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.
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.
There has been a lot of “buzz” in the media about Qualified Opportunity Zones (“QOZs”). Some of the media accounts have been accurate and helpful to taxpayers. Other accounts, however, have been less than fully accurate, and in some cases have served to misinform or mislead taxpayers. Let’s face it, the new law is quite complex. Guidance to date from Treasury is insufficient to answer many of the real life questions facing taxpayers considering embarking upon a QOZ investment.
In this installment of our series on QOZs, we will try to address some of the questions that are plaguing taxpayers relative to investing in or forming Qualified Opportunity Funds (“QOFs”). Please keep in mind before you attempt to read this blog post that we readily admit that we do not have all of the answers. We do, however, recognize the many questions being posed by taxpayers.
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!
As we have been discussing these past several weeks, the Tax Cuts and Jobs Act (“TCJA”) drastically changed the Federal income tax landscape. The TCJA also triggered a sea of change in the income tax laws of states like Oregon that partially base their own income tax regimes on the Federal tax regime. When the Federal tax laws change, some changes are automatically adopted by the states, while other changes may require local legislative action. In either case, state legislatures must decide which parts of the Federal law to adopt (in whole or part) and which parts to reject, all while keeping an eye on their fiscal purse.
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, 10.10.19-10.12.19
- "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