PUBLIC HEARING HB 2182

 

TAPE 51, A-B

 

HOUSE REVENUE COMMITTEE

FEBRUARY 20, 2003   8:30 AM   STATE CAPITOL BUILDING

 

Members Present:                        Representative Lane Shetterly, Chair

                                                Representative Wayne Scott, Vice Chair

                                                Representative Joanne Verger, Vice Chair

                                                Representative Phil Barnhart

                                                Representative Vicki Berger

                                                Representative Pat Farr

                                                Representative Mark Hass

                                                Representative Elaine Hopson

                                                Representative Max Williams

 

 

Witness Present:                        Debra Buchanan, Oregon Revenue Department

                                                Jim Craven, American Electronics Association

                                                Jonathan Williams, Intel

                                                Harvey Matthews, Association of Oregon Industries

 

Staff Present:                            Paul Warner, Legislative Revenue Office

                                                Lizbeth Martin-Mahar

                                                Kathy Tooley, Committee Assistant

 

TAPE 51, SIDE A

004

Chair Shetterly

Calls meeting to order at 8:31 a.m.

 

OPENED PUBLIC HEARING HB 2182

 

015

 

108

 

118

 

125

 

128

Lizbeth Martin Mahar

 

Martin-Mahar

 

Martin-Mahar

 

Martin-Mahar

Provided a “Brief History of Foreign Sales Corporation (FSC)” (Exhibit 1).

 

Provided background and description of HB 2182. (Exhibit 2).

 

Described revenue Impact (Exhibit 3), no fiscal impact. 

 

Provided background on “Respond to Foreign Sales Corporation/ Extraterritorial Income Decisions”, (Exhibit 4).

 

Questions and discussion regarding FSC definition.

 

137

Rep. Barnhart

HB 2182, Section 1 (c) means extraterritorial income is income.

 

141

Martin-Mahar

Answered affirmatively.

 

150

Chair Shetterly

Today will be an orientation on FCS and DISCS and extraterritorial income.

 

142

 

 

184

 

 

Buchanan

Provided history and context for the bill.  This bill is seen as a reconnect issue, (Exhibit 4)

 

Provided legislative history regarding FSC history and extraterritorial exclusion.

 

226

Rep. Hass

Would this take a 36 vote?

 

228

Chair Shetterly

Answered affirmatively, because it would raise revenue.

 

231

Rep. Williams

Which is a difficulty with being connected, anytime you want to disconnect it requires a 36-18 vote, connecting you can do with 31.

 

227

Rep. Barnhart

The WTO has said that this is illegal?

 

241

Buchanan

Answered affirmatively.  There is talk about change in international tax rules.

 

255

Rep. Berger

This bill connects or disconnects?

 

258

Buchanan

This disconnects from extraterritorial income exclusion at the federal level and automatically flows through to Oregon. It restores the taxability of the same kind of income available before 2000.

 

Questions and discussion regarding vote to disconnect.

 

294

Rep. Hass

In our Tax Expenditures book this is listed as having limited benefit according to the Economic Development Department and the cost is significant, $24 million.

 

300

Chair Shetterly

The revenue impact statement says $18 is that based on more current numbers?

 

304

Martin-Mahar

Answered affirmatively.

 

349

Jim Craven

This is a big issue and a lot at stake for many Oregon companies.  This needs to be looked at in the overall context of what we want to do with tax an economic policy this session.  Urged committee to recall what drives the Oregon economy.  AEA struggles with tariffs by the European Union, (EU) and will have greater tariffs if Congress and the President do not address. 

 

424

Rep. Hass

Issue is how far to go with a tax credit, can you quantify jobs/benefits for your industry?

 

 

TAPE 52, SIDE A

 

010

Craven

No, can’t give a direct result to this exclusion, the high tech industry is responsible for about half the state’s exports, can’t say if that’s also half the dollar amount.

 

022

Rep. Verger

What is WTO impact on American workers and business?  What is the agenda?

 

033

Craven

Not an expert on it the WTO, the EU is pressing its case on this specific issue calling it an unfair trade subsidy, and international body has ruled in favor of the EU on this issue twice.

 

050

Chair Shetterly

Congress is dealing with as we speak?

 

053

Craven

Answered affirmatively.

 

060

Chair Shetterly

Is one option, repeal by Congress to avoid imposition of tariffs?

 

063

Craven

Believe that is correct.  EU is making the case that the U.S. is unfairly subsidizing American companies.

 

074

Rep. Farr

This originated with corporations operating in the U.S. were being taxed twice: by U.S. and by the country exporting to.  It’s not a tax; it’s an elimination of double taxation?

 

080

Craven

Answered affirmatively.  Evolved to being called unfair trade subsidy.

 

Questions and answers regarding dispute resolution.

 

100

Jonathan Williams

Intel would face 100% duties on products if U.S. doesn’t address issues with the current ETI.  The current disconnect from ETI is only carried out by 5 states. Oregon would be number 6 if it decided to disconnect.  When states vote to disconnect, Intel believes it sends a negative signal to American Corporations that are trying to grow jobs within.  Signal it sends, as overall economic program of how Oregon is going to go forward, encourage export, or join a few states that do not encourage export?

 

150

Rep. Barnhart

Questions and discussion regarding states that don’t tax?

 

180

Harvey Matthews

Spoke in opposition to HB 2183, (Exhibit 5). This is an Oregon business issue, not a high tech issue.  This bill would have the net affect of discouraging foreign exports.  AOI believes it should be tabled indefinitely.

 

220

Rep. Hass

Can you quantify in jobs, feedback to the economy?  What does the state get for money taken out of treasury to pay for this?

 

223

 

 

235

Matthews

Can’t give an absolute answer, 20 percent of jobs are tied to international trade, don’t know what percent would benefit from the incentive.

 

Discussion regarding issues affecting locating new technology in Oregon.

 

264

Rep. Hass

We’re at a crisis point, Portland chopping a month of school year is seen as bigger negative; emptying mental health facilities, releasing inmates from jails.  Need data to ensure benefit is returned.

 

287

Craven

Don’t intend to be insensitive, and must put bill in context of fundamental decision about tax policy and economic policy.

 

340

 

 

Rep. Farr

Difficult to quantify, but $18 million would be taking from Oregon-based corporations, assume that would have been reinvested in Oregon economy.

 

359

Rep. Barnhart

Cited example of Amazon establishing business in Washington, not because of tax program, but because Washington had pool of employees for internet-based company.  Need more data to understand how important the tax factor is vs. other attributes corporations look for in doing business in Oregon.

 

436

 

Examines scenarios Congress could approve and effect on Oregon income tax.

 

035

Buchanan

Department of Revenue looks at internal revenue code in effect as of 12/31/2002. If Congress repeals exclusion, income would be restored for federal purposes, but Oregon would go back to federal law effective 12/31/2002, which would be a subtraction on Oregon returns.

 

042

Chair Shetterly

Companies are keeping track of EIT for purposes of federal taxes, so if repealed, are corporations going to have to keep track for EIT calculation for Oregon income tax purposes to take advantage of the exclusion?

 

052

Buchanan

Answered affirmatively.

 

053

Rep. Berger

If Oregon disconnects on other bill and nothing here.  What does that mean to Intel, different and the same.  And if Federal repeals.

 

065

 

85

Buchanan

Describes scenario if Oregon disconnects from Federal law under HB 2186.

 

Discussion scenario regarding increasing revenue by connecting to Federal changes.

 

091

Buchanan

Could create a specific exception in HB 2186 for items you want to have continuing conformity, as done in the past with net operating losses and pension plans items.

 

122

Chair Shetterly

Closed Public Hearing on HB 2182. Meeting adjourned at 9:36 a.m.

 

 

 

 

 

Tape Log Submitted by,

 

 

 

Kathy Tooley, Committee Assistant Reviewed by Kim Taylor James

 

Exhibit Summary:

1.       Martin-Mahar, “Brief History of Foreign Sales Corporation”, 1 page

2.       Martin-Mahar, “Revenue Impact HB 2182”, 1 page

3.       Martin-Mahar, “Staff Measure Summary HB 2182”, 1 page

4.       “Respond to Foreign Sales Corporation/ Extraterritorial Income Decisions”, 4 pages

5.       Buchanan, “HB 2182 Summary”, 1 page

6.       Mathews, “Testimony Re: HB 2182”, 2 pages