What Is the Oregon Excise Tax for Businesses?

The Oregon excise tax is a levy on the net income of corporations for the privilege of conducting business within the state. It functions as the primary corporate tax for most businesses, differing from a traditional corporate income tax which applies to entities that have Oregon-source income but are not “doing business” in the state. This distinction means that most corporations with an economic presence and activity in Oregon will be subject to the excise tax. The tax is calculated based on a corporation’s net income that is attributable to its operations within Oregon.

This tax is a significant source of revenue for the state. It applies to the earnings generated from a company’s commercial activities within Oregon’s borders.

Determining Tax Liability

A business’s requirement to pay the Oregon excise tax hinges on the concept of “nexus,” which establishes the necessary connection between the company and the state. Nexus is created when a corporation engages in activities that go beyond mere solicitation of sales, establishing a tangible or economic presence. This can include maintaining a physical location like an office or warehouse, having employees working within the state, or owning or leasing property in Oregon. The tax applies primarily to C corporations and S corporations that are “doing business” in the state.

The threshold for nexus is not solely defined by physical presence. Economic nexus can also be established when a business derives a significant amount of income from sources within Oregon, even without a physical footprint. This means that out-of-state corporations with substantial sales to customers in Oregon may be required to file and pay the excise tax.

The tax application differs for certain business structures. C corporations are the primary payers of the excise tax on their net income, while S corporations are also subject to the tax, though often only a minimum amount as the bulk of income “passes through” to shareholders. Limited Liability Companies (LLCs) are treated as partnerships by default, but an LLC can elect to be taxed as a corporation, which would subject it to the corporate excise tax.

Calculating the Tax Owed

The calculation of the Oregon excise tax begins with determining the corporation’s Oregon taxable income. For businesses that operate exclusively within Oregon, this is their entire federal taxable income, with certain state-specific adjustments. For companies operating in multiple states, the process involves apportionment, which determines the share of total income that is fairly attributable to Oregon. Oregon uses a single-sales factor apportionment formula, meaning the portion of a corporation’s income subject to tax is based entirely on the percentage of its total sales that occur in Oregon.

Once Oregon taxable income is determined, the tax is calculated using a two-tiered rate structure. The first $1 million of taxable income is taxed at a rate of 6.6%. Any taxable income exceeding $1 million is taxed at a higher rate of 7.6%.

Even if a corporation has no net income or operates at a loss, it may still be required to pay a minimum tax. This minimum tax is not based on income but on the corporation’s total sales in Oregon. The amount ranges from $150 for businesses with Oregon sales under $500,000 and increases in steps to a maximum of $100,000 for companies with sales of $100 million or more. S corporations, for instance, are responsible for paying the minimum excise tax of $150.

Required Information and Forms for Filing

Before a business can file its Oregon excise tax return, it must gather financial data and identify the correct forms. The primary forms used are Form OR-20 for C corporations and Form OR-20-S for S corporations. These forms can be obtained from the Oregon Department of Revenue’s website to ensure use of the most current version.

To complete these forms, a business needs its federal taxable income from its federal return, like Form 1120. For businesses that apportion income, detailed records of total sales versus sales made within Oregon are necessary for the single-sales factor calculation.

Filers must also account for any state-specific adjustments. Oregon law requires certain additions to or subtractions from federal taxable income to arrive at Oregon taxable income. This could include differences in depreciation rules or the tax treatment of certain types of income.

The Filing and Payment Process

The annual deadline for filing the corporate excise tax return is the 15th day of the fourth month following the close of the tax year. For calendar-year filers, this deadline is April 15th. Businesses can submit completed returns by mail to the address specified by the Oregon Department of Revenue or through an approved electronic filing system.

Many corporations must make estimated tax payments throughout the year. If a business anticipates its annual excise tax liability will be $500 or more, it must pay estimated tax in quarterly installments. These payments are due on the 15th day of the 4th, 6th, 9th, and 12th months of the tax year.

The Oregon Department of Revenue will review the return and may contact the business if there are any questions or discrepancies. It is important for the company to retain a copy of the filed return and all supporting documentation for its records.