Given the level of discussion about the corporate kicker here in Oregon, we felt is was important to clarify a couple of important characteristics regarding how Oregon collects Corporate Income Taxes – technically, it’s an excise tax, but who’s counting. First, the Oregon Economics blog touches on the massive growth in national corporate profits and follows up a user comment by showing growth in Oregon Personal and Corporate Income Taxes. While the latter in certainly indicative of why we are forecasting a corporate kicker, the boom in corporate income taxes is actually reflective of the national picture – it is not specific to Oregon-based company profits. For the large multi-state companies (where most of the taxes come from), the state collects corporate income taxes by applying the percentage of a company’s national sales that occur in Oregon to its national taxable income. Believe it or not, what follows is actually simplified, but it generally describes the situtaion:
Company X’s Total Sales in Oregon divided by Company X’s Total U.S. Sales times Company X’s Taxable Income times Oregon’s Corporate Income Tax Rate equals Oregon Corporate Tax
This is important because the stated reason that many states have moved this direction in taxing corporations is economic development. It used to be that nearly every state factored in payroll and property (in a similar manner as sales) in determining a company’s state tax liability. By moving to what is known as a “single sales factor” system, a state can ultimately provide a relative tax break to multi-state corporations that are located in your state while increasing the taxes on those that only sell products in your state, but do not have an office, store, or manufacturing plant in your state.
Finally, Oregon’s current corporate income tax kicker situation is a direct result of increased profits nationally and locally. However, there are very few large, profitable corporations located in Oregon, so it is exceedingly likely that the kicker – should one occur – will be “created” by, and ultimately returned to, mostly large out-of-state corporations.