Seasonal local sales tax up for a vote in Oregon, a state with no sales tax

Ordinance 2022-005 seeks to impose a seasonal tax on retail activities occurring within Josephine County between April 15 and October 15 each year. The rate for the proposed Law Enforcement Retail Activities Tax (LERAT) is 3% of the total amount of gross taxable payments during that time period.

The language of the ordinance is a bit odd. “Retail activity” is described as “every conversion involving a Participant and a Consumer” except for “transactions that are exempted from this ordinance” (listed in the next section).

Retail activity involves “conversions that are delivered to a Consumer or a location in Josephine County, regardless of the shipping source.”

The provision or transfer of the following would not be subject to the retail activities tax:

• Alcoholic liquor
• Cigarettes and other tobacco products
• Conversions that are excluded from taxation by state or federal law
• Groceries
• Internet access
• Investment holdings
• Lottery tickets or shares of the Oregon State Lottery
• Marijuana items addressed by Josephine County Code Chapter 3.25
• New light-duty motor vehicles
• Outright gifts
• Prescription medicine
• Psilocybin products or services
• Real property
• Telephone exchange access or other telephone services
• Transient lodging

Again, the ordinance is worded oddly. It defines “activity” as “the conversion of products or services from a Participant to a Consumer.” A “participant” seems to be basically any business, including nonprofits and “any natural person,” while a “consumer” is “a Participant who purchases, acquires, owns, holds, or uses products or services other than for the purpose of resale to another Participant.”

It would fall on the “Participant” (acting as a retailer rather than a consumer) to collect the tax from the Consumer and remit the tax to the Josephine County Tax Collector.

Except for the consumers confusingly described as participants, every Participant would be entitled to retain a 5% deduction against the retail activities “for the purpose of administering the tax collection.”

The language of Ordinance 2022-005 suggests mail-order, phone, and internet retailers with no physical presence in Josephine County (i.e., remote sellers) would be required to collect and remit the seasonal retail activity tax on sales delivered into the county.

Per the ordinance, “Each calendar year, every Participant, except Consumers, that has engaged in retail activity during the prior calendar year shall make payment in full to the Josephine County Tax Collector on or before the first day of March.” The ordinance also specifies that “retail activity” includes “conversions that are delivered to a Consumer or a location in Josephine County, regardless of the shipping source.” Scott Peterson, vice president of Government Relations at Avalara, can’t think of any reason to include this language unless it’s to require out-of-county retailers to collect and remit the tax.

To understand why this is unprecedented, it’s helpful to review the U.S. Supreme Court decision in South Dakota v. Wayfair, Inc. (June 2018).

The Wayfair decision overturned a prior decision preventing states from taxing sales by businesses with no physical presence in the state. That’s all it did.

However, the opinion also praised certain aspects of South Dakota law that sought to minimize the burden of remote sales tax collection and remittance, including the fact that South Dakota provided an exception for businesses with little sales activity in the state.

Under South Dakota’s online sales tax law, businesses with less than $100,000 in sales in the state or fewer than 200 separate sales transactions in the state in the current or previous calendar year are not required to register for sales tax.

Every other state that’s adopted a similar law — which is every other state with a general statewide sales tax as well as the District of Columbia, Puerto Rico, and parts of Alaska — also provides an exception for small sellers, though each state defines that differently. You can find state-specific details in our state-by-state guide to economic nexus laws.

The proposed seasonal tax on retail activities in Josephine County, Oregon, does not include an exception for small remote sellers. Presumably, any business with taxable retail sales in the county during the prior April 15–October 15 window would be required to register then collect, remit, and report tax on all taxable sales.

The proposed tax on retail sales is the brainchild of the Josephine County Council, which unanimously approved it in a 3-0 vote after the first reading of the ordinance in July 2022 despite the fact that no community members spoke in favor of the tax during the meeting. The motion also passed 3-0 after the second reading, held August 10.

Revenue generated by the tax would exclusively fund law enforcement services in Josephine County, which includes the City of Grants Pass and the City of Cave Junction. Should the retail activities tax be approved, the Grants Pass City Council will reduce the property tax levy for law enforcement from $1.79 to $0.79 per $1,000 of assessed value.

“There is no way to know if this will pass,” observes Scott Peterson. “The money from the tax would fund local law enforcement and reduce property taxes; both are good reasons to vote yes. However, the failure to provide a small seller exception is a flaw that could be fatal. An exception for small businesses was clear in the Wayfair decision.”

The communities of Alaska know this. Every local government in Alaska that taxes remote sales provides an exception for small businesses. Though there’s no statewide sales tax, there’s a statewide threshold of $100,000 gross sales or 200 individual transactions annually.

Furthermore, the Alaska Remote Sellers Sales Tax Commission (ARSSTC) serves as the single point of registration and remittance for local sales taxes in Alaska.

Of course, the situation in Alaska is much different from that in Oregon. Local sales taxes have been around for a long time in Alaska. The proposed Josephine County seasonal sales tax would be among the first of its kind in Oregon, though Oregon law does allow counties to tax lodging businesses.

Peterson says it’s unclear whether local governments in Oregon have the authority to tax commerce beyond lodging. Another unknown is whether Oregon’s authority applies to sellers outside Oregon; every other jurisdiction that taxes remote sales adopted an economic nexus law following the Wayfair decision. “Assuming the county is serious about the ordinance applying to sellers outside the county, this tax will test the limits of local government authority under the Wayfair decision.”

It will be interesting to see how the people of Josephine County will react to the tax on November 8. Whatever happens, we’ll let you know at the Avalara Tax Desk.

Update: The proposed seasonal sales tax was rejected by Josephine County voters.