Oregon Corporate Activity Tax Set to Go Into Effect 2020

With the passage of House Bill 3427 on May 16, 2019, Oregon is expected to implement a corporate gross receipts tax — or commercial activity tax (CAT) — that will apply to all individuals doing business in Oregon. Set up to fund education, the program will not affect exempt entities, such as 501(c) and government organizations. Below is brief summary of items to consider.

Who Will the Oregon CAT Affect?

CAT will impact individuals and entities with over $1 million in gross receipts sourced to the state of Oregon, including:

• Partnerships
• LLPs & LLCs
• C and S Corps
• Disregarded Entities
• Other 

What Types of Income Are Subject to the Oregon CAT?

It’s important to note that 43 types of income are excluded from the CAT, including:

• Interest income
• Proceeds from sale of 1221; 1231 assets
• Proceeds from stock issuances
• Receipts from transactions among members of a unitary group
• Dividends received
• Distributive income from PTE
• Contributions to capital
• Tobacco, marijuana and alcohol receipts
• Grocery receipts
• Motor vehicle fuel
• Certain medical services 

Exemptions are available for:

• Basic necessities
• Agricultural products 

When Will the Oregon CAT Go Live?

The new tax will go into effect for tax years beginning on or after January 1, 2020, with more about the law expected to be released this summer and fall.

How Will the Oregon CAT Be Calculated?

The tax will impose a $250 minimum fee plus a 0.57% tax on Oregon-sourced receipts over $1 million less a 35% reduction for:

• The greater of the cost of goods sold or labor costs (sourced to the state).
• The deduction cannot exceed 95% of Oregon receipts. 

Additional Items to Note

• Unlike the Ohio CAT, the Oregon CAT is in addition to the Oregon Corporate Income Tax.
• Combined unitary filing is required for businesses with 50% common ownership.
• Any person or group with Oregon receipts exceeding $750,000, or property or payroll of at least $50,000, is required to register with the state, despite the $1 million tax due exception.
• PL 86-272 will not apply. Typically for sales of tangible personal property when a company has solicitation only in a state jurisdiction, those sales are exempt from tax. However, Oregon has stated the CAT will not be considered an income tax and public law protection will not apply.
• This will be an annual tax with quarterly estimated tax payments.

The new CAT is expected to go into effect in January 2020. However, it’s not a done deal as of yet. It is very possible voters will get to decide on the tax in a special vote, which is exactly what happened a few years ago when the business community fought a similarly proposed tax and won.
 
Please contact a member of your service team, or Hannah Prengler at hprengler@cohencpa.com for further discussion.

Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.