Effective January 1, 2020, Oregon enacted a Commercial Activity Tax (CAT) with the goal to raise $1 billion of annual revenue to be used for educational purposes. This tax combines features of the gross receipt Ohio Commercial Activity Tax (CAT) and the margins-based Texas Franchise tax. The Oregon Department of Revenue has created a webpage that provides information and FAQs regarding this new tax.
Basics of the Tax Calculation
The tax is imposed on Oregon commercial activity in excess of $1 million at a 0.57% tax rate, plus a $250 minimum fee. To arrive at Oregon commercial activity, a taxpayer starts with Oregon sales and then deducts the 35% of the higher amount – either apportioned labor expense or cost of goods sold. The CAT also requires business entities that have common ownership and operate a unitary business to file on a combined basis. For a more in-depth explanation and some examples, please refer here.
The registration requirements can take taxpayers by surprise. While a tax liability is not owed until $1 million of Oregon commercial activity is reached, the registration threshold is imposed at just $750,000 of Oregon commercial activity. Thus, it is possible to have a filing requirement despite having no tax liability. Registration is due within 30 days of reaching the $750,000 threshold and can be done via this link.
The estimated tax for Oregon CAT is filed and paid quarterly based on a calendar year reporting period with the first quarter due April 30, the second quarter due July 31, the third quarter due October 31 and the fourth quarter due January 31. Due to the complications caused by the coronavirus, Oregon has stated that they will not impose underpayment of estimated tax penalties as long as taxpayers make a good faith effort in determining their estimated tax liability. The first annual CAT return is due April 15, 2021.
Taxpayer Action Items
Companies that have sales to Oregon customers and/or deliver goods to Oregon destinations should:
- Review their Oregon sales from January 1, 2020 through March 31, 2020 to determine if the amount exceeds $750,000;
- If the threshold is met, make an estimate of what the net amount would be after taking the deduction described above. If the net amount is estimated to exceed $750,000, then an OR CAT registration should be made. If the net amount is over $1 million, then a first quarter Oregon CAT payment should also be made by the end of this month.
- If Oregon activity is approaching the registration requirement, monitor the sales in case the $750,000 threshold is exceeded, or anticipate when that will occur, and register and begin paying the CAT as applicable.
If you have any further questions, please contact your Sikich tax professional.