Oregon Following in Ohio’s Footsteps?

Its being reported that the State of Oregon is considering enacting a tax modeled on Ohio’s infamous Commercial Activity Tax (the “Ohio CAT”).  “The plan,” according to reports, “would scrap Oregon’s corporate income tax system in favor of a 0.39 percent Commercial Activity Tax, or CAT, modeled after Ohio’s system. It would also cut taxes for households earning $58,000 or less, double the personal income tax deduction and raise the earned income tax credit to 18 percent of the federal EITC level.”  Put differently, it shifts the tax burden away from Oregon residents and onto the shoulders of nonresident sellers.

As you may be aware, the Ohio CAT includes a “factor presence” approach which purports to reach nonresident companies based solely on sales to instate residents.  If those sales exceed $500,000, the nonresident seller is deemed to have a “bright line presence” under the CAT statute.  This attempt to sidestep the physical presence requirement of the Constitution is currently being challenged by three companies with appeals pending before the Ohio Supreme Court, in which Brann & Isaacson is serving as lead counsel.   The State of Washington and Tennessee have already adopted similar taxes with a factor presence test for jurisdiction.

Given the fact that the CAT is designed to sweep in nonresidents with no presence in the state, it isn’t surprising that Oregon is expecting such a tax to reap a large windfall:  “Economic analysis predicts Hass’ plan would increase taxes by $1 billion during the 2017-2019 biennium.”

Because Oregon has no sales tax, it may at present be “off the radar” of direct marketers, something that may soon change.