Oregon Corporate Activity Tax

June 10, 2020
News and Insights , SALT

Beginning January 1, 2020, Oregon introduced its new modified gross receipts tax called the “Corporate Activity Tax.”  The tax is imposed in addition to current state corporate income tax on each person doing business in the state of Oregon.  Commercial activity sourced to Oregon over $1 million is taxed at 0.57% plus $250 annual fee. Taxpayers with less than $1 million in commercial activity are exempt from the tax but must register with the state when they exceed $750,000 in gross receipts sourced to Oregon.

“Commercial Activity” in Oregon

Current regulation defines taxable commercial activity as “commercial activity sourced to the state.” Commercial activity is the “total amount realized by a person, arising from transactions and activity in the regular course of business.”  There are certain transactions not classified as commercial activity, including dividends, receipts from transactions among members of unitary group, receipts from sales to a wholesaler in Oregon the seller receives prove that the property will be sold outside of Oregon, etc.

The Oregon Commercial Activity Tax allows taxpayers to deduct from their gross receipts sourced to the state 35% of the greater of the taxpayer’s apportioned cost of inputs or apportioned labor costs. The income tax apportionment is used in determining the allowable deduction, which cannot exceed 95% of the taxpayer’s commercial activity in the state.

Substantial Nexus in the State

For the purpose of Commercial Activity Tax, Oregon does not require taxpayer’s physical presence in the state to create nexus. Instead, the state adapted the substantial nexus standard, which exists when a person has regular connections in the state that are established if:

  1. The taxpayer owns or uses a part or all of its capital in the state;
  2. The taxpayer holds a certificate of authority with the state;
  3. The taxpayer has bright-line presence in the state; or
  4. Otherwise has a nexus in the state (…)

What is a Bright-Line Presence?

Bright-line presence in Oregon is created if any of the following occurs during the calendar year:

  1. Property in Oregon with a value of at least $50,000;
  2. Payroll in Oregon of at least $50,000;
  3. Commercial activity sourced to Oregon of at least $750,000;
  4. At least 25% of the total property, total payroll, or total commercial activity in the state of Oregon at any time;
  5. Is a resident of the state or is domiciled in the state for corporate, commercial, or other business purposes.

Please note that tangible personal property is sourced to Oregon if it is located in Oregon. The sale of services is sourced to Oregon if it is delivered to a location in the state.

Companies with significant operations in Oregon should consider their exposure to the newly introduced Oregon Corporate Activity Tax. PMBA is closely monitoring new updates on the Oregon Corporate Activity Tax as they become available. For more information, contact Ilona Grudzinski at igurdzinski@pmba.com or Chris Vignone at cvignone@pmba.com.