Industrial Case Studies in Gresham, Oregon

The economic geography of Gresham, Oregon, located in East Multnomah County, represents a profound historical transformation from agrarian primacy to advanced industrial manufacturing. The city’s original economic foundation was built upon dense old-growth Douglas-fir logging in the 1860s, which eventually gave way to highly productive farming as the land was cleared. Driven by the nutrient-rich soils of the region, early European-American settlers and a robust population of Japanese immigrants—who arrived as early as 1897—transformed Gresham into an agricultural powerhouse. By the early 20th century, the cultivation of filberts, strawberries, and Cuthbert raspberries earned the city the moniker of the “Raspberry Capital of the World”.

However, post-World War II urbanization, coupled with the tragic internment of Japanese-American farmers under Executive Order 9066 which fractured the local agricultural community, precipitated a shift away from traditional farming. To combat economic stagnation as agriculture became less profitable against California’s subsidized output, municipal leaders developed a highly aggressive “Traded Sector Jobs Strategy”. This economic doctrine explicitly targeted manufacturing companies that produced goods for national and global export, thereby injecting new capital into the local economy. To attract these entities, Gresham engineered specialized financial mechanisms, most notably the Gresham Enterprise Zone, which offers a three-to-five-year property tax abatement on new investments, and the Strategic Investment Zone (SIZ), which provides a 15-year partial property tax abatement for capital investments exceeding $100 million. Combined with a guaranteed 66-day rapid industrial land use application review, these policies successfully seeded a dense ecosystem of advanced manufacturing operations.

The following five case studies demonstrate how Gresham’s unique historical and economic development cultivated specific industries, and how those industries map directly to the strict statutory requirements of the United States federal and Oregon state R&D tax credit laws.

Case Study: Semiconductor and Advanced Electronics ManufacturingHistorical Development in Gresham
The semiconductor sector’s dominant presence in Gresham is a direct result of the city’s strategic effort to absorb high-tech industrial overflow from the neighboring “Silicon Forest” cluster in Washington County. The foundational infrastructure for this sector in Gresham was established in the late 20th century and massively accelerated when LSI Logic built a prominent design and manufacturing facility in the city. In 2006, capitalizing on the existing cleanroom infrastructure and the highly skilled local talent pool, ON Semiconductor (now rebranded as onsemi) acquired the LSI Logic 200mm wafer fabrication facility for $105 million.

Simultaneously, Microchip Technology established a massive fabrication footprint within Gresham’s industrial zones. The specific geography of Gresham appeals to semiconductor foundries due to the convergence of abundant municipal water supplies, access to cheap hydroelectric power from the Columbia River basin, and seismic stability necessary for nanometer-scale photolithography. In 2023, Microchip announced an $800 million multi-year initiative to triple its production capacity in Gresham, an expansion heavily subsidized by $42.4 million in local and state incentives—leveraging the Strategic Investment Zone—and a $72 million federal grant under the CHIPS and Science Act.

R&D Tax Credit Eligibility and Application

The semiconductor manufacturing activities conducted by onsemi and Microchip Technology represent the purest application of both federal and state R&D tax credits.

Under the federal Internal Revenue Code (IRC) Section 41, the development of new photolithography masking techniques or the engineering of advanced chemical vapor deposition (CVD) processes explicitly satisfies the statutory four-part test. For example, as Microchip focuses on expanding its domestic production of microcontroller units for aerospace and automotive applications, its engineers face objective technical uncertainty regarding the thermal resilience and electron mobility of silicon carbide compounds under extreme conditions. The process of experimentation involves the iterative processing of test wafers, scanning electron microscopy analysis, and statistical yield modeling. Because this relies entirely on the hard sciences of molecular physics and electrical engineering, the wages of the process engineers, the cost of the test silicon (supplies), and third-party testing contracts qualify as federal Qualified Research Expenses (QREs). Furthermore, under the restored immediate expensing rules of IRC Section 174A implemented by the 2025 One Big Beautiful Bill (OBBB) Act, these capital-intensive domestic R&D expenditures can be immediately deducted, dramatically accelerating cash flow for the fabrication facilities.

At the state level, these entities are explicitly targeted by the Oregon Research and Development Tax Credit for Semiconductors, codified under ORS 315.518. Both onsemi and Microchip comfortably meet the statutory definition of a “qualified semiconductor company,” as their primary business operations involve the research, design, fabrication, and packaging of semiconductors. Under this law, they are eligible for a 15 percent tax credit on their excess QREs incurred specifically within Oregon. However, due to their immense corporate scale—both employing significantly more than 3,000 workers globally—they are subjected to the limitations of ORS 315.519, which dictates that their state-level credits are 0% refundable, meaning the generated credits can only be used to offset current corporate excise tax liabilities and the corporate minimum tax, with any excess carried forward for up to five years.

Case Study: Aerospace Complex Machining and AssemblyHistorical Development in Gresham
The aerospace manufacturing sector in Gresham is anchored by The Boeing Company, which operates a massive 1 million square foot “Center of Excellence” for complex machining. Boeing’s industrial lineage in the city traces back to 1963 when Electronic Specialty Company, a major subcontractor to Boeing, constructed the first manufacturing building on the site. By 1979, Boeing had assumed sole ownership of the facility, transitioning it into a specialized hub for producing critical structural components, gearboxes, wing assemblies, and flight controls for its 7-series commercial airliners.

The continued expansion of Boeing’s Gresham footprint—including a $100 million investment in 2012 to open a newly expanded, LEED Gold-certified chemical processing and plating facility—was not a guaranteed outcome. The Gresham plant had to compete fiercely against other Boeing facilities nationwide and global vendors for corporate capital allocation. The deciding factor that solidified aerospace manufacturing in Gresham was the deployment of the Gresham Enterprise Zone, which provided a crucial three-to-five-year property tax abatement that dramatically reduced the upfront capital costs of the expansion. This financial lever ensured that high-wage, heavy metallurgical manufacturing remained a cornerstone of the East Multnomah County economy.

R&D Tax Credit Eligibility and Application
Aerospace machining operates at the bleeding edge of material science, making it a prime candidate for the federal IRC Section 41 credit. When Boeing engineers in Gresham attempt to machine advanced titanium alloys or integrate carbon fiber composites for the 787 Dreamliner wing structures, they encounter profound technical uncertainty. The uncertainty relates to the structural integrity of the metals when subjected to high-speed, high-heat CNC (Computer Numerical Control) milling processes. To eliminate this uncertainty, the engineers must engage in a systematic process of experimentation: creating alternative tool-path algorithms, modifying coolant flow dynamics, altering the cutting tool metallurgy, and subsequently performing non-destructive stress testing on the finished components.

Under federal tax law, the wages of the manufacturing engineers and CNC programmers constitute qualified services. Critically, under the precedent established by the United States Tax Court in George v. Commissioner (2026), the physical materials consumed during these trial runs—such as expensive titanium blanks that are scrapped during failed experimental milling—are fully eligible as supply QREs under the pilot model rules, provided Boeing maintains contemporaneous scrap logs and testing documentation tying the ruined materials to a specific experimental hypothesis.

However, the state-level tax environment for aerospace in Oregon is highly restrictive. Because Boeing is an aerospace manufacturer and not a “qualified semiconductor company,” it is completely ineligible for the lucrative ORS 315.518 semiconductor tax credit. Furthermore, following the failure of the Oregon legislature to pass House Bill 2117 in the 2025 legislative session—a bill that would have restored the broad-based corporate excise tax credit for general qualified research activities under ORS 317.152—there is currently no state-level R&D tax credit available to the aerospace industry in Oregon. Consequently, aerospace firms in Gresham must rely entirely on the federal Section 41 credit, the federal Section 174A immediate expensing deduction, and local property tax abatements.

Case Study: Agricultural Technology and Controlled Environment SystemsHistorical Development in Gresham
The trajectory of agriculture in Gresham is a study in technological evolution. Prior to World War II, the region was dominated by soil-based farming, heavily cultivated by a thriving community of Japanese immigrants who were responsible for vast acreage of cabbage, berry, and potato crops. The tragedy of Executive Order 9066 and the subsequent internment of these Japanese-American farmers severely fractured the traditional agricultural base, leading to the consolidation and eventual industrialization of farm land. As urbanization spread, traditional soil farming within city limits became economically unviable.

This historical agricultural foundation has since evolved into the highly advanced, capital-intensive indoor agricultural technology sector. In October 2020, Hawthorne Hydroponics, a subsidiary of the consumer lawn giant ScottsMiracle-Gro, leased a massive 378,800-square-foot industrial facility in Gresham’s Blue Lake Corporate Park. Hawthorne is the world’s largest vertically integrated manufacturer and direct seller of hydroponic products, servicing both the indoor commercial horticulture and licensed cannabis industries. The company selected Gresham due to its logistical proximity to its distribution hubs in Washington State, its access to the Interstate 84 corridor, and the financial incentives offered by the Gresham Enterprise Zone, which shielded the company from immense property tax burdens during its capital build-out phase.

R&D Tax Credit Eligibility and Application
Hawthorne’s development of sophisticated soil-less growing media, proprietary liquid nutrient formulations, and advanced LED lighting spectrums represents a highly complex convergence of biology, chemistry, and electrical engineering. Under IRC Section 41, the development of these controlled environment systems readily satisfies the federal four-part test.

When Hawthorne agronomists seek to develop a new liquid nutrient blend designed to accelerate the vegetative growth phase of a specific plant cultivar, they face biological and chemical uncertainty. They must determine the precise elemental ratios of nitrogen, phosphorus, and potassium, alongside micronutrients, that remain soluble and chemically stable in a closed-loop hydroponic system without precipitating or causing nutrient lockout in the plant roots. The process of experimentation involves establishing control groups, mixing iterative formulation batches, applying different LED light nanometer wavelengths, and conducting chemical analysis of the resulting plant tissue.

The recent Tax Court ruling in George v. Commissioner (2026) provides excellent legal support for this industry. Just as the court in George validated biological pilot models (live chickens) as qualified supply QREs when used to test experimental health interventions, Hawthorne can legally claim the cost of the seeds, experimental nutrient batches, and the organic materials consumed during their systematic biological trials as valid federal supply QREs. However, mirroring the aerospace sector, agricultural technology firms are categorically excluded from the Oregon ORS 315.518 semiconductor tax credit and currently possess no state-level R&D credit mechanism following the expiration of ORS 317.152.

Case Study: Food and Beverage Formulation and ProcessingHistorical Development in Gresham
Long before the arrival of silicon wafers, Gresham’s economy was anchored by the food processing industry. Beginning in 1914, the commercial cultivation of berries led to the formation of the Gresham Berry Growers cooperative in 1919. This cooperative built a massive cannery and packing plant that became the largest employer in the city, shipping millions of pounds of frozen produce nationwide. While the physical berry farms eventually yielded to residential and industrial zoning, the infrastructure and logistical networks for food handling remained.

Today, this legacy is carried forward by advanced food manufacturing entities. Companies like Teeny Foods and historically Boyd’s Coffee (which revolutionized the industry with innovations like air pot brewing and paper filters before its acquisition and relocation) represent the modern iteration of Gresham’s food processing sector. The sector is sustained by the city’s robust industrial water treatment capabilities, access to regional agricultural inputs, and the “Traded Sector Jobs Strategy” that explicitly targets food processing as a key growth opportunity.

R&D Tax Credit Eligibility and Application
Food science relies fundamentally on chemistry and microbiology, firmly placing it within the “hard sciences” requirement of the IRC Section 41 Technological in Nature test. The R&D tax credit opportunities in this sector typically arise in two distinct areas: formulation and process engineering.

First, when a food manufacturer attempts to reformulate a product—such as extending the frozen shelf-life of a baked good without utilizing artificial preservatives, or altering a recipe to remove a specific allergen while maintaining rheological properties—they face chemical uncertainty. The experimentation process involves creating test batches, subjecting them to accelerated thermodynamic aging, and conducting microbial stability analyses. The wages of the food scientists and the ingredients used in the failed test batches qualify as QREs.

Second, significant QREs are generated during the scale-up process. Moving a successful recipe from a laboratory bench-top to a continuous, automated industrial processing line often involves severe mechanical uncertainty. If a company must custom-engineer a pneumatic conveyance system to transport a highly shear-sensitive dough without destroying its cellular structure, the engineering design time, the iterative testing of equipment prototypes, and the wages of the direct supervisors overseeing the trial runs qualify for the federal credit. As with the other non-semiconductor industries in Gresham, these food processing companies are excluded from the current Oregon ORS 315.518 credit and must rely solely on the federal Section 41 framework.

Case Study: Clean Technology and Municipal/Private Engineering IntegrationHistorical Development in Gresham
Gresham’s commitment to clean technology and sustainable infrastructure is epitomized by its municipal Wastewater Treatment Plant (WWTP). Following the city’s commitment to the US Council of Mayors’ Climate Action Agreement in 2007, the WWTP embarked on an aggressive, multi-phase engineering initiative to eliminate its massive electrical consumption. By 2015, the facility achieved energy net-zero status, becoming the first treatment plant in the Pacific Northwest to generate more electricity than it consumes.

This milestone was achieved through a convergence of technologies. The plant installed a 420-kW solar array and massively expanded its cogeneration capabilities. Crucially, the city developed a system to accept fats, oils, and grease (FOG) trucked in from local food service establishments. By injecting this high-energy FOG waste directly into its anaerobic digesters, the plant exponentially increased its production of raw biogas. This biogas is then scrubbed of highly corrosive hydrogen sulfide and siloxanes and fed into large Caterpillar cogeneration engines, which convert the gas into heat and electricity to power the entire facility.

R&D Tax Credit Eligibility and Application
While the City of Gresham is a tax-exempt municipal entity and cannot claim federal tax credits, the private engineering firms, specialized machinery fabricators, and clean tech contractors hired to design, build, and optimize these highly bespoke systems are prime candidates for the federal R&D tax credit.

Integrating highly variable FOG waste into a continuous-flow biological digester and designing the custom mechanical scrubbing apparatus to purify the volatile biogas involves immense thermodynamic, chemical, and mechanical uncertainty. Designing the automated programmatic logic controllers (PLCs) to dynamically balance the fluctuating biogas output with the electrical load demands of the Caterpillar engines constitutes a rigorous process of experimentation.

However, contractors working on municipal clean tech projects must carefully navigate the “funded research” exclusion under IRC Section 41(d)(4)(H). According to the precedent upheld by the Eighth Circuit in Meyer, Borgman & Johnson, Inc. v. Commissioner (2024), a private engineering firm can only claim R&D credits if they bear the financial risk of the project’s failure and retain substantial rights to the intellectual property developed. If the City of Gresham pays the contractor on a strictly time-and-materials basis regardless of whether the custom biogas scrubber functions properly, the research is legally “funded” and the private contractor cannot claim the QREs. Conversely, if the contract is fixed-price and requires the contractor to successfully meet operational performance metrics before payment is rendered, the contractor bears the financial risk and the activities are fully eligible for the federal Section 41 credit.

Detailed Analysis of United States Federal R&D Tax Credit Laws

The federal Credit for Increasing Research Activities is codified under Internal Revenue Code (IRC) Section 41. It operates as an incremental tax credit intended to incentivize domestic corporate investment in innovation by providing a dollar-for-dollar reduction in federal income tax liability for qualified research expenses that exceed a statutorily defined historical base amount. The administration of this credit is highly complex, governed by strict statutory tests, evolving accounting forms, and rigorous judicial scrutiny.

The Statutory Framework: The Four-Part TestTo establish eligibility under IRC Section 41, taxpayers must definitively prove that their daily operational activities satisfy a rigid, cumulative framework known as the four-part test. Failure to substantiate any single prong of this test results in the complete disallowance of the associated expenses.

1. The Section 174 Test (Elimination of Uncertainty): Expenditures must be eligible for treatment as research and experimental (R&E) expenses under IRC Section 174. This mandates that the activities are incurred within the taxpayer’s trade or business and are expressly intended to eliminate objective technical uncertainty regarding the development or improvement of a product, process, software, formula, or technique. The IRS dictates that uncertainty exists only if the information available to the taxpayer at the outset of the endeavor does not establish the capability or method for developing the component, or the appropriate design of the component.
2. The Technological in Nature Test: The process of experimentation must fundamentally rely on principles of the “hard sciences”—specifically physical sciences, biological sciences, computer science, or engineering. Activities relying on social sciences, economics, or management psychology are explicitly excluded by statute.
3. The Business Component Test (Permitted Purpose): The research must be undertaken to discover information intended to be applied in the development of a new or improved business component that is held for sale, lease, or license, or used by the taxpayer in their trade or business. Furthermore, the research must relate to a permitted purpose, specifically aiming to improve the function, performance, reliability, or quality of the component. Aesthetic, cosmetic, or seasonal style changes are disqualified.
4. The Process of Experimentation Test: Substantially all (administratively defined as at least 80 percent) of the research activities must constitute elements of a systematic process designed to evaluate one or more alternatives to achieve a result. This requires the taxpayer to document the identification of the uncertainty, the formulation of multiple hypotheses or design alternatives, and the systematic evaluation of those alternatives through modeling, simulation, or physical testing.

The OBBB Act of 2025: The Return of Section 174A ExpensingThe financial mechanics of federal R&D tax planning experienced extreme volatility between 2022 and 2025. Following the expiration of certain provisions within the Tax Cuts and Jobs Act (TCJA), taxpayers were stripped of their ability to immediately deduct R&E expenditures. Instead, they were required to capitalize and amortize domestic R&E expenses over five years, and foreign R&E expenses over fifteen years. This created a punitive cash-flow paradigm where companies incurred massive R&D costs in the current year but were forced to recover the tax benefit slowly over half a decade, diluting the immediate financial impact of the Section 41 credit.

This systemic friction was rectified with the passage of the One Big Beautiful Bill (OBBB) Act, signed into law on July 4, 2025. The legislation enacted a new IRC Section 174A, which restored the permanent right for taxpayers to immediately deduct domestic R&E expenditures paid or incurred in tax years beginning after December 31, 2024. Crucially, the OBBB Act provided transition options, allowing businesses to retroactively apply the expensing rules to unamortized amounts from the 2022-2024 tax years through amended returns or catch-up deductions. Foreign R&D expenses, however, remain subject to the strict fifteen-year amortization schedule under Section 174. This legislative divergence creates a massive statutory incentive to repatriate engineering operations and concentrate innovation capital in domestic hubs like Gresham.

Administrative Directives: The Form 6765 Section G MandateCoinciding with the legislative restoration of immediate expensing, the IRS initiated a comprehensive overhaul of its enforcement mechanisms, drastically altering IRS Form 6765, Credit for Increasing Research Activities. Historically, taxpayers could submit a high-level aggregation of their qualified wages, supplies, and contract research expenses on the form without detailing the specific engineering projects that generated those costs, waiting until an audit notice arrived to retroactively build the justification.

The IRS eliminated this opaqueness. Following an extended transition period, the revised Form 6765 mandates the completion of Section G for all taxpayers beginning in tax year 2026 (though it remains optional for the 2025 tax year). Section G strictly enforces business-component-level reporting. Taxpayers must now sequentially list their significant business components directly on the tax return and mathematically allocate the salaries of specific scientists, direct supervisors, and direct support personnel to each individual component.

This structural administrative change effectively destroys the viability of retroactive, high-level R&D studies. The IRS now forces taxpayers to maintain contemporaneous, systematic tracking systems that fuse payroll data directly with engineering project management codes. Failure to properly segment R&D work by business component under Section G will render the credit claim invalid upon submission, shifting the burden of proof entirely onto the taxpayer’s internal accounting infrastructure. The IRS provided very narrow exemptions to the Section G mandate, applying only to Qualified Small Businesses (QSBs) electing the payroll tax credit under IRC Section 41(h), or taxpayers with total QREs under $1.5 million and gross receipts under $50 million.

Judicial Precedents: Defining the Boundaries of Qualified ResearchThe United States Tax Court has recently issued a series of highly critical rulings that define the boundaries of the Section 41 credit, establishing precedents that all Gresham manufacturers must heed.

Phoenix Design Group, Inc. v. Commissioner (2024)
In December 2024, the Tax Court delivered a severe blow to the engineering sector in Phoenix Design Group, Inc. v. Commissioner (T.C. Memo 2024-113). Phoenix Design Group (PDG), an MEPF engineering firm, claimed significant R&D credits based on its six-stage building design process. The court ruled entirely in favor of the IRS, disallowing the credits and upholding a 20 percent accuracy-related penalty.

The court’s analytical framework established several critical standards. First, it ruled that performing basic calculations using established historical data—such as determining duct sizes based on standard airflow resistance formulas—does not constitute an “investigative activity” because the taxpayer already possesses the underlying information necessary to resolve the design parameter. Second, the court rejected the notion that “design uncertainty” exists simply because a preliminary schematic might undergo routine revisions before final construction. Finally, the court strictly interpreted the “shrinking back” rule, determining that while an entire building system might fail the four-part test, uncertainty regarding a single subcomponent (e.g., a specific piece of medical equipment) does not inherently infect the entire electrical or plumbing infrastructure with technical uncertainty. PDG’s fatal error was poor documentation; their employee time-tracking narratives contradicted their purported scientific design phases, collapsing their claim.

George v. Commissioner (2026)
Contrasting the rigid engineering focus of Phoenix Design, the February 2026 decision in George v. Commissioner (T.C. Memo 2026-10) addressed qualified research within the biological and agricultural sectors, directly impacting companies operating in Gresham’s food processing and ag-tech industries. The taxpayer, a poultry producer, claimed credits for genetic and biological research.

The court made three highly favorable technical rulings for the taxpayer. First, it ruled that the costs to raise experimental biological assets (flocks of chickens) could be fully claimed as supply QREs under the “pilot model” rules, rejecting the IRS argument that feed costs were simply ordinary production expenses. The court recognized that biological entities used to evaluate and resolve technical uncertainty through a scientific method constitute valid experimental models. Second, the court affirmed that taxpayers possess the flexibility to claim only supply QREs without being forced to calculate and claim wage QREs, provided the supplies themselves meet the statutory nexus to the research.

However, the court harshly penalized the taxpayer for attempting to use ungrounded, retroactive estimates to calculate base period QREs. The court explicitly rejected the application of the Cohan rule (which generally allows for reasonable estimation of expenses) when the taxpayer lacks a credible, contemporaneous factual baseline. The George decision solidifies the principle that contemporaneous, day-to-day operational data is the ultimate, non-negotiable arbiter of tax credit eligibility.

Detailed Analysis of Oregon State R&D Tax Credit Laws

The state-level corporate tax environment in Oregon presents a stark contrast to the universal availability of the federal Section 41 credit. The historical trajectory of Oregon’s corporate excise tax policy reveals a profound shift from broad-based industrial incentives intended to uplift the entire manufacturing base, to hyper-specific, targeted economic interventions designed to protect the state’s comparative advantage in the global semiconductor supply chain.

The Era of Broad-Based Incentives: ORS 317.152 and 317.154From its inception in 1989 until the end of 2017, Oregon maintained a robust, cross-industry R&D tax credit system codified under Oregon Revised Statutes (ORS) 317.152 and 317.154. This dual-track system was designed to reward both consistent growth and high-intensity innovation across all sectors.

ORS 317.152 functioned as a standard incremental credit, offering a 5 percent nonrefundable credit against corporate excise taxes for year-over-year increases in qualified research expenses. The statute deliberately tethered its definitions of “qualified research” to federal IRC Section 41, ensuring administrative harmony, but strictly limited eligibility to research activities conducted physically within the geographical boundaries of Oregon.

Alternatively, ORS 317.154 provided a unique “research intensity” mechanism. Rather than rewarding mere incremental growth, this statute offered a 5 percent credit on the amount by which a company’s Oregon QREs exceeded 10 percent of its total Oregon sales, effectively subsidizing firms that reinvested massive portions of their revenue back into localized R&D. This system broadly subsidized the diverse industrial ecosystem in cities like Gresham, benefiting software developers, aerospace machinists, and agricultural technology firms alike.

However, amid shifting political priorities regarding the efficacy of broad tax expenditures and a lack of definitive data proving the credits induced new activity rather than rewarding existing behavior, the Oregon legislature allowed both statutes to sunset for tax years beginning on or after January 1, 2018.

In the 2025 legislative session, a significant effort was mobilized to resurrect these broad-based credits. House Bill 2117 (HB 2117) was introduced to restore ORS 317.152 and 317.154 for tax years 2025 through 2030. The legislation proposed doubling the maximum credit limit from $1 million to $2 million, introduced powerful new refundability and transferability clauses, and sought to conform Oregon state tax law to the federal Section 174A immediate expensing provisions. Despite intense lobbying from manufacturing coalitions arguing that the lack of a general R&D credit placed Oregon at a severe competitive disadvantage nationally, HB 2117 failed to advance, dying in committee upon the legislature’s adjournment in June 2025. Consequently, general manufacturers in Gresham—such as Boeing and Hawthorne Gardening—remain without any state-level R&D tax credit.

The Modern Paradigm: The Semiconductor R&D Tax Credit (ORS 315.518)The absence of a general R&D credit does not indicate that Oregon abandoned innovation incentives; rather, the state weaponized its tax code for a specific geopolitical and macroeconomic purpose. Recognizing the existential threat to its “Silicon Forest” legacy following the passage of the federal CHIPS and Science Act of 2022—which unleashed $52.7 billion in federal subsidies for domestic semiconductor manufacturing—the Oregon Legislative Assembly passed House Bill 2009 in 2023. This legislation enacted ORS 315.518, creating the highly lucrative, tightly restricted Research and Development Tax Credit for Semiconductors.

Applying to tax years beginning on or after January 1, 2024, and sunsetting before January 1, 2030, ORS 315.518 provides an aggressively high 15 percent standard credit on excess qualified research expenses incurred exclusively within Oregon. Alternatively, under Oregon Administrative Rule (OAR) 150-315-0195, taxpayers may elect the Alternative Simplified Credit (ASC) method, yielding a 14 percent rate.

The statute strictly limits eligibility to a “qualified semiconductor company.” This is defined as an entity whose primary business is the research, design, development, fabrication, assembly, testing, packaging, or validation of semiconductors, or the creation of semiconductor manufacturing equipment and electronic design automation software.

The administration of this credit is heavily regulated to protect the state’s general fund. Taxpayers must navigate an annual competitive certification process overseen by the Oregon Business Development Department (Business Oregon). Applications must be submitted by October 15 each year, accompanied by a $3,000 certification fee and extensive documentation detailing prior-year QREs and current-year projections. The program is governed by strict caps: the maximum credit permitted per taxpayer is $4 million annually, and the state enforces an overarching biennial cap, set at $80 million for the 2025-2027 biennium ($40.34 million specifically allocated for the 2025 tax year and $39.65 million for 2026). If the total requested credits exceed the annual cap, Business Oregon proportionally prorates and reduces the certified amounts over $200,000 to maintain statutory limits.

Refundability Mechanics and Tax Liability ApplicationA defining architectural feature of ORS 315.518 is its tiered refundability structure, codified under ORS 315.519. This mechanism is purposefully designed to heavily favor agile startups and small-to-medium enterprises, while capping the cash drain from massive, multi-national fabricators operating in places like Gresham.

The application of the credit to a corporation’s tax liability is strictly governed by Department of Revenue guidance under OAR 150-315-0195. The rules mandate a specific hierarchy of application. First, the non-refundable portion of the credit must be applied against the taxpayer’s regular corporate excise tax liability (ORS 317.061). Any unused non-refundable portion may be carried forward for up to five years, but it strictly cannot be used to satisfy the Oregon corporate minimum tax. Conversely, the refundable portion of the credit is applied last, and crucially, it may be used to satisfy the corporate minimum tax under ORS 317.090, with any remaining balance issued as a cash refund to the taxpayer (subject to offset against other state debts). Unlike the failed proposals in HB 2117, the semiconductor credit under ORS 315.518 explicitly prohibits the transferability or sale of the credit to third parties.

Final Thoughts and Strategic Imperatives

The juxtaposition of Gresham’s diverse industrial landscape against the rigid architecture of federal and state tax law reveals a highly bifurcated economic reality. For the semiconductor giants anchoring the Gresham Enterprise Zone, the tax environment is uniquely lucrative, allowing them to stack the federal Section 41 credit, the OBBB Act’s Section 174A immediate expensing provisions, and the 15 percent Oregon ORS 315.518 credit to achieve massive reductions in total tax liability. Conversely, Gresham’s thriving aerospace, agricultural technology, and food manufacturing sectors find themselves effectively orphaned at the state level following the failure of HB 2117, leaving them entirely reliant on federal credits and municipal property tax abatements.

Regardless of the industry classification, the evidentiary burden required to monetize these credits has reached a historical zenith. The mandate of Form 6765 Section G to track expenditures at the specific business-component level, combined with the Tax Court’s deep hostility toward retrospective engineering estimates as demonstrated in Phoenix Design Group and George v. Commissioner, dictates that Gresham manufacturers must seamlessly integrate tax compliance into their daily engineering and operational workflows. Time tracking software must map directly to specific technical uncertainties, and the physical scrap from failed pilot models must be meticulously cataloged. The R&D tax credit can no longer function as a retroactive accounting exercise; it must be executed as a rigorous, contemporaneous engineering discipline.

The information in this study is current as of the date of publication, and is provided for information purposes only. Although we do our absolute best in our attempts to avoid errors, we cannot guarantee that errors are not present in this study. Please contact a Swanson Reed member of staff, or seek independent legal advice to further understand how this information applies to your circumstances.