Understand How Oregon’s New Corporate Activity Tax Impacts Credit Unions

Oregon implemented a Corporate Activity Tax (CAT) applicable to transactions occurring on or after January 1, 2020. Despite the name, the CAT applies to the business activity of essentially all organizations, not just corporations.

While the CAT applies to financial institutions, it exempts credit unions organized under IRC Section 501(c). These institutions must report only Oregon-sourced unrelated business income (UBTI) taxed under the Federal Internal Revenue Code (IRC). Credit unions with UBTI or affiliations with Credit Union Service Organizations (CUSOs) will want to review their Oregon-sourced activities for potential CAT.

CAT Basics

The CAT is a calendar year tax. Any Oregon-sourced receipts earned after December 31, 2019, could be subject to the CAT, regardless of the taxpayer’s fiscal year. A taxpayer with Oregon-sourced receipts exceeding $750,000 in a calendar year must register for the CAT.

The CAT base comprises two elements: Oregon-sourced sales and an apportioned deduction. After determining Oregon-sourced sales, a taxpayer may deduct 35% of Oregon-apportioned cost of goods sold or compensation. The resulting base, less a $1 million exclusion, is subject to CAT at 0.57%. Oregon adds a minimum $250 tax to arrive at the total CAT liability.

The CAT is estimated to increase the Oregon tax liability of businesses by more than $1 billion per year and is codified in the new Section 317A of Oregon Revised Statutes.

Potential Sources of UBTI

In March 2015, the IRS issued a memorandum providing guidance to examiners of state-chartered credit unions. The memorandum identified several types of income not classified as UBTI, including:

  • Sales of checks and collection of fees from a check printing company
  • Debit and credit card program interchange fees
  • Interest from credit card loans
  • Sales of collateral protection insurance

Several types of income were also identified as UBTI and subject to tax, including marketing automobile warranties and marketing insurance products for:   

  • Dental
  • Cancer
  • Accidental death and dismemberment
  • Life
  • Health

To the extent received from nonmembers, income from the following is also characterized as UBTI:

  • ATM transaction fees
  • Credit life and credit disability insurance
  • Guaranteed Asset Protection (GAP) auto insurance

Oregon-Sourced Commercial Activity

For tax years beginning on or after January 1, 2018, Oregon employs a market-sourcing approach for determining Oregon receipts. In general, amounts received from Oregon customers will be treated as Oregon-sourced receipts.

The Oregon Department of Revenue (Department) has published Temporary Rule 150-317-1040 to provide guidance on sourcing various types of receipts to Oregon.

CUSO Considerations

Credit union service organization (CUSO) interests, ownership, and investments can complicate the analysis.

Unitary Group Standard

A unitary group must file one unitary CAT return. Business entities comprise a unitary group if two tests are met—an ownership test and an activity test.

A group with more than 50% common ownership, direct or indirect, meets the ownership test.  The commonly owned group meets the activity test if it’s engaged in business activities that constitute a unitary business. A business enterprise is unitary when members share or exchange value between them. This may be demonstrated by:

  • Centralized management
  • Flows of goods or services between the various parties
  • Centralized administrative functions or services that allow the enterprise to enjoy economies of scale

No bright-line tests exist, and the determination of whether a group of commonly-owned entities is unitary depends on the facts and circumstances of that group. The Department has published Temporary Rule 150-317-1020 to assist taxpayers in determining whether they’re engaged in a unitary business.

The members of a unitary group don’t need to be of the same entity type. Limited liability companies treated as partnerships, other limited liability companies, and C corporations must file a single unitary group return if they comprise a unitary group. Filing as a unitary group is mandatory if the standards are met.

Intercompany Transactions Eliminated

Many CUSOs have income that is subject to federal tax and would therefore be subject to the CAT. However, members of a unitary group must eliminate all intercompany transactions. Any revenues the CUSO receives from its investor credit union, therefore, would be eliminated and wouldn’t be subject to CAT.

Distributions from Non-Unitary CUSOs

If the CUSO and the credit union don’t comprise a unitary group, as is often the case when several credit unions are members of one CUSO and no one credit union owns more than 50%, distributive income received from CUSOs that are pass-through entities is also excluded from the CAT base, as the CUSO itself would be subject to the CAT analysis and potential CAT liability.

Calculating the Subtraction

Credit unions, CUSOs, and unitary groups with Oregon-sourced revenues subject to the CAT may subtract 35% of their apportioned labor costs. Labor costs are defined broadly as total compensation of all employees, which includes benefits and other payments that may not be reflected in a payroll expense account. The labor cost deduction is capped at $500,000 for any single employee.

Determine Costs

Before apportioning labor costs to determine the subtraction, the CAT taxpayer must determine the costs that are associated with excluded commercial activity.  

Taxpayers may avoid specifically identifying the costs associated with exempt activity by employing a safe harbor, provided in Oregon Temporary Rule (Rule) 150-317-1200, discussed below.

Apportion the Labor Cost Base

The CAT statutes direct taxpayers to apportion the subtraction in the manner required for apportioning income. Rule 150-317-1200 applies a pro-ration methodology that may change the calculation for multistate taxpayers. If your institution or CUSO operates in Oregon and other states, contact your tax professional to review the different methods.

Under either method, the result of the apportionment or proration is multiplied by 35%, yielding the subtraction.

Entities that wish to employ the safe harbor method for determining labor costs don’t use the Oregon apportionment factor. Instead, they apportion the subtraction with a factor determined by dividing taxable Oregon commercial activity by total commercial activity, including exempt activity. This inclusion increases the factor denominator, diluting the factor and reducing the allowed subtraction.


Businesses must register for the CAT within 30 days of receiving at least $750,000 in Oregon-sourced taxable commercial activity. Registration is completed through the Department website. There’s no fee to register, and only one entity from a unitary group is required to sign up.

Businesses that fail to register within the required 30 days may be subject to penalties.


Businesses subject to CAT must make quarterly estimated payments. Each payment is due on the last day of the month following the calendar quarter—April 30, July 31, October 31, and January 31.

Businesses must file an annual CAT return on April 15 of the following year. A six-month extension may be granted for good cause, which includes needing more time to develop the information required to accurately report the CAT. Penalties apply if estimated payment minimum amounts aren’t met. The Oregon legislature was considering a technical corrections bill—House Bill (HB) 4009—which would have clarified these penalties and provided certain safe harbors for fiscal year and other taxpayers.  The legislature adjourned before voting on HB 4009, however, which means these safe harbors and penalty clarifications are not in the statute.

Next Steps

Many businesses subject to the CAT plan to pass the CAT through to their customers, often as a separate invoiced item. Your procurement and accounts payable groups may be seeing line-item charges with various titles, including Oregon CAT, Student Success Fee, or Oregon Surcharge, among others. It’ll be important to review vendor, property leasing, and other contracts to determine your liability for paying these additional charges.

If your business has earned over $750,000 in Oregon-sourced taxable UBTI receipts, it’s time to register, if you haven’t yet done so. It’ll also be important to monitor the status of legislative updates and technical corrections to the CAT law, as well as the Department’s rulemaking as they provide guidance to taxpayers in complying with this historic tax.

We’re Here to Help

For questions about implications for your business or insight on how you can prepare, please contact your Moss Adams professional.

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