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Oregon is now more exposed to corporate tax avoidance

Commentary
June 6, 2018By Daniel Hauser

In the age-old battle between multinational corporations trying to pay as few tax dollars as possible, and the state of Oregon trying to hold them to their responsibilities, Oregon has often been out-gunned. This is worse now, due to the Oregon legislature’s decision in the last legislative session to eliminate one of Oregon’s most effective weapons, the tax haven law.

A new report by the Center on Budget and Policy Priorities (CBPP), a national think tank, explains that Oregon is now largely defenseless against corporations shifting profits overseas to escape paying taxes.

“Repeal of the tax haven provision was premature at best and will damage Oregon’s ability to protect itself from aggressive international income shifting,” writes Michael Mazerov, a CBPP Senior Fellow.

Ultimately, as corporations artificially shift their profits abroad, they avoid taxes they would otherwise pay to Oregon. That means less revenue to fund schools, affordable housing, and services that protect the most vulnerable.

The repeal of Oregon’s tax haven law flowed from the legislature’s response to the far-reaching tax law passed by Congress at the end of 2017. The federal law required corporations to pay taxes, at a reduced rate, on more than $2 trillion in profits they held abroad. The federal tax law also put in place provisions intended to deter future shifting of corporate profits to avoid taxes.

While the repatriation of profits should have resulted in an increase in corporate tax revenue, a quirk in Oregon’s tax code meant that the state stood to lose about $100 million in revenue. In response, the legislature enacted Senate Bill 1529, which corrected the error and turned the loss of revenue into a $140 million gain — or so the legislature thought.

The CBPP report points to evidence that corporations will fight in court the ability of states like Oregon to tax the repatriated profits. This puts in doubt whether a revenue gain of the magnitude the legislature expected may materialize anytime soon.

The anticipation of a tax “windfall,” though, served to justify the legislature’s decision to get rid of Oregon’s tax haven law. That law generated $28.4 million in corporate income tax revenue in 2014, the first year it was in effect.

Corporate representatives have also indicated they will sue to block states from using provisions in the new federal law to protect them against future use of tax havens, the report notes.

In sum, the Oregon legislature eliminated a law that was working — it was helping Oregon fight back against corporate abuse of tax havens. The legislature’s decision to repeal the law placed undue confidence in the new federal law’s ability to deter these tax games.

When the legislature meets again in 2019, one of the orders of business ought to be rearming the state with new weapons to fight against corporate tax avoidance.

Posted in Taxes.