Oregon Corporate Activity Tax – new year, new tax

The CAT is effective for tax years beginning on or after January 1, 2020 and the rate is $250 plus 0.57% of Oregon sourced taxable commercial activity above $1 million.  The CAT will be imposed in addition to the currently existing corporate income and excise tax.  No CAT is due if taxable commercial activity does not exceed $1 million.

The CAT will be imposed on all types of business entities, trusts, estates and individuals.  The only taxpayers excluded from the CAT are Internal Revenue Code Section 501 entities, certain hospitals, governmental entities, and any persons with commercial activity that does not exceed $1 million for the calendar year.

The CAT provides taxpayers with a subtraction from Oregon commercial activity of 35% of the greater of cost inputs or labor costs. “Cost inputs means the cost of goods sold as calculated in arriving at federal taxable income under the Internal Revenue Code.”  “Labor costs” is total compensation of all employees, not including compensation paid to any single employee in excess of $500,000.

The law also states that a subtraction is not allowed for any amount of expenses from transactions among members of a group, or cost inputs or labor costs that are not attributable to Oregon commercial activity receipts.

The commercial activity will be sourced to Oregon as follows:

• The sale, lease, rental or license of real property located in the state.
• The sale, lease, rental or license of tangible personal property either located in the state, or if the sale is delivered to a purchaser in the state.
• Services delivered to a location in the state
• The sale, lease, rental or license of intangible property used in the state.

A taxpayer has nexus for CAT purposes if it:

• Owns or uses a part or all of its capital in the state,
• Holds a certificate of existence or authorization issued by the Secretary of State authorizing the entity to do business in Oregon,
• Is a resident or Oregon domiciliary, or
• Has a bright-line presence in the state of:
  • Oregon property of at least $50,000,
  • Payroll in the state of at least $50,000,
  • Oregon gross commercial activity of at least $750,000, or
  • At least 25% of its total property, payroll, or commercial activity in the state

The CAT is a gross receipts tax and, as such, is not subject to U.S. Public Law 86-272, which protects taxpayers from net income tax if the only business activity within the state is mere solicitation of orders for the sales of tangible personal property, provided that the orders are approved and shipped from outside the state.

Certain exceptions apply in the case of a unitary group, which is a group of persons with more than 50% common ownership, either direct or indirect, and engaged in business activities that constitute a unitary business.

Any taxpayer with commercial activity in excess of $750,000 in the calendar year must register with the Oregon Department of Revenue within 30 days of exceeding that threshold. In addition, any person doing business in Oregon with commercial activity for the calendar year in excess of $1 million must file an annual CAT by April 15.

The CAT is based on the calendar year, regardless of the taxpayer’s federal year-end. A unitary group must register and file the tax as a single taxpayer, and may exclude receipts from its members’ intercompany transactions.

CAT payments must be paid quarterly to the department. For the 2020 tax year, a taxpayer must pay 80% of the tax due for the quarter or be at risk of being subject to a penalty of 20% of the amount of the tax.  CAT estimated payments are due April 30, July 31, October 31 and January 31.

Mazars Insight

Now is an important time to consider whether a CAT registration and filing is necessary, as it will affect many businesses operating in Oregon, in addition to those already filing an Oregon income tax return.

Please contact your Mazars professional for additional information.

Published on: January 7, 2020

The information provided here is for general guidance only, and does not constitute the provision of tax advice, accounting services, investment advice, legal advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisers.