and submitted May 7, 2018.
appeal from the Oregon Tax Court (TC 5197). [*] Henry C.
E. Markley, Perkins Coie, LLP, Portland, argued the cause and
filed the briefs for appellant. Also on the briefs were
Courtney R. Peck and Gregg Barton.
Melisse S. Cunningham, Assistant Attorney General, Salem,
argued the cause and filed the brief for respondent. Also on
the brief were Ellen F. Rosenblum, Attorney General; Benjamin
Gutman, Solicitor General; and Darren Weirnick and Peenesh H.
Shah, Assistant Attorneys General.
Summary: Taxpayer fled consolidated income tax returns for a
group that included two corporate affiliates that did not
have a physical presence in this state. The Department of
Revenue issued notices of deficiency for tax years 2006
through 2008, alleging that the affiliates were subject to
Oregon's corporate excise tax. Taxpayer appealed to the
Tax Court. In proceedings before the Tax Court, the
department alleged for the first time that the affiliates
were alternatively subject to Oregon's corporate income
tax. The Tax Court concluded that the affiliates were subject
to the corporate income tax, and taxpayer appealed to the
Oregon Supreme Court. Held: (1) the department
timely raised the issue of the affiliates' liability for
corporate income tax pursuant to ORS 305.575; and (2)
although taxpayer's affiliates may not have had a
physical presence in this state, they did have "income
derived from sources within this state" under ORS
318.020, and thus were subject to Oregon's corporate
judgment of the Tax Court is affirmed.
Or. 442] NAKAMOTO, J.
One Auto Finance, Inc. (taxpayer) filed consolidated Oregon
corporate excise tax returns as part of a group that included
two corporate affiliates. Taxpayer disputed the Department of
Revenue's contention that it owed additional taxes and
filed an action in the Tax Court. The ultimate issue in this
case is whether taxpayer's corporate affiliates, which do
not have a physical presence in this state, were subject to
either Oregon's corporate excise tax or its corporate
income tax for the tax years 2006-2008. Preliminarily,
taxpayer also asserts that the department lacked the
authority to assert for the first time in the Tax Court that
the affiliates were subject to corporate income tax.
on cross-motions for summary judgment, the Tax Court
concluded that the affiliates were subject to the corporate
income tax and entered judgment in favor of the department.
Capital One Auto Finance, Inc. v. Dept. of Rev., 22
OTR 326 (2016). On taxpayer's appeal, we conclude that
the department timely raised the corporate income tax issue
and that the corporate affiliates are subject to the
corporate income tax based on "income derived from
sources within this state." ORS 318.020(1). Accordingly,
because there was no genuine issue of material fact for trial
and the department was entitled to judgment as a matter of
law, we affirm.
FACTUAL AND LEGAL BACKGROUND
Corporate Tax Structure
describing the facts and procedural history, we provide a
brief overview of Oregon's corporate tax structure.
Oregon has two different-but closely related-tax regimes for
multistate corporations: the corporate excise tax and the
corporate income tax. In a nutshell, to supplement the
corporate excise tax, the corporate income tax was enacted in
1955 in response to a United States Supreme Court case that
had determined the constitutionality of state taxation of
corporations based on how the tax statutes were drafted. The
dual corporate tax regime remains in place today, although
the case that provided the impetus and need for enactment of
a corporate income tax to supplement the excise tax has since
Or. 443] The corporate income tax is found in ORS chapter
The relevant statute provides in part:
"(1) There hereby is imposed upon every corporation for
each taxable year a tax *** upon its Oregon taxable income
derived from sources within this state * * *.
"(2) Income from sources within this state includes
income from tangible or intangible property located or having
a situs in this state and income from any activities carried
on in this state, regardless of whether carried on in
intrastate, interstate or foreign commerce."
ORS 318.020. During the proceeding before the Tax Court, the
department relied on ORS 318.020 to argue that taxpayer's
affiliates owed corporate income tax on income derived from
sources within Oregon.
corporate excise tax, found in ORS chapter 317, is not a tax
on Oregon income, but a tax on the privilege of
doing business in Oregon that is measured by Oregon
income. Thus, ORS 317.070 provides:
"Every *** business corporation and every financial
institution doing business within this state * * * shall
annually pay to this state, for the privilege of carrying on
or doing business by it within this state, an excise tax
according to or measured by its Oregon taxable income * *
corporate income tax and the corporate excise tax are not
duplicative; they create the same tax liability, but on
different bases. See ORS 318.020(1) (creating
corporate income tax at same rate as prescribed in ORS
chapter 317, and adding that corporate income tax does not
apply to "income for which the corporation is subject to
the tax imposed by ORS chapter 317 according to or measured
by its Oregon taxable income"). In light of the
department's assertion of the corporate income tax, as
opposed to the corporate [363 Or. 444] excise tax, as a basis
for taxpayer's tax liability, we find it helpful to
explain the development of and relationship between the two
two tax schemes were enacted at different times. The
corporate excise tax was first enacted in Oregon in 1929. Or.
Laws 1929, ch 427. As this court has recognized, in 1951, the
United States Supreme Court held in Spector Motor Service
v. O'Connor, 340 U.S. 602, 71 S.Ct. 508, 95 L.Ed.
573 (1951), that a corporate excise tax could not be imposed
constitutionally "on the activities of foreign
corporations within its boundaries, if such activities were
purely interstate." Cal-Roof Wholesale v. Tax
Com., 242 Or. 435, 440-41, 410 P.2d 233 (1966). This
court also explained, however, that the same tax, had it been
an income tax, would have been constitutional. See
id. at 440 (describing the effect of Spector
Motor). The legislature responded to Spector
Motor by enacting the corporate income tax in 1955,
adding it to the corporate excise tax so that Oregon could
tax income that might otherwise escape state taxation.
Cal-Roof Wholesale. 242 Or. at 441.
court explained the relationship between the corporate excise
tax and corporate income tax:
"[T]he language of the pertinent statutes, the
chronology of their enactment, and the judicial decisions
extant at the time of their enactment all point to the
conclusion that the intention of the legislature was not to
enact a corporation income tax law as a separate entity and
for a purpose other than that for which it had enacted the
corporation excise tax law. Both are revenue producing
statutes and the obvious legislative purpose was to create a
corporate tax structure which taxed at a uniform rate all
corporate income derived from activities within the state in
the pursuit of gain. The sole purpose of separately labeling
the component parts of this structure as 'income' and
'excise' was to meet the requirements of the
Spector case, supra."
Id. at 444. This court has since recognized that,
"[b]ecause both taxes are within the overall corporate
tax structure, they should be construed together."
Pacific First Federal v. Dept. of Rev.,308 Or. 332,