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Oregon Corporate Tax Regs Need Critical Update

ASBC and its allies are working on critical reforms to Oregon tax regulations for how overseas corporate profits are reported and taxed. Current law prevents Oregon from monitoring the amount of profit earned in Oregon but then moved offshore to avoid state taxes. That prevents Oregon from collecting the full share of tax revenue that corporations owe.

Because of tax law changes in 1984, Oregon like many other states operates with a loophole called the Water’s Edge Limit. When Oregon established its Water’s Edge Limit, it hamstrung its ability to tax the profits that U.S. corporations shift offshore. ASBC is pushing for the state legislature to close that loophole and return to a system called Worldwide Combined Reporting or Complete Reporting.

Prior to 1984, Oregon effectively taxed its share of a corporation’s worldwide profit with a Complete/Combined Reporting system. The state required each corporation with business in Oregon to report its worldwide profits to the state, including its Oregon profits. That was the practice as far back as the early 1960s. Under that approach, Oregon could identify and tax the profit that corporations moved offshore in an effort to avoid taxes.

That changed in 1984 when the Reagan Administration pressured Oregon and other states to stop taxing profits that corporations earn outside the U.S. That is the Water’s Edge Limit regulation. To comply, Oregon stopped requiring businesses to file complete worldwide information in their state tax returns and started taxing businesses based on their federal tax filings. That effectively disarmed the state’s oversight. The result was more tax avoidance.

Since 1984, corporations have shifted large amounts of their profits offshore and used the U.S. deferral rule to defer U.S. taxes until they brought that profit back to the U.S. The 2017 Tax Cut and Jobs Act (TCJA) ended the deferral rule, but failed to fix the offshoring problem, in part because it created new rules that reward corporations for moving U.S. profits overseas.

ASBC and its allies want Oregon to return to its pre-1984 reporting requirements. Complete Reporting requires a corporation to report its global profits and the part of those profits earned in a state. Complete reporting makes it much tougher to avoid taxes. If a state makes up 2 percent of a company’s global business, then the state can tax 2 percent of its taxable profit.

Oregon uses Sales Factor Apportionment (SFA) to calculate its share of a corporation’s global business. Using the above example, if Oregon sales make up 2 percent of a corporation’s global profits, then Oregon can tax two percent of those profits.

ASBC’s campaign in Oregon is part of a larger effort to persuade other states to end their Water’s Edge Limit and to take up Complete Reporting and Sales Factor Apportionment (SFA).

This work is being done in collaboration with ASBC member NRS, Inc.,, the Oregon Center for Public Policy (OCPP), and the Oregon State Public Interest Group (OSPIRG). The coalition is engaging with Oregon’s state legislature to draft and promote legislation.

Source Author: 
John O'Neill
Source Publication Date: 
November 20, 2018