What is Oregon's Corporate Activity Tax and when does it apply to a foreign-owned LLC?

Oregon's Corporate Activity Tax (CAT) is a gross receipts tax that applies to businesses with Oregon commercial activity exceeding $1 million. The tax rate is 0.57% on commercial activity over $1 million, with a subtraction for 35% of the greater of cost of goods sold or labor costs (capped at 95% of commercial activity).

The CAT is in addition to Oregon's regular income tax. Oregon has no general sales tax, and the CAT was adopted as a way to fund education.

For the CAT to apply to your LLC, you need Oregon commercial activity exceeding $1 million in a calendar year.

If your Oregon commercial activity exceeds $750,000, you must register for the CAT (even if you do not yet owe tax). The tax only applies on the amount over $1 million.

For most foreign-owned LLCs with modest Oregon sales, the $1 million threshold means the CAT will not apply. If your software subscriptions from Oregon customers total less than $1 million, you have no CAT obligation.

However, if you are growing rapidly and approaching these thresholds, register proactively to avoid late registration penalties.

Oregon has progressive individual income tax rates ranging from 4.75% to 9.9% (one of the highest top rates in the country). Nonresidents are taxed on Oregon-source income.

For software subscriptions sold to Oregon customers, Oregon uses market-based sourcing — income is sourced to Oregon if the customer is located in Oregon.

You would file Form OR-40-N (Nonresident Individual Income Tax Return) if you have Oregon-source income. Oregon requires estimated tax payments if you expect to owe $1,000 or more in state tax.

One significant advantage of selling to Oregon customers is that Oregon has no general sales tax. This means you do not need to collect sales tax on sales to Oregon customers, regardless of your nexus or revenue level.

This makes Oregon compliance simpler in one respect — you only need to worry about income tax and potentially the CAT, not sales tax collection. For e-commerce businesses, this reduces the overall compliance burden compared to states like California or Colorado with complex sales tax systems.

However, Oregon's high income tax rates (up to 9.9%) can make it more expensive overall than states with lower income taxes but higher sales taxes.