Larry's Tax Law

I apologize in advance for focusing my blog these past several weeks on the new Oregon Corporate Activity Tax (“CAT”), but my mind keeps finding new facets to this tax regime that I suspect most tax practitioners and even the lawmakers who passed the legislation may not have envisioned or anticipated.  So, please indulge me as I explore another one of these numerous issues in this installment of the blog.

After the passage of the Tax Reform Act of 1986 and the introduction of Code Section 469, we started seeing tax practitioners focusing attention on trying to figure out how their clients could be characterized as active participants in a trade or business activity.  Their goal is simple – they want to avoid the deduction limitations imposed by the passive activity loss rules contained in Code Section 469. 

A dog will immediately respond to you when you call out.  On the other hand, when you call out to a cat, the cat will take a message and promise to get back to you later.  This is not the case with the Corporate Activity Tax (“CAT”).  The Oregon Department of Revenue (“DOR”) is doing everything possible to provide taxpayers and tax practitioners with prompt and helpful guidance and support relative to the CAT, the new state tax regime that became effective on January 1, 2020.

As previously discussed, late last year, the DOR conducted several town hall meetings with taxpayers and tax practitioners across the state to discuss the CAT, answer questions and solicit feedback about administration of the tax regime.  In addition, as promised, the DOR started issuing draft temporary rules this past December to provide clarity and address many uncertainties in the new law.  It quickly removed the “draft” stamp from the rules.  The rules keep rolling in!  To date, the DOR has issued a total of 12 temporary rules.  We have already provided a discussion of eight of those temporary rules.  In this post, we discuss the remaining four temporary rules.

On January 6, I presented a new White Paper, The Oregon Corporate Activity Tax – You Can Run and You Can Hide, but This New Tax Is Effective January 1, 2020, at the Oregon Society of Certified Public Accountants Annual State and Local Tax Conference.  We had a large number of attendees, including representatives of the Oregon Department of Revenue (the “DOR”).  Based upon the numerous questions I received (during and after the presentation), it is clear that tax practitioners are busy thinking about this new tax regime and how it applies to their clients.  Unfortunately, in this particular case, I do not believe the curiosity will kill the CAT.  It looks like it is here to stay.

We have written at length about Oregon’s new Corporate Activity Tax (the “CAT”). As discussed in our last post, the Oregon Department of Revenue (the “Department”) recently concluded a series of 12 town hall meetings around the state to solicit input from stakeholders regarding the Department’s rulemaking process.

As we talked about in our last post, the Department stated at the Portland town hall meeting its plan to conduct additional dial-in meetings for people who are located out of state or who otherwise could not attend the town hall meetings.

The Timely Filing Requirement Imposed by Oregon DOR in Order for Taxpayers to be Able to use the "Prior Year Tax Safe Harbor" Stricken by the Oregon Tax Court 

On September 13, 2013, in Finley v. Oregon Department of Revenue, the Oregon Tax Court granted taxpayer’s Motion for Summary Judgment, and held Oregon Administrative Rule 150-316.587(8)-(A) is invalid to the extent it requires taxpayers to have timely filed their prior year’s Oregon income tax return to be eligible for the “Prior Year Tax Safe Harbor.”

I represented the taxpayer in this matter.  The facts were straightforward.  The tax years at issue were 2008 and 2009.  The taxpayer was a resident of Oregon during these years.

For tax year 2008, the taxpayer paid his taxes in a timely manner.  Unfortunately, he filed his Oregon individual income tax return late. 

For tax year 2009, the taxpayer had a substantial increase in his income due to a capital gain-generating transaction.  To avoid an estimated tax payment penalty, on December 31, 2009, thinking he qualified for the “Prior Year Tax Safe Harbor,” he made an Oregon estimated tax payment of 100% of his 2008 Oregon income tax liability.  Then, he timely filed his 2009 Oregon income tax return, and he paid the additional taxes shown due on the return.  Thereafter, the Oregon Department of Revenue sent the taxpayer a nice letter, thanking him for his generous tax payment, but requesting he pay an additional large sum, representing an estimated tax (late payment) penalty.  Not being able to resolve the matter with the Department, we filed a complaint in the Oregon Tax Court.  The case was ultimately heard by Judge Henry Breithaupt in the Regular Division of the Oregon Tax Court.