New Oregon corporate activity tax signed into law
In May of this year, Oregon Governor Kate Brown signed House Bill 3427, which establishes the new Oregon corporate activity tax, aka “CAT”. The tax is in addition to the state’s current corporation income tax and will be assessed on a calendar-year basis beginning on January 1, 2020 with the first return due April 15, 2021. Quarterly estimated payments will be required beginning in April 2020. While its name appears to suggest it may only apply to corporations, the tax applies to corporations, partnerships, limited liability companies, S corporations and the business activity of individuals, estates and trusts.
This tax is imposed on “commercial activity” in Oregon in excess of $1,000,000 per year. The tax is computed as $250 plus the product of the taxpayers’ taxable commercial activity in excess of $1 million multiplied by 0.57%. Note the only deduction from your commercial activity (think gross revenue) is 35% of the greater of the amount of cost inputs or labor costs. Note this is a gross receipts tax and is imposed whether or not the entity makes a profit.
For purposes of the tax, it is important to note that the tax only applies to commercial activity that is sourced to Oregon. Oregon source income includes both services performed in Oregon, retail sales of goods to customers located in Oregon, and generally wholesale sales to customers located in Oregon. Wholesale sales to customers located within Oregon can be excluded from the CAT provided the wholesaler provides certification at the time of sale that the wholesaler will resell the property outside of Oregon. There is no specified form for this certification at this time. Therefore, an Oregon based company can exclude sales to purchasers located outside of Oregon.
Because the new tax applies only to Oregon source income, it is important that your accounting systems and records for 2020 forward are able to track and provide information regarding Oregon source income if goods or services are also provided to customers located outside the state. Additionally the tax is imposed on a calendar year so if you are a fiscal year taxpayer, you may have to report your gross revenue spanning two tax years.