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Critics challenge payroll tax idea

Small-business owners insist that jobs will be lost

The Small Business Advisory Council says it will boost its grass-roots campaign to show that a proposal to increase payroll taxes could cause financial hardship and chase businesses from the city.

'If this passes, you'll see a disproportionate number of businesses moving from Multnomah County to Washington County,' says Ethan Dunham, a council member who's lobbying against the proposed tax shift from revenue-based taxes. 'It puts us at a competitive disadvantage.'

The July 1 deadline has come and gone, but city officials continue to collect surveys that will help gauge whether the proposal is workable.

The stratagems come as the Portland City Council and Multnomah County Commission prepare for a September vote on the tweaked business income tax. The proposal would slash the combined city and county income tax from 3.65 percent to 1.39 percent.

For the first time, businesses would pay a payroll tax of 0.395 percent.

City and county officials, working with business representatives, unveiled the proposal in February. The city's Bureau of Licenses mailed surveys to businesses seeking calculations of the amount they'd pay under various taxation scenarios.

Supporters, including the Portland Business Alliance, believe that the cut would help attract larger businesses to Portland and Multnomah County. Companies operated by partnerships, such as law firms or medical practice groups, also could benefit because its owner-partners, in effect, aren't considered payroll employees.

Because no company would pay payroll taxes of more than $100,000, smaller firms will carry a larger onus, according to the Small Business Advisory Council, which is appointed by the City Council.

Large manufacturing facilities, with hefty payrolls, could see their taxes rise, too, advisory council members say.

'There's a perceived unfairness (in the payroll tax proposal), so we hope we can move to a more fair tax,' says Dunham, chief executive officer of Pulse Business Systems in Portland.

Dunham says more than 70 percent of his 11-employee company's expenses are payroll-related. The tax shift would boost his overall taxes from approximately $1,100 to around $2,700, he says.

Connie Hunt, co-owner of the East Bank Saloon, estimates that she'd pay an extra $1,300 under the proposed shift. Hunt fears that many small businesses aren't aware they could face higher business taxes.

'A lot of them didn't know about the surcharge; they have no idea this is coming,' she says, noting that Portland has about 30,000 restaurant workers.

'This goes to the very heart of what business is about, which is jobs,' she says. 'I'm going to have to cut jobs. If I have to tax payroll, I'll have to cut payroll.'

Hunt, Dunham and Ken Turner, general manager of the Eastport Plaza Shopping Center, say that the Small Business Advisory Council is meeting with media outlets, sending out e-mails reminding business owners to turn in their surveys and distributing hard copies of increased payment estimates in office buildings and restaurants.

City Commissioner Jim Francesconi says he hasn't taken a stance on the measure.

'Change is needed now,' he says. 'The current tax structure drives some jobs from Portland, particularly the small, highly mobile companies that provide professional services. But, because it depends so much on payroll taxes, the proposal on the table has too big of an impact on small businesses and manufacturers.

'We'll have more details soon from the study, but we can't afford to raise the payroll tax that high.'

The Portland law firm Miller Nash LLP has calculated that its business taxes would drop, says Aaron Douglas, a spokesman for the large partnership. However, the firm takes no position on political matters, he says.

Roughly 46 percent of business owners who received the survey have turned them in. The surveys will be used to compile data on the tax burden for certain businesses.

Even though the city can legally impose penalties on businesses that refuse to divulge tax information, it probably will not do so in this case, says Jim Wadsworth, the license bureau's director.

Business owners who missed the July 1 deadline can still submit their survey information via an automated phone line set up by the city: 503-823-2871.

The city will spend $130,000 collecting the business data, Wadsworth says.

Contact Andy Giegerich at This email address is being protected from spambots. You need JavaScript enabled to view it..