In a legislative session already overflowing with power plays, shifting alliances and palace intrigue, the most surprising battle may be unfolding outside the Capitol.

Intel and Nike, Oregon’s two largest corporations, find themselves on opposite sides of the debate over Kate Brown’s proposed $2 billion business tax hike. Actually, it’s Intel and much of the rest of the business community against Nike, which alienated some usual allies by teaming with the public employees’ unions.

The battle of business titans has slowed the tax debate to a crawl. Gov. Kate Brown and other political leaders are waiting for the sign that the private sector has agreed upon a plan.

“While both Intel and Nike have reasonable assumptions about the various proposals, we really need specific bill language and evaluation by state revenue officials before going further,” said Nik Blosser, Gov. Kate Brown’s chief of staff. “No one wants to pick sides between two of our state’s most important companies.”

Notably, neither company is expressly opposed to a tax hike. Nike is actually leading the charge at the head of an unusual coalition of businesses and labor groups seeking more money for Oregon schools.

The fight, rather, is over how to structure the tax – and who will pay the most. And the outcome will have big implications for Oregon’s economy, schools and businesses of all sizes.

Nike and key lawmakers are pushing for a gross-receipts tax like the one Oregon voters rejected two years ago when they turned down Measure 97. They say that mechanism would spread the burden of the new tax evenly across industries, albeit at a much lower rate than Measure 97 suggested.

Intel and the state’s largest business organization, Oregon Business & Industry, complain that a gross-receipts tax would wallop manufacturers by layering taxes at each stage of the supply chain, a phenomenon known as pyramiding.

They’re promoting an alternative known as a value-added tax, which would tax corporate purchases at a higher rate than a gross-receipts tax but then allow companies to subtract capital spending and their purchases from other businesses.

A tale of two taxes Gross receipts tax: Also called a commercial activity tax (CAT), it would levy a tax on the value of most business transactions. Advocates say it’s a fair tax because it’s spreads the burden broadly at a relatively low rate. Critics say it’s especially hard on manufacturers because it layers taxes on top of one another at each step of the supply chain. Value added tax: Also called a business activity tax (BAT), it would tax commercial transactions at a higher rate than a gross receipts tax but would exempt purchases from other firms and capital spending. Advocates say it is a fair approach because it avoids the layers of taxation that come with a gross receipts tax. Skeptics say it’s complex and untested – no other state has such a tax.

The tax hike is the biggest issue before the Legislature this spring but it’s not a foregone conclusion, despite the Democratic supermajority in both houses of the Oregon Legislature.

The wrangling over how to structure a tax might delay or derail the legislation. And many businesses are opposed to any new taxes, at least until Oregon addresses its $27 billion public pension crisis.

Oregon has some of the lowest business taxes in the nation, owing to the absence of a state sales tax. And its corporate tax income taxes have a minimal effect on companies like Nike and Intel, which do most of their business outside the state.

Both Nike and Intel locked in that tax structure for three decades through deals with former Gov. John Kitzhaber in 2012 and 2013. In addition, Intel enjoys Oregon property tax breaks worth nearly $200 million a year.

Nike and Intel aren’t saying much publicly about their tax fight. The Oregonian/OregonLive learned of each company’s positions through discussions with lawmakers, lobbyists and members of the business community privy to the debate playing out behind closed doors.

And that debate is increasingly contentious. When Nike hosted a recent meeting of businesses intended to allay concerns about its tax proposals, for example, Intel refused to attend. That’s according to three people familiar with the meeting who asked not to be identified discussing confidential conversations.

Muddying the waters, Oregon’s business lobby is badly fractured. Efforts to unify it under one organization, Oregon Business & Industry, backfired when the new group splintered over issues of taxation, climate change and the state’s chronic urban-rural divide.

Amid that disarray, Nike shocked other businesses last year by forming an alliance with labor organizations to promote new taxes for schools. Nike has attracted just a handful of companies to its Coalition for the Common Good, but the combination of Oregon’s largest corporation and the state’s powerful public employee unions make the coalition a force in Salem.

Among other businesses, though, there’s a suspicion that Nike is promoting a tax hike that will have a minimal effect on the shoemaker. A gross-receipts tax would presumably take a relatively small bite on Nike, which has little commercial activity in the state.

“Most of their manufacturing is overseas so they tend to have a little different view on a variety of issues than the majority of the manufacturing community,” said Shaun Jillions, a veteran Oregon lobbyist and executive director of new industry group called Oregon Manufacturers and Commerce.

By comparison, Intel may spend billions of dollars in a given year supplying and upgrading its Oregon factories.

“A gross receipts tax is very unfair to manufacturers because at every step in the supply chain you’re applying the tax,” Jillions said.

Both Jillions’ manufacturing group and Oregon Business & Industry, the state’s largest business group, still insist any tax hike should be paired with legislation to curb the state’s rising pension costs. He said it’s “irresponsible” Nike is promoting a tax hike that isn’t contingent on curbing pension costs.

“We’re disappointed that they’ve chosen to partner with the public-employee unions rather than other businesses,” Jillions said.

Oregon Business & Industry warned in a letter last week, signed with 21 other business associations, that it will ardently oppose a gross-receipts tax.

“We think the gross receipts tax is very harmful, would do a lot of damage. We’d rather look at other options,” said Sandra McDonough, OBI’s chief executive.

OBI wants the Legislature to address Oregon’s spiraling pension deficit in conjunction with any tax increase, according to McDonough. But she said her organization isn’t opposed to all business taxes – just to a gross receipts tax.

“Our preference is you work with us on something that’s fair for business,” McDonough said, “that isn’t disproportionately favoring one industry over another.”

Julia Brim-Edwards, the Portland school board member and Nike executive leading the company’s efforts in Salem, is on vacation in the Netherlands with her mother. She referred questions to Nike, which referred questions to the Coalition for the Common Good, the lobbying group it has formed with labor.

That coalition appears uninterested in the business lobby’s efforts to promote the value added tax. No other state currently uses a value added tax – Michigan had one, but repealed it – and critics have said it could add complexity to Oregon’s business tax code.

“Key criteria include a business tax that has been tested and used in other states that raises the Legislature’s goal of $2 billion in investments, provides economic stability, is administratively feasible and can win the support of advocates, the Legislature and Oregonians. The VAT does not appear to meet these criteria,” the coalition said in a statement.

Intel issued its own, brief statement: “We think it's important to find a policy proposal that works for Oregon. We're actively engaged in discussions, and looking forward to seeing more details on potential legislation.”

Sen. Mark Hass, D-Beaverton, is chair of the powerful Senate Revenue Committee and co-chair of the subcommittee crafting the tax package for schools. Two months into the legislative session, he said lawmakers must pick a direction in the next two weeks.

In prior sessions he has supported a gross receipts tax similar to the one Nike and its coalition favor this time. Still, Hass said he hopes any tax could be designed to mitigate the effects on any one business or industry.

“Intel’s obviously the big dog,” he said. “(It’s) worth looking at ways to lessen that blow to companies in that category.”

In Ohio, for example, he said a gross receipts tax similar to the one he favors in Oregon included exemptions for capital investment. But Hass said he’s not sure the business community understands the complexities of a value-added tax and would really get behind it.

“It’s extremely complicated. No other state is doing it. And the one that tried it junked it,” Hass said. “I don’t want to question their sincerity. I think I’ve got to take them for what they’re saying, for now.”

-- Mike Rogoway | twitter: @rogoway | 503-294-7699

-- Jeff Manning