Year-end was once again busy as we worked with clients to close transactions with December 31 deadlines. Adding to the hustle and bustle was the issuance of additional Oregon Commercial Activity Tax (“CAT”) guidance from the Oregon Department of Revenue (“DOR”). The DOR followed that on January 2, 2020, by issuing its first set of temporary administrative rules (the “First Temporary Rules”). This week, the DOR issued one draft rule regarding motor vehicle resale certificates (the “Motor Vehicle Certificate Draft Rule”). This update describes the First Temporary Rules and Motor Vehicle Certificate Draft Rule, in turn.

First Temporary Rules

I understand from discussions that the DOR’s January 2 issuance was an aggregation of the draft guidance the DOR had issued to date, with some minor typographical changes. I previously provided summaries of the DOR’s other guidance on December 10, 2019 and January 7, 2020. This update goes back and picks up the four draft rules the DOR issued on December 20, 2019. These four rules are summarized as follows:

Definition of Commercial Activity (OAR 150-317-1000).

This rule defines “commercial activity” for purposes of the CAT by underscoring that it is measured by the fair market value of all “amounts realized” in the regular course of the taxpayer’s trade or business, and is not necessarily equivalent to the definition of “income” in Section 61 of the Internal Revenue Code. Specifically, money, property received, debt forgiven, and services rendered are deemed to be amounts realized. From there, this rule notes the so-called transactional test in OAR 150-314-0335(5) is further used to define “commercial activity.” Moreover, the so-called functional test in OAR 150-314-0335(6) would rule out whether an item is an amount realized, unless that item otherwise falls within the scope of the transactional test. Finally, this rule confirms that the taxpayer’s method of accounting provides the timing for when the item is realized for tax purposes. 

Cost Input or Labor Cost Subtraction (OAR 150-317-1200).

Whereas the previous temporary rule was aimed at defining what is included in computing the CAT, this rule is aimed at defining what may be subtracted in that computation. This rule sets out the general rule and an alternative rule. 

The general rule requires the taxpayer to first determine the amount, if any, the taxpayer will exclude under OR Laws 2019, chapter 579, section 58 (the residential housing construction exclusion). The taxpayer next apportions the taxpayer’s labor costs or cost inputs by means of a “commercial activity ratio.” The commercial activity ratio is a fraction, the numerator of which is the taxpayer’s Oregon-source commercial activity, and the denominator of which is the taxpayer’s total commercial activity everywhere plus any exclusions. The commercial activity ratio is multiplied against the taxpayer’s labor costs or cost inputs, and the resulting amount is multiplied by 35%. The taxpayer may claim that amount as a subtraction, so long as the amount does not exceed 95% of the taxpayer’s Oregon-source commercial activity. This rule goes on to provide two examples. 

As an alternative to the above computation, this rule permits the taxpayer to petition the DOR to use an alternative method of apportionment. The petition must be signed by the taxpayer or the taxpayer’s representative, and must be filed separately from the taxpayer’s return. No form of petition is prescribed. The taxpayer may begin using the alternative method after the petition is filed. When accepted by the DOR, the alternative method must be used until the taxpayer requests to change the method or the DOR revokes the method on audit. 

Sourcing Commercial Activity to Oregon from Sales of Tangible Personal Property (OAR 150-317-1030).

As you might expect, this rule looks to subject to the CAT any tangible personal property that winds up in Oregon. For this purpose, the term “tangible personal property” is defined to mean personal property that can be seen, weighed, measured, felt, or touched, or that “is in any other manner perceptible to the senses.” That includes electricity, water, gas, steam, and prewritten computer software.  

From there, this rule sets out a number of examples to underscore varies issues that arise in the delivery of tangible personal property. Those include: 

  • FOB “Freight on Board” outside of Oregon: If the purchaser is in Oregon, products delivered to that purchaser are subject to the CAT. This is true even if the purchaser hires a common carrier, and the shipment is F.O.B. outside of Oregon. 
  • Delivery outside of Oregon: If the purchaser acquires the property outside of Oregon and delivers it to some destination outside of Oregon, this will not be included in the computation of the CAT, even if the purchaser is located in Oregon. 
  • Ultimate delivery outside of Oregon with an interim “terminated” delivery in Oregon: If the purchaser intends to ultimately deliver the property outside of Oregon but has the property delivered to a location in Oregon in a “terminated” delivery, that property will be included in the computation of the CAT. One example in the rule posits a situation in which the purchaser is a distributor. A separate example contemplates the purchaser will do something to the property in Oregon, such as add a logo, before ultimately delivering the property outside the state. In both case, the property is deemed to have been sold into Oregon and, therefore, would be subject to the CAT. 

Sourcing Commercial Activity Other Than Sales of Tangible Personal Property (OAR 150-317-1040).

To this point, the DOR’s draft and temporary rules have been relatively “short,” meaning the total text of each rule was typically no more than one or two pages in length. With respect to the rule regarding sourcing commercial activity other than sales of tangible personal property, however, the DOR went into dozens of pages of detail. In the spirit of keeping these CAT updates as concise as possible, I will go over the high points. To the extent you have questions or would like to receive a more detailed summary of this rule, please let me know. 

This rule starts with the notion of “reasonable approximation,” which is stated to mean the rule is intended to reasonably approximate the sourcing based on the components of the rule. For example, if the sourcing can be known from the particular sale, then that will be the sourcing. With that general rule stated, here are some of the specific instances this rule addresses:

  • In-person services: To the extent the service is provided in person, the location of the person at the time of the service will determine the sourcing of this commercial activity. Potentially excepted from this general rule are certain services (described below). 
  • Services delivered to or on behalf of the customer, including electronically: Here, the eighth example in the rule is helpful in understanding what is at play. In this example, an ad company located outside of Oregon enters into a contract with a customer that is also located outside of Oregon; however, the customer intends to use the advertisements provided by the ad company to sell into Oregon. Under those facts, the service revenue would be sourced to Oregon. This portion of the rule goes on to provide more than ten additional examples. 
  • Professional services: This rule starts with a broad description of what is meant by a “professional service,” which is based on requiring a professional certification, license, or degree. This rule calls back to the in-person rule, above, and makes some distinctions between the two rules; e.g., professional services that are delivered in person in Oregon are usually handled under the in-person rules (that is, those will be sourced to Oregon). Beyond that, this rule generally looks to where the customer is located in terms of sourcing the commercial activity. Excepted from that general rule are architectural and engineering services. Those items are generally sourced to the location in which the item being constructed is located. 
  • License or lease of intangible property: This rule generally sources the commercial activity to where the intangible property is used. This portion of the rule, however, goes on to provide more than ten additional examples and, again, is complex in its applicability. 

In summary, although I have provided a few key points from this rule, it should be noted that this rule is dozens of pages in length and contains more than 40 examples. If you are working with services and/or intangible property, you should give care to analyzing this rule and its applicability. As always, please use me as a resource. 

Motor Vehicle Certificate Draft Rule

On January 13, 2020, the DOR issued draft rule OAR-317-1410, in which it described the documentation required to show transfers of motor vehicles between dealers for the purpose of meeting a specific customer’s preference are exempt from the computation of the CAT. The dealers are required under the terms of the CAT to retain a retail certificate for this purpose.

The Motor Vehicle Certificate Draft Rule provides that any document provided before or at the time of the sale to the purchaser may suffice, so long as it includes:

  • The seller’s name, address, federal identification number, and dealer license number from the appropriate licensing jurisdiction;
  • The purchaser’s name, address, federal identification number, and dealer license number from the appropriate licensing jurisdiction;
  • A description of the vehicle, including the vehicle identification number, serial number, or other identifying number, and the make, model, and year of the vehicle;
  • A statement, signed by the purchaser, their employee, or authorized representative, affirming that the 18 vehicle described in the document is purchased or transferred for resale to meet a specific customer’s preference; and
  • The date ownership of the vehicle is transferred.


Looking ahead, we have been told the DOR will issue additional temporary rules in February and March. As shown by the release of the Motor Vehicle Certificate Draft Rule, the DOR may release draft versions of other temporary rules on a rolling basis. To the extent the DOR releases additional guidance in the forthcoming days and weeks, look for other updates from us. 

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