6 Must-Know Facts about the Oregon Corporate Activity Tax (CAT)
Filed under:Tax Advisory: Oregon
The Oregon Corporate Activity Tax (CAT) took effect January 1, 2020. If you have any type of business filing in Oregon, including a corporation, partnership, or Schedule C for sole proprietors, you have received a letter from the State of Oregon explaining next steps for you as the business owner or manager.
This letter was confusing for many, but here is what you need to know:
1) The new law requires business owners with “Oregon commercial activity” that exceeds revenue thresholds, to register their business annually. That registration is done online by the business owner through the website Revenue Online.
A group of related businesses under common control (called a “unitary group”) must register, file and pay this tax as one entity.
2) For 2020, registration is required when your “Oregon commercial activity” gross receipts reach $750,000. Registration must occur within 30 days of your revenue reaching that threshold.
If you expect to have “Oregon commercial activity” of less than $750,000 for 2020, you can stop worrying about this tax—you are not required to register for it, though you’ll need to register right away if you cross that threshold.
The CAT is based on a term called “Oregon commercial activity”, which has some important characteristics:
- Commercial activity includes gross revenue before any deductions, so whether or not you have profit is not relevant for this tax. Use your top-line gross receipts.
- The CAT is only based on sales delivered or services performed within the state of Oregon. You can exclude gross sales of products delivered to other states, or services performed in other states—even states like Washington that don’t have a separate income tax.
- Nonprofit organizations and government entities are not subject to the tax.
- While almost every for-profit industry is subject to the tax, two important exceptions are the sale of motor vehicle fuel, and the wholesale or retail sales of groceries (but only “food” as defined by federal law; non-food products, alcohol, and tobacco are not considered groceries, nor are any marijuana products).
3) The penalty for not registering is $100 per month up to $1,000 per year.
For this reason, Jones & Roth recommends that any business that might be subject to the CAT register now, rather than waiting for their revenue to reach these thresholds.
4) If your estimated Oregon CAT exceeds $5,000 for the year then the state requires quarterly estimated payments. The payment due dates are April 30, July 31, October 31, and January 31.
The tax calculation is complicated and your CPA should help you understand the details. It is calculated on your net “Oregon commercial activity,” which is determined by taking your Oregon gross revenue and subtracting either 35% of your cost of goods, or 35% of your gross wages paid to employees, whichever is higher.
If you’re excluding sales in other states from your gross revenue, make sure you only consider the cost of goods or wages related to the Oregon sales. Then, subtract a $1 million exemption. The tax is 0.57% of the net activity, plus a fixed $250.
For example, if you own a business with $5 million of Oregon service revenue and you pay $3 million in Oregon employee gross wages, your net Oregon commercial activity is $5,000,000 – $1,050,000 (35% of wages) – $1,000,000 exemption, or $2,950,000, and the Corporate Activity Tax on that would be $17,065 annually.
5) Your Jones & Roth team can assist in estimating the quarterly tax payment.
6) Your Jones & Roth team can assist with preparation of the annual CAT tax return due April 15, 2021.
There is plenty of information still to come about this tax. The Oregon Department of Revenue promises to release additional instructions. There is also an initial Frequently Asked Questions available on the State of Oregon website. We’ll continue to update our website as additional information is released, but please contact a Jones & Roth tax professional with specific questions about how the Corporate Activity Tax affects you.