Oregon Corporate Activity Tax (CAT) Update
Happy New Year! As we welcome 2020 and finalize our preparations for the upcoming busy season, we’d like to keep you updated on recent developments to Oregon’s new Corporate Activity Tax (CAT), which is effective January 1, 2020.
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 or your business have received one, it does not necessarily mean that you will be impacted by the tax; however, many will. All businesses doing business in Oregon, regardless of entity type, must register within 30 days of exceeding $750,000 in Oregon-sourced commercial activity in the calendar year. Penalties will be assessed for failing to register timely.
Registration is open and can be found here.
You can estimate your commercial activity tax by performing the following calculation:
Step 1: Determine your commercial activity ratio
- Oregon commercial activity / (everywhere commercial activity plus exclusions) = commercial activity ratio (rounded to four decimal places)
Step 2: Determine your cost subtraction
- Commercial activity ratio X total labor costs X 35% = labor costs apportioned to Oregon
- Commercial activity ratio X total cost inputs X 35% = cost inputs apportioned to Oregon
- The greater of either your labor costs apportioned to Oregon of your cost inputs apportioned to Oregon is your cost subtraction. Your cost subtraction may not exceed 95% of your Oregon commercial activity.
**alternative calculation methods may be available to you and your industry. Reach out to your Perkins team members for guidance.
Step 3: Determine your taxable Oregon commercial activity
- Oregon commercial activity – cost subtraction = taxable Oregon commercial activity
Step 4: Determine your Oregon Corporate Activity Tax Liability
- (Taxable Oregon commercial activity – $1 million threshold) X .57% tax rate + $250 = Oregon Corporate Activity Tax Liability
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. 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. The 12 temporary rules can be found on the Secretary of State’s website. Rules for the CAT can be found by searching current rules for Chapter 150, Division 317.
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
If you think the tax will apply to you—or you’re not sure—now is the time to reach out to us here at Perkins. We’re happy to help answer any questions you may have and assist you in implementing a compliance solution.
Author: Sean Wallace, CPA, Senior Tax Manager