Oregon lawmakers move toward repealing tax break worth millions to Comcast, Frontier
Oregon lawmakers may rescind a tax break that was meant to encourage companies to offer high-speed internet, less than three years after legislators voted unanimously to establish it.
Losing the exemption would cost Comcast up to $15 million a year in taxes and Frontier Communications about $2.5 million, according to state estimates. That money will go instead to Oregon cities and counties, which lobbied for the repeal.
The state Legislature acted in 2015 at the behest of Google Fiber, which said it wouldn’t offer its high-speed service in Portland unless Oregon exempted that company from an unusual tax assessment. Lawmakers created the tax exemption for any company that offered internet service at 1 gigabit per second – that’s 1,000 megabits per second, 40 times the federal broadband standard.
Google lost interest in Portland in 2016, though, and abandoned plans to serve the city. Meanwhile, Comcast and Frontier moved to capitalize.
They each applied for the tax break, seeking an exemption from Oregon’s distinct methodology for levying property taxes. On certain companies, including cable TV and internet providers, the state includes the value of a company’s intangible assets – including its brand – when assessing the value of its property.
The tax exemption lawmakers created in 2015 was broadly written, with few standards for what a company must spend to qualify for the tax break or and no threshold on how many customers it must serve with its gigabit connections. So when Comcast and Frontier each began offering their own gigabit service, they each sought the tax exemption.
That could have cost local governments and school districts more than $17 million a year, according to new estimates from the nonpartisan Legislative Revenue Office. And that price tag is what prompted the Legislature to reverse course and consider undoing the 2015 legislation.
The original bill wasn’t properly vetted, according to Rep. Rob Nosse, D-Portland, who led a legislative working group last fall that considered changes to the tax law. He said the tax break failed to ensure that it encouraged internet companies to make investments in Oregon that they wouldn’t have made without the exemption.
“We should start over. It’s too generous a tax break,” Nosse said. “I’m not even sure if it’s needed, and I think we should stop offering it.”
Gigabit connections, once a novelty promoted by Google Fiber, are now widely available. Comcast offers those speeds throughout its Oregon service territory and CenturyLink offers gigabit connections in much of its territory in and around Portland.
The repeal, House Bill 4027, won unanimous approval Tuesday in the House Committee on Revenue.
Frontier said it doesn’t object to the bill, provided the new law doesn’t seek to rescind tax breaks the company has already earned.
“Our position is that the tax credit can and maybe even should be repealed,” said Brant Wolf of the Oregon Telecommunications Association, which is representing Frontier before the Oregon Legislature.
“However,” Wolf wrote in an email, “any repeal should after a date certain and not made retroactively applicable to investments made based on the existing law; investments that would not have been made absent the tax credit incentive.”
The bill now headed for the House floor would award companies the exemption in 2017 but repeal it in future years.
To qualify, the companies would have to show they had at least one customer subscribing to their residential gigabit services. They would get the exemption whether or not the Oregon Department of Revenue certifies that they were eligible under terms of the 2015 bill.
The League of Oregon Cities and others who favor the gigabit repeal support allowing the companies to claim the tax break for one year as a reasonable trade-off, since Comcast and Frontier would have to pay the full tax in future years.
In a statement, Comcast criticized lawmakers for contemplating a reversal in the tax law so soon after passing it.
“Predictability is sound policy and fosters innovation. It’s a challenge for high-tech companies such as ours when the rules change so quickly, as is proposed in HB4027. It discourages investment and competition,” the company wrote. Nonetheless, Comcast said it is “committed” to continuing investing in Oregon and its 2,000 employees in the region.
— Mike Rogoway; twitter: @rogoway; 503-294-7699