Tax Insider for June 2

Tax Insider

It became clear during the leadup to the session that tax incentives and economic development would play an outsized role in legislative tax politics. A concerted focus on the burdens Oregon's state and local tax system places on business and growth, combined with the federal Chips & Science Act and the Semiconductor Task Force, drove substantial interest in beefing up and restoring tax incentives. For a while, it almost seemed too good to be true.

However, the revenue committees are considering dueling proposals to address the state's incentives. SB 1084, led by Co-Chair Mark Meek (D-Oregon City), proposes a general research and development (R&D) tax credit, an extension of the state's primary property tax incentives, and increasing the local benefits of the Gain Share program. HB 2009, introduced this week by Speaker Dan Rayfield (D-Corvallis) and Co-Chair Nancy Nathanson (D-Eugene), includes a semiconductor-only R&D credit but scales back the property tax incentives, a longtime priority for public sector unions and tax-friendly groups.

Among the many concerning proposals in the House incentive package is a reform to the Enterprise Zone that limits the application of the tax exemption for school district property taxes to only six years. Education funding advocates have decried these property tax incentive programs for years because they drain money from the General Fund to equalize school funding. While those arguments are not without some merit, the income tax revenues generated by projects participating in these incentives add a new stream of tax revenues into the General Fund, increasing the overall amount the state can contribute to schools across the state. If the state decides to limit the applicability of these exemptions on school property taxes, businesses would effectively pay a third of their property tax burden without the exemption. In some cases, those payments could add up to millions of dollars.

Later this morning, the Joint Committee on Tax Expenditures will hold a hearing on the dueling tax incentive proposals. Determining a pathway forward will serve as the pivotal tax decision the legislature makes this session, impacting the trajectory of the state business climate and revenues in the years ahead. Yesterday, Co-Chair Meek announced the co-chairs are working on an amendment to flush out the differences between the two proposals. As of this morning, no amendment has been posted for the hearing, so we are in a holding pattern until that surfaces.