Executive Summary

House Bill 2281B would cut corporate income taxes by 10.5 percent ($100 million) in future biennia by modifying the formula that determines how much of a multi-state corporation’s net income can be taxed by Oregon. The bill would replace the state’s current three-part corporate income tax apportionment formula with a “single sales factor.” The bill is being promoted as a valuable economic development tool.

A review of the evidence suggests there is little reason to expect significant economic growth from a single sales factor. The proposal also primarily benefits a few large multi-state corporations. Specifically:

• The Legislative Revenue Office estimates that HB 2281B will generate fewer than 100 jobs in a state with 1.7 million employed, at a cost of $500,000 per job;
• The $101.3 million revenue loss will harm valuable public services that make an important contribution to economic growth, such as education and public safety;
• By design, HB 2281B fails to guarantee any new investment, while also rewarding firms for investment that would have been made anyway and rewarding companies making layoffs;
• Oregon’s economy has performed better than those states with single sales factor formulas, and;
• HB 2281B will raise taxes on 5,700 companies doing business in the state, will provide little or no tax relief to most Oregon companies, and directs 64 percent of its tax relief to 17 of the state’s largest companies.

Business-supported and academic research concludes that business taxes have little or no impact on economic growth. Taxes matter little because they constitute such a small part of businesses’ costs. Furthermore, the public services that will be reduced make an important contribution to economic development. House Bill 2281B will further limit Oregon’s ability to meet the state’s needs in education, health care, and other public services.