Steve,

Ryan calling us extreme reminds me of the adage "if you point a finger, three come back at you."

We're low because of single sales factor apportionment, one of Deckert's legislative legacies. Intel used to pay $50 million a year, and now they are transfering business energy tax credits because they don't have tax liability. Now that California has enacted single sales factor, you can kiss goodbye all the (weak) economic development arguments for it. Take, for example, Genentech. They claimed they came here because of single sales factor. Well, now they have it in California so there's no reason for them to develop any further here, far away from the core business.

I'm confident Steve that you've reserved the right to be wiser tomorrow and that your open mind and thirst for knowledge will come to see the folly of single sales factor apportionment. It's part of the race to the bottom, like Deckert's research and development tax credit that's making you and I pay for Nike research into new dimples for the Tiger Woods golf ball and his film industry tax credit that gives the wealthiest of households a 11 percent return on their payments to the fund that subsidizes Harrison Ford and other impoverished Hollywood characters.....

Every time a major corporation complains about the new tax measure think "we need corporate disclose of taxable income, apportionment factors, and tax liability."

I am proud of the Oregon legislature today. And Steve, you did a good job on OPB, too.

'Single sales factor' did reduce corporate tax revenues - they should have offset it by increasing the tax rate - but by less than $100 million; it is not responsible for how very low our business taxes are, compared to national average ...

Sorry, but Chuck has convinced me that single sales factor is ridiculous.

First, a recap for everyone else: When the state wants to tax a business that makes money in multiple states, the question is - what percentage of their profits should we assume was made in Oregon, and what percentage was made elsewhere?

Should you tax based on how many employees they have in their various locations? After all, it's the employees that do the work that make the money. Should you tax based on the value of their real property and equipment? After all, it's those real assets that are used to make the money. Should you tax based on where the product sales happen? After all, you don't make money until a customer buys your product. Or, should you use all three factors - in some kind of logical equation - to figure it all out?

Oregon used to do the last thing. But in an effort to make life nicer for the big corporations with large amounts of land and large numbers of people - but with relatively few sales in Oregon - we moved to single sales factor.

Now, why do I agree with Chuck that single sales factor is ridiculous? The public services that a company uses are largely based on its real property and its human resources. They require good roads, effective law enforcement, quality schools, well-staffed courts to adjudicate commercial disputes, and much more.

If you're a company entirely located in Oregon, but you do 100% of your sales outside of Oregon... should you really pay zero Oregon tax? That makes no sense.

To pick two obvious examples: Nike and Intel demand much from our public infrastructure. They should contribute something in return.

Steve, what is the logical distinction to you, relating to an Oregon corporation, of not taxing income earned in California (another state, as in shipping jobs to California) and your call to tax all profits made in China (another nation, as in shipping job to China)?

This looks like a much better discussion than one that has become 'how can we beat up on poor Mark Haas some more?'

First of all I cannot believe that I have a more liberal position than Steve, but I agree that the single sales factor is wrong for many of the reasons that kari listed, including the more fundamental one that if every company got taxed at the same rate as Intel and Nike then the state would have no corporate tax revenue. Why should they be treated differently than companies based here that sell here and actually pay taxes? At the same time Kari remember that they still do pay property taxes that covers the cost of much of the services that they utilize.

Kari, would not the Intels and Nikes of Oregon pay property taxes and would not their Oregon employees pay Oregon income and other taxes? Not that I now have a favorite profit/sales apportionment method for corporate taxes, but it would not seem quite so stark as you portray it. And do we not want companies with lots of sales outside Oregon to locate here?

Dave Porter: That's a strawman argument that tries to divert attention from the actual change.

Before single sales factor apportionment, the employees paid taxes, the companies paid property taxes (though Intel is quite adept at getting out of those too, but that's another story), and Intel paid $50 million a year in corporate income taxes and was Oregon's number one corporate income tax payer. Now, Intel is likely a $10 a year taxpayer (they sold their business energy tax credits), and under the new scheme will still be getting off with paying less than a penny on the dollar compared to what they used to pay before Oregon went to single sales factor. Yes, employees pay taxes on income and the companies pay some property taxes, but the companies used to pay income taxes, too, and now they don't. That's the problem.

Take SolarWorld or Genentech or Google --- all moved to Oregon and getting the benefits that Kari wrote about, but pay no corporate income taxes because of single sales factor apportionment. And with California's move to single sales factor, now Genentech has no good reason to move to Oregon.

Oregon needs corporate tax disclosure so we can see just how much they are getting off the hook. See how we conservatively estimated Nike's one year savings from single sales factor apportionment (link on left side).

Take, for example, Genentech. They claimed they came here because of single sales factor. Well, now they have it in California so there's no reason for them to develop any further here, far away from the core business.

Any time a business claims there is one reason for choosing a location they are oversimplifying, at best. There remain a lot of reasons for businesses to want to be near California but not in California; taxes are just one of the high costs of doing business there.

Steve has the better argument on two counts: (1) a single sales factor has made Oregon more competitive in attracting and keeping traded-sector businesses and (2)it should have been part of a broader tax reform strategy to offset some or all of the fiscal impact.

Chris, you've raised exactly the right question and I don't think there is a simple, easy answer to that. A lot of the determinants business locational decisions aren't the hot-button political issues like taxes and regulation but more mundane factors such as transportation linkages, access to markets, energy cost, availabilty and reliability, proximity to similar businesses that will help attract and keep appropriate workforce, suppliers, etc.

Historically, Oregon was attractive to companies that wanted access to our natural resources (particularly timber) or which took advantage of our cheap and abundant hydropower (aluminum companies). As those fundamentals shifted, we lost some of those industries but haven't yet attracted their replacements.

Our big push in microchips during the 1990s are an example of a rational strategy that fell victim to a quickly changing global economy (plus the decline of our competitive advantage in energy costs).

I wish more people were giving serious thought to the question you're asking instead of trying to fit economic development into the template of our preexisting ideological battles.

While in general sympathy with the thrust of Steve's post (that corporations should pay more in taxes), I also agree with the themes of the posts of Jack Roberts and Chris. We need a more robust discussion of economic development in Oregon and how to get it in the 21st century. I support the transition to green jobs, but green jobs alone are not going to power Oregon's economy. I was disappointed in the current legislative session's lack of vision. In a world where China's economy is forecast to be twice the size of the US economy in 2050 and 80% of global economic growth in the next few decades is estimated to be in emerging global market (including China), the legislature killed bills to expand Mandarin programs (only about 1% of Oregon students get any Mandarin) and killed the bill to create a Go Global High School Study Abroad Program to send high school students to study in the emerging markets. The Go Global High School Study Abroad Program would not have taken any additional state or local funding.

We need increasingly to have strategies to sell our goods and services globally if we want a prosperous economy in Oregon. I do not think enough of our leaders yet understand this.

Oregon's business taxes rank #49 out of the 50 states. If low taxes create jobs, then where the hell are all the jobs?

Jack Roberts gets credit for acknowledging that every business makes business decisions for multiple reasons. Former Bush administration Treasury Secretary (and CEO of Alcoa Inc.) Paul O'Neill had it right when he said, and I'm paraphrasing, that any business that makes major corporate decisions based on comparative differences in marginal tax rates is a business that's going out of business.

Oregon's corporate taxes should be pegged at whatever point will fund the services that Oregon corporations want, expect, and need. No higher. No lower. And we should stop pretending that tax rates have anything do with job creation.

High corporate tax states, like Washington, have plenty of strong corporations. There's no reason we need to cheapen and demean ourselves in these misguided efforts.

Remember Tom McCall: "Oregon is demure and lovely, and it ought to play a little hard to get. And I think you'll all be just as sick as I am if you find it is nothing but a hungry hussy, throwing herself at every stinking smokestack that's offered."

Kari is right. Very few businesses are located based upon tax rates. The number one criteria is proximity to an industrial cluster of similar or related businesses. Not that the corporations won't try to push the govenment for tax breaks after they have already made their base decision.

Furthermore there is plenty of evidence that location decisions for jobs that pay above minimum wage give more weight to higher tax, higher service locations. Bioscience, software, high tech, aerospace etc. go to where there are higher taxes and better educated employees. Oregon's long term disadvantage has been a clear lack of a world class university system.

Having said that, I will also say that the property tax limits on high cost wafer plants did make a difference in accelerating semiconductor plants to Oregon. While the cluster was initiated by Intel in the 70's without any tax benefits, as the cost of a plant went from $100 million to a billion, the tax penalty of property taxes became a serious cost issue. The decision to limit the property taxes so that they would not increase as more expensive equipment went into the building was a factor in locating new plants in Oregon. Furthermore, while the semiconductor industry has declined recently, the cluster is now attracting solar cell companies for all the same reasons.

What about the property tax system????

No one mentions any potential to revisit commercial property tax rates as part of our revenue conundrum. Wasn't it Measure 5 that brought an astounding drop in tax burden to corporations (the ones that own property at least)? The discussion on single sales factor and other rates is interesting, but it seems we need to be reminded that, in absence of any prospect of a sales tax, some tweeking of Measure 5/50 is highly in order. Sizemore/McIntire's rates were arbitrary, and it is high time that the Legislature refer a revision to voters that allows slightly greater capacity under the property tax system to fund schools and local services. Perhaps higher rates could be established for commercial property. Expanded local option authority alone could help (and only if local voters agree to the tax for the service, as opposed to something imposed by Salem).

We seem sooooo scared about going to the voters to revise the property tax system. ("Beck, all the polling shows that voters oppose tax reform, so we can't afford to try...."). If the unions and other pro-gov't funders could spend as much money campaigning FOR one or two prop. tax ballot measures as they spent against (mostly) the raft of bad 2008 measures, maybe, just maybe we could get some much needed revisions to Sizemore's 19 yr old dirty work. Chalkboard, Stand for Children, the unions, and maybe even the businesses who truly care about education, should band together and focus on fixing the broken property tax system. It's too bad that there has been little energy expended to push the Legislature to refer a thoughtful revision to the voters next year.

Chris,

This is definately a debate worth having, but I no longer have a sense of what is a "right" level. Residential property taxes are still really high in spite of 5/50. I am totally shocked at the level of property taxes I pay on my house where I have lived for 25 years. I can't imagine what people pay on new houses. We are also perversly fortunate because the drop in property values in Oregon has not led to a huge drop in property tax revenues because the valuation levels for taxes are so far below the current market value. In some other states the negative impact of the last year has been a disastor for local governments.

How you would get a split rate passed to tax businesses higher is not at all clear to me.

John,

Yes, complicated. I'm just amazed that the property tax system is not on the table for discussion. You are correct, of course, about how the market drop will fortunately not affect property tax revenues. Mainly, I think we need more local option capacity (for schools, and any number of other services). As for split level taxes, I don't know if businesses would support, but they might like it better than the new permanent income tax. I don't know. Again, these things should be on the table.

I think businesses look at our high 9% personal income tax rate and conclude that they would rather not move here. They don't care so much about the business tax as the personal income tax that their executives would have to pay. That would explain why Washington state has a lot more large corporate headquarters despite having a relatively high corporate tax rate.

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