Washington Businesses May be Subject to Oregon’s New Corporate Activity Tax (CAT)
In May 2019, Oregon passed House Bill 3427A, which imposes a Corporate Activity Tax (CAT) on businesses with Oregon-sourced commercial activity.
The tax is described by legislators as a tac "for the privilege of
doing business in this state" 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, nonprofit 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) who 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:
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:
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. 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.<-- Return to blog