Oregon Receives Low Rankings for Business from Tax Foundation

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Wednesday, September 09, 2015

Brendan Murray, GoLocalPDX Contributor

Oregon is decidedly not the best place in the United States to open or run a business, according to data released by the Tax Foundation last week.

The Foundation ranked each of the 50 states based on the taxes that different businesses pay in each state, including corporate taxes, property taxes and sales taxes in a study called Location Matters. Rather than produce an overall state rating, the states were ranked in six different business categories: Corporate Headquarters; Research and Development Headquarters; Retail Store; Capital-Intensive Manufacturing; Labor-Intensive Manufacturing; Call Center; and Distribution Center.

Sandra McDonough, President and CEO of the Portland Business Alliance, told GoLocal that rankings like these impact a state’s hiring and job creation numbers.

“We know being cost competitive is a major factor of job development in Oregon and regionally,” she said.

Oregon received mostly rankings in the mid-30’s. It was the 33rd ranked state for Call Centers and Labor Intensive Manufacturing; 35th for Capital-Intensive Manufacturing and 36th for Corporate Headquarters.

It received better marks on the retail side of business, finishing 18th in the country for R&D Headquarters; 17th for Retail Stores; and 13th for Distribution Centers.

Methodology and Reasoning

To devise the rankings, the Tax Foundation analyzed tax rates for both new and mature firms.

The Tax Foundation blames the poor rankings, particularly the Corporate Headquarters ranking, largely on the state’s high corporate tax rates.

For the Beaver State’s low rankings in manufacturing, the Tax Foundation faulted the state’s property tax plan.

“The state’s property tax extends to equipment, which can have a substantial impact, particularly on manufacturing firms,” the report said. “The state imposes a particularly high tax burden on the new labor-intensive manufacturing firm with an effective tax rate of 13.0 percent.”

Oregon’s higher ranking for retail divisions such as stores and R&D centers comes from its lack of sales tax. “Retail stores—and new operations in particular—have many business expenses generally subject to sales tax, and thus do well in a state without a sales tax,” the report said.

Neighboring States

Oregon ranked fairly well when compared with its fellow Pacific Northwest states. California was ranked below Oregon in the list for Corporate Headquarters (California finished 41st), Retail Store (30th), and both Capital-Intensive and Labor-Intensive Manufacturing (45th and 43rd, respectively). The Golden State bested Oregon in rankings for R&D Headquarters (12th), Distribution Centers (2nd) and Call Centers (1st).

Idaho struggled in the rankings, not receiving placement above 22nd in any category. Oregon was stronger in rankings all categories except for Corporate Headquarters, in which Idaho was ranked 25th.

Washington arguably finished the best of the four states, besting Oregon in five of the six categories. Oregon held an advantage only in rankings for Corporate Headquarters, where Washington finished 46th.

Education and Infastructure

John Taponga, President of ECONorthwest, told GoLocal he believes education is the key to improving Oregon's outlook. 

"First and foremost, we need to improve the reputation of our education system," Taponga said, "from kindergarten to high school, all the way to higher education."

He referenced Intel, which moved to Oregon in the 70's. He said they made that decision in part because of the strong reputation of not only higher education for the company's professionals, but quality elementary and high schools. 

Taponga also said there is a need for better communication between companies and potential employers about what skills are needed in the workforce. 

"People will talk about how they can't find jobs, while companies will tell you they have shortages," Taponga said. "Companies need to talk to schools, who need to talk to students about what skills they need to have."

McDonough, President and CEO of the Portland Business Alliance, said the group takes the report seriously, and thinks there are issues to address in the state’s economy. Specifically, McDonough said cost-competitive rankings like these show the need to keep costs low for business.

“We will work closely with partners to analyze this report’s findings,” McDonough said, “while looking especially at the cost structure in the Portland-metro area, so that we can work with policy makers to ensure Portland stays open to growing jobs.”

Taponga also said infrastructure needs to be improved, so that businesses can more easily move their goods. 

"They really need to go back to the drawing board," he said. "...We need not just repairs, but innovation on our roads."

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Related Slideshow: Slideshow: Oregon Receives Average Ranking for Business Climate

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