The Oregon Corporate Activity Tax
With 2021 coming to a close, it’s time to prepare the year-end housekeeping: tax planning, annual board meetings, state license renewals, and so much more. One more item to add to the list of considerations is the Oregon Corporate Activity Tax.
What is the Oregon Corporate Activity Tax?
The Oregon Corporate Activity Tax (CAT) was established in May 2019 as part of HB 3427 and is considered a tax for the privilege of doing business in Oregon. Revenues from the CAT are designated for the Fund for Student Success which aids in funding education programs for early childhood and K-12 students. Effective January 1, 2020, the CAT is a tax on businesses or unitary groups with Oregon based commercial activity in excess of $1 million.
Who is subject to the Oregon Corporate Activity Tax?
Businesses or unitary groups with Oregon based sales in excess of $1 million must file a CAT return and those with Oregon based sales in excess of $750,000 must register for the CAT. A unitary group is defined as entities with 50% or more of common ownership, centralized management or services, or functional integration. Unitary groups file one return with the designated reporting entity for all members of the unitary group.
How is the tax assessed?
While there is no minimum tax, the rate is assessed starting with a $250 base tax plus 0.57% on taxable commercial activity in excess of $1 million. Taxable commercial activity is calculated as Oregon based sales less a subtraction of 35% of the greater of cost of labor or cost of inputs. When determining gross sales, several revenue exclusions apply. Sales between unitary groups, interest and dividend income, and gain on sale of assets are a few common examples of excluded revenue.
What are Oregon based sales?
There is no bright line nexus test for purposes of assessing the CAT. Instead, practical use of facts and circumstances is applied when determining what sales are in state vs. out of state. Sales are considered Oregon based if the final product or service is to be delivered in Oregon.
When is the return due and are estimates required?
New for 2021, fiscal and calendar year filing will be available. CAT returns are due the 15th day of the 4th month after the tax year-end. If the return cannot be filed by the original due date, 6-month extensions are available with good cause and must be filed prior to the original due date.
Estimates for the CAT are required if the CAT liability exceeds $5,000 or more and are due on the last day of the 4th, 7th, and 10th month of the tax year and the 1st month of following year. See the table below for key dates.
How should a business prepare for CAT filing?
An important first step in preparing for CAT filing is to connect with your tax advisor for year-end planning. Your tax advisor will assist in determining any filing or registration requirements for the CAT and the business’ or unitary group’s tax liability. In preparation for year-end planning, the following best practices are encouraged:
Track all sales by state to ensure accurate Oregon based sales reporting.
Monitor Oregon based sales to ensure timely registration if the $750,000 threshold is met.
Properly allocate sales costs including materials, labor, and overhead to maximize the allowable subtraction.
As always, if you have any questions, concerns, or would like to speak to a member of our team, please email cpa@sherwoodtax.com and we will get back to you within 3 business days.