Oregon Enacts Corporate Activity Tax

| 5/23/2019
On May 16, Oregon Gov. Kate Brown signed legislation to enact a 0.57% corporate activity tax (CAT) that applies to commercial activity in the state. The new tax is effective on Jan. 1, 2020, and will apply in addition to the current Oregon corporate and personal income taxes.
Businesses holding a certificate of authority to transact business in Oregon or that generate $750,000 or more of Oregon receipts are deemed to be doing business in the state. The CAT applies to all businesses including corporations, partnerships, LLCs, and S corporations, as well as the business activity of individuals, estates, and trusts. The CAT is imposed on a unitary basis. Business entities exempt from federal income tax generally are exempted from the CAT.

For taxpayers other than financial institutions and insurers, commercial activity includes receipts from activity in the regular course of business. Some of the items specifically excluded from commercial activity include:
  • Interest, except interest on credit sales
  • Dividends
  • Receipts from the sale, exchange, or disposition of capital assets and assets used in a trade or business
  • Tax refunds or recoveries
  • Federal and state excise taxes received on the sale of tobacco, cigarettes, alcohol, and cannabis
  • Distributive income received from pass-through entities
  • Receipts from transactions between members of a unitary group1
  • Amounts received or acquired by an agent on behalf of another in excess of the agent’s commission, fee, or other remuneration
Taxable commercial activity includes Oregon receipts in excess of $1 million, reduced by a deduction (not to exceed 95% of receipts) for Oregon apportioned costs. The deduction for costs is equal to 35% of the greater of cost of goods sold or labor costs, multiplied by the Oregon apportionment factor computed under the current income tax rules. Cost of goods sold is determined in the same manner as IRC Section 471, and labor costs are defined as total compensation of all employees, not including compensation in excess of $500,000 paid to any single employee.

The taxable commercial activity of financial institutions and insurers includes all items of income without deduction for expenses. The law ties commercial activity to applicable statutory reports filed with regulatory agencies.The rules for determining Oregon receipts for the CAT are similar to those under the corporate income tax except there is not a throwback rule for sales of tangible personal property or a throw-out rule for receipts derived from the sale of intangible property. Taxpayers that purchase property outside of Oregon and transfer the property into Oregon within one year of purchase are required to pay CAT on the property in a manner similar to the self- assessment of use tax on out-of-state purchases.

The CAT imposed for each calendar year is $250 plus the product of the taxpayer’s taxable commercial activity in excess of $1 million for the calendar year, multiplied by 0.57%. No tax is due if the person’s taxable commercial activity does not exceed $1 million.

Each business or unitary group with more than $750,000 of commercial activity in Oregon in a tax year will be required to register for the CAT within 30 days of exceeding the threshold to avoid potential penalties. However, only businesses or unitary groups with commercial activity of more than $1 million in Oregon will be required to file an annual return on or before April 15. The return is required to be prepared on a calendar-year basis using the same accounting method adopted for federal income tax purposes, and the first return will not be due until April 15, 2021. However, estimated tax payments will be due on a quarterly basis on or before the last day of January, April, July, and October for the previous calendar quarter beginning in April 2020.

 

1 Oregon defines a unitary group as a group of persons with more than 50% direct or indirect common ownership in which the members share or have an exchange of value demonstrated by having centralized management, having centralized administrative services or functions, being in the same general line of business, or being functionally integrated.

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