Indiana market-based sourcing, Oregon enacts CAT and Washington B&O tax rates

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Indiana

On May 1, 2019, Indiana Governor signed S.B. 563, which adopts a market-based sourcing methodology in determining when receipts, other than receipts from the sales of tangible personal property, are sourced to Indiana. The legislation is retroactively effective beginning January 1, 2019.

The legislation provides that receipts from services are in Indiana if the benefit of the service is received in Indiana. If it is not determinable where the service is received, receipts shall be sourced based on the state in which the delivery occurs. Receipts that cannot be attributed to a state based on the new rules are excluded from the denominator of the sales factor.

The newly enacted market-based sourcing legislation is applicable to both corporate and pass-through entities.

Indiana state market based sourcing

Oregon

H.B. 3427, a bill aimed at increasing funding for education, was signed by Oregon’s State Governor on May 16, 2019. This bill imposes a corporate activity tax (CAT) applicable to tax years beginning on or after January 1, 2020. The CAT is imposed in addition to the state’s current income tax. 

The CAT applies to corporations, individuals, partnerships, limited liability companies, federally disregarded entities and "any other entities." The CAT is equal to 0.57% of a taxpayer’s Oregon-sourced “taxable commercial activity” in excess of $1 million for the calendar year, plus $250. The administration of the CAT is through the Oregon Department of Revenue and it plans to have the CAT operative on January 1, 2020, with quarterly tax payments due starting April 30, 2020 and the first annual return filing due April 15, 2021. 

Commercial activity is defined as “the total amount realized by a person, arising from transactions and activities in the regular course of the person’s trade or business, without deduction for expenses incurred by the trade or business. For services, commercial activity becomes “taxable commercial activity” when it is sourced to Oregon if and to the extent the service is delivered to a location in Oregon.

Learn more

  • Oregon
  • H.B. 3427, a bill aimed at increasing funding for education, was signed by Oregon’s State Governor on 
    May 16, 2019. This bill imposes a corporate activity tax (“CAT”) applicable to tax years beginning on or 
    after January 1, 2020. The CAT is imposed in addition to the state’s current income tax. 

    The CAT applies to corporations, individuals, partnerships, limited liability companies, federally 
    disregarded entities, and”any other entities”. The CAT is equal to 0.57 percentage of a taxpayer’s 
    Oregon-sourced “taxable commercial activity” in excess of $1 million for the calendar year, plus $250. The administration of the CAT is through the Oregon Department of Revenue and it plans to have the CAT 
    operative on January 1, 2020, with quarterly tax payments due starting April 30, 2020, and the first 
    annual return filing due April 15, 2021. 

    Commercial activity is defined as “the total amount realized by a person, arising from transactions and 
    activities in the regular course of the person’s trade or business, without deduction for expenses incurred 
    by the trade or business. For services, commercial activity becomes “taxable commercial activity”when it 
    is sourced to Oregon if and to the extent the service is delivered to a location in Oregon. 
  • Oregon
  • H.B. 3427, a bill aimed at increasing funding for education, was signed by Oregon’s State Governor on 
    May 16, 2019. This bill imposes a corporate activity tax (“CAT”) applicable to tax years beginning on or 
    after January 1, 2020. The CAT is imposed in addition to the state’s current income tax. 

    The CAT applies to corporations, individuals, partnerships, limited liability companies, federally 
    disregarded entities, and”any other entities”. The CAT is equal to 0.57 percentage of a taxpayer’s 
    Oregon-sourced “taxable commercial activity” in excess of $1 million for the calendar year, plus $250. The administration of the CAT is through the Oregon Department of Revenue and it plans to have the CAT 
    operative on January 1, 2020, with quarterly tax payments due starting April 30, 2020, and the first 
    annual return filing due April 15, 2021. 

    Commercial activity is defined as “the total amount realized by a person, arising from transactions and 
    activities in the regular course of the person’s trade or business, without deduction for expenses incurred 
    by the trade or business. For services, commercial activity becomes “taxable commercial activity”when it 
    is sourced to Oregon if and to the extent the service is delivered to a location in Oregon. 
  • Oregon
  • H.B. 3427, a bill aimed at increasing funding for education, was signed by Oregon’s State Governor on 
    May 16, 2019. This bill imposes a corporate activity tax (“CAT”) applicable to tax years beginning on or 
    after January 1, 2020. The CAT is imposed in addition to the state’s current income tax. 

    The CAT applies to corporations, individuals, partnerships, limited liability companies, federally 
    disregarded entities, and”any other entities”. The CAT is equal to 0.57 percentage of a taxpayer’s 
    Oregon-sourced “taxable commercial activity” in excess of $1 million for the calendar year, plus $250. The administration of the CAT is through the Oregon Department of Revenue and it plans to have the CAT 
    operative on January 1, 2020, with quarterly tax payments due starting April 30, 2020, and the first 
    annual return filing due April 15, 2021. 

    Commercial activity is defined as “the total amount realized by a person, arising from transactions and 
    activities in the regular course of the person’s trade or business, without deduction for expenses incurred 
    by the trade or business. For services, commercial activity becomes “taxable commercial activity”when it 
    is sourced to Oregon if and to the extent the service is delivered to a location in Oregon. 
  • Oregon enacts CAT

    Washington

    Washington State Governor on May 21 signed several tax bills that will significantly affect most Washington taxpayers. These bills add surcharges or increase business and occupation (B&O) tax rate in the state. 

    For law firms, the most relevant bill is ESSHB 2158, which adds surcharges to the “service and other activities” B&O tax rate with an effective date of January 1, 2020. The bill applies three different surcharges to certain specified activities in the service and other activities classification, effectively raising the B&O tax rate for these activities by 0.3, 0.5 or 1%. Businesses with any income taxable under the service and other activities category should review the 43 enumerated business activities listed in the bill to analyze the applicability of the ESSHB 2158 surcharges. 

    Learn more

    Washington state B&O tax

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    Carole Symonds

    Partner, Law Firm Services Tax Leader, PwC US

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