Measure 97: An Existential Threat to the Oregon Software Industry

As written, Measure 97 penalizes software companies for operating out of Oregon. Why? Well, here’s how it’s supposed to work: Companies, local or otherwise, pay a 2.5% tax on gross Oregon sales over $25M (note that this is a tax on revenue, not profit). Unfortunately, this is not how it works for Oregon software companies. Let’s look a couple simplified examples:

Example 1: Oregon Retailer has $100M in non-Oregon sales and $50M in Oregon sales. For the $50M in Oregon sales, they pay a $30k base sales tax + 2.5% of $25M, or $655,000 total. The $100M generated outside of Oregon does not get taxed in this way, though there may be some taxes on corporate profits, employees, etc.

Example 2: California Software Corp has $100M in non-Oregon Sales and $50M in Oregon sales. For the $50M in Oregon sales, they pay a $30k base sales tax + 2.5% of $25M, or $655,000 total. The $100M generated outside of Oregon does not get taxed in this way, though they likely pay California some corporate taxes on profits, employees, etc.

Example 3: Oregon Software Corp has $100M in non-Oregon Sales and $50M in Oregon sales. For the $50M in Oregon sales, they pay a $30k base sales tax + 2.5% of $25M, or $655,000 total. The $100M generated outside of Oregon is also taxed in this way, so they pay another $2.5M in sales taxes, or $3,155,000 total. This is because a current Oregon law recognizes all sales of Oregon-created software as occurring in Oregon, even if the customer is in a different state. Measure 97 does not change this, so all sales of Oregon software—even if sold in other states or countries—will be subject to the sales tax.

The issue is compounded for companies investing most of their revenue back into growth. They will now be taxed 0n their sales rather than on the profit they don’t put into hiring and growth. Oregon will be giving out-of-state companies a competitive advantage over its own, and we should expect talent and investment dollars to go where the advantages lie.

Gov Kate Brown has proposed this flaw be fixed, but it hasn’t happened and there is no guarantee it will be. Until then, the Oregon software and startup communities need to take a close look at how this will affect our future.