As previously reported, the Oregon Department of Revenue has not extended the filing or payment deadlines for the Oregon Corporate Activity Tax during the ongoing COVID-19 saga, but has been instructed not to impose penalties on taxpayers that can document that they have been negatively impacted by COVID-19 and are therefore unable to comply with their tax filing and payment obligations. Earlier this week, Governor Brown issued a letter outlining documentation that the Department would accept, including documentation showing:
- Their inability to pay a quarterly payment because of insufficient funds due to COVID-19.
- Their inability to reasonably calculate a quarterly payment or annual tax liability due to their business being impacted by COVID-19.
- That the taxpayer is unclear at this time whether the business will owe Corporate Activity Tax in April 2020 due to COVID-19 impacts, after taking into consideration exclusions and subtractions in the law.
Although this guidance is marginally helpful, it leaves open the question of what form of documents, notations, third-party studies, public information, or correspondence will actually be accepted by the Department as demonstrating those factors or if a taxpayer’s unsupported assertion of COVID-19-related detriment will suffice.
Corporate Activity Tax Proposed Regulations Provide more Substantial Guidance to Taxpayers
In a more significant development, the Department recently released notices of proposed rulemaking – the first step in finalizing a set of administrative rules for taxpayers struggling to comply with the CAT while simultaneously battling COVID-19. To date, the Department of Revenue has administered the CAT under a series of temporary rules, set to expire through mid- to late- 2020. Due to the impending termination of temporary rules, the release of proposed rules comes as a welcome development.
Although the proposed regulations are subject to change before becoming final, there are a few items worth highlighting briefly:
- The majority of the temporary rules relating to establishing taxable nexus in Oregon, sourcing receipts, and the definition of commercial activity have been adopted in the proposed rules without change.
- The computation of taxable “commercial activity” does not include amounts received in the capacity of an “agent.” The proposed rules expand on the temporary rules by providing additional examples of how the rule is to apply. Specifically, the rules now include two examples of general contractors, one of which is subject to the corporate activity tax and the other of which may exclude receipts paid to subcontractors from its taxable commercial activity.
- The rules relating to estimated payments, filing dates, short period returns, and associated administrative rules have been adopted as previously stated in the temporary rules, with the exception that the proposed rules now also explicitly apply with equal force to taxpayers with unrelated business income (that is, nonprofit organizations).
The administration of the Oregon Corporate Activity Tax continues to evolve, so these rules may change yet again before becoming final. A public hearing to discuss the proposed rules has been scheduled for May 26, 2020, and taxpayers should anticipate that the rules will not be adopted in final form until June at earliest.