Tracking the Corporate Activity Tax Rules & Regulations

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Corporate Activity Tax: Rules & Regulations

On December 9, the Oregon Department of Revenue released temporary rules for the Corporate Activity Tax, effective January 1, 2020. The rules are intended to provide initial regulatory guidance for businesses on the following matters:

  • Substantial Nexus to Oregon: The substantial nexus rule generally tracks with the income tax rule for substantial nexus (OAR 150-317-0020). Businesses are subject to the tax if they regularly take advantage of the state economy and realize significant gross receipts.
  • Unitary Group Determination: The factors used to determine whether a group of businesses are engaged in a unitary business largely follows the Multistate Tax Commission model language and existing income tax rules (OAR 150-317-0510).
  • Agent Exclusion: Oregon will consider all facts and circumstances to determine if property, money and other amounts are received, in excess of a commission or fee received by an agent, qualifies for the exemption.
  • Property Brought into Oregon: Statute requires property transferred into the state within one year of receiving it outside Oregon to be included in commercial activity. The guidance specifies the real market value of the property must be used.
  • Estimated Payments: Businesses are required to pay quarterly estimated tax payments if they are expected to have a tax liability of $5,000 or more. Payments are due on the last day of the month following the end of a calendar quarter (April 30, July 31, October 31, and January 31).
  • Estimated Payments for Unitary Groups & Apportioned Returns: Businesses filing as a unitary group are required to pay estimated payments. Multistate and multinational businesses are required to use either their current period or prior full-year’s apportionment in calculating their estimated payments.
  • Delinquent or Underestimated Payments: Specifies that interest will not be charged on underpayments if each estimated tax payment is equal to or more than 25 percent of specified amounts for the initial tax year.
  • Filing Extensions: Specifies extensions will be allowed for “good cause,” defined as (1) death or serious illness, (2) destruction of home or place of business, (3) unavoidable absence from the state, or (4) information needed to complete the return is not available. Extensions will be granted for up to six months.
  • On December 20, the Oregon Department of Revenue released four additional temporary rules for the Corporate Activity Tax. The rules follow a batch of rules released only two weeks ago that provided initial guidance to businesses subject to the tax.

  • Definition of Commercial Activity: Commercial activity is defined as the fair market value realized by a business using the transactional test for the income tax (OAR 150-314-0335(5)). The rule clarifies that transactions made merely for investment purposes, unrelated to the trade or business, are not commercial activity.
  • Sourcing Rules for Tangible Personal Property: Specifies a sale is sourced to Oregon if, at the designation of the purchaser, the property is ultimately delivered to a recipient in Oregon.
  • Sourcing Rules for Sales of Intangible Property: These rules largely follow the market-based sourcing rules for the income tax (OAR 150-314-0435).
  • Cost Inputs or Labor Subtraction: Specifies that multijurisdictional businesses are required to apportion their cost inputs or labor expense subtraction using a commercial activity ratio. The ratio is a fraction consisting of commercial activity sourced to Oregon and the commercial activity everywhere, plus exclusions from commercial activity.
  • On January 28, the Oregon Department of Revenue released four additional temporary rules for the Corporate Activity Tax. The rules begin addressing transactions and exemptions for specific industries.

    • Retail Sale of Groceries Exclusion: Specifies the exclusion only applies to the sale of groceries intended for home consumption and establishes rules for stores with dining facilities.
    • Wholesale Sale of Groceries Exclusion: Describes the requirements to be met to exclude the wholesale sale of food from the tax, providing the transaction is a wholesale sale, meets the definition of groceries and is sold to the final consumer for home consumption.

    • Property Resold Outside of Oregon Certificates: Outlines multiple processes wholesalers can use to certify amounts for property purchased for resale outside the state, including a method for using a reasonable approximation.

    • Motor Vehicle Resale Certificate: Specifies sales or transfer of motor vehicles between dealers are excluded if the sale or transfer is for resale.

    On February 24, the Oregon Department of Revenue released two additional temporary rules for the Corporate Activity Tax, continuing to address more targeted areas of implementing the law.

    • Labor Cost Subtraction: Defines “employees” for purposes of calculating the subtraction for labor costs, specifying costs attributable to distributive income, statutory employees under IRC § 3121(d)(3), and independent contractors are not allowed for the subtraction.
    • Single-Family Residential Construction Exclusion: Defines “single-family residential construction” as “the construction of 3 new single-family housing such as single-family detached or semidetached houses and townhouses.”

    These rules complete the temporary administrative regulations for the Corporate Activity Tax. The department will now begin its process for permanent rulemaking and may change the application of these provisions after receiving comments from taxpayers and tax preparers.

    You can view these rules and additional information on the Corporate Activity Tax website here.