House Bill 2281B and the Single Sales Factor: An Expensive, Ineffective, and Unnecessary Effort to Change the Business Climate

June 1, 2001

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:

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.