The tax is expected to raise $1.4 billion per year. How will general contractors know what the labor component is if the subcontractors are not willing to share this information. A recent letter by the Oregon Department of Revenue indicated that the exemption is $1.0 million. Signed on May 16, this new corporate activity tax (CAT) will be owed by companies with annual in-state revenues exceeding $1 million, and is anticipated to raise $1 billion per year for Oregon schools. Businesses subject to the tax are left with making good faith interpretations of the law for first quarter 2020. The … CliftonLarsonAllen is a Minnesota LLP, with more than 120 locations across the United States. Oregon Corporate Activity Tax (CAT) Update. Transactions between members of unitary groups are exempt from the tax. On May 16, 2019, H.B. Some gross receipts are exempt from the CAT by statute, including sale or exchange of capital assets and Section 1231 assets; hedging transactions; loan principal received; capital contributions; insurance proceeds; dividends and interest; distributions from pass-thru entities; sales to a wholesaler in Oregon where seller receives certification at time of sale that the wholesaler will resell the property outside of Oregon; sales of groceries (defined as food vs. crops raised by farmers); sales to a farmer cooperative, transactions between members of a unitary group, and certain pass-through taxes (but not the CAT). Oregon: The Department of Revenue announced that for purposes of Oregon corporate excise tax and income tax, the presence of teleworking employees of a corporation in Oregon between March 8, 2020, and November 1, 2020, would not be treated by the department as a relevant factor when making a nexus determination if the employee(s) in question are regularly based outside Oregon. Labor costs, defined as the total compensation of all employees, excluding compensation exceeding $500,000 for any single employee. Each member firm within the Nexia International network is a separate legal entity. Tax returns must be filed annually, with quarterly estimated payments required. With the enactment of HB 3427, Oregon has joined a growing list of states that impose a gross receipts tax, such as Washington and New Mexico, who have revamped their state tax code in the wake of the Supreme Court’s South Dakota v. Wayfair ruling. We need better definitions of what this means and how it works. CliftonLarsonAllen Wealth Advisors, LLC disclaimers. This discussion explores a few considerations for taxpayers potentially subject to CAT. On March 21, 2020, the IRS issued a news release (Notice 2020-58​) automatically extending the filing due date to July 15, 2020, for all returns due April 15, 2020, and allowing all ​​payments due on that date to be deferred until July 15, 2020, without penalties or interest, regardless of the amount of the payment. The tax applies to businesses in every industry, including insurance companies and financial institutions, unless they are “excluded persons,” a term that covers governmental entities as well as certain nonprofits, hospitals, and long-term care facilities. 4 On July 23rd, Governor Brown signed House Bill … An extension for filing the return is allowed under the statute. 3427 and will begin on receipts starting January 1, 2020. Entities that meet the ownership threshold are deemed to be unitary if there is an exchange of value demonstrated by: The unitary group would include all members from around the globe. Cross-Border Tax Issues for Inbound Companies, Your Business and Individual Tax Rates for 2021, Urgent Update on Work Opportunity Tax Credit Transition Relief, IRS Issues Guidance on SALT Cap Workarounds, Privacy policy, terms of use, and disclaimers Contact the payer of your On May 16, 2019, Oregon Gov. Not exactly chump change! In other words, the new tax under the CAT regime is imposed on “commercial activity.” The term “person” is broadly defined and includes, but is not limited to, individuals, partnerships, LLCs, C corporations, S … 3427 was signed into law. How do they make this calculation? The next session of the Oregon Legislature is only scheduled to run from February 3, 202 0 through March 8, 2020. Gross receipts include the fair market value of property transfers from out of state, unless these transactions are not intended to evade the CAT. Commercial Activity Exclusions . The DOR is working on starting that process as well. © 2020 CliftonLarsonAllen. The tax is applied to all levels of the business cycle of goods and services thus it has a pyramiding nature to it. An overview of the amendments follows. In May 2019, Gov. Form OR-20-V, Oregon Corporation Tax Payment Voucher and Instructions: 150-102-172: General: Form: Form OR-24, Oregon Like-Kind Exchanges/Involuntary Conversions: 150-101-734: General: Form : Form OR-24, Oregon Like-Kind Exchanges/Involuntary Conversions Instructions: 150-101-734-1: General: Publication: Form OR-37, Underpayment of Oregon Corporation Estimated Tax: 150-102-037: 2020: … The new tax will be imposed on businesses who have “the privilege of doing business in Oregon” at a rate of 0.57% of receipts less deductions on sales over $1 million. Gross receipts from outside of Oregon are not subject to the tax and there will be an apportionment method available to make the multi-state allocation states. Who is right? Oregon’s tax is modeled on a similar tax in Ohio, but that tax was a replacement for other business taxes. Oregon State Corporate Income Tax 2020 1.0 - Oregon Corporate Income Tax Brackets Oregon collects a state corporate income tax at a maximum marginal tax rate of 7.600%, spread across two tax brackets. Just what does this mean? The tax base would be $5.0 million less 35% of $3.0 million ($1.05 million), less $750,000, which equals $3.2 million. Example . Once a company has nexus, it has 30 days to register with the DOR. If applicable, the tax is due even if a business has a loss for the year. Under this “bright line presence” standard, companies have nexus under the CAT if they have at least $50,000 in Oregon payroll or property, $750,000 in Oregon sales, or 25% of their total payroll, property, or sales in the state. You can still make estimated tax payments even if you expect that your tax after all credits will be less than $1,000. It joins the state’s personal income tax, corporate net income tax, and gross receipts-based minimum tax. For corporations with a federal due date of April 15, 2020, the Oregon return filing and return payment due date for tax year 2019 is automatically extended from May 15, 2020 to July 15, 2020. Thus, quarterly estimated payments are due on April 30, July 31, October 31, and January 31 each year, with tax returns due on April 15 of the following year. We have been told regulations will be coming during the first two or … This special rule does not apply if the DOR determines the taxpayer’s receipt of the property outside Oregon was not intended to avoid payment of the tax. The new Oregon Corporate Activities Tax becomes effective January 1, 2020. Contrary to what the name implies, all business entities, regardless of their business structure, are subject to this new tax. This minimum tax ranges from $150 for sales under $500,000 to … Quarterly estimated tax payments will be required beginning in April 2020. Just what is this new tax? The statutory definition of a person includes all persons, and is not restricted to domestic or U.S. persons. Stat. Like the Federal Income Tax, Oregon's income tax allows couples filing jointly to pay a lower overall rate on their combined income with wider tax brackets for joint filers.. Oregon's maximum marginal income tax rate is the 1st highest in the United States, ranking directly below Oregon's %. To put this in perspective, let’s say a subject business entity has $5.0 million in gross revenue and $3.0 million in cost of goods sold. CliftonLarsonAllen is a member firm of the “Nexia International” network. The North Carolina certificate number is 26858. The Minnesota certificate number is 00963. Notable changes for 2020 include: Florida’s corporate income tax rates were set to revert to the 2018 rate of 5.5 percent, but legislation was enacted to extend the 2019 rate of 4.458 percent to 2020 and 2021. The body of these instructions has NOT been Oregon’s new corporate activity tax will affect companies with annual in-state revenues exceeding $1 million, and was created to raise $1 billion per year for the state’s schools. The Oregon CAT is a calendar basis tax no matter the accounting year of the taxpayer. Unitary groups are made up of business entities under economic control. "CliftonLarsonAllen" and "CLA" refer to CliftonLarsonAllen LLP. Oregon corporations that claim no net income or have net losses must still pay minimum taxes based on total sales. Review the Oregon Department of Revenue Regulations when they are issued to see if there are other strategies available. Substantial nexus is present if a business owns or uses a part or all of its capital in the state; holds a certificate of existence or authorization issued by the Secretary of State to do business in Oregon, has physical presence (bright line presence concept), or otherwise has nexus to the fullest extent permitted under the US Constitution. 3427, §79). If you have questions regarding individual license information, please contact Elizabeth Spencer at elizabeth.spencer@claconnect.com or 425-250-6014. analysis of your multistate tax nexus footprint, Privacy policy, terms of use, and disclaimers, CliftonLarsonAllen Wealth Advisors, LLC disclaimers, Centralized management or common executive force, Centralized administrative services or functions, Flow of goods, capital resources, or services, Interest income (other than interest on credit sales), Receipts from the disposition of IRC Sections 1221 and 1231 assets, A partner/shareholder’s distributive share of income from a pass-through entity, Sales to Oregon wholesalers who certify that the property will be resold outside of Oregon, Intercompany transactions among members of a unitary group, Cost inputs, defined as cost of goods sold under the Internal Revenue Code, or. Thus the default, and only, filing method is a world-wide combined return. Yet, House Bill 2164 says it was changed to $750,000. Small Business Ombudsman An independent voice for small business within government. The law includes several amendments to Oregon’s Corporate Activity Tax (CAT) statute and is effective retroactively as of January 1, 2020, the original CAT effective date. Any taxpayer who takes delivery of property outside of Oregon, and within one year brings that property into Oregon for the taxpayer’s own business use, must report the value of that property as an Oregon-sourced receipt subject to the CAT. The New York permit number is 64508. Businesses are exempt from the CAT (including the $250) on their first $1 million of taxable commercial activity. We last updated the Oregon Corporation Tax Payment Voucher in March 2020, and the latest form we have available is for tax year 2019. The bill established a 0.57% tax (corporate activity tax) on businesses that have more than a million dollars in Oregon sales and reduced personal income tax rates for the lowest three tax brackets by 0.25%. Oregon’s business taxes stand to go up more than 40% in the next two years because of corporate tax hikes, according to a new study funded by the state’s top corporate lobbyist. Let’s further say the sales were all made to Oregon customers. Despite being called a corporate activity tax, the new gross receipts tax applies to virtually all forms of business, including C and S corporations, individuals, joint ventures, partnerships, trusts, estates, and any entity that is disregarded for federal income tax purposes, such as certain limited liability companies. 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. Businesses with nexus in Oregon are subject to a tax of $250 plus 0.57% of their “taxable commercial activity” (defined as their Oregon-sourced gross receipts), less a subtraction for 35% of the greater of their “cost inputs” or “labor costs” apportioned to Oregon. Call us at 503-399-7306 if you have questions. Is this realistic? The Oregon Department of Revenue announced late Wednesday, March 25, 2020, that the state of Oregon will officially extend the deadline for certain tax payments until July 15, 2020. Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor. Be sure all allowable costs are reported in the cost of goods sold section of your tax return in order to maximize the 35% subtraction. 1 Intended to raise approximately $1 billion in new annual revenue, 2 the Oregon CAT will go into effect for tax years beginning on or after January 1, 2020 3 and will apply in addition to Oregon’s existing taxes. Oregon layered its tax on top of existing corporate taxes. The first quarterly deposit is due April 30, 2020, but until regulations are issued, we do not know what the reporting forms will look like. For tax years beginning on or after January 1, 2020, Multnomah County will: increase the tax rate for the BIT from 1.45% to 2.00%; increase the gross receipts exemption from less than $50,000 to less than $100,000; and increase the maximum owner’s compensation deduction from $108,000 to $127,000. In a meeting with the Oregon Department of Revenue, a representative said they might define the place of sale as being where the product is delivered. Oregon Corporate Activity Tax Set to Go Into Effect 2020 – June 24, 2019 by Hannah Prengler. Last year Oregon Governor Kate Brown signed House Bill (HB) 3427, imposing a new gross receipts tax effective for tax years beginning on or after January 1, 2020. Start a Busines s Video Series Step-by-step guide for starting a business. It applies to all types of businesses rather than just corporate entities, with the exception of governmental entities and tax-exempt entities. The California license number is 7083. The corporate tax rate applies to your business’s taxable income, which is your revenue minus expenses. There are unanswered questions to be solved by the Oregon Department of Revenue, and perhaps by the Legislature itself. Permanent regulations are required six months after issuance of the temporary regulations. As such, a detailed analysis of these exemptions should be made by businesses in all industries. The Corporate Activity Tax, referred to as the Oregon CAT, was enacted on May 16, 2019, with H.B. Wholesalers do not always know if their customer is going to be an Oregon customer. While the legislation (House Bills 2164 and 3427) is in place and some aspects of the new tax are clear, many details have been left up to the Oregon Department of Revenue for interpretation through regulations. Kate Brown signed House Bill 3427, which establishes the new Oregon corporate activity tax (CAT). Several states implemented corporate income tax rate changes over the past year, among other revisions and reforms. The tax would be $250 plus 0.57% of the tax base, which equals $18,490. In most cases, taxes are allocated to business and households based on their initial incidence. There are 43 types of excludible gross receipts under the CAT. Establish records to identify Oregon sales separate from other States. The CAT is effective for tax years beginning on or after Jan. 1, 2020 (H.B. Some concluding thoughts:  Low margin business will be disproportionately impacted by the tax. 4202, which provides a number of technical amendments to the Oregon CAT statutes under Or. How can they issue a certificate to the seller at the time of sale? We can also assist in an overall analysis of your multistate tax nexus footprint. These rules source real and tangible property to Oregon in a manner similar to general sourcing rules for income tax. This apportionment factor may be different from the sourcing of commercial activity noted above, due to industry-specific rules, throwback, and other nuances in the income tax rules that are not in the CAT statutes. Overview . Retirees If you’re retired or will retire in 2020, you may need to make estimated tax payments or have Oregon income tax withheld from your retirement income. There is a 15% labor cost subtraction available on certain labor cost payments to subcontractors on single-family residential construction, but not on material, land or permitting costs. Notable Corporate Income Tax Changes in 2020. The new Oregon Corporate Activities Tax becomes effective January 1, 2020. Nexia International Limited does not accept any responsibility for the commission of any act, or omission to act by, or the liabilities of, any of its members. Additionally, the Oregon Department of Revenue (Department) finalized 17 permanent rules for the Oregon CAT. Here’s a partial list: Is there any planning to be done? Brown signed into law the new Oregon Corporate Activity Tax. Nexia International Limited does not deliver services in its own name or otherwise. What if the product ends up pooled with other products and identity is lost? It appears that some kind of combined filing will be required. Let’s say you have annual revenues of $250,000 and expenses of $55,000.You want to figure out how much you owe in federal taxes. If Oregon levies the Corporate Activity Tax, we project that Oregon will fall from 7 th to 12 th overall on the SBTCI, and from 30 th to 49 th in corporate taxes, just behind Delaware. First, subtract your expenses from annual revenues: $250,000 – $55,000 = Taxable Income. Nonprofit Services Research Oregon nonprofit organizations, review the law, register with the state, study tax laws. These rules are similar to — but are not the same as — the income tax sourcing rules. House Bill 2164 House Bill 2164 was passed in the legislature on … The Corporate Activity Tax is a new business tax in addition to the state’s corporate income tax. Oregon Corporate Activities Tax. This means that we don't yet have the updated form for the current tax year.Please check this page regularly, as we will post the updated form as soon as it is released by the Oregon Department of Revenue. — Ninety percent of the tax on your 2020 annualized income. All rights reserved. We have been told regulations will be coming during the first two or three months of 2020. Businesses with nexus in Oregon are subject to a tax of $250 plus 0.57% of their “taxable commercial activity” (defined as their Oregon-sourced gross receipts), less a subtraction for 35% of the greater of their “cost inputs” or “labor costs” apportioned to Oregon. The legislation requires substantial nexus with Oregon. License Directory Access information on all known Oregon state licenses. CLA’s state and local tax professionals offer analysis of your business to help you determine if your activities are subject to Oregon’s CAT. Commercial activity is the total amount of gross receipts from activity in the regular course of business. Visit www.oregon.gov/dor for updated information. Commercial activity is sourced to Oregon using the rules found in Section 66 of HB 3427. The CAT is imposed upon businesses with “substantial nexus” in Oregon, a term that covers both traditional physical presence nexus criteria and a “bright line presence” economic nexus standard. Starting in 2020, any type of business is subject to a Corporate Activity Tax in relation to commercial activity sourced to Oregon, which are gross receipts arising from applicable goods or services delivered to or used by a purchaser in Oregon. It is widely expected that a number of bills regarding the Oregon CAT will be submitted for consideration during that short time. Businesses with at least $750,000 in Oregon sales are expected to register with the Department of Revenue (DOR), but will not have a CAT liability until they reach $1 million in Oregon revenues. Oregon’s lack of a state sales tax and relatively well-structured property tax puts the state’s business tax environment in the top 10 in the country. In May 2019, Oregon imposed a new 0.57% tax on Oregon gross receipts above $1 million that is set to go into effect for 2020. Combined filing is required for businesses that are unitary and have more than 50% common ownership. There are a large number of exempt receipts — as noted below — however, this definition includes a large number of transactions subject to tax. The CAT is assessed in addition to the state's current corporate income tax. There is a $100 per month penalty for not timely registering, which can be a maximum of $1,000 per year. It is a gross receipts tax based on “commercial activities” in the State of Oregon. The Oregon Corporate Activity Tax (Oregon CAT) is applicable for years beginning on or after January 1, 2020. Additionally, the deduction is capped at 95% of the Oregon-sourced commercial activity, resulting in at least 5% of these receipts being subject to tax. 1 During its special legislative session, the Oregon legislature passed a H.B. Note: Fiscal year returns due after May 15, 2020 and 2020 estimated tax payments are not extended. Oregon Business and Industry October 2020 STATE TAX RESEARCH ... Business taxes included in this study are property taxes, corporate income taxes, gross receipts taxes, individual income taxes on pass-through business income, insurance taxes, excise taxes, payroll taxes, and license fees. While the Oregon CAT appears to have primarily relied upon the Ohio Commercial Activity Tax, it also bears similarities to the Texas Franchise Tax (specifically, its use of subtractions for cost of goods sold or compensation) and to Washington’s Business and Occupation Tax. Is there going to be a bright line test on this aspect of the legislation? For the 2020 tax year, if you expect a Corporate Activity Tax liability of $10,000 or more, then you are required to make estimated payments by April 30, July 31, October 31, and January 31 for the preceding calendar quarter​.​ Use the CAT estimated payments worksheetto help with calculations. Oregon Governor Kate Brown signed HB 4202 into law on June 30, 2020. 317. The tax calculation is $250 plus 0.57% of taxable corporate activity that exceeds $750,000. The DOR is working on issuing regulations as provided for in state statutes. Oregon business groups are lining up on both sides of an escalating debate about whether to delay implementation of a new commercial activities tax. With the passage of House Bill 3427 on May 16, 2019, Oregon is expected to implement a corporate gross receipts tax — or commercial activity tax (CAT) — that will apply to all individuals doing business in Oregon. In addition to the CAT, H.B. Production agriculture generally does not calculate cost of goods sold for the 35% subtraction. 3427), legislation that creates the “Corporate Activity Tax” (Oregon CAT). Services are sourced to Oregon to the extent the services are delivered to Oregon, while intangibles are sourced to Oregon to the extent the property is, or can be, used in Oregon. The DOR is looking to provide a six-month extension, and will clarify this through regulations. The Maryland permit number is 39235. $195,000 = Taxable Income. The 35% subtraction from Oregon-sourced commercial activity applies to the greater of: This deduction is then apportioned using Oregon’s income tax sourcing rules. The definition of property likely covers items such as machinery, equipment, and inventory. Examples of excludible gross receipts for most industries include: There are special exclusions for many specific industries such as gas and fuel sellers, grocery stores, utilities, telecommunications service providers, heavy equipment providers, vehicle dealers, agricultural cooperatives, and many others. Oregon collects a state income tax at a maximum marginal tax rate of %, spread across tax brackets. The legislation directs tax collections to education, but there is no guarantee that current funding for education will not be redirected. Temporary regulations are currently being issued, with many already out and more to come in the first quarter of 2020. On May 16, 2019, Oregon Governor Kate Brown (D) signed House Bill 3427 (H.B. 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