United States: Oregon Enacts Legislation Ensuring Taxpayers That Make Qualifying Investments May Continue To Use Single Sales Factor Apportionment

On December 18, as a result of a recent one-day special legislative session, Oregon Governor John Kitzhaber signed the Economic Impact Investment Act to encourage investment in the state.1 This legislation authorizes the Governor to enter into an agreement with a company making a qualifying investment that guarantees, for a negotiated period of time, no change to the use of a single sales factor apportionment formula, regardless of any future legislation that might change the statutory apportionment rules. The purpose of this legislation is to encourage Nike Corporation, and potentially other large companies, to expand operations in the state.2

Qualifying Investment Contract

The legislation authorizes the Governor, beginning December 14, 2012 through January 1, 2014, to enter into a qualifying investment contract with a qualifying company, which allows the qualifying company to continue to use a single sales factor method3 to apportion its business income for the duration of the term of the contract. Note that Oregon began using a single sales factor apportionment formula on July 1, 2005.4

A qualifying investment means expenditures made by the taxpayer relating to a capital project that (i) exceeds $150 million5 within five years of the start of the contract and (ii) results in the taxpayer employing at least 500 additional full-time employees in the state than the taxpayer employed on the date the qualifying investment began.6

The term of the contract is negotiated between the state and the qualifying company and may range from five to thirty years in duration.7 The relevant factors to determine the appropriate term of the contract include, but are not limited to, the number of new employees added to the workforce, the duration and compensation of the new jobs created, and other economic development incentives that are received by the company.8


Oregon Governor Kitzhaber called a special session to consider this legislation as a preemptive measure to prevent Nike Corporation from relocating or expanding in another state.9 According to a recent analysis cited by the Governor, Nike's potential expansion is estimated to have an annual economic impact of over $2 billion and create more than 12,000 jobs by 2020.10 Nike had benefited from the use of a single sales factor method of apportionment that only apportions in-state sales to Oregon (which is a small percentage of its overall sales). Nike desired to continue to benefit from the use of a single sales factor methodology regardless of the state's potential enactment of other apportionment rules. Without the continued benefit, Nike may have entertained some of the incentive offers it has been receiving from other states. In response to discussions with Nike, the Governor called the special legislative session and sought prompt enactment of the legislation.

As noted above, Oregon has used a single sales apportionment factor since 2005, in line with the general state trend of moving from a balanced three-factor apportionment formula toward a more heavily weighted sales factor formula. Considering that to date, no state adopting the single sales factor has moved to a three-factor approach, the fact that Nike sought a guarantee that it could continue to use a single sales factor is somewhat curious. Prior to this enactment, it did not appear that Oregon was considering an imminent change in its apportionment formula. If Oregon decides in the future to return to a three-factor apportionment formula (which approach historically has been endorsed by the Multistate Tax Commission, an organization in which Oregon is an active member), companies such as Nike that are based in Oregon and enter into a qualifying investment contract will receive more favorable apportionment than other companies based in the state. It will be interesting to see if other companies with substantial in-state presence will attempt to procure the same guarantee as Nike plans to obtain through this program.

The fact that the Governor called a special legislative session for the express purpose of enacting legislation to persuade Nike to remain in the state seems rather extreme, and highlights Nike's prominent status as a preferred employer and corporate citizen in Oregon. This action may encourage other companies in Oregon or other states to seek special tax treatment from state legislatures, and such requests may not be limited to apportionment relief. Although it is important for states to retain and attract major companies for economic reasons, an argument can be made that enacting legislation that for practical purposes is directed to, at most, a handful of companies is not ideal tax policy, as this policy provides benefits to certain taxpayers that are not available to the vast majority of other companies.


1 H.B. 4200, 2012 1st Special Session.

2 Press Release, Oregon Governor John Kitzhaber, Dec. 10, 2012.

3 As noted in the legislation, the single sales factor method is aimed at encouraging existing in-state businesses to expand and attracting new businesses to make significant capital investments within the state.

4 OR. REV. STAT. § 314.650.

5 The "actual cost" or the cost of labor, materials, supplies, equipment rental, real or personal property acquisition, permits, engineering, financing, required fees, insurance administration, accounting, maintenance, repair or replacement and debt service, and all other direct or indirect costs incurred to undertake a capital project must exceed $150 million. See H.B. 4200, § 3(1), (2), (4).

6 H.B. 4200, § 3(4).

7 H.B. 4200, §§ 4(f), 5(4).

8 H.B. 4200, § 4(f).

9 Press Release, Oregon Governor John Kitzhaber, Dec. 10, 2012.

10 Id.

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