May 6, 2020 Update: One day after this blog post, the Oregonian published an article that appeared to be based partly on this post. The Department of Revenue has now decided that forgiven PPP loans will not be subject to the commercial activity tax.
The recently passed federal CARES Act created the Paycheck Protection Program (PPP), which offers forgivable loans to help small businesses struggling to pay employees during the current COVID-19 challenges. Businesses must meet a number of requirements for their PPP loan forgiveness, including paying at least 75% of the loan proceeds to middle- and low-income workers. Forgiven PPP loans are not subject to federal income tax under Section 1106(i) of that Act.
Oregon is now considering taxing forgiven PPP loans as “commercial activity” subject to Oregon’s new tax on business sales (a.k.a. CAT). The CAT broadly defines commercial activity subject to the tax, but it does not directly discuss taxability of forgiven loans like the PPP loan for struggling small businesses.
Due to the statute’s lack of clarity on the issue, the Department of Revenue is considering providing guidance but has not yet released an official answer. When it does so, it will post the answer here. The first quarterly estimated payment for the CAT is due tomorrow, April 30, for any business that may owe $10,000 or more for calendar year 2020.