Oregon Corporate Activity Tax

June 2019 | Article

By Laura Robichaud and Sara Ptacek

Oregon recently signed a new law effective January 1, 2020, allowing the state of Oregon to collect a Corporate Activity Tax (CAT). The Oregon CAT will be imposed on businesses having a sufficient level of commercial activity and nexus within the state of Oregon.

Oregon nexus is established if you are a resident of the state, domiciled in the state for corporate, commercial or other business purposes, or meet one of the following thresholds during the calendar year:

  • Own or use part or all capital in Oregon
  • Hold a certificate of existence or authorization issued by the Secretary of State authorizing the person to do business in Oregon
  • Have bright-line presence in Oregon

A business has bright-line presence in Oregon for CAT purposes if any of the following applies:

  • Owns property in Oregon with an aggregate value of at least $50,000
  • Has Oregon-sourced payroll of at least $50,000
  • Has Oregon-sourced sales or taxable commercial activity of at least $750,00
  • Has at least 25% of their total property, payroll or commercial activity in Oregon

Taxable 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.”

Items excluded from taxable commercial activity include contributions to capital, sales of motor fuel, dividends, distributive income received from pass-through entities, receipts from sales to wholesalers or retail sale of groceries and more.

The Oregon CAT is calculated on an annual basis as follows:

  • $250 base on the first $1 million of taxable commercial activity
  • 0.57% of the amount in excess of $1 million of taxable commercial activity

Several entities are exempt from Oregon CAT, including nonprofits, certain hospitals, state 529 plans and others. Taxpayers with taxable commercial activity of less than $1 million are also exempt.

The Oregon CAT is a tax on modified gross receipts. Taxpayers are allowed a subtraction from taxable commercial activity of 35% of the greater of the taxpayer’s annual cost inputs or labor costs. Cost inputs are defined as “the costs of goods sold as calculated under IRC Section 471.” Labor costs are defined as “the total compensation of all employees, not to include compensation paid to any single employee in excess of $500,000.” The subtraction is also apportioned to Oregon in the same manner of Oregon provisions which is currently single sales factor. The subtraction cannot exceed 95% of the taxpayer’s commercial activity in Oregon.

The effective date of January 1, 2020, allows potential affected businesses the opportunity to plan for implementation. Contact your Eide Bailly professional or a member of our State and Local Tax Team to learn more.

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