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Nike, Oregon, and the Race to the Bottom

December 14, 2012 at 10:00 AM
Michael Mazerov

Less than two weeks after an exhaustive New York Times series showed how corporations play states off against each other for tax breaks, Nike has fired the starting gun on an even faster race to the bottom.  As the price of expanding in Oregon, where it is headquartered, Nike demands that the state pass legislation allowing the governor to sign a contract with the company guaranteeing it the right to continue using a lucrative corporate tax break for up to 40 years.

Known as the “single sales factor formula,” the tax break enables Nike to pay Oregon taxes only on the share of its profits that stem from its direct sales to consumers in the state.  (In states without this tax break, a corporation’s taxes typically reflect the shares of its property and payroll, as well as sales, that are located in the state.)

Since Oregon’s population is only a small share of the U.S. total, Nike undoubtedly pays a tiny amount of corporate income tax to its home state, even though Oregon has likely educated many of Nike’s 8,000 local workers and furnished the roads that get them to the job every day.

When Oregon enacted single sales factor in 2003 (after heavy lobbying from Nike), it was only the ninth state to do so.  Since then, 15 more states have adopted it, among them Oregon’s border rival, California.  If Oregon sets this unfortunate precedent, other big corporations will likely demand that other states lock themselves into particular tax breaks — like, say, accelerated write-offs of equipment.

When every state enacts the same tax break, by definition no state has gained any “competitive advantage.”  All they’ve done is ratchet down their ability to pay for good schools, roads, police and fire protection, and all the other critical services that make them places where businesses will want to invest for the long haul. So while Nike’s slogan may be “Just Do It,” the right slogan for Oregon in this matter should be  “Just Don’t Do It.”