10-27-2016  1:36 pm      •     
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If you ask a corporation, "Did you make money last year?" its response may well be, "Who's asking?"

It's no secret that corporations keep two sets of books, one for shareholders and one for tax authorities. Those books employ different definitions of what it means to make money, which explains why in the same year corporations can report profits to shareholders and have no taxable income on their tax returns.
It also explains why some financially healthy, profitable corporations doing business in Oregon end up paying the corporate minimum tax.
That's not what you'll hear from some of the opponents of Measure 67 on the January ballot. That measure would raise Oregon's corporate minimum tax, which has been stuck at $10 for over 75 years.
Consider, for example, the statement by Associated Oregon Industries lobbyist J.L. Wilson at a recent legislative committee hearing on the ballot language. He said that the ballots should include the statement that "companies that pay the corporate minimum tax do so because they have no income."
But that's wrong.
Some corporations paying the $10 minimum have income, though they may or may not have "taxable income."
What is "taxable income?" It's the term used by the IRS to define the income left after a company subtracts business expenses and other deductions under tax code accounting rules, not general accounting rules – "profits for tax purposes," in plain English.
Acts by the legislature can change a company's "taxable income," even if real-world profits remain the same. For instance, Oregon stopped looking at the extent of payroll and property that multistate corporations have in Oregon to apportion the share of their total U.S. profits that Oregon can tax. Large manufacturers with people and property here saw their Oregon "taxable income" — and thus their Oregon tax liability — drop significantly, with no impact on the pre-tax profits the corporations reported to shareholders. Corporate profits for tax purposes went down, not real profits.
So how do so many profitable C-corporations end up paying the $10 minimum tax? Some of them use tax subsidies — credits — to reduce their tax liability to zero.
But the vast majority of profitable C-corporations that have paid only the minimum tax rely on the tax code accounting rule known as "loss carry forward," which allows corporations to apply losses from prior years to the current year to reduce their Oregon taxable income to zero or less. In other words, these companies made money in the tax year, but paid just $10 in income taxes because at some point in the not-too-distant past they lost money and are allowed to subtract those earlier losses to make their current profits disappear for tax liability purposes.
Finally, a few corporations use a combination of tax credits and the loss carry-forward rule to get to the $10 minimum.
And it's not necessarily corporations with only a few hundred or a few thousand dollars of profits that manage to reduce their taxable income to zero or less on corporate tax returns. Indeed, among those that paid only the $10 minimum tax in 2006 were 31 C-corporations with taxable income of $1 million or more.
Whether or not one thinks that Oregon has gone too far in handing out tax subsidies (there's good reason to think so), whether or not one thinks that the loss carry-forward rule is a good one (there are valid justifications for it) and whether or not Oregon should ignore a C-corporation's Oregon property and payroll when apportioning taxable income to Oregon (there's no good argument for that scheme), the fact remains that a significant number of profitable corporations are paying only the $10 minimum corporate income tax.
Measure 67 would not end the system that allows C-corporations to keep two sets of books. It would not stop tax subsidies nor prevent profitable C-corporations from paying just a minimum tax.
The measure would, however, put an end to the $10 corporate minimum tax that two out of three C-corporations have been paying.
So come January, when Oregonians vote "yes" on Measure 67, they will be saying, "Yes, all C-corporations should pay more than just $10."

Charles Sheketoff is executive director of the Oregon Center for Public Policy.


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