Proposed amendment 9 to Oregon HB 2019 would establish a new corporate activity tax (CAT), effective for tax years beginning on or after January 1, 2020. The CAT would be in addition to other taxes already imposed, including the Oregon corporate income and excise taxes. Key elements of the proposal would:

• Impose an annual CAT on each person with taxable business receipts at a rate of $250, plus 0.49% of the taxpayer's taxable business receipts over $1 million
• Exempt from the CAT persons with less than $1 million in taxable business receipts (other than a person that is part of a unitary group with more than $1 million in taxable business receipts), tax-exempt organizations and governmental entities, among other entities
• Impose the CAT on persons with substantial nexus with Oregon and make clear that, as a "transactional tax," the protections of P.L. 86-272 would not apply
• Define substantial nexus to include, among other activities, "bright-line" presence, which would be defined as having in the state during the calendar year (i) $50,000 in property; (ii) $50,000 in payroll; (iii) $500,000 in taxable business receipts; or (iv) at least 25% of the person's total property, total payroll, or total business receipts
• Include as taxable business receipts the value of certain property transferred into the state for the person's use in the course of a trade or business within one year of receiving the property outside of Oregon
• Require taxpayers to subtract from business receipts sourced to Oregon 25% of the greater of the following amounts paid or incurred by the taxpayer: (i) the amount of cost inputs paid to other businesses, or (ii) the taxpayer's labor costs
• Use the market-based sourcing method to source business receipts from the sales of services and intangibles, and allow for the use of alternative apportionment
• Require a unitary group to file and pay the CAT as a single taxpayer, excluding intercompany transactions
• Adopt the IRC as amended and in effect on December 31, 2018, unless otherwise provided
• Preempt local jurisdictions from taxing business receipts

The proposed preemption would not apply to local taxes that are in effect and operative on March 1, 2019. For example, the Portland Clean Energy Surcharge of 1% would still be in effect.

The proposal also includes provisions on registration procedures, record keeping, filing returns and making payments.

Implications

A gross receipts tax measure was rejected by Oregon voters in 2016 and considered by the legislature in 2017. It is unclear whether this bill will pass before the legislature adjourns on June 30, 2019. As a revenue-raising measure, the bill must be approved a three-fifths majority in both chambers.

EY will continue to monitor this legislation and issue Alerts as warranted.

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