Business/Mgmt & Tax Concepts

Oregon Wholesale Exemption Guidelines

February 7, 2020

On February 1, the Oregon Department of Revenue (DOR) released its second round of draft rules detailing the new tax law — two of which provided much anticipated definitions of retailer and wholesaler. The third rule defined the qualification parameters for the out-of-state reseller exemption. For now, we’ll focus on how to qualify for and calculate the wholesale exemption. While the first two new rules deal specifically with groceries, the wholesale exemption is applicable to any wholesaler that sells tangible property outside of Oregon.

According to the drafted rules, a wholesaler may exclude from Oregon commercial activities any sales that are destined to be sold outside of Oregon. Any document provided by the wholesaler to the seller at the time of the sale may serve as an out-of-state resale certificate, provided that the document contains the following information:

  1. The wholesaler’s legal name and Oregon address
  2. The wholesaler’s federal tax identification number
  3. The date of the purchase
  4. The total amount of purchased property
  5. The purchase price paid by the wholesaler
  6. The dollar amount of purchased property to be resold outside of Oregon
  7. The signature of the wholesaler, their authorized representative, or employee

A sample exemption form is posted at the DOR website.  A signature on the valid certificate indicates that the seller is an authorized wholesaler as defined under the statute.  The exemption can be in the form of an email and should be kept on file in the event of an audit.

If you are unclear about Item 6 above at the time of the purchase and do not yet know which items will be sold outside of Oregon, the state provides a new “prior year approximation calculation” that can be used for that amount.

The solution is to apportion the specific purchase based on the Oregon-only activity of the Commercial Activity Ratio (CAR). For this ratio, use prior-year sales data; for this first year, the rule allows you to calculate commercial activities for 2019.

The numerator of the CAR is the prior-year Oregon commercial activities from sales to Oregon customers. The denominator is the total commercial activities for all sales delivered from Oregon locations. This calculation is more straightforward if all your sales originate in Oregon; if not, it will require some additional recordkeeping.

During this first quarter of the new Corporate Activity Tax, it is important for companies to develop new systems to capture their different revenue streams and efficiently exclude non-CAT activities. As part of the process, it’s important to implement a system to calculate an accurate CAR. The use of the prior year approximation ratio is a good compromise, but developing a more definitive system to capture out-of-state sales may provide more favorable results.

Our state and local tax professionals have been following the Corporate Activities Tax and understand the complexities of the calculation and how it applies across all business types. Let us help you understand how your business is now affected by this new tax.