Oregon’s Internet Tax Break Is Proving Difficult to Kill

The state’s 2015 gigabit tax break was the centerpiece of a failed effort to lure Google Fiber to Portland. Google never came, but other companies swooped in to lock in the savings for themselves.

by Mike Rogoway, The Oregonian / May 28, 2019
Oregon State Capitol in Salem flickr/David Grant

(TNS) — In 2015, every single lawmaker in the Oregon Legislature voted for a tax break for Internet providers. This month the Legislature was nearly unanimous in voting to repeal it.

In between were four years of a tax break that cost taxpayers millions of dollars and never did what lawmakers hoped it would. And they found it was unexpectedly hard to kill.

Oregon’s gigabit tax break was the centerpiece of a failed effort to lure Google Fiber to Portland. Google never came and other companies swooped in to lock in the savings for themselves.

The tax break, whose repeal is now on Gov. Kate Brown’s desk, stands as a cautionary tale. It’s a bipartisan failing that shows what can happen when legislators wade into the complexities of tax policies and technology without fully understanding the implications.

“You can’t craft one of these things for one segment of the industry alone,” said Rep. Rob Nosse, D-Portland, who joined all his colleagues in voting for the tax break four years ago, then led the effort to rectify their mistake. “It was written for Google and Google didn’t come.”

Google Fiber was all the rage in 2015, offering superfast gigabit Internet connections. A gigabit is 1,000 megabits per second, many times faster than the mainstream plans rivals Comcast, CenturyLink and Frontier Communications offered at the time.

The trick was, Google Fiber was only available in a handful of cities nationwide. The company said Portland might be next — but only if Oregon lawmakers exempted Google Fiber from an unusual Oregon tax methodology that could have cost it millions in property taxes.

Lawmakers struggled to understand what Google was talking about.

The tax itself was arcane, dating back to the 19th century and the rise of the railroads. But it had applied to Oregon telecommunications companies since the 1970s and cities and counties had come to depend on the revenue.

In discussions about the tax break, the lawmakers routinely mixed up technical terms, conflating “gigabit” (used to measure Internet bandwidth) with “gigabyte” (a measure of digital storage).

Lawmakers ultimately came up with a bill offering tax breaks to any company offering gigabit speeds — but they botched the language, accidentally excluding Google from the tax break written just for the company. The Legislature scrambled to pass a new bill to fix its mistake.

Back in 2015, Google’s gigabit speeds had seemed futuristic — a giant leap forward in Internet capabilities. But computing technology often advances at an exponential rate and Google’s speeds were soon widely available from Comcast, CenturyLink and Frontier, among others.

Google, meanwhile, left Portland at the altar.

Tax breaks or no, the company concluded it couldn’t afford the hundreds of millions of dollars it would cost to string fiber across the city. It pulled the plug in 2016, just days ahead of its planned Portland launch.

Comcast and Frontier didn’t give up, though. The law was broadly written, with vague standards for who qualified. So the other companies moved to capitalize on the tax break Oregon wrote for Google, eyeing savings of up to $15 million a year — money local governments had been counting on.

And the tax break threatened to get a lot more expensive. Wireless providers are preparing new, superfast 5G technology capable of gigabit speeds, and those connections could have opened up the tax break to several more companies.

National tech publications ridiculed Oregon for its missteps as lawmakers moved to reverse course.

“We quickly realized this wasn’t our intention and it didn’t work the right way,” Nosse said. Repeal efforts began in 2017.

A bill to rescind the tax break sailed through the Oregon House last year but then mysteriously died in the state Senate amid a furious lobbying campaign by Comcast. When last year’s repeal failed, Comcast used the gigabit tax break as leverage to settle an unrelated tax dispute with the state.

As part of a settlement reached last June, Comcast agreed to forgo the gigabit tax break. In exchange, the state settled with the company for $45 million less than the Department of Revenue said Comcast really owed.

That $45 million represents the bulk of what the gigabit tax break ultimately cost taxpayers. Comcast waived tax savings from prior years in conjunction with its settlement and Frontier’s savings likely totaled a few million dollars.

Having already cashed out, Comcast dropped its objections to repeal and the bill passed easily this month. The House voted 59-0 in favor; the Senate vote was 26-2.

The repeal bill is now on the governor’s desk and her staff says she intends to sign it.

To Nosse, the gigabit saga reflects the broad, complicated nature of lawmakers’ work. He said it’s difficult for legislators to become deeply knowledgeable about every subject that crosses their desk and to sort out what needs urgent attention, and why.

“I would bore some of my colleagues explaining this stuff,” Nosse said. “It takes a big complex idea a while for people to understand it.”

Brant Wolf is the executive vice president of the Oregon Telecommunications Association. He lobbied against the gigabit tax break on behalf of small companies that didn’t qualify.

The gigabit debacle, he says, reflects the flaws in seeking a quick, narrow solution to a big problem.

“It’s hard to create a bill for one particular company, especially of this nature,” Wolf said. “Broadband deployment is a statewide issue.”

©2019 The Oregonian (Portland, Ore.). Distributed by Tribune Content Agency, LLC.

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