On May 16th the governor signed House Bill 3427 into law. This bill creates additional funding for education through a multi-billion dollar commercial activities tax to be imposed on taxpayers doing business in Oregon.
The tax will be imposed at a rate of .57% on taxable commercial activity over $1 million. Taxable commercial activity generally equals a taxpayer’s gross receipts from the sale of goods or services to Oregon customers less a deduction for 35% of either labor costs, or the cost of inputs. Taxpayers with taxable commercial activity below $1 million will not be required to pay the tax.
The bill also provides for a .25% reduction in personal income tax rates for those individuals not in the highest tax bracket, which is intended to help offset the impact that the tax will have on consumers who will likely face higher prices for goods and services as businesses increase their prices to cover the cost of the additional tax. Because of this anticipated price increase, many opponents of the bill referred to it as a hidden sales tax.
The commercial activities tax will apply to the sale of most goods and services to customers in Oregon, but the law does provide for a number of exceptions. For example, gross receipts from the sale of groceries will not be subject to the tax.
Unitary groups of businesses will be required to register for the tax and file as a single taxpayer. Unitary groups are generally a group of persons with more than 50 percent common ownership in unitary businesses. Unitary businesses include those businesses that share centralized management or services, or are otherwise functionally integrated.
These tax changes will take effect on January 1, 2020. An annual return with an April 15th due date will be required to report the commercial activities tax, but the tax itself will be due and payable on a quarterly basis.
Kernutt Stokes will continue to monitor these new laws and the implementation guidance that may be forthcoming. Please contact us for additional information.