Oregon’s Liberty Northwest Negotiated Tax Break

October 12, 2004

Nine years ago, private workers’ comp insurer Liberty Northwest struck a deal with legislators that it would pay no taxes on profits in Portland or Multnomah County, according to The Oregonian. Liberty Northwest is reportedly spending millions on a November ballot initiative to eliminate its rival, the State Accident Insurance Fund (SAIF), claiming that the state insurer has an unfair competitive advantage because it is exempt from federal taxes.

Company lobbyists negotiated Liberty’s tax break nine years ago after they threatened to go forward with a lawsuit against the state of Oregon for millions of dollars. Liberty’s Massachusetts-based parent company and other out-of-state insurance companies sued the state for taxing them unfairly. The industry and Legislature came up with a solution: Oregon would cut taxes for out-of-state insurers if the companies dropped their lawsuit.

Legislation was drafted that changed how Liberty Northwest was taxed. It would be treated as an Oregon entity, exempt from state taxes but liable for local taxes. Towards the end of the legislative session, Liberty reportedly demanded that it also be exempt from local taxes or it would continue its case against the state. The Legislature agreed to Liberty’s demands and hurriedly passed the reform legislation.

The tax loophole applies only to Liberty Northwest. The Oregonian calculated that the insurer is saving roughly $400,000 in local taxes. Liberty paid $12.5 million in federal taxes last year while SAIF was exempt from them.

Liberty Northwest made a profit of $5.7 million while SAIF lost $28.5 million in 2003.

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