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Facebook Finds Friends in Politics

Uncertainties for Oregon Facebook raises tax questions among politicians.


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Back in the 1970s, when Steve Jobs was taking acid trips in what would later become known as Silicon Valley and Mark Zuckerberg hadn't even been thought of, the State of Oregon came up with a special approach to taxing businesses like utilities, railroads and communications companies.

Unlike other businesses, which can be taxed only on tangible property like desks, computers and trucks, Oregon says companies in that special category can be taxed on their intangible assets - things like worldwide value, brand recognition and goodwill.

And that's opened up a really squirmy can of worms for Facebook.

The social networking company got a 15-year exemption from local property taxes for building its new data center in an enterprise zone in Prineville. But last month the state Department of Revenue informed Facebook it could be subject to state taxes of as much as $390,000 a year.

As it turned out, the state had to quickly back away from that number; the actual amount of state property tax Facebook would owe is more like $26,000 a year.

A company like Facebook (current market capitalization $82 billion, give or take a few billion) isn't going to go belly-up because of a $26,000 tax assessment. Even $390,000 a year probably wouldn't make Zuckerberg lose any sleep.

But that "intangible assets" thing is making Facebook's lawyers and accountants jumpy. They're afraid the company could be on the hook for millions if Oregon decides to get aggressive about taxing it on the basis of things like name recognition and global reputation.

We don't blame them for being worried. But state officials have said it's difficult to tax intangibles without extensive documentation to support the assessment. They also say they're not sure whether being in an enterprise zone completely exempts Facebook from being taxed on intangibles. The Department of Revenue and Gov. John Kitzhaber's office are working to clear up the uncertainties.

At this point, enter the politicians.

State Rep. Mike McLane (R-Powell Butte) says he plans to introduce legislation in the next session to define what the state can tax in such cases. State Sen. Chris Telfer (R-Bend) has indicated she'll get behind such a move.

The issue is important to a lot of businesses besides Facebook, including cable TV companies. Taking away the state's ability to tax them on intangibles could result in a windfall for them - and a loss of millions of dollars in revenue that the state can ill afford.

The tax rules in this area definitely could use some clarifying, but letting the legislature do it would be like hiring a chimpanzee to do brain surgery. A case involving the communications giant Comcast is headed for the Oregon Supreme Court; the ruling in that case should clear up a lot of the vagueness surrounding the state's taxing authority.

In the meantime Facebook isn't going to pack up its mammoth data center and move away, and there's no pressing reason to drag the issue into the political arena. For their unseemly eagerness to do so, we're giving McLane and Telfer THE BOOT.

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