Oregon Tax Haven Blacklist Repealed, One State List Left (Corrected)

By Paul Shukovsky

Oregon Gov. Kate Brown’s (D) decision to sign into law April 10 a bill repealing the state’s tax haven statute means there’s just one state left that identifies specific jurisdictions on a blacklist.

The enactment of Oregon S.B. 1529 is a response to a state statutory “quirk” that meant companies repatriating income would get a dividend-received deduction for that income—but wouldn’t have been required to add back in their state filings the federal dividend-received deduction, Legislative Revenue Officer Chris Allanach told Bloomberg Tax after the measure passed the Senate. The new law adds back the deduction and creates a credit for tax paid under the now defunct tax haven statute.

If the bill hadn’t passed, Oregon would have lost an estimated $100 million in revenue stemming from the 2017 federal tax act ( Pub. L. No. 115-97). Instead, Oregon will realize a one-time gain of an estimated $140 million, according to analysis from Allanach and economist colleague Kyle Easton.

The Council On State Taxation—a trade organization representing some 600 multi-state corporations engaged in interstate and international business— is happy to see the old statute’s demise. “I think it is definitely a step in the right direction,” COST Senior Tax Counsel Nikki E. Dobay told Bloomberg Tax April 12.

Montana Blacklist Targeted

“Oregon brought itself back in line with the main way states are taxing foreign income,” Dobay said. “We just believe it is getting rid of a policy that was the cause of a lot of audit issues. It was hard to administer. It didn’t make a lot of sense.”

While there are five states and the District of Columbia that still have tax haven statutes on the books, only Montana identifies specific jurisdictions as tax havens on a blacklist, according to Bloomberg Tax data. Connecticut, Rhode Island, West Virginia and the District of Columbia have criteria that their taxing officials can apply at their discretion in audits to determine if a country is a tax haven, according to a 2016 report by the State Tax Research Institute, a COST affiliate. Alaska uses a unique test based on intercompany transactions and tax rate, the report said.

Dobay hopes to see the blacklist method fade into history. “Montana has a list, but it no longer updates it,” she said. “We do plan to reach out to the folks in Montana to see if there’s any appetite to repeal it there.”

Montana’s Legislature meets every other year with the next session convening in January 2019.

To contact the reporter on this story: Paul Shukovsky in Seattle at pshukovsky@bloomberglaw.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

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