"Single-Sales" - A Modern Robber Baron
by Michael Leachman
When your W-2 form arrives, think of this: Certain multistate corporations are paying much less in corporate income taxes today because Oregon has changed the way multistate firms calculate state income taxes on their profits. That means you pay more than your fair share.
Multistate corporations make profits in more than one state, so there needs to be a way to decide how to allocate their profits for state taxation purposes. States have different rules around this. Most states use a formula that considers the state’s share of a corporation’s total property, payroll, and sales.
Prior to 1991, Oregon used a formula that equally weighted the three factors – property, payroll, and sales. In 1991, Oregon switched to a formula that “double-weighted” the sales factor. The change produced a tax break for companies that had a high share of their property and payroll in Oregon but a small share of their total sales in the state. Companies with sales in Oregon but little property and payroll here saw their taxes increase.
In 2001, Oregon began phasing in a “single-sales factor” formula. Under this formula, only in-state sales relative to all US sales matter in determining how much of a company’s profits are apportioned to and thus taxable by Oregon; it doesn’t matter how much of their property or payroll is based in Oregon. The Legislative Assembly in 2005 cut short the phase-in process and fully phased-in the “single-sales” formula for tax years starting on or after July 1, 2005.
Take Nike, for example. Nike lobbied for the switch to single-sales factor apportionment and it’s easy to see why. At the Oregon Center for Public Policy, we conservatively estimate that Nike's 2006 tax cut from "single-sales" was over $16 million. Other prominent, profitable firms such as Intel also received a massive tax break from "single-sales." When large, profitable businesses reduce their tax obligations, small businesses and individuals get stuck with paying more of the cost of state services.The link in Leachman's article shows how Nike managed to avoid paying between $16 million and $23 under the "single sales" tax policy in 2006 alone. This saved Nike a bundle of cash while stripping Oregon's state budget of the same amount of funding. The state used 42.5% of our general fund to support public education between 2005 and 2007 while Nike continued to give less and less.