Oregon enacts Corporate Activity Tax

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May 2019

Overview

Signed by Oregon’s governor on May 16, H.B. 3427 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 corporation excise and income tax.

The new tax applies to corporations, individuals, partnerships, limited liability companies, federally disregarded entities, and ‘any other entities.’ Unitary groups register, file, and pay the tax as a single taxpayer.

The CAT is equal to 0.57 percent of a taxpayer’s Oregon-sourced ‘taxable commercial activity’ in excess of $1 million for the calendar year, plus $250.

The takeaway

Oregon’s new CAT will affect all taxpayers that exceed $1 million in Oregon-sourced commercial activity and have ‘substantial nexus’ within the state. Taxpayers have new considerations in Oregon: Who is a member of their unitary group? What numbers are flowing into labor inputs and costs of goods sold for federal purposes? Do they have transactions subject to the quasi-use tax on property transferred into the state?

Oregon’s initiative and referendum process allows voters to reject a bill passed by the Oregon legislature.  It is possible that the CAT could be subject to such a process. If an initiative or referendum is approved, it will be available to voters in the next general election, which is in November 2020. Note: Oregon Measure 97, which would have required C-corporations to pay a new 2.5% tax on Oregon-sourced sales exceeding $25 million, was rejected by voters in 2016.

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Peter Michalowski

Peter Michalowski

State and Local Tax Leader, PwC US

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