In its June special session, the Oregon Legislature passed House Bill 4202, which provides some key technical and policy changes to the Oregon Corporate Activity Tax (CAT). While many things are still not clear, this bill provides some clarity and a few taxpayer-friendly changes to the CAT, including for the agriculture industry.
House Bill 4202 does the following:
- Eliminates the requirement that taxpayers re-register for the CAT annually, except under certain circumstances.
- Allows taxpayers to use the standard Oregon apportionment method for purposes of the 35 percent subtraction of cost inputs or labor costs, with certain exceptions.
- Clarifies that crop insurance policies are included as an exemption, except to the extent that payment is for loss of commercial activity.
- Specifically states that out-of-state auto dealers are subject to the CAT.
- Allows for an offset to commercial activity for returns and allowances in the year the return or allowance is made.
- Excludes receipts from fluid milk sales by dairy farmers who are not members of an agricultural cooperative.
- Provides that operating expenses, not including labor costs, may be used for cost inputs specifically for certain farming operations.
- Allows CAT unitary group taxpayers to exclude certain members of the unitary group, provided the member has no commercial activity or other connection to Oregon.
- Establishes an exclusion for a farming operation selling agricultural commodities to a wholesaler or broker if the wholesaler or broker provides the farming operation with certification that the purchased commodities will be sold out of state.
- If no certification is provided, the farming operation may apply an industry average to estimate the portion that will be sold out of state.
- Reduces the penalty for underpayment of quarterly estimated payments to 5 percent
- Adds a safe harbor
- Extends the 80 percent threshold for estimated quarterly payments through tax year 2021.
The amendments apply to tax years beginning on or after January 1, 2020.
The Oregon Department of Revenue has repeatedly expressed that it will not assess penalties for underestimating quarterly payments in 2020 if the business has made a good faith effort to determine the required installment. The department will also waive the penalty for failure to make a quarterly payment if a business doesn't have the financial ability to make the estimated payment due to the impact of COVID-19.
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