Worried Nike Will Flee, Governor Kitzhaber Wants Special Tax Code for Sportswear Giant

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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 taxstructure [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.