Strange bedfellows: Measure 97 and the benefit company exemption

Is the Measure 97 B Corps exemption a betrayal of the socially responsible business philosophy?

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By now everyone knows the Measure 97 would levy a 2.5% tax on companies with Oregon sales of more than $25 million.

Two types of businesses are exempt from the tax: S-corporations and Benefit Companies, often referred to as B Corps. B Corps* are businesses that work to create a general public benefit by including environmental and societal impacts in the decision process.

Depending on your perspective, there’s a certain irony to the benefit company exemption; of all the corporate structures, benefit companies are allied most closely with a business philosophy of higher taxes.

In recent months several companies that would have been subject to the Measure 97 tax have pursued benefit company status, raising questions about their rationale for doing so.

As Nov. 8 approaches, we asked three executives of B Corps companies to address a few of the controversies swirling around the benefit company exemption.

Does Measure 97 put B Corps companies in an awkward position because they are not subject to the tax?

Wendy Strgar, Good Clean Love: I don’t believe that Measure 97 puts only B Corps in an awkward position. LLCs and S-corps are also exempt from the tax. Although I do agree that business in general should increase their contribution to the tax deficits in Oregon, I believe that the burden should be spread more widely. I suspect the initiators of this measure thought it would be the easiest to pass because it doesn’t influence as many people.

Jenelle Isaacson, Living Room Realty: This puts me in an awkward position because I did not work on benefit legislation in the state of Oregon to see it used as a way to prevent my company from having to pay taxes that other companies are subject to. I believe corporations have a responsibility to give back to the communities that support them and I also believe that it’s a more profitable and sustainable way of doing business in the long term. If doing business like this makes me more profitable then I should pay tax on those profits.

I’m not against corporate Oregon contributing a bit more, but I am very much opposed to Measure 97 because it’s not a tax on profits but on gross sales. Some businesses it costs 95 cents to make a dollar and other companies it costs 50 cents to make a dollar. So if one company profits a penny and the other 50 cents, how can it be fair to tax them the same? My own children get this concept after a lemonade stand; how is it that our politicians are clueless? This is the most anti-business and ill-written measure.

Andrew Welch, Boly:Welch: There is a fair amount of confusion around how and why the exemption made it into this bill. While entirely anecdotal, the B-Corps that I’ve spoken with view the exemption almost as a betrayal, and a diversion from the spirit of HB 2296 [Oregon’s benefit company statute, signed into law in 2013]. The early conversations specifically stated that the ”status only affects requirements of corporate purpose, accountability and transparency,” and that tax status would not be affected.

Many Benefit Companies, especially those who have been through the more rigorous 3rd party verification, see a tax advantage as an external incentive to reincorporate, thus watering down the value assigned to those companies who undertook proactive efforts to distinguish themselves as focused on the triple bottom line.

In brief, what is the difference between the B Corp business model and the government taxation model as solutions to social problems?

Strgar: The B Corps model is based on the idea that businesses exist to make the world a better place. In this version of business, contributing to the economy, the community, the environment, the employees are built into the B Corp structure. To the degree that for the majority of businesses, their singular goal is to make profit for shareholders, the tax model structure is necessary so that the profits can be more evenly distributed to all of the stakeholders that make that business success possible. If you think about it, no business can be successful where people don’t have their basic needs cared for. B Corps are a way of evening out the playing field — both inspiring and requiring us to make better decisions for the good of all.

Isaacson: The speed, efficiency and lack of restrictions as a B Corp versus a governmental body allows us to quickly respond to the needs of our community and work on fringe issues that may not necessarily have popular support in the government. Obviously waiting for the government to solve major world issues isn’t enough. As business leaders and citizens we need to do everything we can to address the issues before us. Government can’t keep up with the speed of technology and we are on the brink of solving some of the world’s largest problems like clean water and energy. It’s the business community and leaders in technology that will change our world.

Welch: While not mutually exclusive, the mechanisms, reach and impacts are pretty contrasted. Government basically has two tools to address social need; regulation and the funding and administration of programs. Both of these are fraught with loopholes, opposition, competing interests and opinions regarding the efficacy and efficiency of how they are delivered. Business on the other hand, already has impacts and effects while operating under a different set of economic rules and influences. Some of these effects can be deleterious to communities and the environment, so when a company decides that it’s going to consider and address these impacts, the effects can be immediate, tangible and can provide substantial lift. As shareholders and customers start to demand this consideration, there is an added economic incentive as well.

*Clarification:  Not all B Corps-certified companies are registered benefit companies.  Benefit company is a tax designation, while B-Corps refers to a third party certification. Oregon B-Corps certified companies will not be exempt from Measure 97 unless they are also benefit companies.  B-Corps and benefit companies share a similar philosophy.