Earlier this year, Oregon Governor Kate Brown signed into law House Bill 3427, which created an Oregon corporate activity tax (CAT), effective beginning January 1, 2020. Businesses subject to the tax will be taxed at a rate of 0.57% on taxable receipts over $1 million, net of certain deductions, plus $250. There is no payment obligation for those with taxable receipts, net of deductions, of less than $1 million.
When determining your exposure to this tax, here are a few things to consider:
- The CAT applies to most forms of businesses, including, but not exclusively and with exceptions:
- Limited liability companies
- Registration for this tax is due within 30 days of when you anticipate your business meeting the registration requirement of $750,000 of Oregon sourced receipts.
- Gross receipts are those sourced to Oregon. All persons or unitary groups with Oregon gross receipts in excess of $1 million are required to file a CAT return. There are certain types of receipts that are excluded from the total, and the determination for what is sourced to Oregon can be complicated for some taxpayers.
- Businesses may deduct 35% of either cost of goods sold (as defined by IRC § 471) or wages, not including compensation to any single employee in excess of $500,000.
- The tax requires that businesses with more than 50% of common ownership to file a combined return as a unitary group.
- CAT returns are due each year on April 15th. CAT estimated tax payments are due April 30th, July 31st, October 31st, and January 31st, for the preceding quarter. Further instructions on this are still pending.
Because the Oregon CAT is not included with the income tax filing, it is important to determine how your business is going to ensure compliance. Because this law is new and includes many complexities, we encourage you to give us a call at (503) 227-0581, so that we can assist you with any questions regarding this new tax.
Brian Rapp, CPA