In a new temporary rule, the Oregon Department of Revenue (“DOR”) formalized its prior informal guidance relative to the assessment of penalties for failing to make sufficient estimated payments under Oregon’s Corporate Activity Tax (“CAT”). The temporary rule provides some relief to CAT taxpayers whose businesses are adversely affected by COVID-19.
Background
Pursuant to ORS 317A.137(2), a taxpayer must make estimated quarterly CAT payments. As discussed previously, ORS 317A.161(2) imposes a penalty on taxpayers who fail to make estimated payments equal to at least 80 percent of their CAT liability for any quarter during 2020.
The DOR announced in April that it would not assess penalties against a taxpayer for failure to make estimated CAT payments during 2020 if the taxpayer did not have the financial ability to make the estimated payments. The DOR further stated that it would honor a taxpayer’s good faith compliance efforts if the taxpayer documents those efforts.
Unfortunately, the DOR pronouncement about penalty abatement was contained in an email blast. Consequently, many taxpayers and tax practitioners were concerned about whether such an informal announcement could be relied upon, what actually constitutes “good faith compliance efforts” and how to document the efforts.
New guidance from the Oregon Department of Revenue (the “DOR”) with respect to Oregon’s Corporate Activity Tax (“CAT”) was issued yesterday.
Specifically, the DOR announced that:
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- Certain forgivable federal loans and advances, including Paycheck Protection Program (“PPP”) loans, are excluded from the definition of commercial activity under the CAT;
- The DOR is scheduling a public hearing to discuss the first set of permanent rules promulgated under the CAT; and
- The DOR released a draft temporary rule regarding the sourcing of commercial activity for financial institutions.
Background
As previously reported, the new Oregon Corporate Activity Tax (the “CAT”) went into effect on January 1, 2020. The new law is quite complex and arguably not very well thought out by lawmakers. Although the Oregon Department of Revenue (the “DOR”) has worked hard to bring clarity to the CAT through rulemaking, many questions remain, including application of the many exemptions and computation of the required tax estimates. Despite pleas by small businesses to repeal or at least put the CAT in hibernation until the uncertainties resulting from the COVID-19 pandemic have been alleviated, both Oregon’s Governor and the state’s lawmakers have proclaimed in so many words that the show must go on – the CAT will remain in place, even during these horrific times.
In accordance with ORS 305.157, the director of the Oregon Department of Revenue (“DOR”) ordered an automatic extension of the 2019 tax year income tax filing and payment due dates. Oregon now joins several other states and the U.S. Department of the Treasury in this regard.
For Oregon personal income taxpayers, the order means:
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- The Oregon income tax return filing due date for tax year 2019 is automatically extended from April 15, 2020 to July 15, 2020.
- The Oregon income tax payment deadline for payments due with the 2019 tax year return is automatically extended to July 15, 2020.
- The time for making estimated tax payments for tax year 2020 is not extended.
- The tax year 2019 six-month extension to file, if requested, continues to extend only the filing deadline until October 15, 2020.
- Taxpayers do not need to file any additional forms or notify the DOR to qualify for this Oregon tax filing and payment extension.
I hope our readers, their families and co-workers are safe and remain healthy during these trying times. As a distraction for tax geeks like us from the news about the Coronavirus that is permeating our lives these days, Peter and I decided to present more coverage on the Oregon Corporate Activity Tax (“CAT”).
On March 6, 2020, the Oregon Department of Revenue (the “Department”) published two new temporary rules that it had previously presented in draft form. While the rules are substantively the same as they were in draft form, there are several nuances worthy of discussion.
Temporary Rules Keep Rolling in
The Oregon Department of Revenue (the “Department”) recently issued four new temporary rules relative to the Oregon Corporate Activity Tax (the “CAT”). The new rules went into effect on February 1, 2020.
The new temporary rules provide much needed guidance with respect to three notable exclusions from the fangs of the CAT, namely the Grocery Exclusion, the Wholesale Exclusion and the Vehicle Exclusion.
The CAT Tour
As previously discussed, late last year, the Oregon Department of Revenue (the “Department”) conducted several town hall meetings with taxpayers and tax practitioners across the state to discuss the Corporate Activity Tax (the “CAT”), answer questions and solicit feedback about administration of the new tax regime. I am happy to report that the Department is hitting the road again!
The Department announced on February 6 that it will be hosting another series of meetings across the state next month. The meetings are aimed at providing information to and answering the questions of taxpayers and tax professionals about the CAT and the newly issued administrative rules.
A dog will immediately respond to you when you call out. On the other hand, when you call out to a cat, the cat will take a message and promise to get back to you later. This is not the case with the Corporate Activity Tax (“CAT”). The Oregon Department of Revenue (“DOR”) is doing everything possible to provide taxpayers and tax practitioners with prompt and helpful guidance and support relative to the CAT, the new state tax regime that became effective on January 1, 2020.
As previously discussed, late last year, the DOR conducted several town hall meetings with taxpayers and tax practitioners across the state to discuss the CAT, answer questions and solicit feedback about administration of the tax regime. In addition, as promised, the DOR started issuing draft temporary rules this past December to provide clarity and address many uncertainties in the new law. It quickly removed the “draft” stamp from the rules. The rules keep rolling in! To date, the DOR has issued a total of 12 temporary rules. We have already provided a discussion of eight of those temporary rules. In this post, we discuss the remaining four temporary rules.
On January 6, I presented a new White Paper, The Oregon Corporate Activity Tax – You Can Run and You Can Hide, but This New Tax Is Effective January 1, 2020, at the Oregon Society of Certified Public Accountants Annual State and Local Tax Conference. We had a large number of attendees, including representatives of the Oregon Department of Revenue (the “DOR”). Based upon the numerous questions I received (during and after the presentation), it is clear that tax practitioners are busy thinking about this new tax regime and how it applies to their clients. Unfortunately, in this particular case, I do not believe the curiosity will kill the CAT. It looks like it is here to stay.
Recent Announcements
The Oregon Department of Revenue (the “Department”) has made several recent announcements regarding Oregon’s new Commercial Activity Tax (the “CAT”).
In an email dated December 4, 2019, the Department said it anticipated sharing initial drafts of the first batch of temporary administrative rules on its website in December 2019.
In the same email, the Department also announced that some issues will not be addressed in its rules. For example, the Department has determined that there is no way to provide guidance with respect to how businesses may properly estimate the amount of CAT liability attributable to particular transactions. The Department goes on to tell us, however, that many frequently asked questions will be addressed in forms, instructions, publications and/or FAQs on the Department’s website.
Importantly, the Department has made it clear that the CAT “does not prohibit any business subject to the CAT from passing the tax along to its customers.”
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Larry J. Brant
Editor
Larry J. Brant is a Shareholder and the Chair of the Tax & Benefits practice group at Foster Garvey, a law firm based out of the Pacific Northwest, with offices in Seattle, Washington; Portland, Oregon; Washington, D.C.; New York, New York, Spokane, Washington; Tulsa, Oklahoma; and Beijing, China. Mr. Brant is licensed to practice in Oregon and Washington. His practice focuses on tax, tax controversy and transactions. Mr. Brant is a past Chair of the Oregon State Bar Taxation Section. He was the long-term Chair of the Oregon Tax Institute, and is currently a member of the Board of Directors of the Portland Tax Forum. Mr. Brant has served as an adjunct professor, teaching corporate taxation, at Northwestern School of Law, Lewis and Clark College. He is an Expert Contributor to Thomson Reuters Checkpoint Catalyst. Mr. Brant is a Fellow in the American College of Tax Counsel. He publishes articles on numerous income tax issues, including Taxation of S Corporations, Reasonable Compensation, Circular 230, Worker Classification, IRC § 1031 Exchanges, Choice of Entity, Entity Tax Classification, and State and Local Taxation. Mr. Brant is a frequent lecturer at local, regional and national tax and business conferences for CPAs and attorneys. He was the 2015 Recipient of the Oregon State Bar Tax Section Award of Merit.
