The Oregon Department of Revenue (“DOR”) announced that it will be conducting a public hearing on June 23, 2020 to discuss a second set of temporary administrative rules relative to the Oregon Corporate Activity Tax (the “CAT”) that it intends to make permanent.
Due to the COVID-19 pandemic, the hearing will be held telephonically. The conference call will commence at 9:00 a.m. Pacific Time on June 23, 2020.
In a new temporary rule, the Oregon Department of Revenue (“DOR”) formalized its prior informal guidance relative to the assessment of penalties for failing to make sufficient estimated payments under Oregon’s Corporate Activity Tax (“CAT”). The temporary rule provides some relief to CAT taxpayers whose businesses are adversely affected by COVID-19.
Pursuant to ORS 317A.137(2), a taxpayer must make estimated quarterly CAT payments. As discussed previously, ORS 317A.161(2) imposes a penalty on taxpayers who fail to make estimated payments equal to at least 80 percent of their CAT liability for any quarter during 2020.
The DOR announced in April that it would not assess penalties against a taxpayer for failure to make estimated CAT payments during 2020 if the taxpayer did not have the financial ability to make the estimated payments. The DOR further stated that it would honor a taxpayer’s good faith compliance efforts if the taxpayer documents those efforts.
Unfortunately, the DOR pronouncement about penalty abatement was contained in an email blast. Consequently, many taxpayers and tax practitioners were concerned about whether such an informal announcement could be relied upon, what actually constitutes “good faith compliance efforts” and how to document the efforts.
Today, as a result of the COVID-19 pandemic and resulting stay-at-home orders issued by the governors of most states, many employees are working remotely from home for their employers. In fact, for many employers and employees, the arrangement is working well enough that they will likely consider continuing the arrangement, on a full-time or part-time basis, when the stay-at-home orders are lifted. This type of arrangement raises all kinds of issues and concerns for employers, including compliance with applicable laws. Many of the issues are obvious, but some of them are more nuanced and may not be on the minds of employers.
Employees Working Remotely
The trap is set when an employer has an employee performing services outside of the state(s) where it operates. Historically, this scenario was likely rare. It probably only occurred when an employer was physically located near a state border and had an employee working from his or her home located in the neighboring state. Today, with the internet and sophisticated communication technologies, it is not limited to employees residing in neighboring states. Further, with the COVID-19 pandemic facing the world, more and more employees are working remotely. Assuming a remote work arrangement is acceptable to both an employer and an employee, I suspect it will continue to be a prevalent employment arrangement post-COVID-19. As a result, employers may find themselves with employees working in states, and possibly countries, different from where the employer has its business physically located. As discussed below, it is vital that employers know where their employers are performing services. The consequences of not knowing where your employees are working could be costly.
As we recently reported, the Oregon Department of Revenue (“ODOR”) issued written guidance concluding that the receipt of funds pursuant to PPP loans (whether or not forgiven), EIDLP advances and SBA debt relief for certain business loans do not constitute commercial activity under Oregon’s new gross receipts tax, the Corporate Activity Tax (the “CAT”). Accordingly, taxpayers subject to the CAT do not include these items in their computation of commercial activity.
Washington state enacted its Business and Occupations Tax (“B&O Tax”) almost 90 years ago. The B&O Tax, like the CAT, is a gross receipts tax. Unlike the CAT, however, taxpayers subject to the B&O Tax are generally not allowed to deduct any of their costs, including materials and labor, from gross revenues.
The Washington Department of Revenue (“WDOR”) issued written guidance last week, possibly joining the ranks with the ODOR. Better late than never!
The WDOR concludes that taxpayers subject to the B&O Tax should not include the receipt of funds pursuant to COVID-19 relief programs for purposes of computing their tax liability under the B&O Tax regime.
New guidance from the Oregon Department of Revenue (the “DOR”) with respect to Oregon’s Corporate Activity Tax (“CAT”) was issued yesterday.
Specifically, the DOR announced that:
- Certain forgivable federal loans and advances, including Paycheck Protection Program (“PPP”) loans, are excluded from the definition of commercial activity under the CAT;
- The DOR is scheduling a public hearing to discuss the first set of permanent rules promulgated under the CAT; and
- The DOR released a draft temporary rule regarding the sourcing of commercial activity for financial institutions.
As previously reported, the new Oregon Corporate Activity Tax (the “CAT”) went into effect on January 1, 2020. The new law is quite complex and arguably not very well thought out by lawmakers. Although the Oregon Department of Revenue (the “DOR”) has worked hard to bring clarity to the CAT through rulemaking, many questions remain, including application of the many exemptions and computation of the required tax estimates. Despite pleas by small businesses to repeal or at least put the CAT in hibernation until the uncertainties resulting from the COVID-19 pandemic have been alleviated, both Oregon’s Governor and the state’s lawmakers have proclaimed in so many words that the show must go on – the CAT will remain in place, even during these horrific times.
In accordance with ORS 305.157, the director of the Oregon Department of Revenue (“DOR”) ordered an automatic extension of the 2019 tax year income tax filing and payment due dates. Oregon now joins several other states and the U.S. Department of the Treasury in this regard.
For Oregon personal income taxpayers, the order means:
- The Oregon income tax return filing due date for tax year 2019 is automatically extended from April 15, 2020 to July 15, 2020.
- The Oregon income tax payment deadline for payments due with the 2019 tax year return is automatically extended to July 15, 2020.
- The time for making estimated tax payments for tax year 2020 is not extended.
- The tax year 2019 six-month extension to file, if requested, continues to extend only the filing deadline until October 15, 2020.
- Taxpayers do not need to file any additional forms or notify the DOR to qualify for this Oregon tax filing and payment extension.
I hope our readers, their families and co-workers are safe and remain healthy during these trying times. As a distraction for tax geeks like us from the news about the Coronavirus that is permeating our lives these days, Peter and I decided to present more coverage on the Oregon Corporate Activity Tax (“CAT”).
On March 6, 2020, the Oregon Department of Revenue (the “Department”) published two new temporary rules that it had previously presented in draft form. While the rules are substantively the same as they were in draft form, there are several nuances worthy of discussion.
Temporary Rules Keep Rolling in
The Oregon Department of Revenue (the “Department”) recently issued four new temporary rules relative to the Oregon Corporate Activity Tax (the “CAT”). The new rules went into effect on February 1, 2020.
The new temporary rules provide much needed guidance with respect to three notable exclusions from the fangs of the CAT, namely the Grocery Exclusion, the Wholesale Exclusion and the Vehicle Exclusion.
The CAT Tour
As previously discussed, late last year, the Oregon Department of Revenue (the “Department”) conducted several town hall meetings with taxpayers and tax practitioners across the state to discuss the Corporate Activity Tax (the “CAT”), answer questions and solicit feedback about administration of the new tax regime. I am happy to report that the Department is hitting the road again!
The Department announced on February 6 that it will be hosting another series of meetings across the state next month. The meetings are aimed at providing information to and answering the questions of taxpayers and tax professionals about the CAT and the newly issued administrative rules.
Larry J. Brant
Larry J. Brant is a Shareholder and the Chair of the Tax & Benefits practice group at Foster Garvey, a law firm based out of the Pacific Northwest, with offices in Seattle, Washington; Portland, Oregon; Washington, D.C.; New York, New York, Spokane, Washington; and Beijing, China. Mr. Brant practices in the Portland office. His practice focuses on tax, tax controversy and transactions. Mr. Brant is a past Chair of the Oregon State Bar Taxation Section. He was the long-term Chair of the Oregon Tax Institute, and is currently a member of the Board of Directors of the Portland Tax Forum. Mr. Brant has served as an adjunct professor, teaching corporate taxation, at Northwestern School of Law, Lewis and Clark College. He is an Expert Contributor to Thomson Reuters Checkpoint Catalyst. Mr. Brant is a Fellow in the American College of Tax Counsel. He publishes articles on numerous income tax issues, including Taxation of S Corporations, Reasonable Compensation, Circular 230, Worker Classification, IRC § 1031 Exchanges, Choice of Entity, Entity Tax Classification, and State and Local Taxation. Mr. Brant is a frequent lecturer at local, regional and national tax and business conferences for CPAs and attorneys. He was the 2015 Recipient of the Oregon State Bar Tax Section Award of Merit.
Upcoming Speaking Engagements
- "Entity Classification – The Check-The-Box Regulations Revisited," New York University 81st Institute on Federal TaxationNew York, NY, 10.23.22-10.28.22
- "Entity Classification – The Check-The-Box Regulations Revisited," New York University 81st Institute on Federal TaxationSan Diego, CA, 11.13.22-11.18.22