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Comcast Corp. v. Dep't of Revenue

Supreme Court of Oregon, En Banc

October 2, 2014

COMCAST CORPORATION, Plaintiff-Respondent Cross-Appellant,
DEPARTMENT OF REVENUE, State of Oregon, Defendant-Appellant Cross-Respondent

Argued and submitted January 8, 2013

On appeal from the Oregon Tax Court, TC 4909. [*]

Comcast Corp. v. Dep't of Revenue, 20 OTR 319 (2011)

The decision of the Tax Court is reversed, and the case is remanded to that court for further proceedings.

Marilyn J. Harbur, Senior Assistant Attorney General, Salem, argued the cause for appellant/cross-respondent. With her on the brief was John R. Kroger, Attorney General.

Eric S. Tresh, Sutherland Asbill & Brennan LLP, Atlanta, Georgia, argued the cause for respondent/cross-appellant. With him on the briefs were Joseph M. DePew, Zachary T. Atkins, David L. Canary and Cynthia M. Fraser, Garvey Schubert Barer, Portland.

Jed Tomkins, Portland, filed a brief on behalf of amicus curiae Association of Oregon Counties.

Sean E. O'Day and Maja K. Haium, Salem, filed a brief on behalf of amicus curiae League of Oregon Cities.

Scott G. Seidman and Mark F. LeRoux, Tonkon Torp LLP, Portland, and Jeremy N. Kudon, Orrick Herrington & Sutcliffe LLP, New York, New York, filed a brief on behalf of amici curiae DIRECT TV and DISH Network.

Mark Trinchero and Alan J. Galloway, Davis Wright Tremaine LLP, Portland, filed a brief on behalf of amicus curiae Associated Oregon Industries.

Ryan R. Nisle and John F. Neupert, Miller Nash LLP, Portland, filed a brief on behalf of amicus curiae Oregon Cable Telecommunications Association.

Julia E. Markley and Gregg Barton, Perkins Coie LLP, Portland, and Chérie R. Kiser, and Angela F. Collins, Cahill Gordon & Reindel LLP, Washington DC, filed a brief on behalf of amicus curiae Cable One, Inc.


Page 769

[356 Or. 284] LINDER, J.

This is a direct appeal from a decision of the Oregon Tax Court Regular Division (the Tax Court) setting aside an Opinion and Order issued by the Director of the Department of Revenue (the department). ORS 305.445. The chief issue on appeal is whether either Comcast's cable television service or internet access service qualifies as " communication" under ORS 308.515(1)(h) and is, therefore, subject to central assessment by the department pursuant to ORS 308.505 to ORS 308.665. Under ORS 308.505(2), " [c]ommunication" includes " data transmission services." In this case, whether Comcast's cable television service or internet access service qualifies as a " communication" service or business depends on whether either service is a data transmission service.

The Tax Court concluded that Comcast's internet access service, but not its cable television service, is a data transmission service. Comcast Corp. v. Dept. of Rev., 20 OTR 319, 333, 335 (2011). The Tax Court further concluded that Comcast's cable television service is the primary use of the property that Comcast

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uses for both. Id. at 337. Consequently, pursuant to ORS 308.510(5), the Tax Court determined that the property that Comcast uses for the two services was not subject to central assessment for the 2009-2010 tax year, contrary to the department's determination. Id. Both parties appeal. The department contends that both services are data transmission services, while Comcast urges that neither service is. For the reasons that follow, we hold that both the cable television and internet access services qualify as data transmission services and are, therefore, communication services subject to central assessment under ORS 308.515(1)(h). Accordingly, we reverse and remand the decision of the Tax Court.


The following facts and those that we discuss later are drawn from the Tax Court opinion, as supplemented with additional facts derived from our review of the record. Although the parties dispute the conclusions to be drawn from the facts, the facts themselves are not significantly contested.

[356 Or. 285] Comcast uses real property, tangible personal property, and intangible personal property to provide three services. Those services are cable television, internet access, and " voice over internet protocol" (VOIP).[1] The cable television and internet access services both involve, as the Tax Court found and Comcast does not dispute, " the communication of data." Comcast Corp., 20 OTR at 320. Many of the major tangible, personal, and real properties owned by Comcast are used in some way to provide all the services that Comcast offers, including the cable television and internet access services at issue in this appeal.

As we later describe in additional detail, Comcast's cable television service essentially provides video content (television, movies, and other video programming) to customers. The transmitted content or data flows between Comcast and its customers predominantly in one direction--from Comcast to the customer. Certain interactive features cause signals to flow in the opposite direction--from the customer to Comcast--as well. Those features mainly facilitate communication back from Comcast to the customer, such as transmitting a particular movie to the customer in response to the customer's request for it through Comcast's on-demand video product. For the most part, the content transmitted to the customers is either owned by Comcast or licensed to Comcast by third parties so that Comcast may transmit it to customers. A significant exception is advertisements, which third parties pay Comcast to transmit to Comcast's customers. The revenue generated from local and national advertisers is a " significant part" of Comcast's business, accounting for $1.5 billion of revenue in 2008, for instance.

Comcast's internet access service, just as the name suggests, provides access to the internet. In so doing, the internet access service facilitates the flow of content principally between the customer and third parties. In contrast to its cable television service, Comcast does not own, generate, or license that content. Instead, the content, which takes the form of e-mail, documents, video and audio files, and similar [356 Or. 286] information, is either generated by Comcast's customers and sent via Comcast's internet access service to others, or is generated by others and accessed by the customer through Comcast's service.

For both the cable television and the internet access services, the content transmitted from Comcast to the customer travels through Comcast's cable plant. The cable plant consists of tangible property in the form of

" signal receiving, encoding and decoding devices; headends and distribution systems; and equipment at or near * * * customer's homes. The signal receiving apparatus typically includes a tower, antenna, ancillary electronic equipment and earth stations for reception of satellite signals.

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Headends consist of electronic equipment necessary for the reception, amplification and modulation of signals and are located near the receiving devices. [The] distribution system consists primarily of coaxial and fiber-optic cables, lasers, routers, switches, and related electronic equipment. [The] cable plants and related equipment generally are connected to utility poles under pole rental agreements with local public utilities, although in some areas the distribution cable is buried in underground ducts or trenches. Customer premises equipment (" CPE" ) consists primarily of set-top boxes and cable modems."

Comcast Corp., 2008 Annual SEC Report 16 (2009).

Until recent years, the department did not consider Comcast's internet and cable services to be subject to central assessment. As a result, the property used for the internet and cable services was subject to local assessment. When those services were locally assessed in 2008, the maximum assessed value (MAV) of all Comcast's tangible property, real and personal, owned and used in Oregon, was calculated at $434,084,202. Beginning with the 2009-2010 tax year, the department treated cable television and internet access services as " communication" services or businesses and added Comcast, along with 125 other companies, to the central assessment roll. As of January 1, 2009, the department calculated the real market value (RMV) and MAV of all Comcast's property, real and personal, owned and used in Oregon, at $1,135,868,000. That 2009 calculation included [356 Or. 287] the value of Comcast's intangible property, while the previous tax year values, which had been calculated through local assessment, had not. The addition of the value of Comcast's intangible property as a result of central assessment was, in large part, why the assessed value of Comcast's property increased so remarkably in 2009.

Comcast initiated this action, contesting the Opinion and Order issued by the department that centrally assessed the property that Comcast uses for its internet access and cable television services. The case went to trial before the Tax Court. The parties' arguments to the Tax Court presented widely divergent views of the meaning of " data transmission services" for purposes of ORS 308.505(2). Suffice it to say, Comcast argued that " data transmission services" meant the kind of private line intracompany data transmission services provided in 1973 by point-to-point microwave transmissions, which did not include cable television or internet access. The department, conversely, urged that the legislature used terminology broad enough to include businesses and services of all kinds, as long as the service provides the means to transmit data to and between the customer and others, which cable television and internet access providers (and perhaps many other businesses) do.

The Tax Court was not satisfied with either party's interpretation. The Tax Court considered the department's interpretation so expansive as to give the department an ability to set legislative policy in the guise of interpretation. Comcast Corp., 20 OTR at 326-27. To avoid what it thought might be the potential unconstitutionality of the statute, the Tax Court concluded that the statute should be interpreted more narrowly than the department proposed. Id. at 327. But the Tax Court also rejected Comcast's position--which restricted the statute to " a particular technological form of data transmission" in the form of private line microwave service--as too narrow. Id. at 328. The Tax Court reasoned that the legislature could have expressly limited the statute to that service by using much more tailored terminology; instead, the legislature adopted broader language to address prospective technological developments. Id.

[356 Or. 288] After rejecting the parties' positions, the Tax Court identified and adopted something of a middle-ground interpretation. In particular, the Tax Court concluded that, by referring to data transmission " services," as opposed to data as a commodity, the statute reached only businesses that, for a fee, take data owned or generated by one party and move it to another party. Id. at 332. In effect, the Tax Court drew a statutory line between companies that are a conduit for the data of others and companies that sell the

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data to the customer as well as provide the conduit for it.

With that interpretation of the statute in place, the Tax Court concluded that the cable television service is " not a communication business or a data transmission business within the meaning of ORS 308.505(2)," because it does not transmit data or content created by its customers, nor does it transmit, to any significant degree, content to its customers from others. Id. at 333. Rather, the cable television service principally transmits data ( e.g., television programming, movies, and special programming by subscription) that Comcast itself owns or otherwise has the right to transmit. The court reached the opposite conclusion, however, with regard to Comcast's internet access service. The Tax Court reasoned that, because the data that flows in the internet access service is " not data created by Comcast or data as to which [Comcast] has publication rights," Comcast's internet access service is a data transmission service within the meaning of ORS 308.505(2). Id. at 335. As noted, both parties, dissatisfied with the Tax Court's resolution of the issues, appeal.

On appeal, neither party defends the Tax Court's ultimate decision or the reasoning that led to it. Instead, the parties essentially renew the positions that they advanced below. The department contends that the legislature intended the phrase " data transmission services" to be broadly descriptive of any communication service that uses a network to transmit electronic data between computers or other devices capable of decoding and using that data. Because the legislature also added the words " by whatever means provided" to the definition, the department argues, it intended that the means of transmission would not be limited to any particular technology. As a result, according to the department, the statute reaches an open-ended class of [356 Or. 289] communication services not restricted to a specific technology or to the particular way that technology was used or applied as of 1973.

Comcast's interpretation lands at the opposite end of the spectrum. Comcast maintains that the legislature amended the statute in response to plans by entrepreneurs to construct a point-to-point (also termed " private line" ) microwave communication network along the west coast, including through Oregon. According to Comcast, " data transmission services" was added to the statute to describe the particular service that was prompting the expansion of the pointto-point microwave infrastructure--specifically, " intracompany" communication of business data. Through that service, a company could, for a fee, obtain a private line by which the company could send data between its own geographically distant offices and branches; the company could not, however, use that line to exchange data with outside entities or third parties. Comcast agrees that the legislature did not intend to limit the statute's reach to any particular technology by which intracompany point-to-point data transmission is accomplished, but urges that data transmission services was otherwise intended to be limited to that specific service.


Before turning to the specific question before us, we begin with an overview of central assessment and how it differs from local assessment of property. That background provides helpful context for the statutory interpretation issue presented.

A. Central Assessment Generally

What we now term " central assessment" had its origins in unit valuation, an assessment method that emerged in the latter half of the 19th century. Unit valuation, or the so-called " unit rule," was devised to address the difficult task of valuing a business as a going concern when the property of the business is located in more than one taxing district. James C. Bonbright, 2 The Valuation of Property 633 (1937).[2] Courts generally

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disfavored such valuations, [356 Or. 290] however, because of inaccuracies in the assessment method and inequities in how it was administered at the local level. See, e.g., People ex rel. Delaware, Lackawanna & W. R.R. Co. v. Clapp, 152 N.Y. 490, 495-96, 46 N.E. 842 (1897) (unit valuation " is misleading and impossible of application with any approach to justice or accuracy" ).

Assessment by a single state assessment body, so-called " central assessment," developed to remedy the perceived problems with unit valuations performed by local assessors, particularly in the context of railroad assessments. Bonbright, 2 The Valuation of Property at 637. Foremost among the solutions presented by central assessment was that it withdrew " the difficult task of assessing fractional parts of a railroad and its property from the hands of local assessors" likely to favor their own district in their assessment. Union Pacific Railway Co. v. Cheyenne, 113 U.S. 516, 522, 5 S.Ct. 601, 28 L.Ed. 1098 (1885). Central assessment also allowed assessors to capture additional value inherent in certain property. In particular, central assessment made possible " assessments which would reach those large intangible values, called franchise value or good will, which could not be effectively taxed by local assessors." Bonbright, 2 The Valuation of Property at 637 (internal quotation marks omitted). As the United States Supreme Court explained in Cleveland Railway Co. v. Backus, 154 U.S. 439, 444, 14 S.Ct. 1122, 38 L.Ed. 1041 (1894):

" The true value of a line of railroad is * * * the aggregate of those values plus that arising from a connected operation of the whole, and each part of the road contributes not merely the value arising from its independent operation, but its mileage proportion of that flowing from a continuous and connected operation of the whole."

Thus, many states set up state boards of assessment for the purpose of assessing certain property as a single unit on a statewide or " central" basis.

[356 Or. 291] Oregon was among those many states. In 1909, the Oregon Legislature formed the Board of State Tax Commissioners (the tax board) for the purpose of taxing certain property as a single unit on a statewide basis. In particular, the legislature enacted Lord's Oregon Laws, title XXVIII, ch VI, § 3614 to 3660 (Oregon Laws 1909, chapter 218), the predecessor statutes to the central assessment statutes now set out at ORS 308.505 to ORS 308.665. The duty of the tax board, among other things, was:

" To make an annual assessment * * * of the property having a situs in this state * * * of all railroad companies, sleeping car companies, union station and depot companies, electric and street railway companies, express companies, telegraph companies, telephone companies, refrigerator car companies, oil and tank line companies, and of such heat, light, power, water, gas, and electric companies as may be doing business as one system, partly within this state and partly without, or so doing business in more than one county of the state."

Lord's Oregon Laws, title XXVIII, ch VI, § 3617(15) (1909) (predecessor to ORS 308.515). The legislature directed the tax board to value the property subject to its assessment authority according to the unit rule. Lord's Oregon Laws, title XXVIII, ch VI, § 3623 (1909) (board " may value the entire property, both within and without the [S]tate of Oregon, as a unit" to ascertain the " actual cash value of the property assessable by it" ).

Oregon's original central assessment scheme was consistent with the development of unit valuation and central assessment statutes nationally. The legislature subjected two broad categories of property to central assessment. The first encompassed property operated as a network over a geographically large area, such as the property of railroad, telegraph, telephone, and pipeline companies. It also included the property of public utility-type companies, such as heat, light, power, and water companies, but only if the utilities did business " as one system" across state or

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county lines. Id. § 3617(15). The second category encompassed non-networked property that was associated with the networked property in the first category. Thus, sleeping [356 Or. 292] car, refrigerator car, union station, depot, and express[3] companies were also subject to central assessment. Id.

Over the next several decades, the statute remained focused on the two categories of property originally subject to central assessment, despite additions and deletions of various types of companies. See, e.g., Oregon Code, title LXIX, ch 4, § 69-404(15) (1930) (including " private car companies" and " tank line companies," and omitting " oil and tank line companies" ), OCLA § 110-505(14) (1940) (including " pipe line companies, toll bridge companies, heating companies," " people's utility districts and aircraft companies engaged in air transport of passengers, freight, express or mail" ). In 1951, the legislature restructured ORS 308.515 into its current form. For the most part, rather than list specific companies that were subject to central assessment, the legislature instead identified the companies in a more general way by describing the nature of service that they provided or the business that they were in--that is, all companies " engaged in performing or maintaining any of the [listed] businesses or services." Or Laws 1951, ch 586, § 2. Thus, the statute listed " railroad transportation," " telegraph communication," and " telephone communication" instead of railroad, telegraph, and telephone companies specifically. Id.[4] The 1951 restructuring generally remains in place today, although certain specified commodities are now also subject to central assessment, and the listed commodities, businesses, [356 Or. 293] and services subject to central assessment are set out in paragraphs of a single section of the statute providing for central assessment of property. ORS 308.515(1).

B. Central Assessment of " Communication" and " Data Transmission Services"

That overview of central assessment generally and the evolution of Oregon's specific central assessment scheme brings us to the statutes as they exist today. The statutes that provide for the assessment and taxation of property in Oregon are consolidated in ORS chapter 308. As a general matter, Oregon property is assessed in one of two ways--it is either centrally assessed by the department or locally assessed by a county assessor. ORS 308.517(5) (all property not assessed by the department assessed by county assessor of county in which property situated). As noted, the current central assessment scheme is codified under ORS 308.505 to ORS 308.665.[5]

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The particular dispute that we must resolve in this case involves ORS 308.505 and ORS 308.515. ORS 308.515(1) provides for the central assessment of certain businesses, services, and commodities:

" The Department of Revenue shall make an annual assessment of any property that has a situs in this state and * * * is used or held for future use by any company in performing or maintaining any of the following businesses or services or in selling any of [certain] commodities * * *[.]"

The statute goes on to list the particular services, businesses, and commodities that are subject to central assessment. [356 Or. 294] It bears emphasizing, however, that only the property used in the business, service, or commodity is assessed (and thus taxed). The value of the business, service, or commodity itself is not subject to central assessment.

Until 1973, ORS 308.515(1) specifically included " telegraph communication" and " telephone communication" together with other centrally assessed businesses and services such as railroad transportation, air transportation, heating, gas, and electricity. ORS 308.515(1)(a) (1971). In 1973, however, the legislature replaced the references to telegraph and telephone communication with the more general term " communication." Or Laws 1973, ch 402, § 8 (Senate Bill 81). Simultaneously, the legislature further described what " communication" includes in a way that ensured that telegraph and telephone communication services would continue to be centrally assessed, but so would additional communication services as well. In particular, the legislature amended ORS 308.505 to specify that the term " communication," as used in the statutes governing central assessment, " includes telephone communication, telegraph communication, and data transmission services by whatever means provided." Or Laws 1973, ch 102, § 1 (codified as ORS 308.505(2)).[6]

As earlier described, the dispute in this case centers on the 1973 addition to the statute that made " data transmission services by whatever means provided" a communication service that is subject to central assessment. The dispute arises now, some 40 years after the 1973 amendments, because the department, until recent tax years, did [356 Or. 295] not take the position that Comcast's cable television and internet access services are data transmission services within the meaning of ORS 308.505(2). As we will describe in greater detail later, cable television service existed at the time of the 1973 amendments, but the technology involved in delivering that service has undergone significant change since then. Internet access service, on the other hand, did not exist at all in 1973. How the policy that the legislature adopted in 1973 applies to the cable television and internet access services supplied by Comcast today lies at the heart of the disagreement between the parties. In Comcast's view, because " data transmission services" in 1973 were not used to provide either cable television or internet access service, to conclude now that those services are data transmission services would distort the legislature's intent. In the department's view, the legislature did not intend to limit " data transmission services" to the particular applications or uses that existed when the legislature amended the statute in 1973; rather, such services

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were intended to encompass any new or evolving business that, from a technological standpoint, serves its customers through the service of data transmission.

To resolve the parties' disagreement, we use our familiar methodology for interpreting statutes. In particular, we first explore the text and context, and we then turn to the legislative history of the pertinent statutes. State v. Gaines, 346 Or. 160, 171-72, 206 P.3d 1042 (2009). As we will explain, in this particular instance, we conclude that " data transmission services" is a technical term, which requires us to explore the meaning and usage of the term in the specialized field from which it was borrowed.

1. Plain Text and Context

Our goal in interpreting a statute is to determine what meaning the legislature intended in drafting the statute. PGE v. Bureau of Labor and Industries, 317 Or. 606, 610, 859 P.2d 1143 (1993). When the legislature provides a definition of a statutory term, we of course use that definition. Otherwise, we ordinarily look to the plain meaning of a statute's text as a key first step in determining what particular terms mean. Id. at 611 (first step in statutory analysis is to consider " plain, [356 Or. 296] natural, and ordinary meaning" of text). And, as stilted as the approach may sometimes seem, we frequently consult dictionary definitions of the terms, on the assumption that, if the legislature did not give the term a specialized ...

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