Oregon’s corporate activity tax (CAT) became effective January 1, 2020. The CAT is a broad-based gross receipts tax imposed at a 0.57% rate. The CAT tax base, or “commercial activity,” is the total amount realized from transactions and activity in the regular course of a taxpayer’s trade or business, minus certain exclusions. After determining the portion of the CAT tax base that is sourced to Oregon, a taxpayer is allowed a subtraction for 35% of the greater of either cost inputs or labor costs (the CAT Subtraction). As described below, the CAT Subtraction seems to have created the most uncertainty for taxpayers trying to parse their way through this new tax.
In January and February, the Oregon Department of Revenue (Department) began issuing temporary administrative rules for the CAT. These temporary rules are effective for 180 days from the date issued. The Department held a public hearing on the rules on May 26, 2020, with the period to provide public comment expiring on the same date.