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State & Local Tax Update: Oregon Amends Recently Enacted Corporate Activity Tax

Posted 3:18 PM by

Oregon’s recently established Corporate Activity Tax (CAT) was amended July 23 when Gov. Kate Brown signed H.B. 2164 into law. The CAT, effective for tax years beginning on or after Jan. 1, 2020, is based on Oregon gross receipts and provides taxpayers a 35% subtraction based on the greater of compensation or cost inputs.

H.B. 2164 made the following key changes to the Oregon CAT:  

  • Modified the receipts threshold required to be an “excluded person” to be any person with commercial activity that does not exceed $750,000 of Oregon gross receipts; (threshold was previously $1 million)
  • Revised the definition of “cost inputs” to refer to the amount of cost of goods sold deducted in calculating federal taxable income
  • Added a section to allow vehicle dealers to collect the estimated amount of tax from the purchaser of a motor vehicle related to the commercial activity attributable to the sale of a vehicle
  • Added definitions of commercial activity for financial institutions, including clarifying that interest income, including service charges, received by financial institutions is commercial activity
  • Added definitions of commercial activity for insurance providers
  • Modified the definition of commercial activity to exclude the following:
    • Federally reinsured premiums or income from transactions between a reciprocal insurer and its attorney-in-fact
    • Receipts from hedging transactions as defined in section 1221 of the Internal Revenue Code or a transaction accorded hedge accounting treatment under Financial Accounting Standards Board Statement No. 133
    • Compensation received by an employee
    • Local taxes collected on the sale of meals or prepared food and beverage
    • Tips/gratuities collected by restaurants or other food establishments
    • Payments for labor costs that are made by a general contractor to a subcontractor pursuant to a contract for residential real estate construction applicable for tax years beginning Jan. 1, 2020, through tax years beginning before Jan. 1, 2026
      • This exclusion is allowed only for single-family residential construction located in Oregon; is not allowed for payments between subcontractors; does not apply to payments for materials, land, or permits; and shall be 15% of payments for labor by the general contractor.
  • Revised the cost input calculation to exclude:
    • Expenses from transactions among members of a unitary group
    • Cost inputs or labor costs which are not related to the commercial activity

The Oregon Department of Revenue is currently working on administrative rules to provide clarity and direction to taxpayers regarding the Oregon CAT. Additional details will be provided when the information is released.

About the Author
Stephen Royster is a partner in Katz, Sapper & Miller’s State and Local Tax Group. Stephen helps clients navigate the multistate tax landscape by advising them on tax law changes in every state, ensuring they are efficiently structured, and ultimately protecting their bottom line. Connect with him on LinkedIn.

 

About the Author
Amy Zimmer is a director in Katz, Sapper & Miller's State and Local Tax Group. Amy advocates for clients in the multistate tax arena, protecting their assets by resolving complex compliance issues and negotiating settlements with taxing jurisdictions. Connect with her on LinkedIn.

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