Oregon’s Corporate Activity Tax (CAT) goes through some amount of reform every legislative session since it was passed in 2019. The CAT tax is often referred to as the gross receipts tax allowing a 35 percent subtraction for certain business expenses and applied to receipts in excess of $1 million. If a business has commercial activity over $1 million, it owes a flat $250 tax plus tax at the 0.57% tax rate for taxable commercial activity over $1 million.

The CAT is imposed on businesses for the privilege of doing business in Oregon that is allocated to a "Fund for Student Success" that is separate and distinct from the state's general fund. While Oregonians were looking for alternative funding for education, the CAT tax hasn’t materialized in helping schools to be successful in digging Oregon out of nearly the bottom ranked state in education.

Shortly after CAT was passed, HB 4202 was passed in 2020 special session adding exemptions for foreign commercial activity that is sourced to Oregon, allowed an offset for returns and allowances, exempt agricultural and farming sells to wholesaler or broker, exempts dairies not part of coop, and added the 35 percent subtraction. Many other proposals were not considered. The Department of Revenue, however, subsequently made rules to exclude subcontracting payments, property brought into Oregon, retail sale of groceries, allowed labor cost subtractions, and resale of motor vehicles.

In 2021, SB 164 expanded the exclusion for motor vehicle dealers that make exchanges between franchises, it expanded the exemption of wholesale and retail sales of groceries to include consignment sales, and excluded insurance companies subject to retaliatory tax

Two bills were proposed in 2022. SB 1507 would exempt prescription drugs, feminine hygiene products, diapers and baby formula, and HB 4094 would exempt prescription drugs and medical supplies. However, the Democrat majority blocked both bills from a floor motion to withdraw from committee to give them a vote on the floor.

A D V E R T I S E M E N T

A D V E R T I S E M E N T

This session is no different. There are four bills that will have public hearings this week. They should all be passed to lessen the impact on inflation.

Representative Virgle Osborne (R-Roseburg) has introduced HB 2433, which increases the exempt amount threshold for purposes of the corporate activity tax (CAT) from $1 million to $5 million.

Representative Shelly Boshart Davis (R-Albany) has introduced HB 2142, which adds “processor” to types of entities that farming operations may exempt from CAT tax calculations. The tax has created a disincentive to sell to Oregon-based processors that sell outside of Oregon, because of their inability to obtain documentation needed to accurately calculate which portion of their crops are sold in-state v. out-of-state.

Senator Lynn Findley (R-Vale) and Representative Mark Owens (R-Crane) are co-sponsoring SB 61 to revisit exempting receipts from sales of prescription drugs by a pharmacy from CAT taxation.

Senator Findley and Representative Owens are also co-sponsoring SB 56, which exempts reimbursements for recipients of medical assistance under Medicare, the Public Employee's Benefit Board, the Oregon Educator's Benefit Board, the Children's Health Insurance Program, or the U.S. Department of Defense under a TRICARE contract. These programs were responsible for over $20 billion in health care spending. Overall, more than two-thirds of commercial activity related to health care is currently exempt either because the recipient is an exempt entity or because the taxpayer’s commercial activity is below the taxability threshold of $1 million in commercial activity. The bill also creates an exemption for medications administered or dispensed in a clinical setting other than a hospital.

Oregon statutes currently defines several entities that are not subject to the CAT tax, including nonprofits (e.g., 501(c) corporations), and ORS 317A.100 lists 48 excluded commercial activities. The more exclusions, the more accountable recipients of the tax should be to justify its continuation.


--Donna Bleiler

Post Date: 2023-02-06 09:00:57

Last Update: 2023-02-07 00:28:15