Oregon legislators passed a new “gross receipts” tax known as the Corporate Activity Tax (“CAT”), which officially became effective January 1, 2020. While Oregon currently does not administer a sales or use tax, the effects of the CAT may now require your business to register in a state otherwise part of the collective “NOMAD” states for sales and use tax purposes.
The Oregon CAT affects most businesses, including unitary groups of businesses, doing business in the state. Most, if not all business types are included, such as S-corporations, C-corporations, partnerships, sole proprietorships, and other business entities.
While all businesses would potentially be affected by this legislation, only those with commercial activity above $750,000 during a one-year period would be required to register. Those business would then be required to file a CAT return once sales have reached over $1,000,000 in Oregon commercial activities.
What are Commercial Activities
For purposes of CAT, commercial activities include the total amount of transactions made in Oregon and realized by the business, without deduction for expenses incurred by the business. The accounting method use for federal income tax returns will be the accounting method adopted by this tax type.
CAT Nexus Position
Similar to a sales tax, CAT will govern only on businesses with substantial nexus in Oregon. Substantial nexus includes physical presence, maintaining systematic and continuous contacts with Oregon’s economy, filing reports or attributing gross receipts to Oregon regulatory bodies or customers, or deliberately marketing or soliciting Oregon customers, etc.
Businesses with substantial nexus who exceed the $750,000 commercial activity threshold during a calendar year would be required to register within 30 days of exceeding the threshold, with penalties for non-compliance.
If your business sells from within, or otherwise has substantial nexus with Oregon and is close to exceeding thresholds, we can assist you with registration and maintaining compliance. As there are many CAT details and nuances that can be easily overlooked, please refer to Thompson Tax & Associates as your Trusted Tax Advisor.
Please contact Thompson Tax for all your CAT questions and concerns at email@example.com
For those who may qualify for relief, the CDTFA has prepared an announcement describing the formal application process and is also providing a new application form.
Notice – https://www.cdtfa.ca.gov/formspubs/l681.pdf
Application – https://www.cdtfa.ca.gov/DownloadFile.ashx?path=/formspubs/cdtfa38a.pdf
In December of 2018, the California Department of Tax and Fee Administration (CDTFA) announced that, as a result of the U.S. Supreme Court’s Wayfair decision (Dock. No. 17-494), out-of-state retailers whose current or preceding calendar year sales into California exceeded $100,000, or who made sales into California in two hundred or more separate transactions, would be subject to California’s registration and use tax collection requirements for sales on or after April 1, 2019.
In April of 2019, the CDTFA announced that, as a result of Assembly Bill No. (AB) 147 (Stats. 2019, ch. 5), the use tax registration and collection threshold had changed from the “$100,000 or 200 transactions” rule established by the Wayfair decision; to sales into California exceeding $500,000, with the transaction count test being dropped altogether. Further, AB 147 clarified that the “greater than $500,000 into the state” threshold applied to all components of the tax rate including local and district taxes. The new AB 147 rules applied only to sales on or after April 1, 2019; and to retailers selling for delivery into California via the Internet, mail-order, telephone, or any other method.
Independent of the Wayfair decision and AB 147, the Board of Equalization (predecessor to the CDTFA with respect to sales and use tax administration) for several years had administratively concluded that an out-of-state retailer with sales from inventory in a warehouse located in California would either be deemed to have established nexus in California, or would be considered having a physical location in California. The former argument would require use tax registration and collection, while the latter argument would require a seller’s permit and collection of sales taxes. It appeared that district staff favored the use tax position, while the Legal Department leaned toward the sales tax view. Either way, taxpayers discovered by the Board, and later the CDTFA, whose only connection to California was sales from inventory located in a fulfillment center in California, or warehouse in California handling order processing, found themselves liable for back taxes and ongoing filing obligations.
Relief Under Senate Bill (SB) 92 (Stats. 2019, ch. 34)
AB 92 moves the effective date of the district use tax collection requirements from April 1, 2019 to April 25, 2019. This was done to eliminate the retroactive effect caused by AB 147 having an operative date of April 1, 2019 but not being signed into law until April 25, 2019. It does NOT change the effective date for the state and local components of the tax rate; that date remains at April 1, 2019. The second, and more significant relief offered by SB 92 concerns sales made by a “qualifying retailer” for periods prior to April 1, 2016, and potential penalties with respect to sales made for the period April 1, 2016 through March 31, 2019.
Effective June 27, 2019, you are a “qualifying retailer” under the new Revenue and Taxation Code section 6487.07 if you meet all of the following conditions:
- You did not register with the CDTFA under the Sales and Use Tax Law prior to December 1, 2018. If you registered before that date, you were presumed not to be responding to CDTFA’s letter (“FBA letter”) addressed to potential taxpayers using in-state fulfillment centers. Example: retailers participating in Amazon’s FBA program.
- You did not file sales or use tax returns or make sales or use tax payments prior to being contacted by the CDTFA. The intent is to provide relief to those taxpayers who responded to the FBA letter sent by CDTFA.
- You voluntarily register with the CDTFA, and by September 25, 2019, file completed tax returns for all tax reporting periods for which a determination may be issued under section 6487.07 (that is, for periods on and after April 1, 2016), and either
- Pay the tax due in full, or
- Apply for a payment plan, but only if the final payment under the plan is paid no later than December 31st, 2021 (qualifying installment payment)
- You are, or were, engaged in business in this state solely because you used a marketplace facilitator (as defined in section 6041) to facilitate sales for delivery in this state and the marketplace facilitator stored your inventory in this state.
A “qualifying retailer” will not be assessed tax by the CDTFA with respect to sales made prior to April 1, 2016 and will be relieved of penalties with respect to sales made for the period April 1, 2016 to March 31, 2019.
Qualifying retailers who reported and paid tax on sales made prior to April 1, 2016, and did not collect tax on those sales, should file refund claims for any payments made. Taxpayers should note that eligibility for refunds for these periods has technically expired under the statute of limitations, and that CDTFA has not given any indication as to how they will respond to refund claims under this section.
The California Department of Tax and Fee Administration (CDTFA) has published a new on‑line guide to assist businesses in learning more about how the Wayfair decision expands use tax collection requirements for retailers: http://www.cdtfa.ca.gov/industry/wayfair.htm
Meanwhile, the Legislature sent a bill to the Governor that would modify post-Wayfair use tax collection requirements. Assembly Bill 147, enrolled on April 9th, would specify that on and after April 1, 2019, a retailer engaged in business in California includes any retailer that, in the preceding calendar year or the current calendar year, has total combined sales of tangible personal property for delivery in this state by the retailer and all persons related to the retailer that exceed $500,000.
The bill would allow the department to grant relief to certain retailers engaged in business in this state for specified interest or penalties imposed on use tax liabilities due and payable for tax reporting periods beginning April 1, 2019 and ending December 31, 2022. It would also eliminate separate tests for state, local, and districts’ tax collection responsibilities. You can follow this bill at:
Questions? Contact us at: firstname.lastname@example.org
News Flash! If your company has a new California sales tax obligation as of April 1, 2019, we can help! Not sure if you have an obligation to register in California? We can help with that, too. It’s not too late! Our team specializes in Compliance and can help your company get registered and file your new California sales tax return. We can also help with determining the taxability of your company’s products and services, training your Tax and A/P teams on the proper treatment of sales and use tax, Voluntary Disclosure Agreements, and more! Reach out to us at email@example.com to learn more.