December 17, 2012
Nike request sparks debate on best way to boost jobs
The governor's proposal to lock in the current tax code for Nike Inc. has reignited debate over the best means to promote job growth.
Nike asserts it needs tax certainty before it will commit to future expansions in Oregon. The proposal, which state lawmakers approved Friday, gives Gov. John Kitzhaber the authority to negotiate an agreement to protect Nike from changes in the state's tax code for up to 40 years.
Before 2005, Oregon collected corporate income taxes based on in-state sales, property, and payroll. The state subsequently shifted to a system known as "single sales factor."
The tax code change took property and payroll out of the formula for determining corporate income taxes paid to Oregon. Corporations with large facilities and many workers in Oregon, but whose sales are mostly outside the state, enjoyed a sharp tax cut.
Intel Corp. may be the largest beneficiary from single sales factor, said Oregon economist Bill Conerly. The governor's proposal for offering companies certainty about their taxes is a good idea, he said.
"We don't want their taxes to go up just because they invested here," Conerly said. If anything, the governor's plan should be broadened to include more businesses, he said.
The legislation allows the governor to make agreements with companies that agree to invest $150 million and create 500 new jobs. But providing such agreements would still be at the governor's discretion.
"Nothing is automatic," said Tim Raphael, a spokesman for the governor's office. The governor would have "fairly wide latitude to negotiate specific agreements," he said.
Rep. Vicki Berger, R-Salem, said it seems unlikely that the governor would turn away a company agreeing to make investments on the magnitude of Nike.
The jobs offered by Nike are "incredibly high end," said Berger, who is part of the committee that reviewed the governor's proposal. The footwear and apparel company's average compensation for Oregon employees is $100,000 annually, according to Nike.
"I will tell you what would cost a lot of revenue — if Nike pulled their headquarters out of Oregon, or built somewhere else," Berger said. Critics contend that agreeing to suspend changes in Oregon's tax code to placate a corporation isn't sound policy. Single sales factor has done more harm than good for the state, they say. Chuck Sheketoff, executive director, of the liberal- leaning Oregon Center for Public Policy, said the state's general fund has taken a large hit. "We have had single sales factor apportionment for 10 years now, and it hasn’t boosted our personal income. It hasn’t lowered poverty," Sheketoff said.
A rough estimate by Oregon Center for Public Policy, based on Nike's U.S. profits in 2006, found that changes enacted in 2005 trimmed the company's corporate income tax bill in Oregon by more than 90 percent.
Sheketoff said the governor's proposal wrongly assumes that corporations, such as Nike, are paying their fair share of taxes to support public services.
Mary Remuzzi, a Nike spokeswoman, said the company doesn't disclose how much it pays in Oregon taxes. The state is legally prohibited from releasing tax records.
But it's possible to get an idea of how Oregon's method of taxing corporations shapes the state's budget. State government produces a document every biennium, known as the Tax Expenditure Report.
The latest report estimated that single sales factor will reduce revenue to Oregon by $129.8 million in fiscal 2011-13. That amount rises to $164.9 million in fiscal 2013-15. The report, however, cautions that estimates may not represent the amount of revenue gained by repealing a tax expenditure. For example, estimates can't take into account how companies might respond to changes in tax rules. As it stands now, single sales factor benefits a relatively small pool of Oregon companies. About 1,700 taxpayers a year have reduced taxes because of it, according to the Tax Expenditure Report.