Oregon CAT: Oregon Department of Revenue Releases Anticipated Draft Rules

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On October 26, 2020, the Oregon Department of Revenue (“DOR”) released two anticipated Oregon Corporate Activity Tax (“CAT”) draft rules: OAR 150-317-1310 (Estimated Tax Payments: Delinquent or Underestimated Payment or Both, Constitutes Underpayment) and OAR 150-317-1420 (Damages Received as a Result of Litigation). 

OAR 150-317-1310 (Estimated Tax Payments: Delinquent or Underestimated Payment or Both, Constitutes Underpayment).

The DOR amended this previously released draft rule to align with the amendments in HB 4202 regarding the penalty and interest provisions as those provisions apply to tax years 2020 through 2021 and to tax years beginning on or after January 1, 2022. The rule provides that an underpayment of CAT exists when the payments received on or before a payment due date are less than the required installment due as determined under the rule. The DOR will assess a 5% penalty of the underpayment amount for any quarter for which an underpayment exists. The rule also sets forth situations in which the DOR will not impose an underpayment charge, provides guidance on how underpayments are calculated on unitary group returns, separate returns, amended returns, and that the underpayment penalties shall be assessed on the last return filed and received before the due date, including extensions. 

OAR 150-317-1420 (Damages Received as a Result of Litigation). 

This draft rule provides taxpayer guidance in determining whether damages received as the result of litigation are subject to the CAT. The rule provides that:

  • Damages, including settlement proceeds, received by a taxpayer as a result of litigation are “commercial activity” under the CAT regime to the extent the damages arise from transactions and activity during the regular course of the taxpayer’s trade or business;
  • If such receipts stem from damages received as a result of litigation and those receipts are in excess of what would have been received had the taxpayer not been involved in litigation, the taxpayer may exclude the amount in excess from its calculation of “commercial activity” under the CAT regime;
  • Damages not excluded by ORS 317A.100(b)(L) are subject to the CAT in the year those amounts are realized, regardless of when the litigation was initiated; and
  • All facts and circumstances may be considered to determine if the damages were received as a result of litigation. 

The draft rule also provides three examples.

Public Comment and Hearing Schedule

As a reminder, the public comment period ends October 27, 2020, at 5:00 p.m. for the following CAT rules:

  • OAR 150-314-0248 (Refund Offset Priority);
  • OAR 150-317-1025 (Corporate Activity Tax: Election to Exclude Non-U.S. Members from Unitary Group);
  • OAR 150-317-1070 (Sourcing of Motor Carrier Transportation Services);
  • OAR 150-317-1170 (Farming Operations: Clarifying Definitions);
  • OAR 150-317-1200 (Cost Input or Labor Subtraction);
  • OAR 150-317-1300 (Estimated Tax:  When Estimated Payments are Required);
  • OAR 150-317-1400 (Determining Property Resold Out of State, and Methods of Determining); and
  • OAR 150-317-1500 (Good Faith Effort). 

You may email comments before the deadline to catrules.dor@oregon.gov. The DOR has also scheduled a public hearing via conference call for October 27, 2020, from 9:00 a.m. to 11:00 a.m., to discuss those rules. If you wish to testify at the hearing, you will need to register before it begins. Registration begins at 8:45 a.m. on the conference call line. The phone number is (541) 465-2805 and the PIN is 234470. 

As always, we will continue to follow any developments related to the CAT.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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