Close the Corporate Zero-Tax Loophole

It's time to close the Zero Tax Loophole. In 2012, 393 corporations used the loophole, costing Oregon $9 million in lost revenue.

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Oregon has the lowest business taxes in the country. Compared to the amount of corporate profits earned in Oregon, corporations that do business here pay less in taxes than in any other state. One huge reason for this is that the majority of corporations are eligible to pay only minimum income taxes, which are very low. In fact, most corporations paying minimums have a tax bill of only $150 per year. Minimum taxes are higher for corporations that make more sales in the state, but they still average less than 50 cents for every $1,000 of sales. That’s a pittance when you consider the value of public investments that these corporations benefit from, like our roads and an educated workforce.

As low as these minimum taxes are, big corporations still avoid paying them. The Corporate Zero-Tax Loophole (you may have also heard this referred to as the Conway Loophole) allows corporations to avoid paying any taxes. If a corporation’s taxable income is below a certain level, they’re supposed to pay a minimum tax. However, the Oregon Supreme Court ruled that corporations can use tax credits against the minimum tax, in effect reducing tax bills below the minimum – even all the way down to zero.

Here’s an example of how this works: Before the loophole was established, corporations with over $10 million in taxable income that filed minimum tax returns paid an average tax of $84,000. After the loophole, the average tax paid by corporations in this group was only $5,000 – a savings of 94%. Thanks to the zero-tax loophole, these huge corporations paid an average of just 1 penny in income taxes for every $1,000 in sales.

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The Oregon Department of Revenue reported that the zero-tax loophole cost us nearly $9 million in 2012. That’s the equivalent of 90 K-12 teachers. That $9 million dollars would pay tuition and fees for 860 full time undergrad students at UO. It would pay tuition and fees for 1,800 full time students at PCC for a year.

$9 million a year would cover the extension of the Child and Dependent Care tax credit, which is set to sunset in 2016. This tax credit provides a direct benefit to working families to offset necessary costs for child and dependent care. This credit is worth around $200-300/year to low and middle-income taxpayers.

$9 million would pay for ERDC child care support for 2,200 children, allowing many low-income parents to work.

You get the picture right? $9 million would help a lot of people! Instead, we lose it because some corporations have decided that their fair share of taxes is $0.

We can solve this problem. While this all sounds absurd and it clearly fits into the category of “this is no way to run a state”, it’s also just a legislative bill away from being fixed. These large corporations reduced their voter-approved minimum tax to zero with lawsuits and lawyers. Legislators can close the loophole these corporations created, restore true corporate tax minimums and start to make sure that these zero-tax corporations start paying some of their share of taxes.

Today’s hearings on closing the Corporate Zero-Tax Loophole are a good start.

UPDATE:

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The Department of Revenue just released new data about the number of corporations that use the Zero-Tax Loophole to reduce their tax to zero. The findings? In 2012, 393 corporations used the loophole to bring their taxes to $0.

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