US Bancorp v. DOR
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THIS DECISION WAS SIGNED BY SENIOR JUDGE CARL N. BYERS ON
SEPTEMBER 19, 2001, AND FILED STAMPED ON SEPTEMBER 19, 2001.
THIS IS A PUBLISHED DECISION.
IN THE OREGON TAX COURT
REGULAR DIVISION
Corporate Excise Tax
U.S. BANCORP and SUBSIDIARIES, )
)
Plaintiff,
)
)
v.
)
)
DEPARTMENT OF REVENUE,
)
State of Oregon,
)
)
Defendant.
)
Case No. 4531
ORDER GRANTING PLAINTIFF’S
MOTION FOR PARTIAL
SUMMARY JUDGMENT
Plaintiff (taxpayer) appeals the assessment of additional
corporate excise taxes for 1984 through 1992.
The additional
taxes are attributable to Defendant Department of Revenue (the
department) including intangible personal property in the
property factor of the apportionment formula.
Taxpayer moves for
partial summary judgment on the ground that as a matter of law,
the department has no authority to include intangibles.
The
court has considered the written and oral arguments of the
parties.
FACTS
Taxpayer is a unitary financial organization doing business
in Oregon and in other states.
Its net income is determined
ORDER GRANTING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT
Page 1.
under ORS 314.280(1),1 which states:
“If a taxpayer has income from business activity as
a financial organization * * * which is taxable both
within and without this state * * * the determination of
net income shall be based upon the business activity
within the state, and the department shall have power to
permit or require either the segregated method of
reporting or the apportionment method of reporting, under
rules and regulations adopted by the department, so as
fairly and accurately to reflect the net income of the
business done within the state.”
The department has exercised its delegated power and adopted
a number of administrative rules.
Most of those rules
incorporate by reference rules adopted to implement the Uniform
Division of Income for Tax Purposes Act (UDITPA).
For example,
OAR 150-314.280-(C) adopts by reference OAR 150-314.615-(A).
If
a taxpayer has business activity both within and without the
state of Oregon, the latter rule indicates that the first step is
to determine which portion of its income is business income.
The
rule then indicates that business income is apportioned according
to the usual three-factor formula.
OAR 150-314.615-(D), also
incorporated by reference, indicates that “[w]here the taxpayer’s
Oregon business activities are part of a unitary business carried
on both within and without the state, use of the apportionment
method is mandatory * * *.”
OAR 150-314.280-(E) specifically addresses financial
organizations.
1
Subparagraph (2) provides that for a financial
All references to the Oregon Revised Statutes are to 1989.
ORDER GRANTING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT
Page 2.
organization, the three factors shall be payroll, property, and
///
gross revenue.
Subparagraph (3) defines “property” as “real and
tangible personal property used in the business.”
It appears that taxpayer reported its unitary income and
apportioned it in accordance with these rules.
audited taxpayer’s returns.
The department
The auditor was aware that the
Supreme Court had recently addressed the relationship between
ORS 314.280 and the UDITPA statutes.
ORS 314.670.
ORS 314.610 through
See Fisher Broadcasting, Inc. v. Dept. of Rev., 321
Or 341, 898 P2d 1333 (1995).
In that case, the court found that
the legislature intended to retain the differences between the
two approaches and therefore held that OAR 150-314.280-(I)
(1983), which incorporated by reference the provision of OAR 150314.670-(A) (1983), exceeded the department’s authority.
354-55.
Id. at
Based on that case, the auditor here concluded that if
adjusting the property factor by including intangible personal
property resulted in a more fair and accurate apportionment of
taxpayer’s income, he was required to do so.
Thus, the auditor
adjusted taxpayer’s returns, assessed additional tax, and this
appeal followed.
ISSUE
Does the department have the authority to require the
inclusion of intangible personal property in the property factor
ORDER GRANTING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT
Page 3.
if such inclusion results in a more fair and accurate
apportionment of net income?
ANALYSIS
This court must begin as always by examining the statute.
To do so, the court first looks to the text and context to
determine legislative intent.
PGE v. Bureau of Labor and
Industries, 317 Or 606, 859 P2d 1143 (1993).
The pertinent
portion of ORS 314.280(1) states:
“[T]he department shall have power to permit or require
[either of two methods] * * * under rules and regulations
adopted by the department * * *.”
From this language it seems clear that the legislature
intended to delegate legislative power to the department.
See
Equitable Savings & Loan v. Dept. of Rev., 5 OTR 661, 674 (1974).
This power is to be exercised by the promulgation of rules and
regulations.
In Fisher, the Supreme Court quoted some of
the early rules adopted by the Oregon State Tax Commission,
the department’s predecessor.
See 321 Or at 351-52.
Those rules
indicated it was a “must” that a unitary business use the
apportionment method of reporting.
Or Tax Reg 314.280(1)-(B)
(1965); see also Fisher, 321 Or at 352.
If not a unitary
business and not required to file under that regulation, then the
business taxpayer “must” use the segregated method.
314.280(1)-(A) (1965).
Or Tax Reg
See also Fisher, 321 Or at 352.
ORDER GRANTING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT
Page 4.
As suggested, ORS 314.280 has a relatively long history for
a tax law.
legislature.
The corporate excise tax was created by the 1929
See generally Or Laws 1929, ch 427.
In Hines
Lumber Co. v. Galloway, 175 Or 524, 154 P2d 539 (1944), the court
construed section 110-1507, the initial form of ORS 314.280,
noting that the tax commission was given authority to make
recommendations or rules for the apportionment of income.
In
Equitable Savings & Loan v. Tax Com., 251 Or 70, 78, 444 P2d 916
(1968), the Supreme Court indicated that the commission was given
the authority to promulgate regulations to accomplish the
apportionment of the unitary income of a corporation and had done
so since at least 1938.
After these many years, the department appears to disavow
the effect of its own rules on two grounds.
First, the
department contends that such rules are not intended to be
applied without exception.
The department asserts that because
OAR 150-314.280-(E) is entitled “Apportionment Factors Generally”
and because the rule indicates that “ordinarily” the three
factors shall be used, it is not intended to be a fixed rule.
The department apparently believes that it can vary from its own
rules for any taxpayer not considered “ordinary” or “general.”
No language in the rules provides for such exceptions.
This
position is taken by the department based on its interpretation
of its own rules.
ORDER GRANTING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT
Page 5.
The court notes that in OAR 150-314.280-(E), subparagraphs
(1), (7), (8), and (9) each indicate that the rule in that
subparagraph is “ordinarily” applied.
Under general rules of
construction, the absence of “ordinary” in the other
subparagraphs would evidence an intent of no exceptions.
The
word “ordinarily” is not used in subparagraphs (2) and (3), the
subparagraphs that apply to taxpayer in this case.
Therefore,
even assuming some exceptions are intended under the rule, it
appears that no exceptions are intended for the subparagraphs
applicable in this case.
There is a more significant problem with the department’s
position.
If the department can vary from its own rules at will
on an ad-hoc basis, it emasculates the condition imposed by the
legislature.
The power granted to the department is to be
exercised “under rules and regulations.”
ORS 314.280(1).
The
department would have the statute read “as the department
determines necessary” rather than “under rules and regulations.”
That interpretation is unacceptable and contrary to the intent of
the legislature.
The department’s second ground for attacking or disavowing
its own rules appears to be based on a misinterpretation of
Fisher.
Fisher held that the department exceeded its authority
by adopting a rule making the three-factor apportionment method
presumptively the method that must be used.
ORDER GRANTING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT
321 Or at 359.
In
Page 6.
view of this holding, the department now asserts that its rules
are not binding, and if they are binding, they are invalid.
The
department states:
“The defendant has never had authority to make the
composition of a factor or apportionment formula
mandatory for a utility or financial company,
irrespective of whether it results in an accurate
apportionment of net income.” (Def’s Resp to Ptf’s Mot
for Partial Summ J at 13.)
The department reasons that in order to maintain
“flexibility,” the legislature intended that the department have
authority to modify factors on a case-by-case basis.
That is
clearly contrary to the wording and intent of ORS 314.280.
The
“flexibility” referred to by the Supreme Court in Fisher was the
possibility of using either the segregated method or the
apportionment method.
See 321 Or at 341.
There was no
suggestion in that case that the department has authority to
modify either a method or its factors on an ad-hoc basis.
The authority granted to the department by ORS 314.280 is
clearly conditioned.
It is to be exercised by the promulgation
of rules and regulations.
In accordance with the statute, the
department promulgated OAR 150-314.280-(E), which provides that
the property factor is composed of real and tangible personal
property.
Taxpayer apparently filed its return in compliance
with that rule.
If the department can later, on an ad-hoc basis,
change the rule, the statutory condition becomes meaningless and
ORDER GRANTING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT
Page 7.
the rule itself is meaningless.
The department has adopted a new rule, OAR 150-314.280-(M),
effective as of December 31, 1995.
This rule was adopted in
response to Fisher and indicates that the department may require
an alternative method of apportionment in any case in which it
determines that the usual method is not accurate.
However, this
rule was not expressly made retroactive and therefore will not be
applied by the court to the years in question.
See AT&T v. Dept.
of Rev., __ OTR __, OTC-RD No. 4438 (Aug 31, 2000).
Now,
therefore,
IT IS ORDERED that Plaintiff’s Motion for Partial Summary
Judgment is granted.
Costs to neither party.
Dated this ____ day of September 2001.
______________________________
Carl N. Byers
Senior Judge
ORDER GRANTING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT
Page 8.
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