Oregon Software & Measure 97

Mike Herrick
Sep 8, 2016 · 4 min read

I rolled into Portland October 6 of 2001 with my new bride after listening to the Pet Shop Boys, Go West on repeat for three months straight (true story). Like so many at the time, I had recently endured the .com stock market collapse & 911. When I arrived here, the unemployment rate was at an all time high — 8.5%. I remember attending a Java Developers Meeting looking for work and being told, “You chose a terrible time to move here, there are no jobs, you should move home”.

SO MUCH has changed for the Oregon Software industry since then. It’s still tiny compared to Silicon Valley, but so many have worked so hard to build it up and we have a lot to be proud of. There are many growing companies here. Some have a real shot of becoming public companies in the next 2–5 years and providing thousands of high paying jobs. Venture capital is regularly invested here to fund the growth of software companies. There is a lot of job opportunity here now. Oregon has become a wonderful place to build a software company.

I’m not a political person. I was raised by wonderful parents in Michigan with very differing political views (one liberal/one conservative) & I am the mutt they produced. I am very glad to live in such a progressive place where more often than not, we’re ahead of the curve.

All that said, I’m concerned about Measure 97 and the impact it will have on the Oregon Software Industry. Here is my understanding of the gist and how it will impact software companies based on Oregon law:

This basically means that ALL REVENUE of software companies based in Oregon will be subject to the tax. The new tax is substantial: Corporate Minimum Tax + 2.5% of corporate gross sales in excess of $25 million. This quickly becomes very serious amount of money. For example, a software company with $70MM in revenue will go from paying $50,000/year to $1.1MM. As that software company grows and hopefully becomes the first Oregon company to go public in over a decade & its revenue grows to $150MM, its taxes will go from $100K/year to $3MM.

Here are my concerns/fears of what Measure 97 could mean for Oregon Software:

  1. Very few states have a gross sales tax on corporations & if they do, it’s not nearly as high as 2.5% and they have high-tech exemptions. This tax will put Oregon Software at a severe disadvantage competitively. Most fast growing software companies are not profitable. There are no profits to pull this 2.5% of gross sales from. If a $70MM/year software company pays a $1.1MM tax, that’s ~11 people it won’t hire, a huge marketing budget cut, or cloud capacity it can’t buy to grow
  2. Software companies based here will be forced to decelerate growth in Oregon so that they can avoid “greater proportion of the income producing activity is performed in this state than any other state”. They’ll need to open an office in a neighboring state & hire disproportionately there (i.e., 51%)
  3. Oregon will become less attractive to start a software company & for venture capitalists to invest as young companies will need to deal with #2 when they approach $25MM in revenue
  4. Oregon won’t be able to break out & stand on its own. We won’t be able to grow the talent required to build and operate large software companies & will be relegated to just a tech outpost for software companies based in other states
  5. It will be another decade before we have an Oregon Software IPO

One comment I’ve heard from friends and colleagues is that the State of Oregon doesn’t have enough revenue to provide the things we need. I agree with that & support fixing that. I just don’t think jeopardizing the future of one of our most promising industries is the way to fix it. We’ve worked too hard to get Oregon Software this far.

Mike Herrick

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SVP of Product & Engineering @ Urban Airship; Lean fan; Erin's husband; Lauren's dad.