What Is the Oregon Corporate Activity Tax?

The Oregon Corporate Activity Tax is a tax applied to the privilege of doing business within the state. It is measured against a business’s total commercial activity sourced to Oregon. This tax is not based on a company’s profit or net income, which distinguishes it from traditional corporate income taxes. Revenue from the CAT is a dedicated funding source for the state’s K-12 education system. The tax applies to various business structures, including C-corporations, S-corporations, partnerships, and sole proprietorships.

Determining CAT Applicability

A business must file a Corporate Activity Tax return if its taxable commercial activity in Oregon exceeds $1 million for the calendar year. The tax applies to all business entity types that meet the revenue criteria. The tax is calculated on a calendar-year basis, even for businesses that operate on a different fiscal year.

“Commercial activity” encompasses the total amount realized by a business from its transactions and activities in the regular course of its operations in Oregon. This includes revenue from the sale of products, the performance of services, and the rental or lease of business property. Sourcing rules dictate that receipts from the sale of tangible personal property are considered Oregon-based if the property is delivered to a purchaser within the state. For services, the revenue is sourced to Oregon if the recipient of the service receives the benefit within the state.

Several types of receipts are excluded from commercial activity and do not count toward the $1 million threshold. These exclusions are designed to prevent the taxation of non-operational or passive income streams. Excluded receipts include:

• Interest income that is not derived from the primary business activity
• Dividends received from other corporations and distributions received by business owners
• Proceeds from selling certain assets under the Internal Revenue Code, such as real estate or equipment
• Sales of goods to a wholesaler if the business receives a certificate from the wholesaler stating the goods are for resale outside of Oregon

Calculating the Tax Liability

For businesses with taxable commercial activity over $1 million, the tax begins with a flat amount of $250. On top of this base amount, a tax rate of 0.57% is applied to all taxable commercial activity that exceeds the $1 million threshold.

A business can deduct 35% of either its apportioned cost inputs or its apportioned labor costs, whichever amount is greater. This subtraction reduces the total commercial activity figure before the 0.57% tax rate is applied, thereby lowering the final tax bill. The choice between cost inputs and labor costs allows a business to utilize the deduction that is most advantageous for its specific operational structure.

“Cost inputs” are defined as the cost of goods sold that a business calculates for federal income tax purposes. “Labor costs” refer to the total compensation paid to employees, including wages, salaries, benefits, and payroll taxes. Compensation over $500,000 for any single employee is excluded from this calculation.

To illustrate the calculation, consider a business with $3 million in total Oregon commercial activity. Assume its apportioned cost of goods sold is $800,000 and its apportioned labor costs are $1 million. The business would choose its labor costs for the subtraction, as it is the greater of the two. The subtraction amount would be $350,000 (35% of $1 million).

This subtraction is applied to the total commercial activity, resulting in an adjusted base of $2,650,000. The $1 million exemption is then subtracted to determine the final taxable amount of $1,650,000. The tax is 0.57% of this amount ($9,405), plus the $250 flat tax, for a total liability of $9,655.

Registration and Documentation Requirements

Businesses must complete a one-time registration for the Corporate Activity Tax when they anticipate or actually reach $750,000 in Oregon commercial activity during a calendar year. This registration serves as a notification to the Oregon Department of Revenue that the business is approaching the threshold for a potential tax liability. The requirement to register must be met within 30 days of crossing the $750,000 threshold. Failure to register on time can result in a penalty of $100 per month, up to a maximum of $1,000 per calendar year.

To complete the registration, a business must provide:

• Its legal business name and any assumed business names
• Its mailing address
• Its Federal Employer Identification Number (FEIN) or other applicable tax ID
• Its North American Industry Classification System (NAICS) code

The official form for this process is Form OR-CAT-REG. This form can be obtained from the Oregon Department of Revenue’s website and is submitted electronically. When multiple companies operate as a unitary group, only one entity from that group is required to register on behalf of all members.

Beyond the initial registration, businesses have an ongoing responsibility to maintain thorough records to support their CAT filings. These records should include detailed documentation of all sales sourced to Oregon to substantiate the commercial activity figure. To support the 35% subtraction, businesses must keep clear records of their cost of goods sold and detailed payroll documentation.

Filing and Payment Procedures

Businesses that anticipate a CAT liability of $5,000 or more for the tax year are required to make quarterly estimated payments. These payments are due on the last day of the month following the end of each calendar quarter: April 30, July 31, October 31, and January 31. Businesses expecting their total tax for the year to be less than $5,000 are not required to make estimated payments but must still pay the full amount with their annual return.

All businesses with more than $1 million in taxable commercial activity must file a single annual CAT return, due April 15th of the following year. This return reconciles the total tax liability for the year with the estimated payments that have been made.

The Oregon Department of Revenue facilitates filing and payment through its electronic portal, Revenue Online. Taxpayers can use this system to submit their completed annual returns and to make all required payments electronically. The system provides a worksheet to help businesses calculate their estimated payment obligations accurately.

Penalties are assessed for late payments and for underpayment of quarterly estimated taxes. A penalty applies if a return is filed more than three months after the due date. A penalty of 100% of the tax can be imposed if a business fails to file returns for three consecutive years.