For anyone who doesn’t think ecommerce is a viable part of the world economy and plays a role in job creation and tax base expansion, here’s a flash: Ecommerce businesses are now eligible, at least in Oregon, for special tax incentives when they locate in enterprise zones, which are geographic areas targeted for economic revitalizing.
Tax incentives for retention or relocation of a company have long been the plum held out by cities, counties and states to brick and mortar manufacturing sorts of companies.
Bring your wire and cable plant to Blight City, USA and you get a property tax break or maybe even a state income tax deduction. It’s a pretty well established system.
But Oregon, with legislation passed in 2001, welcomed the ecommerce industry into the fold with added incentives, on top of the breaks for just being part of those already offered for non-ecommerce industry.
Enterprise zones encourage development
In a state where there is no sales tax and government revenues are dependent on property, income and excise taxes, government (and business) has to do everything it can to expanded the business investment base and the job head count. The creation of enterprise zones, which often include urban renewal areas, have been a tool of development entities for decades. But the Oregon legislature, at the insistence of groups like the Portland Development Commission (PDC), created ecommerce zones with a law passed in 2001. So far, Portland’s north/northeast enterprise zones and zones in Harney County, which is located in southeast Oregon and Medford and Roseburg (southern Oregon) are offering serious incentives for ecommerce businesses to locate in their regions.
According to Sierra Gardiner, of the PDC, to date, 55 companies have taken advantage of the enterprise zone incentives since the zone was created in the late 90s.
“We’ve had 20 relocations or reinvestments this year alone,” Gardiner said. “About 2,000 new jobs have been created and at least 4,000 jobs have been retained in north/northeast Portland because of the enterprise and ecommerce zones. About 600 of those jobs went to people who live inside the zone.”
How enterprise zones work
Enterprise zones work like this: A city like Portland creates a commission that does a study and determines that a particular area of the city needs some help in retaining and recruiting industry and business to help the job and tax base. The commission draws a map and, under legislative authority, they offer tax incentives to existing companies to urge them to stay and to other companies outside the area in an effort to bring their business to town. For the PDC, the idea of nice clean, high-tech companies dealing in ecommerce was particularly appealing and so they grew the carrot.
“If a company is primarily a sales-based ecommerce business, 50 percent of its total sales activity takes place online, and/or it uses an external Internet system to fulfill those orders, they are eligible for the tax abatement program as ecommerce investors,” Gardiner explained. Typically, the activity is tracked by receipts and sales orders or productivity.
One of the largest pet health organizations in the world, Banfield Pet Hospital, took advantage of the zone when choosing where to locate its server farm.
“The headquarters are located in Portland and they have a huge server room. This is where they track all the transactions in the company worldwide. All of the transactions don’t have to take place in the zone as long as they somehow pass through there,” Gardiner said. Banfield Pet Hospital, known by a lot of folks as the pet hospital in the Petsmart stores, has been a Portland company for 25 years.
Incentives can be for investing in ecommerce hardware such as servers, terminals and networking equipment. A business can also invest in software, software licenses, programming expenses, related office equipment, and consulting. And the rules are not complicated.
- A business qualifying for the property tax abatement in an ecommerce zone can earn a tax credit on its state income/excise tax return equaling the lesser of $2 million or 25 percent of the total investment in ecommerce operations in the zone.
- Unused portions of this credit may be carried forward up to five additional years for offsetting future income/excise tax liability in Oregon.
- This credit is capped at $2 million per annual ecommerce investment.
- The program allows up to five consecutive annual investments in ecommerce.
- Eligible ecommerce investments include most physical investments in hardware, software, office equipment of $1,000 or greater and certain capitalized programming expenses.
In return for exemptions, businesses must meet requirements aimed at job quality, employee and job retention, increased job opportunities for north/northeast Portland target area residents, and business creation within north/northeast Portland.
An ecommerce company interested in moving into an ecommerce zone can find out about the PDC program by going to Pdc.us.
How to apply
“Application is not complicated,” Gardiner says, “But, it is critical that they file an application with the PDC before they do anything onsite.”
The application fee is .001 of tax-exempted assessed value, with a minimum fee of $250, capped at $2,000, for each successful application.
A Tax Break For The Rich?
Hardly. Detractors of programs such as the PDC or the Oregon Enterprise Zone Act, start with the old saw that this is just a handout to business and a tax break for people who ought to be paying more taxes.
“It’s one of those programs, that’s all about taxes and development and it’s complicated,” Gardiner said. “A lot of people don’t understand it. Of course, this is the Pacific Northwest where the general sentiment is not necessarily pro-business. However, once you get a chance to explain it and show people how it works — the company investments and the job quality — they quickly realize the value of it.”
Oregon Enterprise Zone Act and the city’s Enterprise Zone Investment Strategy govern the requirements of the program. For current information on these requirements visit Pdc.us/ezone.