Technical Clarifications for Recently Enacted Corporate Activity Tax Summary of Oregon House Bill 2164

Oregon Gov. Kate Brown signed H.B. 2164 on July 23, 2019, making technical changes to recently enacted H.B. 3427, which established the Oregon Corporate Activity Tax (CAT), effective for tax years beginning on or after Jan. 1, 2020. The Oregon CAT is a tax based on Oregon gross receipts and provides taxpayers a 35% subtraction based on the greater of compensation or cost inputs.

Some of the key changes from H.B. 2164 include the following:

• Modified the receipts threshold required to be an “excluded person” to be any person with commercial activity that does not exceed $750,000 of Oregon gross receipts; threshold was previously $1 million.
• Revised the definition of “cost inputs” to refer to that amount of cost of goods sold deducted in calculating federal taxable income.
• Added a section to allow vehicle dealers to collect the estimated amount of tax from the purchaser of a motor vehicle related to the commercial activity attributable to the sale of a vehicle.
• Added definitions of commercial activity for financial institutions including clarifying that interest income, including service charges, received by financial institutions is commercial activity.
• Added definitions of commercial activity for insurance providers.
• Modified the definition of commercial activity to exclude the following:
  • Federally reinsured premiums or income from transactions between a reciprocal insurer and its attorney-in-fact;
  • Receipts from hedging transactions as defined in section 1221 of the Internal Revenue Code or a transaction accorded hedge accounting treatment under Financial Accounting Standards Board Statement No. 133;
  • Compensation received by an employee;
  • Local taxes collected on the sale of meals or prepared food & beverages;
  • Tips/gratuities collected by restaurants or other food establishments; and,
  • Payments for labor costs that are made by a general contractor to a subcontractor pursuant to a contract for residential real estate construction applicable for tax years beginning January 1, 2020 through tax years beginning before January 1, 2026. The exclusion is allowed only for single-family residential construction located in Oregon; is not allowed for payments between subcontractors; does not apply to payments for materials, land or permits, and shall be 15 percent of payments for labor by the general contractor.
• Cost input calculation revised to exclude:
  • Expenses from transactions among members of a unitary group
  • Cost inputs or labor costs which are not related to the commercial activity.

The Oregon Department of Revenue is currently working on administrative rules to provide clarity and direction to taxpayers regarding the Oregon CAT.  Additional details will be provided when the information is released.