If you do business in Oregon, there may be a new tax in store for you this year. A new gross receipts tax is scheduled to go into effect for tax years beginning on or after January 1, 2020. This new tax is called the Corporate Activity Tax, or CAT, and is a gross receipts tax generated from House Bill 3427, signed into law back on May 17, 2019. The CAT tax is annual with quarterly payments, levied on all business entities if their Oregon-sourced commercial activity income exceeds $1 million. These businesses will pay a .57% tax on this income above $1 million, plus a $250 flat tax.
The CAT tax is a gross receipts tax, meaning a tax on the total gross revenues of a company despite the source. The revenue from the CAT tax is intended for the Oregon Department of Education to help support Oregon schools and educational programs through the Student Success Act (also referred to as the Fund for Student Success program). Legislators and education staff estimate the CAT to generate close to $1 billion in annual revenue, which is a huge investment in public education for the state. The Oregon Department of Education says the funds will most likely start making an impact in the 2020-21 school year, although the initial impact will be small at first, due to the Department of Revenue only having estimated payments from businesses for the first two fiscal quarters of 2020.
Oregon’s CAT is imposed on businesses alongside the state’s corporation excise tax, which acts as a corporate income tax. With the addition to the CAT, Oregon is now one of two states that impose both a gross receipts tax and a corporate income tax simultaneously, and one of six states that impose a gross receipts tax at all on its businesses. The CAT comes with a few exclusions, such as businesses in specific industries like hospitals. These taxpayers can also subtract 35% of the greater of either cost inputs or labor costs.
There are criticisms against gross receipts tax in general—economists all across the political spectrum believe a gross receipts tax is an economically damaging way to raise revenue. Income tax rates for low income taxpayers will be scaled down to help counterbalance the regressive nature of the gross receipts tax.