Oregon Laws 2023, Chapter 298 (HB 2009)

Oregon Laws 2023, Chapter 298, establishes a tiered, refundable tax credit for semiconductor research and development to bolster the state’s chip industry. It also extends and updates major economic development incentives, including Enterprise Zones and the Strategic Investment Program, to ensure long-term industrial competitiveness and local fiscal stability.

The passage of House Bill 2009 represents a pivotal moment in Oregon’s economic history, signaling a robust return to state-sponsored incentives for innovation after a multi-year hiatus following the expiration of previous general research and development (R&D) credits in 2017. This legislative package, colloquially referred to as the semiconductor package, was not merely a reaction to local economic pressures but a calculated strategic alignment with federal industrial policy, specifically the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act of 2022. By creating a specialized R&D tax credit framework, Oregon legislators sought to provide the necessary state-level match and support required for Oregon-based firms to compete for billions of dollars in federal grants and incentives aimed at reshoring semiconductor manufacturing and design to the United States.

The meaning of Chapter 298 extends beyond the simple provision of a tax break. It serves as a comprehensive overhaul of Oregon’s economic development toolkit, integrating the new R&D credit with critical extensions of the Enterprise Zone (EZ) and Strategic Investment Program (SIP) frameworks. This integrated approach acknowledges that the semiconductor industry requires a lifecycle of support: starting with the high-risk, capital-intensive research phase (supported by the R&D credit) and moving into the large-scale manufacturing and facility expansion phases (supported by EZ and SIP incentives). Furthermore, the legislation addresses long-standing concerns regarding the transparency and local impact of these incentives by introducing mandatory school support fees and public disclosure requirements, thereby seeking to balance corporate attraction with the fiscal needs of local jurisdictions and educational systems.

Historical Context and the Competitive Landscape of the Silicon Forest

The “Silicon Forest,” Oregon’s long-standing hub for semiconductor manufacturing and design, has been the cornerstone of the state’s traded-sector economy for decades. However, the expiration of the state’s general R&D tax credit for tax years beginning after December 31, 2017, left Oregon at a competitive disadvantage relative to other technology hubs like California, Texas, and Arizona. Between 2018 and 2023, Oregon businesses lacked a significant state-level mechanism to offset the rising costs of domestic research.

The geopolitical shift toward securing domestic semiconductor supply chains provided the impetus for HB 2009. The Oregon Legislative Assembly recognized that without a specialized state credit, Oregon risked losing major investments to other states that were more aggressively courting CHIPS Act funding. Chapter 298 was specifically designed to complement Senate Bill 4 (the Oregon CHIPS Act), which provided $210 million in direct investment for site preparation and infrastructure. While SB 4 focused on the physical requirements of manufacturing, HB 2009 focuses on the intellectual and technical engine of the industry: the researchers and engineers who design the next generation of microchips.

Core Mechanics of the Semiconductor Research and Development Tax Credit

The semiconductor R&D credit established by Chapter 298 is codified primarily within Oregon Revised Statutes (ORS) 315.518 to 315.522. The credit is applicable for tax years beginning on or after January 1, 2024, and before January 1, 2030.

Eligibility Criteria: The Qualified Semiconductor Company

The law restricts the credit to a specific class of taxpayers defined as “qualified semiconductor companies” (QSCs). A QSC is defined as an entity whose primary business is the research, design, development, fabrication, assembly, testing, packaging, or validation of semiconductors. Crucially, the definition also includes companies primarily engaged in the creation of semiconductor manufacturing equipment or semiconductor-related intellectual property. This broad definition ensures that the entire semiconductor ecosystem—from the firms making the specialized software used in chip design to the companies building the multi-million dollar lithography machines—can benefit from the incentive.

Qualifying Research Activities and Geographic Boundaries

To qualify for the Oregon credit, the research must meet the stringent federal definitions of “qualified research” and “basic research” under Internal Revenue Code (IRC) Section 41. This means the activities must satisfy the “Four-Part Test” established by the IRS:

1. Permitted Purpose: The research must be intended to create a new or improved business component (product, process, or software).
2. Elimination of Uncertainty: The activity must seek to discover information that would eliminate technical uncertainty concerning the development or improvement of a business component.
3. Process of Experimentation: The research must involve a process of experimentation, such as modeling, simulation, or systematic trial and error.
4. Technological in Nature: The research must fundamentally rely on the principles of physical or biological science, engineering, or computer science.

In addition to these federal standards, Chapter 298 imposes a strict “Oregon-only” requirement. Only qualified research expenses (QREs) and basic research payments paid or incurred for activities performed within the State of Oregon are eligible for the credit. Furthermore, the research must be essential to the semiconductor industry and conducted in support of a trade or business directly related to semiconductors.

Calculation Methodologies and Rates

One of the most significant changes introduced by Chapter 298 is the increase in the credit rate. While Oregon’s previous R&D credit offered a 5% rate, the new semiconductor credit is calculated at 15% of the “excess amount” of qualified research activity. This 15% rate applies to the regular credit calculation method, which measures current-year Oregon QREs against a historical base amount.

The base amount is generally calculated by taking the fixed-base percentage (capped at 16%) and multiplying it by the taxpayer’s average Oregon gross receipts for the prior four tax years. In cases where the company is a “start-up” or lacks historical records, specific federal transition rules apply.

Component	Specification
Credit Rate (Regular Method)	15% of QREs over Base Amount
Alternative Simplified Credit (ASC) Rate	14% of QREs over 50% of 3-year Average
Maximum Credit per Taxpayer	$4,000,000 per Tax Year
Applicable Tax Years	2024 through 2029
Eligible Entities	C-Corps, S-Corps, LLCs, Partners, Individuals

Taxpayers may also elect the Alternative Simplified Credit (ASC) method, as provided in OAR 150-315-0195. The ASC method allows a credit of 14% of the amount by which current-year Oregon QREs exceed 50% of the average Oregon QREs for the three preceding tax years. If the taxpayer has no QREs in the prior three years, the credit is 6% of current-year Oregon QREs. This election is generally irrevocable for the tax year in which it is made.

The Refundability Framework: A Strategic Shift for Small and Mid-Sized Firms

Unlike the majority of Oregon’s business tax credits, which are non-refundable and can only be used to offset existing tax liability, the semiconductor R&D credit features a robust refundability component. This design is intentionally geared toward smaller, innovative firms that may be investing heavily in research but have not yet achieved consistent profitability or significant state tax liability.

The level of refundability is tiered based on the number of employees the taxpayer has within Oregon at the close of the tax year.

Oregon Employee Count	Refundable Percentage of Credit	Non-Refundable Percentage (Carryforward Only)
Fewer than 150 employees	75%	25%
150 to 499 employees	50%	50%
500 to 2,999 employees	25%	75%
3,000 or more employees	0%	100%

Any portion of the credit that is not refundable may be carried forward for up to five tax years. Furthermore, Chapter 298 includes a special provision allowing the refundable portion of the credit to reduce the corporate minimum tax imposed under ORS 317.090 to zero—a significant departure from standard Oregon tax practice where the minimum tax is generally shielded from credits.

Administrative Compliance: Business Oregon and the Certification Process

To ensure that the credit is accurately targeted and remains within budgetary constraints, Chapter 298 mandates a two-step administrative process involving the Oregon Business Development Department, commonly known as Business Oregon.

The 2023 Registration Requirement

For the initial implementation year (2024), the law required a one-time registration. Taxpayers intending to claim the credit for a tax year beginning in 2024 were required to file a registration form with Business Oregon by December 1, 2023. This registration required the disclosure of historical research expenses averaged over the three preceding years and a projection for 2024 expenses. Failure to register by this deadline barred the taxpayer from claiming the credit for the 2024 tax year.

Annual Certification Cycle

Beyond the initial registration, all taxpayers must obtain an annual certification from Business Oregon to claim the credit on their tax return. The application for certification must be filed by October 15 of each calendar year for the tax year that begins in that same calendar year.

The application for certification must include:

1. A detailed narrative demonstrating how the company meets the definition of a QSC.
2. A description of the research activities and how they support the semiconductor industry.
3. An attestation of the expected Oregon QREs and basic research payments for the tax year.
4. A report of QREs from the three preceding tax years to establish the base amount.
5. An application fee, which was established at $3,000 for the 2025 cycle.

Business Oregon reviews applications chronologically and issues a written certification of eligibility. The department is authorized to certify only up to the statewide aggregate limits defined in the law.

Statewide Aggregate Credit Caps

To manage the fiscal impact on the state budget, Chapter 298 establishes biennial caps on the total amount of credits that may be certified for all companies.

Period	Statewide Certification Cap
Biennium: July 1, 2023 – June 30, 2025	$35 Million
Biennium: July 1, 2025 – June 30, 2027	$80 Million
Biennium: July 1, 2027 – June 30, 2029	$90 Million
Fiscal Year: July 1, 2029 – June 30, 2030	$50 Million

If the total amount of credits sought in a given year exceeds the annual cap, Business Oregon is required to proportionally reduce the certified amounts. Under OAR 123-401-0500, the department will first allocate up to $200,000 to each eligible applicant, and then reduce any amounts exceeding $200,000 by a ratio necessary to remain within the statutory limit.

Revenue Office Guidance and Tax Filing Procedures

The Oregon Department of Revenue (DOR) has issued specific guidance and forms for the implementation of the semiconductor R&D credit, primarily through OAR 150-315-0195 and the 2024 Form OR-20 Instructions.

Schedule OR-RESEARCH (Form 150-102-130)

Taxpayers claiming the credit must complete and attach Schedule OR-RESEARCH to their Oregon tax return. This form is used to calculate the credit amount and determine the refundable versus non-refundable portions.

The schedule is divided into several parts:

• Part I (Basic Research Payments): Taxpayers report payments made to Oregon universities or non-profits, subtracting the base period amount. The result is multiplied by 15%.
• Part II (Qualified Research Expenses – Regular Method): Taxpayers enter current Oregon QREs, their fixed-base percentage, and average Oregon gross receipts. The credit is calculated on the excess QREs, but it is limited to no more than 50% of the total current-year QREs.
• Part III (Alternative Simplified Credit Method): Taxpayers who elect the ASC method use this section to calculate the credit based on their three-year Oregon QRE average.
• Part IV (Refundable and Non-refundable Portions): This section requires the taxpayer to enter their Oregon employee count and apply the appropriate refund percentage from the tiered table.

Pass-Through Entity and Unitary Group Guidance

For businesses operating as S-Corporations, Partnerships, or LLCs, the credit is passed through to the owners. The entity itself must apply for the certification from Business Oregon, but the credit is claimed on the individual income tax returns (Form OR-40) or corporate excise tax returns (Form OR-20) of the owners in their pro-rata shares.

For unitary groups filing a combined Oregon return, each member of the group must be evaluated separately to determine if they meet the definition of a QSC. While the group files together, the certification from Business Oregon is issued to the specific entity that incurred the research expenses.

Interaction with Other Tax Provisions

The Department of Revenue has clarified that the non-refundable portion of the R&D credit must be applied first against the taxpayer’s regular tax liability. Other payments and refundable credits are then applied against any remaining liability. Crucially, as required by ORS 315.518(8), any expenses used to calculate the credit must be added back to taxable income, or the deduction for those expenses must be disallowed, to prevent a double tax benefit.

Economic Development Reforms: Enterprise Zones and Strategic Investment Programs

While the R&D credit addresses the early stages of the innovation cycle, Chapter 298 also includes transformative changes to Oregon’s flagship property tax incentive programs, ensuring they remain viable and equitable through the next decade.

Enterprise Zone (EZ) and Long-Term Rural Enterprise Zone (LTREZ)

The Enterprise Zone program provides a 100% property tax exemption on new plant and equipment for three to five years. The LTREZ program offers a similar exemption for 7 to 15 years in specific rural areas. Chapter 298 extends the sunset date for both programs to June 30, 2032.

However, the extension introduces new requirements aimed at transparency and local school funding:

1. Exclusion of Fulfillment Centers: Recognizing that retail fulfillment centers (like large e-commerce warehouses) provide lower-wage jobs and have different infrastructure impacts than manufacturing, Chapter 298 explicitly excludes these facilities from EZ eligibility.
2. School Support Fees: In a major policy shift, Chapter 298 requires zone sponsors and participating firms to negotiate a “school support fee” for projects receiving extended exemptions. For years four and five of a standard EZ agreement, and for years six and later for an LTREZ agreement, the firm must pay a fee to the local school district ranging from 15% to 30% of the taxes that would have otherwise been paid.
3. Public Disclosure: Before an enterprise zone agreement becomes effective, the zone sponsor must post the terms of the agreement on its website for at least 21 days (excluding proprietary business information).
4. Infrastructure Notice: Firms and zone sponsors must notify adjacent local governments if a project is likely to cause a significant increase in the use of infrastructure (such as roads, water, or sewer) that extends beyond the zone’s boundaries.

Strategic Investment Program (SIP) and Gain Share

The Strategic Investment Program (SIP) allows for a 15-year property tax exemption for “exceptionally large” projects. Chapter 298 modernizes the SIP by increasing the minimum investment thresholds required to qualify and indexing those thresholds to inflation in future years.

Location Type	Prior Minimum Threshold	New Threshold (2024)
Urban Areas	$100 Million	$150 Million
Rural Areas	$25 Million	$40 Million

The legislation also increases the “taxable portion” of SIP projects—the amount of real market value that is not exempt and remains subject to local property taxes. For rural projects, this taxable threshold was increased from $25 million to $40 million, $50 million to $75 million, or $100 million to $150 million, depending on the scale of the project.

The “Gain Share” program, which allows the state to return a portion of the personal income tax revenue generated by SIP projects to the local counties, was also extended for five years through 2030. To ensure broader distribution, the law maintains the cap on Gain Share distributions but adjusts the allocation formulas to support more diverse infrastructure needs.

Decoupling from Federal Opportunity Zones

A notable revenue-raising provision in Chapter 298 is Oregon’s decision to “decouple” from the federal tax treatment of Opportunity Zones (OZs) for investments made outside of Oregon.

The federal Opportunity Zone program allows taxpayers to defer and eventually exclude capital gains if they are reinvested in designated low-income areas. Historically, Oregon followed these federal rules, meaning an Oregonian could invest in an OZ in Florida or Texas and avoid Oregon state tax on the gain.

Chapter 298 changes this for tax years beginning on or after January 1, 2024. For investments in “non-Oregon” opportunity zones:

• Addition to Income: Taxpayers must add any capital gain excluded from federal taxable income back to their Oregon taxable income in the year the gain was generated.
• Basis Adjustments: Oregon tax calculations must disregard any federal basis adjustments associated with the non-Oregon OZ investment.
• Later Subtraction: If the gain is eventually recognized and taxed at the federal level, the taxpayer may take an Oregon subtraction for the amount previously added back to prevent double taxation.

This provision ensures that Oregon’s tax expenditures for the Opportunity Zone program are used exclusively to incentivize investment and job creation within Oregon’s own borders.

Comprehensive Case Study: Applied Fiscal Modeling of Chapter 298

To visualize the real-world impact of these changes, consider “Cascadia Microsystems Inc.,” a theoretical semiconductor company headquartered in Beaverton, Oregon.

Scenario Background

• Tax Year: 2024
• Primary Business: Design and validation of specialized AI-processing chips (Qualified Semiconductor Company).
• Oregon Employee Count: 165
• 2024 Oregon QREs: $10,000,000
• Average Oregon QREs (2021-2023): $6,000,000
• Average Oregon Gross Receipts (2020-2023): $50,000,000
• Fixed-Base Percentage: 10.00%

Step 1: Comparison of Credit Methods

The company must determine which calculation method—Regular or ASC—yields the higher credit.

Regular Method Calculation:

• Base Amount: $50,000,000 × 10.00% = $5,000,000
• Excess QREs: $10,000,000 – $5,000,000 = $5,000,000
• Potential Credit: $5,000,000 × 15% = $750,000

Alternative Simplified Credit (ASC) Method Calculation:

• ASC Base: $6,000,000 × 50% = $3,000,000
• Excess QREs: $10,000,000 – $3,000,000 = $7,000,000
• Potential Credit: $7,000,000 × 14% = $980,000

Cascadia Microsystems elects the ASC method on its 2024 Schedule OR-RESEARCH to claim the $980,000 credit.

Step 2: Refundability Tiering

With 165 employees, the company falls into the 50% refundability tier for firms with 150 to 499 employees.

• Total Certified Credit: $980,000.
• Refundable Portion: $980,000 × 50% = $490,000
• Non-Refundable Portion: $980,000 – $490,000 = $490,000

Step 3: Application to Tax Liability

Assume Cascadia Microsystems has an Oregon tax liability of $300,000 for the 2024 year.

1. The non-refundable portion ($490,000) is applied first. It offsets the entire $300,000 tax liability.
2. The remaining non-refundable carryforward is $490,000 – $300,000 = $190,000, which can be used in the 2025-2029 tax years.
3. The company then receives the full $490,000 refundable portion as a cash refund check from the Oregon Department of Revenue.

Step 4: Add-Back Requirement

On its Oregon tax return, the company must increase its taxable income by $980,000 (the amount of the credit claimed) or reduce its deduction for research wages and supplies by that same amount to comply with the anti-double-dipping provision of ORS 315.518(8).

Strategic Implications and Third-Order Insights

The implementation of Oregon Laws 2023, Chapter 298, creates several ripple effects across the state’s economic and social landscape that extend beyond simple tax math.

The Innovation-to-Manufacturing Pipeline

By decoupling the R&D credit from the physical manufacturing requirements of the Enterprise Zone or SIP programs, Oregon is now incentivizing “fab-less” semiconductor firms—those that design chips but outsource the actual manufacturing to foundries. This broadens the economic base of the Silicon Forest, as design jobs typically require higher educational attainment and offer higher wages than entry-level manufacturing roles.

Educational Funding and Industrial Harmony

The introduction of the school support fee is a sophisticated attempt to resolve a decades-old conflict between economic development agencies and local school districts. Historically, school districts often opposed enterprise zones because the property tax exemptions deprived them of the revenue needed to educate the children of the new workforce. By codifying a 15-30% fee, Chapter 298 ensures that school districts have a guaranteed stake in the success of industrial recruitment, potentially reducing political friction in future zone designations.

Transparency and Public Trust

The mandatory 21-day public posting requirement for enterprise zone agreements represents a significant win for transparency advocates. By making the “terms of the deal” public before they are signed, local governments are now accountable for the cost-benefit ratio of the incentives they offer. This transparency is likely to lead to more standardized incentive packages across different counties, as firms and zone sponsors can now easily compare their agreements with those of neighboring jurisdictions.

Final Thoughts: A Multi-Decade Framework for Success

Oregon Laws 2023, Chapter 298, is a masterfully crafted piece of legislation that successfully navigates the complex intersection of global industrial competition, state fiscal responsibility, and local community needs. By establishing a robust, refundable R&D credit for the semiconductor industry, the state has provided the intellectual ammunition needed to win the battle for domestic chip production. At the same time, the fundamental reforms to the Enterprise Zone and Strategic Investment programs ensure that Oregon’s communities remain vibrant, well-funded, and transparent as they host the manufacturing giants of the 21st century.

As the program moves toward its 2030 sunset, the data collected by Business Oregon and the Department of Revenue will provide a roadmap for future legislative assemblies. For now, Chapter 298 stands as a clear signal to the global technology community that Oregon is not only open for business but is actively and strategically investing in the future of innovation. The integration of high-tier tax credits with community-focused funding mechanisms sets a new national standard for how states can partner with private industry to drive broad-based economic prosperity.