As we reported in our June 4 blog post, Oregon lawmakers had recently enacted a “corporate activity tax” (“CAT”) that applies to certain Oregon businesses. The new law, absent challenge, becomes effective January 1, 2020.
We also recently reported that a prominent group of Oregon businesses planned to challenge the CAT. It appears, however, that the momentum for a challenge has recently died.
In this blog post, we discuss the reasons causing the death of the challenge. In addition, we cover some technical changes in the new law that are currently awaiting Governor Kate Brown’s signature.
Earlier this week, a local tax practitioner asked us whether it was true that the City of Portland no longer allows depreciation deductions resulting from an election under Section 754 of the Internal Revenue Code of 1986, as amended (the “Code”), for purposes of computing tax under the City of Portland Business License Tax (“BLT”) and the Multnomah County Business Income Tax (“BIT”). The answer we gave was “yes.” Of course, the response we received from the practitioner was “why.” That question is more difficult to answer than the original question. Nevertheless, we present this blog post to remind tax practitioners of the City’s position on this issue and to discuss the implications of the City’s new position.
We are taking a break from our multi-post coverage of Opportunity Zones to address a recent, significant piece of Oregon tax legislation.
On May 16, 2019, Governor Kate Brown signed into law legislation imposing a new “corporate activity tax” (“CAT”) on certain Oregon businesses. The new law expressly provides that the tax revenue generated from the legislation will be used to fund public school education.
Although the new tax is called a “corporate” activity tax, it is imposed on individuals, corporations, and numerous other business entities. The CAT applies for tax years beginning on or after January 1, 2020.
To help defray the expected increased costs of goods and services purchased from taxpayers subject to the CAT that will assuredly be passed along to consumers, the Oregon Legislative Assembly modestly reduced personal income tax rates at the lower income brackets.
New York Attorney General Barbara Underwood and New York Governor Andrew Cuomo announced today that the state of New York, joined by the states of Connecticut, New Jersey and Maryland, have instituted a lawsuit against the federal government in the U.S. District Court for the Southern District of New York, seeking to strike the $10,000 cap imposed on the state and local tax (“SALT”) itemized deduction by the Tax Cuts and Jobs Act (“TCJA”) as unconstitutional.
The lawsuit, which specifically names Steven Mnuchin, U.S. Treasury Secretary and David Kautter, Acting Commissioner of the Internal Revenue Service, as defendants, asserts that the SALT cap (previously discussed in an earlier blog post) was specifically enacted by the federal government to target New York and similarly situated states, that it interferes with a state’s right to make its own fiscal decisions, and that it disproportionately adversely impacts taxpayers in those states.
On June 21, 2018, the U.S. Supreme Court reversed half a century of legal precedent in a landmark 5-4 decision, South Dakota v. Wayfair, Inc. Under prior law, a state was forbidden from collecting sales tax against out-of-state sellers unless the sellers had physical presence within the state (such as a business location, employees, or property).
The physical presence standard arose from a decision in a 1967 U.S. Supreme Court case, National Bellas Hess v. Department of Revenue of Illinois. In that case, the Court held that a mail-order company, whose only connection with customers in Illinois was by common carrier or U.S. mail, did not have sufficient connection with the state to warrant allowing it to tax the company. In 1992, the Court affirmed that holding in Quill Corp. v. North Dakota. The physical presence standard established by the Court in Bellas Hess and Quill has been a bright-line rule that presided over the rise of Internet commerce. That rule has now changed!
In November 2016, the Board of Commissioners of Cook County, Illinois, passed (by a slim margin of one vote) the Sweetened Beverage Tax Ordinance (“Soda Tax”). It imposed a tax at the rate of one-cent-per-ounce for all sweetened beverages sold at the retail level in the county.
The Soda Tax was expected to generate $200 million a year for Cook County. If you assume a population of 5.2 million in Cook County (home to the city of Chicago), the annual tax collections equate each citizen consuming over 10 ounces of sweetened beverages per day. That is an alarming figure. Factoring in visitors to the county, the number is likely a bit less than that figure, but nevertheless the number, or shall I say, “consumption assumption,” is definitely larger than one would expect.
Larry J. Brant is a Shareholder in Garvey Schubert Barer, a law firm based out of the Pacific Northwest, with offices in Seattle, Washington; Portland, Oregon; New York, New York; Washington, D.C.; and Beijing, China. Mr. Brant practices in the Portland office. His practice focuses on tax, tax controversy and transactions. Mr. Brant is a past Chair of the Oregon State Bar Taxation Section. He was the long term Chair of the Oregon Tax Institute, and is currently a member of the Board of Directors of the Portland Tax Forum. Mr. Brant has served as an adjunct professor, teaching corporate taxation, at Northwestern School of Law, Lewis and Clark College. He is an Expert Contributor to Thomson Reuters Checkpoint Catalyst. Mr. Brant is a Fellow in the American College of Tax Counsel. He publishes articles on numerous income tax issues, including Taxation of S Corporations, Reasonable Compensation, Circular 230, Worker Classification, IRC § 1031 Exchanges, Choice of Entity, Entity Tax Classification, and State and Local Taxation. Mr. Brant is a frequent lecturer at local, regional and national tax and business conferences for CPAs and attorneys. He was the 2015 Recipient of the Oregon State Bar Tax Section Award of Merit.
Upcoming Speaking Engagements
- "Tax Law Update for Family Law Practitioners," Oregon State Bar - Family Law Section 2019 Annual ConferenceSunriver, OR, 10.11.19
- "The Road Between Subchapter C and Subchapter S – It May Be a Well-Traveled Two-Way Thoroughfare, but It Isn’t Free of Potholes and Obstacles," New York University 78th Institute on Federal TaxationNew York, NY, 10.20.19-10.25.19
- "The Road Between Subchapter C and Subchapter S – It May Be a Well-Traveled Two-Way Thoroughfare, but It Isn’t Free of Potholes and Obstacles," Oregon Society of Certified Public Accountants (OSCPA) 2019 Northwest Federal Tax ConferencePortland, OR, 10.28.19
- "The Road Between Subchapter C and Subchapter S – It May Be a Well-Traveled Two-Way Thoroughfare, but It Isn’t Free of Potholes and Obstacles," New York University 78th Institute on Federal TaxationSan Francisco, CA, 11.10.19–11.15.19
- "The Oregon Corporate Activity Tax," Oregon Society of Certified Public Accountants (OSCPA) 2020 OSCPA State & Local Tax ConferencePortland, OR, 1.6.20