Oregon’s governor has temporarily relaxed requirements for businesses to make quarterly payments of the state’s new gross receipts tax because of the COVID-19 pandemic.
Oregon’s Department of Revenue announced in an April 29 press release that Gov. Kate Brown (D) had instructed the department to require only businesses with an annual tax liability of $10,000 or more to make quarterly estimated tax payments in 2020, a doubling of the previous $5,000 threshold. Businesses with liability below the $10,000 threshold won’t have their payment due until April 2021.
“If businesses know they’ll owe $10,000 or more in annual Corporate Activity Tax [CAT] in 2020 and can pay, they should make estimated quarterly payments and comply with the law to the fullest extent possible,” according to the DOR.
The first quarterly payment for the tax is due April 30.
For businesses required to make quarterly estimated payments, the department “also won’t assess penalties for underestimated quarterly payments or for not making a quarterly payment, if businesses don’t have the financial ability to make the estimated payment,” according to the release, and will "honor a business taxpayer’s good-faith efforts to comply and not assess penalties if they document their efforts to comply, including how COVID-19 has impacted their business.”
“In this first year for CAT [liability], some businesses have shuttered; others are down,” DOR spokesman Robin Maxey told Tax Notes April 29. “So the department is just making sure that we’re taking into account all of the effects of the pandemic.”
Businesses should keep documentation showing that the pandemic has rendered them unable to afford a quarterly payment, that they aren't able to reasonably calculate their annual tax liability or quarterly payments because of the pandemic, and that they are "unclear at this time whether the business will owe Corporate Activity Tax in April 2020 due to COVID-19 impacts, after taking into consideration exclusions and subtractions in the law,” according to the release.
The tax was approved in 2019 in order to generate funding for education and is levied at a rate of 0.57 percent on the annual Oregon gross receipts of businesses over $1 million (along with a flat $250 tax on that income). A subtraction is allowed for 35 percent of a business’s cost inputs or labor costs apportioned to Oregon. Business groups have urged Brown to suspend the tax’s implementation in response to the pandemic.
In an April 24 letter to Oregon Business and Industry (OBI), a business group that has sought suspension of the CAT, the governor outlined the relief she ordered the DOR to provide.
“Fairly administering Oregon tax law is a priority for both me and the Department of Revenue. I appreciate the thoughtful leadership of the business community during these difficult times,” Brown wrote.
Sandra McDonough, the CEO of OBI, told Tax Notes April 29 that the governor’s actions aren’t enough to address the challenges businesses in the state are facing. Raising the threshold “takes care of a lot of smaller businesses, but there’s 40,000 businesses that were theoretically going to be subject to this tax,” and many that are above the threshold are still facing liquidity problems and other issues, she said.
McDonough argued that while businesses would be forgiven penalties under the new guidance if they made a good-faith effort to comply, that criterion is vague and “from the taxpayer’s point of view, they’re not going to know for a year . . . if they met the good-faith requirement” or whether they’ll have to pay a penalty.
OBI wanted a suspension of the CAT for the first half of the year, McDonough said, and had urged Brown to at least waive penalties — both in light of the pandemic, and because the tax is new and the rules for administering it aren’t finalized. She said Brown had indicated she’d do that for the first-quarter payment period at a remote conference with business leaders April 22, but that the rules the DOR is implementing instead condition exemption from penalties on the showing of a good-faith effort.
“I think there’s a fear [by Brown’s office that] businesses aren’t going to pay” without the threat of penalties, McDonough said. “I think most people do what they’re supposed to do and pay their taxes” without that threat, she added.
Oregon Manufacturers and Commerce, another business group, said in a statement that Brown’s “decision to provide some flexibility surrounding quarterly requirements, while appreciated, is frankly the bare minimum businesses need during this time of crisis,” and that “delaying implementation of the Corporate Activity Tax would be the quickest and most effective way to provide businesses with the relief they desperately need.”
McDonough said she plans to continue pressing lawmakers to consider action to reduce the burden of the CAT this year. Notably, Brown has indicated she’ll call a special session after May 20, when the state’s next revenue forecast is expected to be released.
The governor's actions don’t go as far as business groups want but may still provide relief for many businesses struggling in light of the pandemic. House lawmakers issued a press release April 28 praising Brown’s decision.
“At a time of great economic challenges for so many Oregonians, this rule change finds an important middle ground in protecting the Student Success Act while providing flexibility for the state’s smaller businesses,” said Rep. Nancy Nathanson (D), who chairs the House Revenue Committee. “This flexibility provides the relief that these businesses have been asking for, while not requiring unnecessary budget cuts for the critical services Oregonians rely on, like healthcare and education.”
Nathanson said the $5,000 threshold excluded roughly 20,000 businesses from having to make quarterly estimated payments, and that raising the threshold to $10,000 “will add thousands of more businesses impacted by the coronavirus pandemic to that list.”
Notably, there are other, unresolved questions about the CAT — including the exact methodology by which businesses should calculate the subtraction — that were set to be addressed by legislation advanced during the 2020 session. However, the methodology bill was scuttled when Republicans walked out of the capitol in the final weeks of session, but sources told Tax Notes earlier in April that there’s hope similar legislation might be addressed in a special session.