Tax Insider for June 16

Tax Insider

Unlike the other end-of-session committees, the revenue committees spent their weeks in hibernation as the political negotiations to revive the session unfolded. Behind the scenes, however, the committee was working to figure out its next steps on HB 2009, the tax incentives omnibus.

Over the last two weeks, the Joint Committee on Tax Expenditures (JTAX) has worked to compile some of the higher-profile tax measures into a single bill, including a proposal to restore the research and development (R&D) tax credit and extend crucial property tax incentives as part of the legislature's effort to attract investment from the federal Chips & Science Act.

Both proposals, the R&D credit and property tax incentives, are proving to be extremely controversial in the final days of the session. The calls for an R&D credit were intended as an incentive for businesses in all industries to help support the spillover effects of a vibrant innovation ecosystem and workforce. Additionally, Enterprise Zones are set to sunset on June 30, 2025. If the legislature waits until the next long session to address the extension, it would likely run into timing conflicts with the constitutional requirement prohibiting emergency clauses on tax measures. The extension of the Enterprise Zones program should have been simple—it's the only general tool state and local governments have to recruit new business investment and has proven to be widely effective. Unfortunately, simple isn't a term in the legislature's tax vernacular.

The Oregon Education Association and progressive tax groups seem to be coming out ahead in several of the big-ticket tax conversations this session, especially on the property tax incentives. The committee amendments to HB 2009 (including an amendment likely to drop on Tuesday, June 20) seek to require businesses participating in both the Enterprise Zones and Strategic Investment Program to pay a "fee in lieu" of school property taxes. The fee fundamentally changes the nature of the exemption, reducing its value by at least 30 percent, and diminishes the state's competitiveness for luring new investments, especially from the semiconductor industry. The amendment also provides the most limited R&D credit in the country, despite bipartisan and bicameral interest for a credit to all industries.

If the committee finalizes its amendment and earns the votes to advance it before the final gavels drop, another hurdle remains to clear. Unlike every other session, the presiding officers are requiring the tax incentives package to make a pit stop in the Ways & Means Committee for budget appropriations. Historically, JTAX is granted independent authority to set the state's revenue and tax expenditure policies without relying on the appropriations process. The recent change for the omnibus and some policy bills (see below for another example) has not gone unnoticed by tenured committee members. Last week, Sen. Brian Boquist (I-Dallas) quibbed the committee was becoming a subcommittee of Ways & Means.

One time is a coincidence and two is a pattern; we'll have to see if this becomes the norm.