The Oregon Corporate Activity Tax is Coming
Filed under:Construction, Dental, Family Business, Healthcare, Private Companies, Small Business Services, Tax Strategies
The Oregon Department of Revenue has begun sending letters to business taxpayers in Oregon reminding them of the new Oregon Corporate Activity Tax (CAT), effective January 1, 2020. If you have any type of business filing in Oregon, including a corporation, partnership, or Schedule C for sole proprietors, you have received or soon will receive one of these letters.
So what should you do?
First, make sure you’re aware of whether your business will require registration for the CAT. The tax is based on a term called “Oregon commercial activity”, which has some important characteristics:
- Commercial activity includes gross revenue before any deductions, so whether or not you have profit is not relevant for this tax. Use your top-line gross receipts.
- The CAT is only based on sales delivered or services performed within the state of Oregon. You can exclude gross sales of products delivered to other states, or services performed in other states—even states like Washington that don’t have a separate income tax.
- Nonprofit organizations and government entities are not subject to the tax.
- While almost every for-profit industry is subject to the tax, two important exceptions are the sale of motor vehicle fuel, and the wholesale or retail sales of groceries (but only “food” as defined by federal law; non-food products, alcohol, and tobacco are not considered groceries, nor are any marijuana products).
After considering the definition, if you expect to have Oregon commercial activity of less than $750,000 for 2020, you can stop worrying about this tax—you are not required to register for it, though you’ll need to register right away if you cross that threshold.
There is no registration available yet, but in their letters, the Department of Revenue promises that electronic registration will become available through Revenue Online in early 2020. During 2020, an estimated quarterly payment of your CAT is due at the end of the month after each quarter (April 30, July 31, October 31, and January 31) and then a 2020 CAT tax return will be due by April 15, 2021. We haven’t seen any drafts of these forms yet; all we know are the due dates. Only a business expecting to owe more than $5,000 for the year in CAT is required to pay estimates (see the calculation below, but generally a business with more than $1.8 million of gross Oregon sales). A group of related businesses under common control (called a “unitary group”) must register, file and pay this tax as one entity.
How is the tax calculated? It’s complicated and your CPA should help you understand the details, but the tax is calculated on your net Oregon commercial activity. That activity is determined by taking your Oregon gross revenue, as described above, and subtracting either 35% of your cost of goods, or 35% of your gross wages paid to employees, whichever is higher.
If you’re excluding sales in other states from your gross revenue, make sure you only consider the cost of goods or wages related to the Oregon sales. Then, subtract a $1 million exemption. The tax is 0.57% of the net activity, plus a fixed $250.
For example, if you own a business with $5 million of Oregon service revenue and you pay $3 million in Oregon employee gross wages, your net Oregon commercial activity is $5,000,000 – $1,050,000 (35% of wages) – $1,000,000 exemption, or $2,950,000, and the Corporate Activity Tax on that would be $17,065 annually.
There is plenty of information still to come about this tax. The Oregon Department of Revenue promises to release additional instructions. There is also an initial Frequently Asked Questions available on the State of Oregon website. We’ll continue to update our website as additional information is released, but please contact a Jones & Roth tax professional with specific questions about how the Corporate Activity Tax affects you.