What you need to know NOW about Oregon’s Corporate Activity Tax (CAT)
Background: Oregon’s new Corporate Activity Tax is effective January 1, 2020. It applies to all businesses, not just corporations. Businesses or unitary groups with more than $1 million of taxable Oregon commercial activity are subject to the tax. The tax is equal to $250 plus 0.57% of gross receipts from Oregon commercial activity less 35% of “cost inputs”, less $1 million. The law excludes 43 specific types of income from the definition of commercial activity. See our newsletter from December 4th for more information.
While the Oregon Department of Revenue has issued some rules detailing how the tax will be administered, many are still outstanding, thus there are many questions for which we have no answer. We expect to have more complete information by the end of January. Until then, here’s what your business needs to do:
- Registration: Businesses and unitary groups (see below) with Oregon commercial activity of $750,000 or more must register for the CAT within 30 days of meeting the $750,000 threshold. https://www.oregon.gov/DOR/programs/businesses/Pages/corporate-activity-tax.aspx
Registration is quick, asks only for basic information, and requires establishment of an Oregon Revenue Online account in the process, if you don’t already have one.
- Unitary groups: Businesses comprising a “unitary group” must register, file and pay the tax as a single taxpayer. DO NOT REGISTER YOUR BUSINESS UNTIL YOU KNOW WHETHER OTHER BUSINESSES ARE INCLUDED IN YOUR UNITARY GROUP. Members of the group may include for example, individuals, LLCs, partnerships, S corporations, and C corporations, and may include rental activities and businesses with little in common with each other. Generally speaking, a UG is a group of businesses with more than 50% common ownership which share or exchange something of value. Whether or not there is a sharing or exchange of value depends on whether there is (1) centralized management, (2) economies of scale, or (3) functional integration. The administrative rules include an example of three businesses – an engineering company, a seller of tangible personal property, and a consulting service, which are members of the same unitary group. Please call us before you register if you think you are part of a unitary group.
- Calendar year vs Fiscal year: The law is clear that businesses must file and pay the tax based on the calendar year. We are hoping for rules which allow businesses with fiscal year ends to use that fiscal year end information to compute the calendar year tax, but we have no confirmation of that.
- Filing returns and paying the tax: Returns are due on April 15th of each year. Taxpayers expecting more than $5,000 of tax liability for a year (which corresponds to taxable commercial activity of $1,833,245) are required to pay estimated tax. Estimated tax payments are due on April 30th, July 31st, October 31st, and January 31st of the succeeding year. Thus, the initial return will be due 4/15/21 and the first estimated tax payment due date is 4/30/20.
- Passing the CAT on to customers: Nothing prohibits a business from passing the tax through to customers, although the tax collected will be included in taxable commercial activity for the succeeding year.
Lack of clarity related to the CAT is frustrating to all of us. We’ll let you know as soon as we get further information from the Department of Revenue.