Summary of CAT for Affordable Housing Partnerships/LLCs

What is CAT (a.k.a. the Student Success Tax)?

Oregon’s new Corporate Activity Tax (CAT) is imposed on businesses for the privilege of doing business in this state. The CAT is not a transactional tax, such as a retail sales tax, or 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 Oregon. Certain items are excluded from the definition of commercial activity and, therefore, will not be subject to the CAT. In addition, Oregon’s CAT allows a 35% subtraction for certain business expenses.

What is included in Oregon Commercial Activity?

Tax exempt entities are not subject to CAT, except for unrelated business taxable income. However, partnerships and limited liability companies (LLCs) that are not recognized by the IRS as tax-exempt entities, including many affordable housing partnerships are subject to CAT. Rent revenue is subject to CAT and currently there is not an exemption for affordable housing rents. Interest income is not subject to CAT nor is income from sales of property or other transactions outside of the regular course of the taxpayer’s trade or business.

Registration Requirement

Oregon’s new Corporate Activity Tax requires businesses with Oregon commercial activity in excess of $750,000 to register for the Corporate Activity Tax. Once they reach that threshold, businesses must register within 30 days. Some businesses may have reached the threshold early in January, while others might not top that mark until much later in the year.

Businesses that realized $750,000 in Oregon commercial activity on Jan. 1 must register by Jan. 31. Those businesses that crossed the $750,000 threshold in the days that followed will need to register in early February.

We recommend early registration for any entity that is likely to exceed the $750,000 threshold during the year as there is a penalty for late registration of $100 per month up to $1,000 for the year.

How to Register

To register, businesses will need their entity’s legal name and federal employer identification number.

Businesses will need:

• Their mailing address;
• The date they exceeded or expect to exceed $750,000 in Oregon commercial activity;
• A valid email address or current Revenue Online login, and;
• Their Business Activity Code (Refer to the current list of North American Industry Classification System codes found with their federal income tax return instructions.)

Taxpayers don’t need a Revenue Online account to register for the CAT. Those who have Revenue Online accounts can’t be logged in to register for the CAT. Instead, they should go directly to the CAT web page and click on the “Register for the CAT” link on the right-hand side of the page.

How is the Corporate Activity Tax Computed and Paid?

The CAT is applied to Oregon taxable commercial activity in excess of $1 million. The tax is computed as $250 plus 0.57% of Oregon commercial activity of more than $1 million. Only taxpayers with more than $1 million of taxable Oregon commercial activity will have a payment obligation. The CAT allows for a 35% subtraction for certain business expenses that are considered cost inputs which include wages and costs of goods sold. We are currently awaiting additional clarification from the Oregon Department of Revenue on the allowable cost inputs for rental real estate activities.

A taxpayer expecting more than $5,000 of Corporate Activity Tax liability for the calendar year must make estimated payments. CAT liability of $5,000 for the year corresponds with taxable commercial activity equal to $1,833,245. Estimated payments are due April 30, July 31, October 31, and January 31 for the preceding calendar quarter. A taxpayer expecting $5,000 or less of CAT liability for a calendar year doesn’t need to make estimated payments but still must file an annual return and pay CAT liability no later than April 15 of the following calendar year.

The Jones & Roth Affordable Housing team is here to advise you through this process – reach out to one of our advisors for additional information. 

This article is a summary of the regulations and is not intended to replace the advice of your tax professional.