Updated March 27, 2020
COVID-19 Update: The Oregon Department of Revenue reminds businesses that they are required to register for the Corporate Activity Tax (CAT) within 30 days of passing $750,000 in Oregon commercial activity for the year. Businesses that passed the threshold in late February will need to register with the department by the end of March.
Due to COVID-19 many businesses may be uncertain about when they will reach the $750,0000 given the effects of the COVID-19 pandemic and the governor’s order for Oregonians to stay home. Taxpayers should use their best judgement about when to register.
For business resources and updates on the effects of COVID-19, please visit our Business and Real Estate Update page.
Washington Businesses May be Subject to Oregon’s New Corporate Activity Tax (CAT)
In May 2019, Oregon State passed House Bill (HB) 3427A, which imposes a Corporate Activity Tax (CAT) on businesses with Oregon sourced commercial activity. The tax is described by legislators as “a tax for the privilege of doing business in Oregon” and is imposed in addition to Oregon state’s corporate income tax.
The CAT affects many Washington and other out of state businesses doing business in Oregon.
Businesses Subject to the CAT
Businesses such as sole proprietorships, single member limited liability companies, partnerships (multi-member limited liability companies, limited partnerships and limited liability partnerships), joint ventures, corporations and trusts are all subject to the CAT. Certain hospitals, long-term care facilities, non-profit entities and governmental entities are exempt from the CAT.
Under the CAT, “commercial activity” is described as the total amount realized from transactions and activity in the regular course of a person’s or company’s trade or business, without deducting for expenses. Businesses (a) whose commercial activity is more than $1 million for the calendar year; (b) do business in Oregon and; (c) who have a substantial nexus with Oregon State (meet the economic nexus thresholds discussed below) are subject to the CAT.
Businesses with a gross profit of at least $1 million in a given calendar year will be required to pay the CAT of .57% on commercial activity over $1 million plus an additional tax of $250, if the businesses do any of the following:
- Own or use a part or all of its capital in Oregon;
- Are authorized to do business in Oregon by the Oregon Secretary of State;
- Own property with a combined value of at least $50,000 in Oregon;
- Have payroll in Oregon of at least $50,000;
- Have, during the calendar year, commercial activity of at least $750,000 sourced to Oregon;
- Have at any time during the calendar, at least 25% of its total property, payroll or commercial activity in Oregon; or
- Reside in Oregon state or have its principal place of business for corporate, commercial or business purposes in Oregon
Businesses with gross profits of less than $1 million, which are part of a unitary group (group of persons or businesses with more than 50% common ownership) with gross profits of at least $1 million as a unitary group are subject to the CAT.
Commercial Activity Sourced to Oregon
Commercial activity is sourced to Oregon if a person or business is engaged in:
- Selling, renting, leasing or license of real property located in Oregon;
- Selling, renting, leasing or licensing of tangible personal property located in Oregon;
- Selling goods, if delivered to a purchaser in Oregon;
- Selling goods to purchasers outside of Oregon if known by the seller that the goods will be transferred to Oregon within 1 year of the sale;
- Selling a service that is delivered to Oregon; or
- Selling, renting, leasing or licensing intangible property if used in Oregon
Exceptions from the CAT
Dividends and distribution income from pass through entities (other than if received by a financial institutions), sale of capital assets, sale of groceries, sale to wholesalers and transactions between members of a unitary group are not subject to the CAT.
Wholesaler Exception. The Wholesaler exception allows for an exemption from the CAT if the business sells to a wholesaler in Oregon and receives certification at the time of sale from the wholesaler that the wholesaler will sell the goods and products outside of Oregon. “Wholesaler” means a person or company primarily doing business by merchant distribution of tangible personal property to retailers or to other wholesalers.
Registration and Filing Requirements
Businesses and unitary groups with commercial activity of more than $750,000 during the tax year are required to register with the Department of Revenue. Businesses are required to register for the CAT within 30 days of passing $750,000 in Oregon commercial activity for the year. Penalties for failing to register include a maximum monthly fine of $100 for every month the business fails to register or $1,000 in a calendar year.
Quarterly estimated payments of the CAT are required. The CAT is filed annually by April 15 with the Department of Revenue and filed separately from the state corporate tax.
This article is intended as a summary only. For additional details on how the new tax law may affect your business, please contact Natalya Belonozhko at firstname.lastname@example.org.