Following several failed attempts by Oregon voters and the Oregon legislature to pass a gross receipts tax (see Not Dead Yet: Oregon Voters Propose Another Gross Receipts Tax in the Wake of Market-Based Sourcing and Oregon Proposes “Gross” New Tax), Governor Kate Brown signed Enrolled House Bill 3427, Oregon’s corporate activity tax (CAT), into law on May 16, 2019.
Nexus expansion continues to be a hot topic in state and location taxation. States have become increasingly aggressive in subjecting entities without a physical presence to taxation, often by asserting that the out-of-state company has “economic nexus” with the state. In a recent decision, the New Jersey Tax Court has reinvigorated a nexus ghost from tax years past, seemingly looking to the unitary business principle (or at least the hallmarks of a unitary business) to conclude that a corporate limited partner was subject to tax in New Jersey by virtue of its interest in a partnership that was doing business in the state. Preserve II, Inc. v. Director, Div. of Taxation, Docket No. 010920-2013 (N.J. Tax Ct. Oct. 4, 2017).
Less than a year after a similar minimum tax proposal was soundly defeated at the polls, a gross receipts minimum tax measure is again being proposed by way of voter initiative in Oregon. A draft ballot title for Initiative Petition 2018-027 (“IP 27”) was received by the Oregon Secretary of State Elections Division from the Attorney General on July 13, 2017 for the November 6, 2018 general election. While the specifics of IP 27 are yet to be revealed, the summary provided in the draft ballot indicates that it is in ways even more aggressive than the one rejected by voters last November (“Measure 97”). Although the fate of this latest tax proposal is still very much in question, companies doing business in Oregon should take notice of the continued interest in gross receipts taxes (another proposal, H.B. 2830, which would have imposed a tax similar to Ohio’s Commercial Activity Tax, was narrowly defeated in the state legislature earlier this year), especially in light of the state’s recent move to market-based sourcing.
Pop quiz: when it comes to business earnings, the State of Texas imposes: (a) an income tax; (b) a business activity tax that is not an income tax; or (c) no tax at all. Good news (or bad news)—no matter which answer you chose, you may be right (or wrong). Right now, the answer appears to be (b), but in a few months we may find out that the answer is actually (a), and barring a change of course by the State Legislature, the answer may be (c) in the near future. One thing is clear; the Texas Franchise Tax (or “margin tax,” as it is colloquially known), is in a state of flux.