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Oregon Promises Not to Change Tax Code in Nike Agreement

By: Joseph Bishop-Henchman

Oregon-headquartered Nike reached an agreement with the state this week:

  • The state promises to preserve “single sales factor apportionmentApportionment is the determination of the percentage of a business’ profits subject to a given jurisdiction’s corporate income or other business taxes. U.S. states apportion business profits based on some combination of the percentage of company property, payroll, and sales located within their borders. ” for the corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. for 30 years, even if the law is changed for other companies. States have generally moved toward that apportionment formula, under which home-state companies pay tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. d on the share of their sales in the state (which is often low for global companies), rather than on the share of their property or employees in the state (which is high for home-state companies).
  • In return, Nike will add at least 500 new jobs and invest $150 million in the state.

Governor John Kitzhaber (D) hailed the agreement, passed by the Legislature last week, as vital to keeping Nike in the state. For its part, Nike said that single-sales factor is vital to their committing to the investment.

I share Politifact’s wonder as to whether this even qualifies as a taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. break. Oregon, after all, is just promising not to make its tax system worse for Nike; nothing at this point actually changes. If every state promised that they wouldn’t make their tax system worse, that would be something. On the other hand, Nike is the sole beneficiary of this provision, even though it’s worded to be somewhat generally applicable:

The legislation authorizes the governor, in consultation with the Director of the Oregon Business Development Department and the Director of the Department of Revenue, to enter into contracts with taxpayers that guarantee single-sales factor apportionment of income for a term of at least five years but not more than 30. The contracts will require a taxpayer to make a capital investment in excess of $150 million within a five-year period, measured from the beginning of the term of the investment contract, and to engage at least 500 new full-time-equivalent employees. A contract may not be entered into before December 14, 2012, or after January 1, 2014.

Our most recent State Business Tax Climate Index ranked Oregon as having the 13th best business tax climate in the country.

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