Oregon Gross Receipts Tax is now in effect

Oregon’s business activity tax enacted in 2019 went into effect on January 1, 2020. While titled the “Corporate Activity Tax,” the definition of a “person” upon whom the tax is imposed broadly includes, among others, C corporations, S corporations, partnerships, LLCs, trusts, and entities disregarded for federal income tax purposes. Persons with more than 50% common ownership that are engaged in activities constituting a unitary business are treated as a combined, single taxpayer. Specified “excluded persons” are not subject to the tax, including various IRC §501 organizations, governmental entities, and certain hospitals.

The Corporate Activity Tax, or CAT, is a modified gross receipts tax imposed for the privilege of doing business in the state. A person is doing business, or has substantial nexus if any of the following applies:

• Owns or uses part of or all its capital in the state,
• Holds a certificate of existence or authorization to do business issued by the Secretary of State,
• Has nexus under the U.S. Constitution, or
• Meets any of the bright-line thresholds of:
  • $750,000 in Oregon sourced commercial activity,
  • $50,000 in Oregon payroll,
  • $50,000 in Oregon property, or
  • Over 25 percent of a person’s total commercial activity, payroll, or property is sourced to Oregon.

“Commercial activity” is defined as “the total amount realized by a person, arising from transactions and activity in the regular course of the person’s trade or business, without deduction for expenses incurred by the trade or business.” Commercial activity is basically a person’s gross receipts. However, there are 43 exclusions, including but not limited to interest income, dividends, contribution of capital, distributive income received from a pass-through entity, and receipts from the sale, exchange, or disposition of an IRC §1221 or §1231 asset. Special rules apply to financial institutions and insurance companies.

A person doing business in Oregon, as described, is required to register as a taxpayer only if Oregon commercial activity exceeds $750,000.

A person doing business in Oregon, as described, is required to register as a taxpayer only if Oregon commercial activity exceeds $750,000. Yet, a person required to register is required to file a return and remit tax only if taxable commercial activity exceeds $1 million. The tax due is equal to $250 plus 0.57% of the taxpayer’s taxable commercial activity over $1 million.

Taxable commercial activity is Oregon's commercial activity less 35% of the greater of the taxpayer’s apportioned cost of goods sold or apportioned labor costs. The taxpayer’s income tax apportionment is applied to the eligible cost deductions to determine the allowable subtraction. The total subtraction must not exceed 95% of the taxpayer’s commercial activity in the state.

The tax is applied on a calendar year basis for all taxpayers, regardless of the taxpayer’s accounting year for income tax purposes. An annual CAT return is due April 15, and payments are due on or before the last day of January, April, July, and October for the previous calendar quarter. The initial CAT return is due April 15, 2021, and the initial quarterly payment is due April 30, 2020. However, the Oregon Department of Revenue will not require quarterly payments if the annual tax is less than $5,000.

If you have any questions regarding the new Oregon CAT, please contact us directly.