Oregon tech, loath to talk public policy, finds its voice in Measure 97 tax fight

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Faced with a prospective tax that would hit Silicon Forest software as hard as any other industry in the state, though, the tech sector is speaking up.

(Michelle Brence/The Oregonian)

Oregon technologists have long steered clear of the state's policy fights, ducking questions about shortfalls in education funding or the looming crisis in public pension obligations.

Faced with a prospective tax that would hit Silicon Forest software as hard as any other industry in the state, though, the tech sector is speaking up.

"Why now? Why this nuclear option?" asks Skip Newberry, president of the Technology Association of Oregon, which declared its opposition to the measure in May. He said the association is encouraging its members to talk to friends and neighbors to build opposition to the initiative, which will appear on the November ballot as Measure 97.

The tech industry -- one of Oregon's largest and most vibrant economic sectors -- broadly supports an increase in schools funding, Newberry said. His association has worked in the past for modest boosts in career education. But Newberry said Measure 97 represents an unwieldy, lopsided approach.

The November ballot initiative would be the largest tax hike in Oregon history, providing an estimated $3 billion in new state revenue each year by levying a 2.5 percent tax on companies' sales over $25 million.

Backers say that money could help fund schools and social services. They say the tax is designed to hit large, out-of-state companies.

Through a quirk of existing law, though, the tax would apparently work very differently for Oregon-based software companies. Most of those companies would be taxed on all their sales over $25 million, whether they take place in Oregon or not.

That could clobber Portland's resurgent startup scene, warned Mike Herrick, vice president of product and engineering for mobile marketing firm Urban Airship.

"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," Herrick wrote in an online opinion post. "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."

Herrick did not suggest any alternative paths to increase state revenue and did not respond to a message seeking additional comment. Indeed, Oregon tech - and Oregon business, generally, has been reluctant to propose any solution for the state's chronic funding and education woes.

The technology association (then called the Software Association of Oregon) took no position in the 2010 fight over measures 66 and 67, which created temporary new taxes on personal and corporate income. Neither did Intel, Oregon's largest private employer and recipient of the state's largest corporate tax breaks, worth more than $100 million annually.

This time, though, Intel Chairman Andy Bryant was among the first to declare opposition to the current ballot measure.

Measure 97 would have a relatively modest impact on Intel, since it sells computer chips, not software, and since the vast majority of its sales are out of state. At a business forum last December, though, Bryant warned the tax would damage Oregon's business climate.

"You cannot create a healthy (business) environment by taking a higher percentage of a constant value for the state," Bryant said.

Gov. Kate Brown, who has endorsed Measure 97, wants lawmakers to make a number of changes if it passes - including an exemption for software. The measure's backers welcomed her proposals.

Since the law's supporters and opponents both want the software issue addressed, Luke Kanies, founder and chief executive of Portland-based information technology company Puppet, said he'd be "shocked" if lawmakers don't come up with a solution if Measure 97 passes.

There are no guarantees, though. When horse trading begins in the Legislature next winter it's easy to imagine that software could become a bargaining chip as lawmakers from different parties and geographies haggle over modifications to what would already be a massive overhaul to state finances.

As one of Oregon's largest software companies, with annual revenues approaching $100 million, Puppet would be especially susceptible to the law. If Measure 97 passes, and lawmakers don't approve a software exemption, Kanies said the measure would effectively kill all software startup activity in the state.

In a series of tweets, though, Kanies said he would consider taking that chance and backing the measure because he's at least as concerned about Oregon's future as he is Puppet's.

"Do I love the source of revenue? Absolutely not," Kanies said in a subsequent interview. "Do you have any other ideas?"

It's been years since Oregon lawmakers or voters gave serious consideration of a major change to the state's tax structure. Considering Oregon's struggles to fund public schools and universities, Kanies said, Measure 97 may be the best chance to invest in Oregon's future.

"Do you want to keep it as an economic backwater," he asked, "or do you want to build and grow for the future?"

Correction: This article has been corrected to indicate that Measure 97 would replace the corporate income tax for those companies subject to the initiative.

-- Mike Rogoway

mrogoway@oregonian.com
503-294-7699
@rogoway

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