On November 5, 2024, Oregon voters will have a chance to weigh in on Measure 118, which would impose a new 3% tax on corporate sales in Oregon for companies with revenues exceeding $25 million. This is estimated to collect $7 billion annually and would be used to create the Oregon Rebate, which would provide universal basic income of an estimated $1600 per year (up from an initial estimate of $750) to every resident regardless of age or income. Â
Potential Impact on Construction Companies
Should Measure 118 pass, it would result in an increase on the tax burden for companies who do business in Oregon, as well as potential increased costs for materials for all construction businesses.
- Direct Impact on Construction Companies: Construction businesses with $25m in annual sales in Oregon will be subject to a 3% new tax on revenues. Currently, this measure is aimed at both S and C corporations; however, if passed, it could potentially be expanded to include LLCs and partnerships. This would impact all sectors of construction including generals, specialty, and subs, resulting in stacking of the tax at all levels.
- Potential Increase in Material and Supply Costs for all Construction Companies: Suppliers to the construction industry taxed under Measure 118 could raise prices on supplies and materials that would result in an increase of operational costs for construction companies of any size.
- Domino Effect on Builders: In adding a new 3% tax on revenues (not profits), there’s a risk that companies of all sizes—as well as owners—may be impacted by a domino effect of that increase. For example:
- A 2×4 piece of lumber, or any product used in construction, might pass through a manufacturer, a distributor, and a retailer, any of whom might need to increase its cost to cover the tax.
- That 2×4 then passes through to the subcontractor framer to the general and finally to the owner.
- Each layer potentially adds a 3% increase to the cost, resulting in an exponential cost hike passed on to the owner and finally to the company or tenant. This might be a company or individual in the vertical works of construction, or it may be the end user—the taxpayer—in the heavy highway world. Every project will be more expensive to construct.
- Impact on Investment: The combination of potentially increased cost of materials and supplies for all construction companies, along with a new 3% tax on revenues for companies over $25m, could limit an owner’s ability to reinvest in the business, purchase new equipment, or expand operations.
Aldrich Insights for Construction Companies
Owners of construction companies that operate in Oregon should consider taking the following steps:Â Â
- Monitor updates on the measure in advance of the general election on November 5, and discuss potential impacts with an advisor who understands construction.Â
- Model how the potential additional cost of materials and supplies, including stacking throughout the trades, will impact everything from your company’s cost structure to your cash flow. Â
- Model how an additional 3% tax on sales will impact your investment and growth strategies.Â
- Consider the potential increase in costs and how to build that into any new bids.Â
- Review your contract language to ensure you have clauses allowing for escalation in pricing, as well as pass-through adjustments for taxes if new taxes are passed after construction has begun.Â
- If you’re a subcontractor, ensure you know what the master contract says regarding escalation and taxes for each of the generals you’re working for.Â
- Ensure you’re currently sourcing sales for your state income tax correctly and begin to plan for how Measure 118 could impact your operations if it becomes law. Â
- Consider your tax restructuring options, as the initiative does not apply to partnerships, although it could be expanded in the future.Â
- Have discussions with your employees on the impact to the industry and talk with business associations such as AGC, ABC, and CFMA.
