Oregon’s New Gross Receipts Tax What It Means to Oregon Businesses
By Greg Henderson
August 27, 2019
On May 16, 2019, Governor Kate Brown signed House Bill 3427 into law.
The legislation accomplishes the following:
Establishes a “Fund for Student Success” that is separate and distinct from the state’s general fund.
Adopts a new Corporate Activity Tax (CAT) imposed on all types of business entities.
Every tax should include an understanding of its application and its purpose. The Governor’s signing of a bill into law is rarely the last step. Often there are determinations that certain phrasing and actual statements must be corrected according to law and recommended amendments included. It’s a process.
Over the next four or five months we will be adding new information about this law as it becomes available. The final understanding with thorough explanation may not be completed until next spring, though we intend to provide all the details necessary for determining the responsibility of Oregon’s businesses. Information can be followed at the Southern Oregon Business Journal website, www.southernoregonbusiness.com
NFIB State Director Anthony Smith explains the tax in this way:
Known by supporters as the Student Success Act, the bill directs more than $1 billion in new spending annually for K-12 education via the creation of a new Corporate Activities Tax (CAT). The CAT is a consumption-based, business entity-level gross receipts tax that takes effect January 1, 2020 (so long as the measure is not rejected by voters via referendum.)
The tax is $250 + 0.57% of Oregon sales for businesses with $1 million or more in annual gross receipts, or “commercial activity,” a defined term in the legislation, but with many exclusions. It applies to all business entities, regardless of business structure: C corps, S corps, partnerships, LLC’s, and sole proprietorships. Businesses with $750,000 in commercial activity must file, even if they have no tax liability. Those businesses with $750,000 or less in commercial activity are exempt.
The proposal includes a 35% subtraction against commercial activity: The greater of cost of goods sold or labor costs. The bill also includes a 0.25 percentage point reduction in personal income taxes for most Oregonians, excluding those that pay at the 9.9 percent rate. This provision is separate from the sections in HB 3427 that established the CAT, but will impact each business-owning taxpayer’s bottom-line tax liability. The new individual tax rates also begin in tax year 2020.
The bill passed by a vote of 37-21 in the House, and 18-11 in the Senate.
Frequently asked questions
What is the Corporate Activity Tax (CAT)?
A: The CAT is imposed on businesses for the privilege of doing business in Oregon. The amount of the CAT is based on taxable commercial activity.
When will the CAT start?
A: The CAT is applicable to tax years beginning January 1, 2020.
How are “commercial activity” and “taxable commercial activity” different?
A: Commercial activity is gross receipts originated in Oregon. Taxable commercial activity is commercial activity, less certain expenses apportioned to Oregon.
Who is subject to the CAT?
A: All persons or unitary group of persons with Oregon commercial activity in excess of $750,000 are required to register for the CAT. All persons or unitary group of persons with Oregon commercial activity in excess of $1 million are required to file a CAT return. All persons or unitary groups of persons with taxable Oregon commercial activity in excess of $1 million are required to pay the tax.
Persons or unitary groups of persons includes C and S corporations, partnerships, sole proprietorships, and other business entity types.
Who is not subject to the CAT?
A: The CAT legislation includes a list of business entities that are not subject to the CAT. See HB 3427, Section 58(6) and HB 2164, Section 50.
How often am I required to file and pay?
A: CAT returns are due each year on April 15. CAT estimated payments are due April 30, July 31, October 31, and January 31 for the preceding quarter. Further instructions on how to make payments will be posted soon.
When do I need to register for the CAT?
A: Registration is due within 30 days of when you know you’ll meet the $750,000 registration requirement. A penalty of $100 per month may be assessed for failing to register, up to $1,000 per calendar year.
What are the tax rates for the CAT?
A: The tax rate for the CAT is $250 plus .57% of taxable commercial activity in excess of $1 million.
What items are excluded from the definition of commercial activity?
A: The CAT legislation has a list of items that are excluded from the definition of commercial activity. See Section 58(1)(b) of HB 3427 (2019), as modified by Section 50 of HB 2164 (2019).
How can I contact the Oregon Department of Revenue with questions about the CAT?
A: Visit our website at https://www.oregon.gov/DOR/. Click on the “Business” link, then the “Corporate Activity Tax” in the “Information” column on the next page. We have a mailing list registration for future updates. Also, you can email your questions to Cat.firstname.lastname@example.org.