Oregon Commercial Activities Tax On Gross Receipts Effective In 2020

On May 16, 2019, Oregon Governor Kate Brown signed House Bill 3427 into law, enacting a new Corporate Activity Tax (CAT) on entities doing business in the state beginning Jan. 1, 2020. The tax is in addition to the state’s current income tax obligation as revenue generated from the CAT will be used for education spending. The CAT applies to a “person” with commercial activity in excess of $1 million and has an annual calendar year return due April 15. The term “person” includes C corporations, S corporations, partnerships and entities that are disregarded for federal income tax purposes. Businesses otherwise operating on an alternate fiscal year are still required to file a return on a calendar year basis. Entities may be required to make estimated payments throughout the calendar year.

The CAT applies to all transacted business and related activities of a “person” in Oregon, including financial institutions and insurers. “Excluded persons” that are not subject to the CAT include non-profit organizations, tax-exempt farming co-ops, governmental entities and qualified medical entities, such as hospitals and long-term care facilities. Commercial activity is the amount of gross receipts realized from transactions and activity in Oregon, with numerous exclusions. Examples of exclusions include:

  • Distributive income received from a pass-through entity;
  • Revenue received by an entity that is mandated by contract to be distributed to another person or entity,such as a sales commission to someone who is not an employee, including split-fee real estate commissions;
  • Receipts from sales to a wholesaler in this state, if the seller receives certification at the time of sale from the wholesaler that the wholesaler will sell the purchased property outside this state; and,
  • Receipts realized by a vehicle dealer certified under Oregon statutes from the sale or other transfer of a motor vehicle to another vehicle dealer for the purpose of resale by the transferee vehicle dealer, but only if the sale or other transfer was based upon the transferee’s need to meet a specific customer’s preference for a motor vehicle.

A subtraction from reportable gross commercial activity is allowed for 35 percent of the greater of apportioned cost of goods inputs or apportioned labor costs. The total subtraction cannot exceed 95 percent of the gross commercial activity amount reported. Commercial activity must be calculated using the same accounting method as used for federal income tax purposes.

Entities are subject to the CAT if the entity has substantial nexus with the state or if any of the following applies:

  • Owns or uses capital in the state;
  • Is registered with the Oregon Secretary of State to do business in the state; or,
  • Has bright-line presence in the state based on any of the following factors.
    • Owns property at any time in the state with a value of at least $50,000 (valued at original cost plus rented property valued at 8 times rental expense);
    • Has payroll in the state of at least $50,000;
    • Has commercial activity of at least $750,000 in the state;
    • At any time during the calendar year has at least 25 percent of the total property, payroll or commercial activity within the state; or,
    • Is a resident of the state or domiciled in the state.

Members of a unitary group must register, file and pay as a single taxpayer. Unitary groups are entities which share more than 50 percent common ownership and centralized management, economies of scale or functional integration.

Members of a unitary group do not necessarily have to be in the same line of business. Intercompany sales within the unitary group are eliminated and excluded from the tax base.

Entities with commercial activity in excess of $750,000 must register for the CAT within 30 days of exceeding the registration threshold; however, no tax is due until commercial activity exceeds $1 million. Entities with commercial activity in excess of $1 million must file a CAT return annually by April 15 (the first return reporting commercial activity for the 2020 calendar reporting year will be due on or before April 15, 2021) and pay the associated tax. Extensions may be requested on or before April 15 for a six-month extension to file to be granted. An extension to file is not an extension to pay the tax.

The CAT begins at $250 on commercial activity up to $1 million, plus an additional 0.57 percent surcharge on net reported amounts of commercial activity in excess of $1 million.

Estimated payments are required when the expected current year CAT will exceed $5,000 (any entity with net reported commercial activity in excess of $1,833,245). Estimated payments are due quarterly (April 30, July 31, Oct. 31 and Jan. 31) with the first quarterly estimate due on or before April 30, 2020.