As a means of raising an anticipated $1 billion in new annual revenue for state education investments, Oregon has enacted a corporate activity tax (CAT), effective for tax years beginning on or after January 1, 2020.
What is the CAT?
The CAT is imposed on taxpayers for the privilege of doing business in the state of Oregon. It is not a transactional tax, such as a retail sales tax, nor is it an income tax. Oregon’s CAT is measured on a business’s commercial activity—the total amount a business realizes from transactions and activity in the normal course of business in Oregon.
Who does it apply to?
Any person, business, or unitary group of businesses doing business in Oregon may have obligations under the CAT. This includes such business entities as C and S corporations, partnerships, sole proprietorships, and other entities. The CAT is imposed on any taxpayer who regularly takes advantage of Oregon’s economy to realize commercial activity and has taxable commercial activity that exceeds a $1 million threshold. The tax is computed as $250 plus 0.57 percent of Oregon taxable commercial activity in excess of the $1 million threshold.
The CAT sets four thresholds to determine whether a business or unitary group has CAT obligations. These thresholds are based on the amount of commercial activity the business or unitary group earns in Oregon over the course of the year.
|Excluded–No Requirement||$750,000 or less||Business or unitary group with $750,000 or less of Oregon commercial activity is excluded from all CAT requirements.|
|Registration Threshold||$750,000+||Business or unitary group with Oregon commercial activity in excess of $750,000 must register for the CAT.|
|Filing Threshold||$1 million+||Business or unitary group with Oregon commercial activity in excess of $1 million must file a return.|
|Tax Payment Threshold||More than $1 million||Business or unitary group with taxable Oregon commercial activity in excess of $1 million must file a return and pay tax.|
Can you pass the CAT on to your customers?
The laws establishing the CAT do not prohibit any business from recovering a business expense when setting the total price for the sale, lease, or license of an item or the sale of a service. The CAT is imposed on the entity doing business in Oregon and is considered part of the business’s expenses. A business may include the CAT with other business expenses when setting the total price charged to customers. However, the total price charged (including any amount estimated to be attributable to the CAT) is included in the business’s commercial activity. There may be non-tax laws that regulate business pricing, advertising, or other industry trade practices, so businesses should confer with their own legal advisers or tax professionals.
When is the tax filing due?
The first tax filing is due April 15, 2021, and an extension of up to six months may be allowed to file a CAT return.
We recommend you speak with your tax advisor for information regarding potential exclusions, if quarterly payments are required for your company, assistance with calculating the taxable CAT amounts, or any other questions about the new corporate activity tax.
Dana R. Borys, An Accountancy Corporation is a boutique tax consulting, compliance, and representation firm working with start-up/emerging growth companies in the cannabis industry. Building connections beyond the code.