Oregon releases two additional temporary Corporate Activity Tax (CAT) administrative rules, Oregon Legislature adjourns without passing CAT technical amendment legislation

Overview

The Oregon Corporate Activity Tax (Oregon CAT) became effective in late September 2019 and is applicable for years beginning on or after January 1, 2020.¹ The Oregon Department of Revenue previously released sixteen temporary administrative rules relating to various provisions of the Oregon CAT. This tax alert summarizes two additional temporary administrative rules released by the Oregon Department of Revenue on March 6, 2020.

Also, the Oregon Legislature recently adjourned its 2020 legislative session without passing legislation containing technical amendments to the CAT.

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Brief summary of Oregon CAT

The Oregon CAT is imposed on “taxable commercial activity” in excess of $1 million at the rate of 0.57 percent, plus a flat tax of $250 for the first $1 million of taxable commercial activity.² Taxpayers whose taxable commercial activity does not exceed $1 million are exempt from the Oregon CAT.³ The tax is imposed on the person receiving the commercial activity and is not imposed directly on the purchaser.⁴ Generally, “taxable commercial activity” means the “total amounts realized” by the taxpayer arising from transactions and activity in the regular course of the taxpayer’s trade or business that are sourced to Oregon,⁵ reduced by the applicable subtraction for either cost inputs or labor costs.⁶ The CAT provides a number of specific exclusions from the definition of commercial activity.⁷ For additional details on the general provisions of the Oregon CAT, see Deloitte Multistate Tax Alerts, Oregon enacts Corporate Activity Tax (CAT), imposed on modified gross receipts and Oregon “Corporate Activity Tax” now effective law, applies to tax years beginning on or after January 1, 2020.

The Oregon CAT is a separate and distinct tax imposed by the state, which will not directly affect Oregon’s corporate excise/income tax systems. The Oregon corporate excise tax, codified in Chapter 317, is a net income tax imposed on C corporations doing business in Oregon. Whereas the Oregon corporate income tax, codified in Chapter 318, is imposed on C corporations that are not doing business in Oregon but that have income sourced to Oregon. Oregon has codified the CAT legislation in a new Chapter 317A of the Oregon Revised Statutes.⁸ As such the Oregon CAT will apply in addition to the Oregon corporate excise tax and Oregon corporate income tax.

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New temporary CAT administrative rules

The Oregon Department of Revenue previously filed sixteen temporary administrative rules with the Oregon Secretary of State.⁹ For additional details on those previously filed temporary rules, see Deloitte Multistate Tax Alerts, Oregon releases 12 temporary Corporate Activity Tax (CAT) administrative rules and Oregon releases four additional temporary Corporate Activity Tax (CAT) administrative rules. The Oregon Department of Revenue is expected to release permanent rules by June 28, 2020. On March 4, 2020, the Oregon Department filed two additional temporary administrative rules with the Oregon Secretary of State¹⁰:

• Or. Admin. R. 150-317-1120: Definition of Single-Family Residential Construction
• Or. Admin. R. 150-317-1220: Employee Compensation Labor Cost Subtraction

All of the temporary CAT administrative rules are open for input from the public. To provide input to the Oregon Department of Revenue regarding these administrative rules, taxpayers are instructed to email Cat.rules.dor@oregon.gov.

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Oregon Legislature adjourns without CAT legislation

The Oregon Legislature adjourned its 2020 regular session Sine Die on March 8, 2020 without enacting any legislation regarding Oregon CAT.¹¹ While a CAT technical corrections bill, H.B. 4009, was proposed during the regular session, the adjournment of the Legislature effectively abandoned the bill. As the bill is ripe for reintroduction in the next legislative session, these are some of the bill’s more notable provisions:

• An election for unitary groups to exclude all foreign members with no Oregon commercial activity (or amounts excluded by definition from commercial activity),¹²
• Additional guidance on the subtraction for cost inputs or labor costs, including how to apportion the subtraction,¹³
• Mergers or other reorganization activity may require a taxpayer to register for the CAT again after the transaction,¹⁴ and
• Imposition of a 5 percent underpayment penalty if quarterly payments are less than 80 percent of the balance due (reduced from current 20 percent penalty rate).¹⁵
  

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Considerations

The Oregon CAT administrative rules, while temporary, are binding on taxpayers,¹⁶ therefore, it is advised that taxpayers review each of these rules in their entirety in order to understand how these rules may impact their business. Deloitte is continuing to monitor the release of additional temporary administrative rules by the Oregon Department of Revenue as well as the possibility of a special legislative session to take up the technical amendments bill regarding the CAT.

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References

¹ H.B. 3427-A, Sections 63; 79-80. Oregon CAT established under Ore. Laws 2019, ch. 122, sections 58 to 76 (enrolled H.B. 3427) as amended by Oregon Laws 2019, ch. 579, sections 50 to 60 (enrolled H.B. 2164) (codified under Or. Rev. Stat. § 317A et.seq.), available here.

² H.B. 3427, at Section 65(1) (codified as Or. Rev. Stat. § 317A.125(1)).

³ Id, at Section 65(2) (codified as Or. Rev. Stat. § 317A.125(2)).

⁴ Id, at Section 63(1) (codified as Or. Rev. Stat. § 317A.116).

⁵ Id, Section 58(1)(a), (17) (codified as Ore. Rev. Stat. §§ 317A.100(1)(a); 317A.128).

⁶ Id, at Section 64(1) (codified as Ore. Rev. Stat. §§ 317A.100(1)(b); 317A.119).

⁷ The full list of exclusions is found in H.B. 3427, Section 58(1)(b) (codified as Or. Rev. Stat. § 317A.100(1)(b)).

⁸ See Or. Rev. Stat. § 317A et.seq., available here.

⁹ Or. Rev. Temporary Admin. Order Rev 15-2019, Or. Dept. of Rev. (12/30/2019), available here; Or. Rev. Temporary Admin. Order Rev 2-2020, Or. Dept. of Rev. (1/27/2020), available here.

¹⁰ Or. Rev. Temporary Admin. Order Rev 3-2020, Or. Dept. of Rev. (3/4/2020), available here.

¹¹ https://www.oregonlegislature.gov/Pages/session.aspx.

¹² H.B. 4009 at Section 1a.

¹³ Id. at Section 3.

¹⁴ Id. at Section 4.

¹⁵ Id. at Section 5.

¹⁶ Or. Rev. Temporary Admin. Order Rev 3-2020, Or. Dept. of Rev. (3/4/2020), available here.

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Multistate Tax alert archive

The Multistate Tax alert archive includes external tax alerts issued by Deloitte Tax LLP's Multistate Tax practice during the last three years. These external alerts highlight selected developments involving state tax legislative, judicial, and administrative matters. The alerts provide a brief summary of specific multistate developments relevant to taxpayers, tax professionals, and other interested persons.

View the list of archived Multistate Tax alerts.

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