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(see 7/7/17 updates below)
This SALT Buzz will be highlighting states that are considering adopting a commercial activity tax similar to the Ohio Commercial Activity Tax that was enacted in 2005. As additional states introduce legislation to impose a commercial activity tax, we will update the SALT Buzz. This SALT Buzz will also be providing a comparison of each state’s proposed commercial activity tax details.
(1) Amounts measured by taxable gross receipts/sales
Please check back to see the status of each state’s progress in implementing a commercial activity tax.
Businesses should watch for any developments into the details of proposed taxes especially relating to excluded taxpayers, exclusions from gross receipts/sales (including related party reductions), situsing of gross receipts, filing methods and nexus standards. Businesses making sales into Ohio continually need to address Ohio CAT issues in these areas. Due to the similarities to the Ohio CAT, the other states may have the same or similar issues.
Four States Abandon Proposed CAT
The CAT proposed by Governor John Bel Edwards died in the legislature, along with other bills proposed to eliminate an expected budget deficit. Ultimately, Louisiana’s Legislature passed its budget for the year ending June 30, 2018 without making any major tax changes including the CAT. Unfortunately for the Louisiana Legislature, a large deficit looms for the budget beginning July 1, 2018. The Governor will be scheduling a special legislative session to address the upcoming deficit. Stay tuned to see what tax changes are made, if any, to close the deficit.
The proposed CAT was not included in Oklahoma’s budget bill, Senate Bill 860, which Governor Mary Fallin signed into law on May 31, 2017. However, there is some concern that the budget bill is unconstitutional under the provision in the Oklahoma Constitution that states “no revenue bill should be passed during the five last days of session.” Stay tuned to see if the bill is challenged and what that would mean for Oklahoma taxes.
It appears that the Oregon Legislature’s attempt to enact a gross receipts tax has come to an end for this legislative session. On June 22, 2017, a statement was issued by Governor Kate Brown, Senate President Peter Courtney and House Speaker Tina Kotek indicating that “it has become clear that the Legislature will not have the necessary support to achieve structural revenue reforms this session.” Look for Oregon leaders to continue pushing for long-term tax reform (possibly a CAT) in future legislative sessions.
On June 26, 2017, the West Virginia budget bill, Senate Bill 1013, became law with the signature of Governor Jim Justice. The passed bill did not contain the Governor’s proposed CAT.
Louisiana and Oklahoma have proposed implementing a commercial activity tax.
On March 29, 2017, Governor John Bel Edwards unveiled his plan to stabilize Louisiana’s budget hoping to allow for more stability and predictability for businesses. Part of that plan is to implement a commercial activity tax on most business entities including those in the retail, wholesale, service, and manufacturing sectors. House Bill No. 628 provides the specific details of the proposed tax. The Louisiana CAT is in addition to all other taxes levied by any other Louisiana statute.
Different than the Ohio CAT, the Louisiana CAT would have a different tax rate structure depending on the type of entity or type of business. For instance, entities other than corporations will pay the CAT based on a flat amount depending on the amount of gross receipts (see the Louisiana chart below). Corporations, other than those operating as manufacturers/merchandisers or gaming businesses would pay the greater of: (i) the corporation income tax or (ii) the CAT (see the Louisiana chart below). Corporations operating as manufacturers/merchandisers or gaming businesses pay the greater of: (i) the corporation income tax or (ii) the CAT (including an additional calculation if gross receipts are greater than $1.5 million of the lesser of 2.76% of Louisiana gross profits or .35% of gross receipts - see the Louisiana chart below).
The bill does provide for certain exempt entities and certain deductions from gross receipts. Similar to the Ohio CAT, situsing of gross receipts appears to be market driven.
Proposed Louisiana CAT Taxing Structure
On April 24, 2017, the Louisiana House Ways & Means Committee has agreed to defer consideration of the bill, which calls into serious doubt if the bill will be passed.
Earlier this year, the Oklahoma legislature introduced House Bill 1664 that proposes to enact a corporate activity tax. The language in the bill is substantially similar to the Ohio CAT statutes, including a tax rate of .0026, the same graduated minimum taxes, the same nexus provisions (including bright-line presence), the same consolidated and combined filing options, and similar situsing provisions. Unlike the Ohio CAT, the Oklahoma corporate activity tax does not appear to replace any current Oklahoma taxes. If passed, the corporate activity tax would be effective January 1, 2018.
Oregon and West Virginia have recently proposed to adopt gross receipts taxes similar to Ohio’s commercial activity tax (CAT). Oregon’s Legislature has proposed an amendment to the Oregon Constitution while West Virginia Governor Jim Justice has proposed a commercial activity tax as part of an overall tax plan. Both taxes are being proposed to help close budget deficits.
Senate Joint Resolution 41 was recently introduced and would impose a business privilege tax on gross receipts from sales in the Oregon market at a rate of up to .7 percent. Taxpayers with less than $5 million in sales would pay a flat fee not to exceed $250. Taxpayers with less than $150,000 of sales would not be required to file. Unlike when Ohio enacted the CAT, the amendment does not repeal the Oregon corporate income tax.
A special election will be held on May 16, 2017, for Oregon voters to approve or reject the amendment to the Oregon Constitution.
Governor Jim Justice issued his budget proposal on February 8, 2017, which included a proposed commercial activity tax. The tax would place a .2 percent tax on the gross receipts of West Virginia business entities. Taxpayers would include most businesses that receive compensation for goods sold and services provided. A credit against the commercial activity tax would be provided for taxpayers that already pay the Business and Occupation tax, Severance tax or State Health Care Provider tax on gross receipts. The tax would likely be effective July 1, 2017, and is estimated to generate $214.3 million in Fiscal Year 2018.
Both the Oregon and West Virginia taxes appear to have numerous similarities to the Ohio CAT. Businesses should watch for any developments into the details of the Oregon and West Virginia taxes especially relating to excluded taxpayers, exclusions from gross receipts/sales (including related party reductions), situsing of gross receipts, filing methods and nexus standards. Businesses making sales into Ohio continually need to address Ohio CAT issues in these areas.
Our ZHF professionals have extensive experience with gross receipts taxes and would be happy to assist you with addressing any of your issues in this area. Please contact John Trippier, Tom Zaino or any other ZHF professional with any of your gross receipts questions.