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?