Oregon Department of Revenue Issues Additional Tax Guidance

Oregon Department of Revenue Issues Additional Tax Guidance

On December 20, the Oregon Department of Revenue released four additional temporary rules for the Corporate Activity Tax. The rules follow a batch of rules released only two weeks ago that provided initial guidance to businesses subject to the tax.

These rules address the regulatory framework for the following areas:

  • Definition of Commercial Activity: Commercial activity is defined as the fair market value realized by a business using the transactional test for the income tax (OAR 150-314-0335(5)). The rule clarifies that transactions made merely for investment purposes, unrelated to the trade or business, are not commercial activity.
  • Sourcing Rules for Tangible Personal Property: Specifies a sale is sourced to Oregon if, at the designation of the purchaser, the property is ultimately delivered to a recipient in Oregon.
  • Sourcing Rules for Sales of Intangible Property: These rules largely follow the market-based sourcing rules for the income tax (OAR 150-314-0435).
  • Cost Inputs or Labor Subtraction: Specifies that multijurisdictional businesses are required to apportion their cost inputs or labor expense subtraction using a commercial activity ratio. The ratio is a fraction consisting of commercial activity sourced to Oregon and the commercial activity everywhere, plus exclusions from commercial activity.
  • While these rules provide substantive guidance to taxpayers, they also raise substantial questions about the new regime. In particular, the rule relating to the cost inputs or labor expense subtraction may draw attention from the legislature as it prepares to consider technical corrections for the next session beginning on February 3.

    The department intends to issue additional temporary rules on February 1 and March 1, with a permanent rulemaking opening the summer. You can view this release and additional information on the Corporate Activity Tax website here.