New Oregon Corporate Activity Tax takes effect in 2020

High-earning business taxpayers in Oregon will soon have to pay higher taxes under the new statewide corporate activity tax.

The Corporate Activity Tax is a new business tax in addition to the state’s corporate income tax.

The new tax is effective for tax years beginning on or after Jan. 1, 2020, and it imposes a corporate activity tax on each person with taxable commercial activity for the privilege of doing business in Oregon.

Commercial activity is defined as “the total amount realized by a person, arising from transactions and activity in the regular course of the person’s trade or business” that is sourced to Oregon.

Below are some of the highlights of the new tax:

  • The new tax will be imposed on persons who have a “substantial nexus” with Oregon. “Substantial nexus” is defined as have one or more of the following in the state during the calendar year:
    • $50,000 in property;
    • $50,000 in payroll;
    • $750,000 in commercial activity; or
    • At least 25 percent of the person’s total property, total payroll or total commercial activity.
  • The law taxes the value of certain property that a person receives outside of Oregon and, within in a year of receipt, transfers into the state for use in a trade or business.
  • It requires a unitary group to file and pay the corporate activity tax as a single taxpayer, excluding intercompany transactions.
  • The law allows a subtraction for a percentage of the taxpayer’s cost of inputs (cost of goods sold) or labor costs.

The tax will equal $250 plus the product of the taxpayer’s taxable commercial activity in excess of $1 million for the calendar year multiplied by 0.57 percent

For example, if a business owner reports taxable commercial income in 2020 of $2.5 million, that person would pay 0.57 percent of $1.5 million, which is $8,550. The base $250 brings that bill to $8,800 in additional corporate activity tax.

Among some of the 40 items excluded from the definition of commercial activity include:

  • Interest income, except interest on credit sales;
  • Dividends;
  • Distributions from a pass-through entity;
  • Receipts from transactions among members of a unitary group; and

We expect the Oregon Department of Revenue to issue further guidance on this law throughout the year.  Please contact us so we can advise you fully through the tax planning process.