A Highly Dubious Assumption in the Governor’s Proposed Nike Deal

Chuck Sheketoff

Yesterday, Governor Kitzhaber announced that he’s calling a special legislative session to rush through a law that would allow him to cut a deal with Nike that would freeze the way the corporation’s taxes are calculated for between 5 and 40 years.

Governor Kitzhaber apparently believes that Nike already pays its fair share of taxes, so it is okay to keep things as they are.

But the fact is that we don’t know whether Nike is a good Oregon taxpayer — and there’s good reason to believe that they’re paying a relative pittance.

Oregon law does not require Nike or any other corporation to disclose the income taxes they pay to the state. We can look up how much Nike pays in federal income taxes in Nike’s Security and Exchange Commission filings. But how much Nike contributes to the Oregon coffers we simply don’t know.

Very likely the company’s tax bill today is puny, compared to what it once was. Nike was a prominent member of the Loophole Lobby that succeeded in getting the Oregon legislature to adopt “single-sales factor” — the formula for calculating the share of a multistate corporation’s nationwide profits that Oregon gets to tax. Today Oregon counts just the percent of nationwide sales that occur in Oregon, where before the state also factored in the share of the corporation’s property and payroll in Oregon when apportioning profits that Oregon can tax.

You can read more about how single-sales factor works, but the bottom line is that the rule change was extremely favorable for multistate corporations like Nike that have a heavy footprint in Oregon — and thus benefit greatly from our public services — but which sell their wares primarily elsewhere. This change in the tax formula has allowed Nike to escape paying millions each year in taxes on its profits.

How much exactly did single-sales factor allow Nike to escape paying Oregon’s tax bill? We don’t know for sure, due to the lack of corporate tax disclosure. But as noted in OCPP’s conservative estimate of Nike’s taxes on 2006 profits (PDF), Nike likely reduced its obligation by over 90 percent when Oregon moved to single-sales factor apportionment.

And now the Governor wants to the legislature to give him the power to lock in that formula for Nike.

Cutting deals based on highly dubious assumptions is not in the interest of the people of Oregon. Lawmakers ought to reject the Governor’s plan unless we first see how much how much Nike currently pays in corporate income taxes.

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Chuck Sheketoff is the executive director of the Oregon Center for Public Policy. You can sign up to receive email notification of OCPP materials at www.ocpp.org.

By Chuck Sheketoff Dec. 11, 2012 Posted in open discussion.