The Oregon Corporate Activity Tax (CAT) is effective on January 1, 2020. We have previously communicated regarding some of the basics of the CAT and those communications can be found on our website under the Blogs & News tab. Oregon is continuing to release guidance, much of it in the form of draft administrative rulings. These rulings are being provided to help guide taxpayers in the process of registering and paying estimated taxes. There is no tax return due until spring 2021.
The Oregon Department of Revenue website includes much more information than what is discussed in this communication. Here is the link to the Oregon CAT homepage.
We want to keep you informed of some of the more pertinent developments and provide you with information to assist you through this process.
The Oregon Department of Revenue has been sending information letters to potentially affected taxpayers for the past few months notifying them of the new tax. If you received a letter, it doesn’t necessarily mean you will be paying any tax. Conversely, if you didn’t receive a letter, it doesn’t mean you do not need to pay the tax. All businesses doing business in Oregon, regardless of entity type must register within 30 days of exceeding $750,000 in Oregon-sourced revenue/receipts in the calendar year. Penalties will be assessed for late registration.
Before you register, you need to consider a couple of items.
- Is your business part of a Unitary Group, and if so, the registration and computation of revenue maybe for the Unitary Group. A Unitary Group must have 50% common ownership (direct or indirect) and have the characteristics of a unitary group. This link provides guidance to determine if you are part of a Unitary Group.
- You need to understand what is considered Oregon-sourced revenue/receipts to determine if you have reached the $750,000 level where you would need to register. Note that revenue is computed using the same methodology you would use for reporting income on your commercial activity’s tax return (cash or accrual basis).
- The link to revenue sourcing for the sale of tangible property on the Oregon website is here.
- The link to revenue sourcing for sale other than tangible property on the Oregon website is here.
- Additionally, we have an article posted on our website that summarizes revenue sourcing for services and that link is here.
- Some revenue/receipts are excludable from CAT. The law does provide for exclusions of certain types of revenue. For example, the following items are excluded:
- Interest and dividend income except for interest income on credit sales.
- Tax refunds.
- Receipts from the sale of an asset.
- Receipts from transactions between members of the unitary group.
- Distributive income received from a pass-through entity.
- Certain Agent relationship revenue.
There are numerous other exclusions you may qualify for on the Oregon Department of Revenue CAT website.
How to Register
Registration for the CAT, as well as subscribing to the CAT mailing list is online and that link is here.
Computing/Estimating Your CAT
You can calculate/estimate your CAT using the following methodology:
Step 1: Determine your commercial activity ratio
- Oregon sourced revenue / total revenue (including exclusions) = commercial activity ratio.
Step 2: Determine your cost subtraction
- Commercial activity ratio x total labor costs x 35 percent = labor costs apportioned to Oregon.
- Commercial activity ratio x total cost inputs (COGS) x 35 percent = cost inputs apportioned to Oregon.
- The greater of either your labor costs apportioned to Oregon or your cost inputs apportioned to Oregon is your cost subtraction.
As an alternative method to determine your cost subtraction you may use separate accounting to identify which specific labor costs or cost inputs are solely attributable to Oregon Commercial activity.
Step 3: Determine your taxable Oregon commercial activity
- Oregon commercial activity – Cost subtraction (Step 2) = taxable Oregon commercial activity.
Step 4: Determine your Oregon Corporate Activity Tax Liability
- (Taxable Oregon commercial activity – $1 million threshold) x 0.57 percent tax rate + $250 = Oregon Corporate Activity Tax Liability. If Oregon commercial activity is less than 1M, no tax is due.
Quarterly Estimated Tax Payment
Estimated payments will be required for businesses that will exceed $5,000 of Corporate Activity Tax. The first estimated payments for 2020 will be due April 30.
Oregon Administrative Rules
To clarify many issues surrounding the new tax the Oregon Department of Revenue has published 12 administrative rules which are temporary and effective for the next 180 days. Additional rules will be published in February and March of 2020. We will not notify you of additional rules, but the rules can be found on the Secretary of State’s website using this link.
The rule numbers and subject matter they address include:
- 150-317-1000 Definition of commercial activity
- 150-317-1010 Substantial nexus guidelines for the Corporate Activity Tax
- 150-317-1020 Factors used in determining whether a group of persons forms a unitary group
- 150-317-1030 Sourcing of tangible property
- 150-317-1040 Sourcing of sales other than sales of tangible property
- 150-317-1100 Agent exclusion
- 150-317-1130 Property brought into Oregon
- 150-317-1200 Labor cost and cost inputs subtraction
- 150-317-1300 Estimated tax: When estimated payments are required
- 150-317-1310 Estimated tax payments: Delinquent or underestimated payment or both constitutes underpayment
- 150-317-1320 Estimated tax: Unitary groups and apportioned returns
- 150-317-1330 Extension of time to file
- 150-317-1150 Retail Sale of Groceries Exclusion
- 150-317-1400 Determining Property Resold Out of State and Methods of Determining
- 150-317-1410 Motor Vehicle Resale Certificate Documentation Required
If you have any questions, please reach out to your tax professional at McDonald Jacobs!
James Kim, CPA