Lawmakers hope to limit tax lawsuit impact

Of the Associated Press

SALEM — The Oregon Senate voted Thursday to back a maneuver aimed at limiting the potential loss from a high-stakes lawsuit that could cost the state as much as $100 million a year in corporate tax revenue.

A case in the state tax court is challenging Oregon's method of taxing companies that do business in more than one state.

If the state loses, it would be on the hook for refunds, and corporations could in the future choose the taxation formula most beneficial to them.

On Thursday, the Senate unanimously passed and sent to the House a measure that restates Oregon's existing policy in hopes that will at least protect future revenue in case the state loses. The state would still owe refunds for up to three tax years.

The lawsuit stems from a multistate tax compact that Oregon joined in the 1960s. The compact says states should tax multistate corporations based on three, equally weighted factors: Their sales, payroll and property in the state. Starting the early 1990s, Oregon began transitioning to a different approach called the single sales factor, which taxes only a company's in-state sales.

The new method is hugely beneficial to companies like Nike Inc., and Intel Corporation, which have significant payroll and property expenses in Oregon but a tiny share of their revenue. The single sales factor is so important to Nike that the company convinced Gov. John Kitzhaber and state lawmakers to meet in an emergency session last year to promise that Nike could continue using the taxation formula for at least 30 years.

But other companies were charged more under the single sales factor, which was fully implemented in 2005 — particularly firms with significant sales here but few employees and little property.

Health Net, a California-based insurance company with operations in Oregon, filed a lawsuit arguing that the formula in the multistate compact trumps the newer single sales factor.

“When we adopted the single sales factor, there were basically winners and losers,” Burdick said. “If people could pick and choose which policy they wanted, that would obviously put a pretty big dent in our corporate revenue.”

State officials maintain that Oregon's single-sales factor is binding, but they were spooked when the California Court of Appeal sided against the state in a similar case last year. A Michigan court found differently, however, siding with the state. There's no way to know for sure which way Oregon's court will rule.

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