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Wednesday, December 12, 2012

Uncle Phil's tax deal

A reader has sent to us a draft of the bill that Gov. Retread and Nike are planning to hustle through a special session of the lame duck Oregon Legislature in a few days. It's here. As many have guessed, Nike wants to lock in the current single-factor test for apportioning its worldwide income for Oregon tax purposes. That test splits up income among states and countries based on sales, ignoring the amount of property and payroll that a company has in a given place. For Nike, that saves tons in Oregon taxes, because percentage-wise, it has way more property and payroll in Oregon than it has sales. The bill gives the governor the power to bind the state to a contract not to change that rule, as it applies to Nike, for up to 40 years.

Under a contract of that nature, if the legislature later changes the rules for everyone else -- or if a court declares that the rules are different for everyone else -- Nike will get special treatment. The bill provides that there would be nothing future legislatures could do to change the test for Nike.

One interesting note in all this is that there is currently a court case pending that could force the state off the single-factor formula. In that case, which we blogged about here a month ago, a company that doesn't like the single-factor test is claiming that it's illegal. According to that lawsuit, Oregon is required to take multiple factors into account, because it's a member of a multistate compact that requires that all factors be considered. If that legal action succeeds, everyone, including Nike, would apparently be yanked off single-factor apportionment in Oregon. The governor's bill and a contract signed under it would attempt to exempt Nike from the potential adverse outcome of that court case.

Is the bill constitutional? Does the state constitution allow the legislature to delegate its taxing authority to the governor in this way? And does the constitution allow the current legislature to bind future legislatures like this?

And even if it is legal, is this plan good policy? For years we've been hearing from the governor and his party that corporations in Oregon aren't paying their fair share of taxes any more. Individuals, they say, are carrying too much of the weight of the state's taxes. Wasn't that the message of the recent vote to repeal the corporate tax "kicker"? Yet here we are allowing ourselves to be pushed into an unprecedented commitment not to let the political process determine future corporate taxes, for up to 40 years. It's one step forward, two steps back.

Meanwhile, the rushed nature of the deal and the holiday timing are borderline insulting to the public. And now with yesterday's Clackamas mall tragedy, the chances of the average Oregonian hearing a word about this before it's too late are slim and none. It's a strange moment in the state's history, that's for sure. "Will whore for jobs." Doesn't Kitzhaber read the New York Times?

Perhaps the oddest part of the bill is that it purports to ratify any contract entered into after Dec.1 of this year. Why is that highly irregular feature in there? Has Kitz already inked a deal with Nike that he's not showing?

Comments (21)

Over the years, we have repeatedly heard that no CURRENT legislature or congress can bind any FUTURE legislative body to a future commitments.

But a CURRENT governor can?

Clear as day to me. This has nothing to do with creating certainty on a future capital outlay and has everything to do with buying a trump card against multi-factor apportionment for everything they have in OR right now. And for 40 years! What a crock.

Just seeing this kind of brazen attempt to secure preferential treatment over other companies in Oregon makes me think the Healthnet is going to prevail in court. The writing is on the wall.

The Trib is reporting that Nike is shaking down WA Co at the same time. http://portlandtribune.com/pt/9-news/124653-nike-seeks-washington-county-tax-breaks

Life is a series of ups and downs when it comes to having the upper hand. Right now, any business able to provide so many jobs has the uppper hand, and can seemingly write their own ticket. Buisness is in the business of making money, and they're not going to shy away from trying to get the best deal. So, how much do we concede to keep one business here? It may be an extremely bad precedent to set. There are numerous good reasons why we should never pay ransoms or negotiate with hostage takers. It may be tough to do now, but I wouldn't give in. We can hope they stay, but if they don't want to be here let em go. The upper hand will change given time, and you can't take back what you have given away.

Will Vestas be next?
But I am resigned to this one. I have to give Phil's lawyers and lobbyists credit for creativity.

To understand why Retread is concerned, one needs to look at the last fifty years experience in Portland and its inability to retain industry.

It is still not clear to me why this deal has to be done in December rather than Feb. That needs to be properly explained to the public. If it is because of the court case, Kitz needs to say so. That said, bending over for jobs can be a dangerous thing. Anaconda gave Montana lots and lots of jobs, and owned governors and legislators. Is Nike Oregon's Anaconda?

What is to stop a future legislature from getting creative and taxing Nike in other ways?

I'm starting to think the only thing fueling economic activity in Oregon at all is political corruption, the public-private "arrangement".

Grumpy, you nailed it.

Oregon Outback -

Naah, Nike isn't Oregon's Anaconda.

Neither Phil nor his board have the personal integrity nor the civic mindedness that the Anaconda folks had in the period 1880 - 1940.

Ask the folks in Beaverton.

Not sure how this tax bill will work out for the state, but you should be thrilled that Phil Knight has such deep Oregon roots and commitment to keeping his company in Oregon. Keep in mind that almost any state would be more than happy to land a S&P 500 corporation like Nike and it's hundreds of well paying jobs. And I would not be at all surprised to see the company move to another city with far better travel, technology and communication connections within a few years of Mr. Knight's passing.

Current legislatures cannot bind future legislatures, so they could easily reverse this law at some point in the future....

However: the way this bill is structured, it gives the Governor the power to enter into a 40 year CONTRACT that guarantees single-sales-factor calculation for the favored few companies.

Future legislatures could easily take this power from the Governor, but they could not rescind the contract(s) that the Governor agreed to under this statute.

This is horrible policy. Cronyism at its worst. If single-sales-factor is good for Oregon, then it should be similarly guaranteed for every business in Oregon, not just those with political clout.

If Oregon had many Fortune 500 companies like Washington does, Nike wouldn't hold such leverage over us. As it is, this state can't afford to lose Nike. Our state's economy is perpetually fragile - can you imagine what it would be like with no Nike.

Future legislatures could easily take this power from the Governor, but they could not rescind the contract(s) that the Governor agreed to under this statute.

If this were to happen, couldn't the Governor himself be ruled personally responsible for fulfilling the contract and not the state? After all, if someone supposedly representing me commits me to a binding contract through what's proven later to be misrepresentation, they don't get to just walk away, do they?

Stuart: Does the contract say Nike cannot leave Oregon for 40 years? I doubt it. At any time, whether Kitz kisses its butt or not, Nike can move its operations across the river to Vancouver. Any policy change by the Legislature, after being properly vetted, has to apply to all Oregonians and Oregon businesses, not just one or two companies.

40 years?

Geez, these crooks have no restraints to screwing the public.

I guess the Gov' must be planning on upgrading his place in Hawaii.

Does the contract say that Nike has to provide 2,000 new jobs? If the state has to put their promise in a written guarantee, does Nike also?

OO: don't the public employee unions own our governor & legislature? Isn't that exactly why the state needs more money and a lot of it?

Let my uncle Phil have what he wants, the state voted in Dr. Retread. Go along, and by the way build some bunker housing and a extension of the trolley to Tigard.

The equatable,moral and fair thing to do. The gangs need to have options.

The governor and washco are smart to give Nike a deal. Golden Handcuffs are great for the state. The irony is that Kitz needs to get it done now while there are still lots of republicans working in the Salem so that kitz can keep the citizens (democrats) of Washco employed. Go figure.

Ha! Ha! Remember, Mrs. G. sat on the state investment board for a long time, handing out PERS money to this company and that. Some of the deals were questionable.

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