The New Commercial (Corporate) Activity Tax

Commercial Activity Tax (CAT)
The new Commercial Activity Tax is imposed only after a taxpayer exceeds $1 million of taxable commercial activity. Once they pass that threshold, the tax is $250 plus 0.57% on gross receipts greater than $1 million after subtractions. Proceeds of the tax are directed by statute to boost funding for public schools. The Department of Revenue's website includes a list of frequently asked questions (FAQs) for tax payers to better understand what the tax is and who is subject to the tax. ​

Announcements from ORLA:

• Summer 2020: The Department of Revenue has raised the threshold for making estimated tax payments from $5,000 of annual tax liability to $10,000 of annual tax liability for the first year of the tax; businesses in this situation that have not yet made their first quarter payment will not have to do so. No penalties will be assessed for underestimated payments or for not making a quarterly payment for the Corporate Activities Tax if businesses don’t have the financial ability to make the estimated payment; businesses must document their efforts to comply, including how COVID-19 has impacted their business. DOR is providing updates on their website.
  
• Apr. 22, 2020 -  In a brief statement yesterday, the Governor announced she does not support delaying the CAT, despite having heard from several small- and medium-sized businesses that they face severe cash-flow and liquidity issues. However, she said the state will waive all penalties related to first quarter CAT payments.
• Mar. 26, 2020 - Oregon Restaurant & Lodging Association joined 48 other Oregon businesses and organizations in signing a letter to legislators urging temporary relief from the Commercial (Corporate) Activity Tax. Oregon’s hospitality businesses are critically challenged with this crisis and a new tax could hurt their ability to pay employees, potentially leading to more layoffs.​ Read the letter.

Latest Updates / Announcements from the Department of Revenue and ORLA:

• June 30 - In its recent special session, the Oregon Legislature made a series of clarifications to the Student Success Act which governs the Corporate Activity Tax (CAT). Visit the DOR website for more information on technical and policy clarifications in House Bill 4202.
• June 9 - DOR will hold a public hearing for the second set of permanent rules for the Corporate Activity Tax via conference call 9 to 11 a.m. Tuesday, June 23. The rules and additional information about the hearing can be found on the administrative rules page of the Revenue website.
• May 6 - Oregon DOR has determined that certain federal assistance to businesses under the Coronavirus Aid, Relief, and Economic Security (CARES) Act is not commercial activity under Oregon statute and will not be subject to the Corporate Activity Tax. The exempt assistance includes forgiven Paycheck Protection Program (PPP) loans, Economic Injury Disaster Loan (EIDL) advances, and Small Business Administration (SBA) loan subsidies. More information can be found in the Beyond the FAQ section of the CAT page on the department’s website.
• Apr. 29 - The Department of Revenue has revised OAR 150-317-1300 to reflect a change in the threshold for making estimated tax payments from $5,000 of annual tax liability to $10,000 of annual tax liability for the first year of the tax. This means businesses that will owe less than $10,000 are not required to make quarterly estimated tax payments during 2020. DOR also won’t assess penalties for underestimated quarterly payments or for not making a quarterly payment, if businesses don’t have the financial ability to make the estimated payment.
• Apr. 17 - First Quarter Corporate Activity Tax payments due April 30; Good faith effort will prevent underpayment penalties. The department will not assess underpayment penalties to taxpayers making a good faith effort to estimate their first quarter payments for the CAT.
• Apr. 10 - DOR has begun the process of converting 16 temporary administrative rules for the CAT into permanent rules. The process will include a public comment period and a hearing on the rules, giving business taxpayers and tax professionals additional opportunities to provide input into the rules before they become permanent. Click here to sign up to receive rulemaking notices from the department.
• Mar. 20 - DOR posted a link to a video of the March 10 CAT update meeting in Ashland on the agency’s website. The department has also posted a copy of the presentation used in the update meetings. Business taxpayers can send questions to cat.help.dor@oregon.gov.
• Mar. 13 - DOR has suspended its series of Commercial Activity Tax (CAT) update meetings due to concerns about the spread of the novel coronavirus, or COVID-19. In the coming days, the department will announce alternatives to the in-person meetings for providing CAT update information to business taxpayers and tax professionals.
• Mar. 6 - Two new administrative rules governing Oregon’s new Corporate Activity Tax (CAT) have been officially filed with the Secretary of State effective March 6. Twelve rules for the CAT became effective Jan. 1 with four others taking effect Feb. 1.​
• Feb. 6 - The Oregon Department of Revenue (DOR) will host a series of meetings across the state in March to provide information to business taxpayers about the administrative rules for the new Commercial Activity Tax. Complete schedule available online.
• Jan. 27 - Three new draft rules have been posted on DOR's CAT page, allowing business taxpayers time to review the rules and use them as guidance on how to proceed and offers them an additional opportunity to have input into the rules. 
• Jan. 13 - A new draft administrative rule has been added to the CAT page on the DOR website and is the first of the second group of temporary rules which will be officially filed with the Oregon Secretary of State February 1.
• Jan. 6 - General guidance on how to calculate a business’s CAT liability has been added to the FAQ page of DOR's website. The guidance includes information on how to use the labor or cost subtraction.
• Jan. 2 - The first group of 12 temporary administrative rules governing the new CAT have been officially filed with the Secretary of State, found on the Secretary of State’s website under current rules for Chapter 150, Division 317. Permanent rulemaking begins April 1. 

Click image to download CAT calculator example.

​Resources & Webinars to Help You Understand the CAT
The Commercial Activity Tax is complicated and calculating your potential tax can be confusing. Therefore, ORLA has created a CAT calculator example to help our members understand how to calculate the tax. This exercise is only meant to help you project what your tax liability could be; as always, be sure to consult your tax advisors.

ORLA hosted two members-only informational webinars on Nov. 19 and Dec. 3 that explained the new tax, the Department’s implementation plans and what you can expect as a business owner. Tax experts with accounting firm Moss Adams LLP in Portland also provided some best tax practices for the hospitality industry. ORLA members can access the slide deck from the presentation by logging into the Member Portal on ORLA's website and clicking the Resource Library.

FAQ: Can we include the CAT tax on our customers’ bill? 
A. The legislation that established the CAT (Oregon Laws 2019, Chapters 122 and 579) does not specifically prohibit a business from passing on additional cost of the tax. If you do choose to add a new line item to the receipt, the line item itself still counts as “commercial activity” when determining your tax liability. Consult with an attorney or financial advisor before making any final decisions.

How the Commercial Activities Tax Came About
This was one of the 2019 Legislative Session bills having the biggest impact on businesses. ORLA was opposed to this bill as it raised taxes on commercial activity for businesses with gross revenues of over one million dollars. ORLA, along with others in the business community, was able to amend the original bill to include a deduction for labor or cost of goods sold. The association will work during the rule making session to ensure hospitality businesses will be able to include the tax increase on receipts so customers can see the impact of the tax.

Additional Information and Timeline for the CAT

• The tax begins on January 1, 2020. It includes all business entity types, including C and S corporations, partnerships, sole proprietorships, etc.
• CAT returns will be due each year on April 15. Estimated payments for the CAT will be due quarterly.
• You must register within 30 days of when you are aware you will hit the $750,000 registration requirement. If you do not register, there may be a penalty of $100 per month up to $1,000 per year. Online registration will open through Revenue in December.
• According to the Department of Revenue, temporary rules will be published January – March 2020, with permanent rules being established April – June of 2020. Items identified as “critical” by the Department of Revenue will be posted first in January, including instructions for estimated payments, calculations, and registration.
• More information on Oregon.gov/DOR. You can provide input any time by emailing DOR at cat.help.dor@oregon.gov​

---

DOR Sought Industry Input in CAT Rule Making
The Department of Revenue (DOR) held a series of town hall meetings across the state in September-October to seek input from business taxpayers about the administrative rules for Oregon’s new Commercial Activity Tax (CAT). Nearly 900 business taxpayers and tax professionals took part in these public forums or participated in video conferences and conference calls. More information is now available on the CAT page of DOR website.

• Summary of conversations during meetings
• DOR's CAT Town Hall Schedule

If you have any questions, please email Greg Astley, Director of Government Affairs, at Astley@OregonRLA.org.​ ​​

This is for general informational purposes only. The information is not, and should not be relied upon or regarded as, legal advice. Please consult with your legal advisors.