Oh, 2020. What a year… and I am referring only to the interesting tax laws, rules and Proposals. At the state level, we have seen continued, and for now final, movement on the Corporate Activity Tax (CAT). At the federal level, lawmakers wrestled with the global pandemic by implementing sweeping tax and nontax provisions intended to keep people employed during widespread “shutdowns” of commerce. Finally, I was somewhat surprised to see local governments press ahead with tax increases in the midst of this global uncertainty. Here is a brief look at these developments, with an eye toward the real estate and construction industries.


In the recent special session, the Oregon Legislature passed HB 4202 along to Gov. Kate Brown to sign, and she obliged. HB 4202 made some important changes, none of which directly impacted our industry. Some provisions had indirect effects, such as rules concerning unitary groups and apportionment.

Perhaps the biggest development with the CAT originated with the Oregon Department of Revenue (DOR) and its rulemaking activities. Since enactment of the CAT, focus has centered on the “agent exclusion,” which permits certain payments made to an “agent” to be exempted from the CAT calculus. The DOR’s initial draft agent exclusion rule (“Rule 1100”) did not directly address issues central to our industry, and many industry constituents asked for more clarification.

As modified and later made permanent, Rule 1100 provides two new examples that are intended to address issues the DOR heard from the industry. In the new Example 4, the DOR noted that when a construction contractor bears all the risks associated with completing a project in a cost-effective manner for a fixed contract price, the entire amount of the contract price is included in the contractor’s CAT computation.

As a contrast to Example 4, in new Example 5, the DOR contemplated “cost-plus” contracts in which a contractor earns a fee for delivering the contracted construction services. The rule, however, includes the notion that the contractor “must act on behalf of and under the direction and control of” the owner as it pertains to “the use of subcontractors.” In that case, the rule concludes the contractor may exclude from its CAT computation the amounts paid to the subcontractors.

The industry’s response to these examples and the final Rule 1100 generally has been mixed. Although the final Rule 1100 does provide some much-needed guidance for the application of the agent exclusion in the context of construction projects, the two examples leave important holes that will need to be filled.

Federal response to COVID-19

Where do I even start? In response to an unprecedented global pandemic that saw many local businesses temporarily or even permanently shuttered, Congress responded with the Families First Coronavirus Response Act and the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. Both acts were focused more on issues of employment security and the now famous Paycheck Protection Program (PPP) loans. Tax was not necessarily central to either act, nor was our industry singled out for special treatment.

With respect to tax, however, there was an interesting development from the Internal Revenue Service. Important to the PPP loan program is its statutory requirement that the forgiveness of a PPP loan not lead to taxable income to the borrower. In Notice 2020-32, however, the IRS significantly clawed back that statutory provision. Although the IRS confirmed the forgiveness would not result in taxable income, it went on to hold that amounts spent on otherwise deductible expenses (wages, rents, etc.) would not be deductible if paid with amounts forgiven under the PPP loan program rules.

If there is just one thing to take away from this article, it should be to plan now for the “tax cost” of that notice. Finally, it should be noted that as of the time I wrote this article, Congress and the White House are actively negotiating another round of federal legislation to address the pandemic. The various parties are so far apart at this point, it is difficult to see where this will go. In any event, there is some push (maybe a nudge) to overrule the IRS PPP notice, some extensions to the PPP loan program, and, although increasingly unlikely, some form of payroll tax relief. Look for more updates as this rolls out in the next week or so.

Metro’s Measure 26-210

In May, Portland-metro voters approved adoption of a new tax law that will potentially generate $250M per year, with the express aim of funding “mental health care, case management, job training and other services for people experiencing or at risk of homelessness.” That new tax is light on specifics at this time. It will be assessed against couples earning more than $200,000 per year and individuals earning more than $125,000 per year. And businesses with gross receipts of $5 million or more per year will also pay a 1 percent tax on profits. Again, as more details are finalized, I will be actively tracking these developments.

In conclusion, yes, these are wild times. And federal, state and local governments are using tax policy to address that wildness. Please feel free to contact me to discuss these developments – you will find me at the “office.” Be well.

Column first appeared in the Oregon Daily Journal of Commerce on August 14, 2020.

Sign up

Ideas & Insights