Commercial Activity Tax


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.

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.

Bright-line, factor presence nexus has become an increasingly popular issue in state taxation in recent years. While the rules and thresholds vary from state-to-state, the Multistate Tax Commission’s (“MTC”) model rule exemplifies how factor presence nexus works.  Specifically, the MTC’s model rule provides, in part, that “substantial nexus” (i.e., a taxable presence) exists for corporate income tax purposes if an out-of-state taxpayer has total sales in the state exceeding $500,000 during any given taxable period.  Several states–including Alabama, California, Colorado, New York, Ohio, and Tennessee–have adopted factor presence nexus rules; however, to date, there have been very few cases that have considered the constitutionality of bright-line, factor presence nexus standards.