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THAT FACE YOU MAKE WHEN THE GOVERNMENT PASSES A TAX ON GROSS INCOME.

Our clients have been asking about the new “Gross Income Tax” that Oregon passed this year. What is it? When does it go into effect? How much is it? Do I have to pay it? We’ve made an attempt to answer some of those questions below. Keep in mind that there may be changes to the below information in the future, and this information may become obsolete.

The Short Version:

The Long Version:

According to Oregon.gov, “On May 16, 2019, Governor Kate Brown signed House Bill 3427 into law. The legislation […] adopts a new Corporate Activity Tax (CAT) imposed on all types of business entities.”

“Commercial Activity” and “Taxable Commercial Activity” appear to be essentially the same as Gross Income. Gross Income is equal to Net Sales less Cost of Good Sold.    

If your annual “Taxable Commercial Activity” didn’t exceed the $1,000,000 threshold, you are exempt from this tax for the year. Don’t forget the registration requirement for exceeding the $750,000 threshold though. More on that later.

“Commercial Activity” for many of our clients will be very similar to their true “Gross Income.” However, there are 43 items specified as not “Commercial Activity” which may play a role in your specific situation. These items can be found on pages 29-31 HB 3427 linked at the end of this post. A few of those exceptions that may be of interest to our clients include:

The $1,000,000 threshold isn’t the only mark we need to pay attention to. The registration requirement for CAT occurs a lower Gross Income amount as detailed on pages 36-37 of HB 3427:

In addition to these stipulations, if you decide that you want to sell you business, or that you need to close up shop for any reason, keep the following in mind:

Example:

In order to illustrate the effect of this new law we’ve included the fictitious following example:

Self-employed person Mr. Bob is a general contractor. His business brought in $10,000,000 this year. After he factors in costs directly related to the production of income, like direct labor and materials, Mr. Bob’s company had Gross Income of $2,000,000. Unfortunately for Mr. Bob, his business expenses including insurance, taxes, payroll for his office personnel, utilities, etc. totaled $2,100,000. Mr. Bob lost $100,000 this year. With no income, Mr. Bob has no income tax to pay for his business activity. But Mr. Bob still must pay his corporate activity tax.

Mr. Bob’s business lost $100,000 this year, but he still needs to pay The Oregon Department of Revenue $5,950.

Hopefully, situations like this will be exceedingly rare. Unfortunately, it is entirely possible that business activity for the year can result in a loss, and still have tax due.

The information we’ve included here is by no means exhaustive and is not intended to be tax advice for you or your organization. You should consult a professional regarding your specific situation. Give us a call or schedule an appointment. We are here for you.

Sincerely, Robert D. Russell, CPA PC

Resources:

https://www.oregon.gov/DOR/programs/businesses/Pages/corporate-activity-tax.aspx

https://olis.leg.state.or.us/liz/2019R1/Downloads/MeasureDocument/HB3427

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