Portland officials have exempted businesses in three industries from a city tax on large retailers, one year after voters approved the measure to fund clean-energy grants. The move means the city could collect up to 20 percent less than originally estimated from the Portland Clean Energy Surcharge.
The Portland City Council voted 4-0 Thursday to amend the city code to exclude construction companies from being defined as a large retailer subject to the 1% surcharge on annual retail sales. The code change also exempts the sales of some retirement plans and residential garbage services. Commissioner Nick Fish was absent.
The surcharge on large retailers applies to businesses with at least $1 billion in annual revenues nationwide and at least $500,000 in yearly Portland sales. Voters approved the initiative in November 2018. The tax went into effect Jan. 1. Utilities, credit unions and co-ops were already exempt, as were the sales of health care services, most groceries, medicine and prescription drugs.
The new exemptions come after pressure from the Portland Business Alliance as well as representatives of construction and waste management companies who argued the city’s definition of “large retailers” was too broad. The Portland Haulers Association, which represents the city’s residential solid waste and recycling collection services, sent a memo to the Portland City Council in July asking that none of their members be categorized as large retailers.
Mayor Ted Wheeler said Thursday that the initial city policy wasn’t perfect and a change was necessary to prevent increased costs on Portland customers and for large-scale construction projects such as schools and low-income housing.
“I acknowledge that these changes are less than ideal, however the [Portland Clean Energy Fund] will remain a model for the rest of the country, and I look forward to all of the good work to come,” Wheeler said.
The tax is supposed to raise funding for clean energy projects, energy-saving retrofits for low-income homeowners and renters, green infrastructure and the creation of living-wage green energy jobs. Funds raised are meant to be prioritized to help Portland’s low-income residents and communities of color.
The city initially estimated the surcharge could generate between $54 million and $71 million every year. The new exemptions decrease projections to between $44 million and $61 million.
The proceeds will be distributed as grants to nonprofit groups selected by a nine-person committee. The first round of grant funding — $7 million — is planned for summer 2020.
Customers of some traditional retailers, such as Safeway and WinCo, have noticed on their receipts that surcharges have been tacked on to their purchases. In September, the city adopted new business tax administrative rules that emphasize that paying the clean energy surcharge is the legal obligation of businesses, but they can pass along surcharges of their own to customers.
The customer surcharges have led to lawsuits, including against AT&T, which is exempt from the Portland Clean Energy Surcharge but added extra fees in the name of the tax to customers’ wireless bills.
Andrew Hoan, Portland Business Alliance president and chief executive, said in a statement to the city council that he supports the new exemptions.
“While we are disappointed the ordinance does not establish a comprehensive definition of retail that is consistent with widely recognized industry codes, the proposal represents a compromise that is worthy of support by the council and all stakeholders,” Hoan said.
Oriana Magnera, a member of the clean energy fund coalition’s steering committee, told the city council during public testimony Thursday that her group didn’t oppose the new exemptions, but would be against “any further erosion of the program.”
“All of these exemptions represent dollars that will not become available to support resiliency and investment in communities in the face of the climate crisis and that’s a loss,” she said. “It’s worth naming that these exemptions take money out of the hands of black, indigenous and other communities of color and put it instead in the pockets of corporations.”
Wheeler said the city council would only be hearing future recommendations for code changes if they came from the nine-member advisory committee.
Commissioner Jo Ann Hardesty, who helped sponsor the measure before she was elected to the city council, said she and others who campaigned for it didn’t know the city’s definition of a large retailer at the time. She said it wasn’t until after it was approved by voters that she discovered the definition was broader than they had anticipated.
Hardesty said she wouldn’t have supported the initiative had she known there could be potential downsides for retirement accounts or constructions of schools or affordable housing.
She said the code amendments create more certainty for businesses and give the city the ability to move forward without the threat of lawsuits.
“Let’s not be sad that $10 million will no longer be there, because prior to [the Portland Clean Energy Fund], there were zero dollars,” she said. “This is a good day and I’m proud to vote, ‘Aye.'”
-- Everton Bailey Jr; ebailey@oregonian.com | 503-221-8343 | @EvertonBailey
Subscribe to Oregonian/OregonLive newsletters and podcasts for the latest news and top stories.