tax nexus requirements. However, by focusing the tax base on large C-Corporations, the proposal could lead to greater exporting of the tax beyond the state's boundaries," Warner's report says.

Economist Nicole M. Kaeding of the Tax Foundation told Bloomberg she sees the proposal as "tax exporting" -- a common facet of state tax policy. "States do not shy away from shifting the burden of taxation from in-state residents and businesses to out-of-state payers," she says, "but that doesn't make it good tax policy."

Certainly, it is difficult to evaluate anything as complex as a tax on some corporations in far-away Oregon. Still, there are several things to watch. Selective taxes, like others, have the potential to alter the competitive position of certain firms in Oregon and it seems certain that the analyses now available only begin to scratch the surface regarding longer-term impacts. In addition, tax exporting, like attempting to attract jobs by offering tax benefits, often brings severe unintended consequences. And, tax exporting gives the impression of "free money" that can undercut sound policy decisions.

Certainly, there is growing pressure for significant changes in the current tax codes across the United States to make them fairer and more equitable. However, tax gimmickry, on either a domestic or international scale, has a powerful potential to undercut sound economic policies and should be watched carefully wherever it is proposed, Washington Insider believes.

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