Oregon lawmakers appear likely to resurrect legislation to modify the state’s new gross receipts tax in an upcoming special session.
The legislature’s Joint Special Committee on Coronavirus Response sent a letter March 25 to legislative leaders recommending a variety of items to be addressed in the special session or sessions that Gov. Kate Brown (D) is expected to call. One of the proposals is to resurrect the provisions of H.B. 4009-A, a bill to make technical changes to the state’s new corporate activity tax (CAT), a tax on gross receipts. H.B. 4009 appeared headed toward passage during the short 2020 regular session, but it was halted, along with other bills, when Republicans walked out of the capitol in February to prevent passage of a cap-and-trade system.
“While the Department of Revenue has broad authority overseeing our state tax code, the committee seeks to provide clarifications to the Corporate Activities Tax,” the letter stated. “Specifically, the committee seeks to redraft HB 4009-A Engrossed (2020). . . . Unlike other revenue-related actions, the legislature is an appropriate actor to provide certainty to taxpayers and offer relief to some of Oregon’s unique businesses.”
The CAT, enacted in 2019, is a 0.57 percent tax on businesses’ annual Oregon gross receipts over $1 million (along with a flat $250 tax on that income). It also allows a subtraction of 35 percent of a business’s cost inputs or labor costs apportioned to Oregon. The first installment of payments is due April 30.
H.B. 4009 would have addressed a variety of concerns regarding the administration of the tax, including the method for apportioning taxpayers’ labor costs or cost inputs to Oregon for purposes of calculating the subtraction. Business interests have argued that the state's current rules for the tax require an unnecessarily difficult apportionment method, so H.B. 4009 would have explicitly allowed taxpayers to use the state’s existing single-sales-factor apportionment method for business income to also apportion their Oregon CAT labor costs or cost inputs.
H.B. 4009 would also have allowed taxpayers to use their fiscal-year information rather than their calendar-year information to determine their labor costs/cost inputs for the subtraction and allowed unitary groups to exclude foreign members if they didn’t have any commercial activity sourced to Oregon.
A new legislative vehicle containing those elements would be supported by groups such as the Council On State Taxation. “[Regarding] the recommendation that the H.B. 4009-A Engrossed [be] redrafted, COST is fully supportive of those efforts and will do whatever it can to support the passage of that legislation,” COST Senior Tax Counsel Nikki Dobay said in a March 31 email to Tax Notes.
Jeff Newgard, a lobbyist and principal with Peak Policy LLC, told Tax Notes April 1 that he believes the legislation, if resurrected, wouldn’t face opposition.
The bill “was done through a work group that included the DOR, the governor’s office,” and other stakeholders, Newgard said. “It came out of the House Revenue Committee with unanimous support, and we expected” both chambers to approve it before the walkout.
However, it’s not clear when a special session to respond to the pandemic’s effects may be called. Also, “the committee has talked about having, perhaps, multiple special sessions . . . to go in phases and address issues the legislature needs to address,” Newgard said.
Regarding the committee's recommendations, “The way I have been looking at that list is [that] it’s a menu of options for the legislature to consider, and . . . it’s quite possible not all of them happen all at once,” Newgard said.
Chris Allanach with the Oregon Legislative Revenue Office said H.B. 4009 is the only 2020 short session tax bill that lawmakers have recommended be considered in a special session.
“There were a handful of tax bills; I think that’s the only one” being brought back, because the CAT is being implemented for the first time this year, Allanach said. The only other notable tax proposal mentioned in the March 25 letter was one to ensure that increased numbers of beds at hospitals to handle COVID-19 patients "don’t trigger a medical provider tax increase" for those hospitals.
Allanach said the timing of a possible special session is uncertain, as is whether there might be more than one. “Nothing’s set in stone,” he said.
Some business groups have also proposed delaying or suspending the CAT because of the pandemic. Groups had urged Brown to delay the tax before her decision to extend some tax deadlines. A number of business interests, including the Oregon Business and Industry organization, also sent a March 26 letter urging policymakers to delay implementation of the CAT "for the first two quarters of 2020” to allow time for businesses to contend with the pandemic's economic impact. They warned that otherwise, businesses “will be forced to pay this tax instead of paying employees, meaning potential layoffs,” and argued that key programs intended to be funded by the CAT “are not yet in place.”
Alternatively, state leaders should “provide employers with a temporary option of filing under a reduced rate of 0.285 percent (half the current rate) for the first two quarters of 2020 or allow them to double their current deduction of 35 percent to 70 percent for the first two quarters of 2020,” the letter stated.
It’s unclear if lawmakers will heed the call to delay the tax. The joint committee's March 25 letter said it “considered [recommending] delaying the first-quarter payments of the 2019 CAT tax,” but couldn’t reach a final decision.
“Some consensus was found on considerations and information needed to better understand the impact of a delay,” including “can you differentiate businesses by their margins, or by participation in the federal [Paid Family and Medical Leave] program," the committee wrote.
Newgard said another idea being raised is the possibility of modifying the CAT to shift from periodic payments to annual payments, which would give business owners time before they’d have to pay the tax.