Yes, Oregon has very low business taxes and is quite competitive

Blog Post
March 14, 2015By Chuck Sheketoff

At a recent Portland City Club forum, club member Bill Holmer questioned whether Oregon has low business taxes, as claimed in a recent report by the Oregon Labor Education and Research Center (LERC) (PDF). He also questioned LERC’s reliance on a study that does not address competitiveness.

LERC’s claim that Oregon has low business taxes came from a report by the accounting firm Ernst & Young for the Council On State Taxation (COST). COST is a lobbying group representing some of the largest corporations in America; Nike and Intel have been COST members.

The 2014 COST study (PDF) cited by LERC concludes that Oregon has the lowest “total effective business tax rate” in the country. The study purports to look at all taxes related to businesses, not just corporate income taxes (CIT), to establish the rate of business taxes as a share of the states’ economies.

Though Holmer was correct that the COST study LERC cited does not address business “competitiveness,” another COST study does examine the issue. That study concludes that Oregon has the second lowest effective tax rate on new investments, whether weighted by capital investment or weighted by jobs.

Simply comparing states’ corporate income tax rates — as Holmer argued during his questioning — is a mistake, for several reasons.

Businesses pay taxes other than the corporate income tax, so looking at just corporate income tax rates is too narrow a focus. Some states, such as our neighbor to the north, don’t tax profits, leaving them out of Holmer’s comparison.

Moreover, states are not uniform in how they define the income subject to corporate income tax rates. For instance, Oregon apportions a share of corporations’ U.S. profits to Oregon based solely on the percent of sales that are attributable to Oregon. This shrinks the tax bill of companies such as Nike and Intel. Other states include additional factors, the percent of property and of payroll, in determining what share of U.S. profits are subject to the states’ tax rates.

Finally, there is no shortage of subsidies and quirks in state and local tax codes that make comparison of corporate income tax rates meaningless. From property tax subsidies such as Oregon’s strategic investment and enterprise zone programs, to Oregon allowing corporations to escape our corporate minimum tax by using tax credits, tax subsidies impact the effective tax rate. Today, some profitable corporations pay nothing — zero — in corporate income taxes in Oregon, despite the fact that Oregon has a corporate minimum tax on the books.

In short, there’s no question that businesses pay little in taxes in Oregon compared to other states.

Taxes don’t matter much, if at all, in making a state competitive. Our business climate has much more to do with the quality of our workforce, schools, infrastructure, public services and quality of life.

But even if you think business taxes matter, Oregon is one of the most competitive states in the country.

This commentary was first published by the City Club of Portland. The City Club asked OCPP and three other organizations to respond to a question from a City Club member. Read all four answers here.