The CAT is Almost Out of the Bag! Oregon Releases First Set of Draft CAT Rules

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State’s Department of Revenue seeks taxpayer input on draft rules for new “Commercial Activity Tax” effective January 1, 2020.

TAKEAWAYS

  • The Oregon Department of Revenue has identified nearly three dozen issues stemming from its new Commercial Activity Tax effective January 1, 2020, that may require administrative rules.
  • Eight draft rules have been released, and the DOR is seeking public input.
  • Given the broad language in the enacting legislation, taxpayers may want to participate in the rulemaking process to help narrow or better define key statutory terms.

The Oregon Department of Revenue (DOR) has just released a series of eight draft administrative rules for Oregon’s new Corporate Activity Tax (CAT) that becomes effective on January 1, 2020. The CAT is intended to raise $1 billion in annual revenue to fund state education investments, and it applies in addition to Oregon’s corporate income tax and other myriad taxes on businesses. The CAT will be imposed on the majority of businesses with “commercial activity” over $1 million for the privilege of doing business in Oregon, regardless of whether the business entities are located in Oregon. The CAT is not a transactional tax but instead is a tax measured by gross receipts from a company’s “commercial activity” in the state, defined as the total amount realized by a business from transactions and activity in the regular course of their business in Oregon.

Team Insight: Calculating “Commercial Activity”

The DOR has stated in its FAQs that commercial activity “includes most business receipts” with certain specified exclusions. For example, exclusions include receipts from intercompany transactions, distributive income from a pass-through entity, and sales of items or services delivered outside Oregon. A complete list of excluded receipts can be found in Section 50 of HB 2164 for excluded business receipts not subject to the CAT. Taxpayers affected by the CAT may want to closely monitor the DOR’s rulemaking process and participate with comments (e.g., suggested additions or deletions or an explanation for why a rule as drafted conflicts with existing Oregon authority, etc.). This is the time for substantive input that could shape the regulatory rules interpreting and applying the types of receipts subject to the tax and those that are excluded. See the discussion below regarding how to participate in the rulemaking process.

The CAT is an initial flat $250 tax plus 0.57 percent of taxable commercial activity greater than $1 million after subtracting 35 percent of applicable costs apportioned to Oregon.

Earlier this month, the DOR opened online registration for the CAT at www.oregon.gov.dor. Once a business’s commercial activity exceeds $750,000, it must register for the CAT within 30 days.

The DOR has identified nearly three dozen issues it has determined may require administrative rules, and it is rolling out draft rules in priority of issues the DOR states most business taxpayers and tax preparers have indicated they need to understand first.

Team Insight: Participating in the Public Rulemaking Process

The first group of draft rules will be officially filed with the Secretary of State on January 1, 2020, followed by two more groups tracking to be officially filed on February 1, 2020, and March 1, 2020, respectively. The DOR begins the process of adopting permanent rules on April 1, 2020 and is currently seeking public feedback. Comments can be sent via email to catrules.dor@oregon.gov (include “comments on draft rules” in the subject line).

The eight draft administrative rules posted on the agency’s website within the last week address these issues:

  1. Estimated Payments (Oregon Dept. of Rev. Administrative Rule Review, New Rule/Temporary Rule – DRAFT, Rule No. 150-317-1300, Dec. 6, 2019);
  2. Estimated Payments for Unitary Groups (Oregon Dept. of Rev. Administrative Rule Review, New Rule/Temporary Rule – DRAFT, Rule No. 150-317-1320, Dec. 9, 2019);
  3. Underpayment of or Delinquent Estimated Payments (Oregon Dept. of Rev. Administrative Rule Review, New Rule/Temporary Rule – DRAFT, Rule No. 150-317-1310, Dec. 9, 2019);
  4. What Establishes Nexus Between a Business and Oregon (Oregon Dept. of Rev. Administrative Rule Review, New Rule/Temporary Rule – DRAFT, Rule No. 150-317-1010, Dec. 6, 2019);
  5. What Constitutes a Unitary Group for the CAT (Oregon Dept. of Rev. Administrative Rule Review, New Rule/Temporary Rule – DRAFT, Rule No. 150-317-1020, Dec. 9, 2019);
  6. Property Brought into Oregon (Oregon Dept. of Rev. Administrative Rule Review, New Rule/Temporary Rule – DRAFT, Rule No. 150-317-1130, Dec. 9, 2019);
  7. The Definition of Agent (Oregon Dept. of Rev. Administrative Rule Review, New Rule/Temporary Rule – DRAFT, Rule No. 150-317-1100, Dec. 9, 2019); and
  8. Filing Extensions (Oregon Dept. of Rev. Administrative Rule Review, New Rule/Temporary Rule – DRAFT, Rule No. 150-317-1330, Dec. 6, 2019).

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