Looking to expand its operations, Nike has “active negotiations” with other states, warned Governor John Kitzhaber at a press conference this morning. To keep the sportswear giant in Oregon, Kitzhaber has called a special one-day session of the Oregon legislature to discuss one big idea: creating a law that would allow the governor to handpick companies for which he will agree to freeze any increases in the state’s corporate tax rate structure [see update below] for years at a time.
The governor’s special agreement would only be eligible for companies planning an investment that would result in at least 500 jobs and $150 million in capital over five years. Kitzhaber said Nike’s planned expansion would create 12,000 jobs in Oregon.
While Nike was founded in Oregon nearly 50 years ago, Kitzhaber said the company was “seeking assurance that the state won’t change its tax rules after they make this commitment” to expand. Kitzhaber noted that Oregon “doesn’t have the resources” other larger states, like California, do to attract companies, so he would like to grant Nike “a continuation of Oregon’s existing tax policy.”
“They didn’t say, ‘If you don’t do this, we’re leaving,'” said Kitzhaber, this morning. “But they did say they have active negotiations with other states.” Nike plays a huge role in the state economy. It’s one of Oregon’s only two Fortune 500 companies—the other is Precision Castparts—and, according to the governor’s office, the number of people they employ in the state has grown 60 percent since 2007 with an average annual compensation of over $100,000.
As the New York Times reported this month more and more companies across the country are seeking—or demanding—special tax incentives from states. States now pay out a collective $80.4 billion in tax incentives to businesses annually. Under the special tax plan, Oregon would forgo any revenue from new business taxes that Nike would have paid. But Kitzhaber says the idea is “revenue neutral” because Nike will be adding jobs and capital investment to the Oregon economy.
We’ll have to take Kitzhaber’s word on that, because Oregon doesn’t make public how much specific companies pay in corporate taxes. The public can’t see how much companies pay in Oregon taxes, so we can’t know how much locking-in a company’s tax rate would lose us in future revenue.
If the legislature passes this special tax package, they should consider adding on a public disclosure law that makes corporate taxes transparent—so we can see how much Nike is paying. They should also make sure to include a serious enforcement mechanism to make sure Nike actually does create the promised number of jobs and investment.
Oregonians passed a corporate tax increase in 2010, with Measure 66 and 67, which increased taxes on corporate profits over $250,000. Nike was certainly affected by that tax, but when a reporter asked Kitzhaber this morning whether the measures had a negative impact on business, Kitzhaber said, “Not really.”
Under Measure 66 and 67, new tax rates for Oregon corporations kick in on January 1st of 2013. I wonder if that’s why the governor is rushing to call this special session.
Legislators will take up the idea next Friday, December 14th.
Update 2:40pm—I just got more info on the proposed law from the governor’s office. Kitzhaber spokesperson Tim Raphael says the legislation won’t affect the tax rate for corporations, but locks in the tax structure. Oregon has one of the lowest corporate tax rates in the country because the state determines corporate taxes based only on sales—this is called the “single-sales factor.” The state used to use three factors to determine a corporation’s taxes: payroll, property, and in-state sales. In 2001, the state switched to just determining taxes based on sales—which amounted to a tax break for companies like Nike that have lots of property and workers in the state, but just a small portion of their sales. The Oregon Center for Public Policy estimates that the switch to “single-sales factor” taxation was an annual tax break for Nike of $16 million.
Apparently, Nike wants assurance that the state won’t move away from the single-sales factor tax structure any time soon. If the state increases the corporate tax rate (like with a new Measure 66 and 67), Nike’s tax rate would still increase, says Raphael. But if the state changed back to calculating taxes based on any system besides single-sales factor, Nike would be exempt.
The legislation is still being drafted. We’ll see what the final version looks like.
UPDATE 12/11: The governor has released a draft of the plan. Read all about it here.
This is a really tough issue, one that on national level obviously mirrors the global “race to the bottom” problem.
One thing that could solve it would be a single federal standard for corporate taxation (as well as all other other typical payments) that go to states. The idea would be that you level the financial playing field between states and limit corporate choice to only factors like adequate infrastructure, hiring pool, physical location, etc.
That kind of solution could solve a lot of our problems… but clearly has no real chance of occurring in the near future.
The USA: fucked by federalism for the foreseeable future.
@Commenty— USA:FFFF!
I just wanted to add a comment to note that I updated this post with significant context in the hour after the governor’s live press conference, when it was first posted. I’ll mark any new updates in the post, but just added these initial updates throughout the text.
Let them leave, or charge them with extortion. Make some room for ethical companies in Oregon who want to support their communities by paying the same tax progressive rates as everybody else. This idea is virtually equal to a bill of attainder — everybody who doesn’t manipulate bought and bribed legislators is declared guilty of paying regular taxes by law. If they want to lift their employees off and send them to some shithole state racing to the bottom, let them. Good luck attracting talent to a place where Nestle has to bring in bottled water. Speaking of that, Kitz, stop Nestle’s proposal to steal our water near the Cascade Locks. Don’t enable these evil corporations. Yes, I know, you were bought off by special interests. Now grow a pair and refuse to fall in line to the dictates of their lobbyists and massive campaign donations.
I doubt Nike has any real intent to leave, they just want to screw over local tax coffers and because they are Nike, they can get their way on pretty much anything. If we do give them tax breaks, they should at least be tied to something like X # of employees and average wage and some other stuff.
Ya’ll never seem to have a problem with tax breaks as long as it’s for “green” companies.
I don’t think giving the Governor the ability to waive tax increases for his favorite companies is going to lead anywhere good, long term. I’d expect to see some immediate increases in corporate donations in the next election, for one…
@Reymont, Without expressing an opinion on the wisdom of the policy, I think the political process solves that particular concern – it would be obvious to all the (very savvy) people involved that it would be political/PR suicide to precipitate a sweetheart deal of such ludicrous transparency.
Goodbye Nike, don’t let the door hit you on the way out. We won’t miss your greedy corporation.
Let’s back up and look at Nike from a different light. The Portland Business Journal reported last year(?) that Nike had over $4 billion dollars in cash reserves. That’s just surplus cash that they could spend on ANYTHING, but realistically they’re going to use that to acquire other businesses. So, a +/- $14 million in tax savings is really inconsequential to the satanic beast that is Nike Inc.
So, I have serious doubts that this is about taxes. I don’t know what the real reasoning is…
I do personally know that if Nike wanted to save money that they could do some internal restructuring that would save them a lot – probably more than what they pay in Oregon taxes. That company has serious redundancy problems, in fact, I think a move to another state might have less to do with saving money on taxes, and more to do with cutting the fat around here. Nike as a company is not known for corporate efficiency.
@Colin – That’s an interesting idea, but I’m not convinced it’s a solution: Corporations can move anywhere on the globe. There’s a fairly level playing field between Europe and the United States, and a growing incentive to HQ companies in China or Russia. In about 10 years those places will have the same talent pool as Europe or the US or Canada. Federalism at least allows competition and ingenuity between states. We never would have been able to create our unique tax loophole (or, eh, “incentive”) if we were mandated by the Feds. The Feds would just fuck it up for all of us – I think they’re the last people we should trust with anything.
I could easily see Nike moving to Europe, they at least have more political stability than the US. Chip manufactures (i.e. Intel) could move to China.
How come you never hear libertarians and teabaggers scream at these corporations for effectively extorting OUR state government (and the taxpayers) by threatening to leave and blow up x amount of jobs in the process, after we’ve spent decades supporting them and already giving them breaks with incentives, handouts and every type of perk you can imagine?
No, instead, all we get is whining about how shitty our tax policy is, how superior other states are, and self-fellatio over how perfect their view on corporate tax policy will always be.
Makes anybody with a functioning brain wanna run into traffic. Fucking assholes.
This isn’t the end of the world. Some of you are making it out to be. It’s not changing tax rates or anyone getting to pay less. It’s asking for tax stability.
Most big businesses need to know about investment 20 years down the road, and a change in tax structure can alter that especially with big time billion dollar investments like Intel have made in our state (Intel employs lots of PhDs in the state, probably the most).
In the name of equity, I think all businesses at the time they open should be given a locked in, guaranteed tax structure for x amount of time.
But people have to realize why the big companies get these deals for the investments they make: they employ a lot of people and they also spur a lot of smaller, medium sized businesses. Intel being one with all of the ancillary chip manuf./processing type companies in the metro area.
A dry cleaner business does not have the same economic impact a global company or manufacturer has.
Anyways, I noticed a bit more anger (from commenters) at deals like this for Nike than I do for the likes of solar companies and wind turbine places getting literally free money from tax coffers and rent in Portland (Nike isn’t getting a handout in this case).
What gives? You are being just as biased as those right-winger people who don’t like tax deals for said companies just because they’re “green,” but look the other way to oil breaks.
Between the CRC, “Democrats” converting to Republicans and handing over the State Senate, a proposed 5% sales tax, more hand outs to Nike (next Intel again?), and a new massive Washington County Freeway…things are falling apart real fast in Oregon.
I don’t know if there is much hope for the state and/or Portland, the political class is just too bought out to care and the poor are going to be squashed.
Now if only we had more prisoners in the lockup, the State could hire them out as slave labor. This is why you can’t tax the rich; they will simply move their ass and their assets. You can’t tax the poor, but you can give the homeless tickets for sleeping in the park. Of course they can’t pay, so they’ll have to do time for their crime, and the State can profit from slavery.
People are organizing against this. Here is the link for a Friday rally in Salem. https://www.facebook.com/events/3787176522…
Nike has been given favors in the past for company promises that never materialized.
Read all about it:
http://www.blueoregon.com/2012/12/oregons-…