Chapter 314

 

LAW REVIEW CITATIONS: 9 WLJ 249 (1973); 5 EL 516 (1975)

 

      314.275

 

      See annotations under ORS 314.276.

 

      314.276

 

NOTES OF DECISIONS

 

Under former similar statute

 

      Change in accounting method can include change in treatment of any particular material item such as change in method of computing depreciation. Chapin v. Dept. of Rev., 5 OTR 571 (1974)

 

      314.280

 

NOTES OF DECISIONS

 

      The Department of Revenue was free to change its rules relating to the three factor formula for financial organizations when such change did not result in an improper allocation to Oregon. Equitable Sav. and Loan Assn. v. Dept. of Rev., 5 OTR 661 (1975)

      Use of presumption that allocation method of reporting fairly represents net income from in-state business activities of utilities is invalid. Fisher Broadcasting, Inc. v. Dept. of Rev., 321 Or 341, 898 P2d 1333 (1995)

 

      Department of Revenue is required to adopt rules for default method of reporting resulting in fair and accurate reflection of net income in advance of taxpayer filing return. U.S. Bancorp and Subsidiaries v. Dept. of Revenue, 19 OTR 266 (2007)

 

      Department of Revenue may not undertake application of alternative method of apportioning income on department’s own motion. U.S. Bancorp and Subsidiaries v. Dept. of Revenue, 19 OTR 266 (2007)

 

      By permitting Department of Revenue to apply either segregation method or apportionment method of allocation, this provision creates dichotomy between unitary and nonunitary businesses, not between business and nonbusiness income under Uniform Division of Income for Tax Purposes Act. Crystal Communications, Inc. v. Dept. of Revenue, 353 Or 300, 297 P3d 1256 (2013)

 

      This provision does not preclude apportionment of gain from assets sold in course of liquidation. Crystal Communications, Inc. v. Dept. of Revenue, 353 Or 300, 297 P3d 1256 (2013)

 

      314.295

 

NOTES OF DECISIONS

 

      Although limited partnership was not engaged in trade or business, transactions in which real property was transferred in order to generate losses and to funnel income into tax exempt profit sharing trust were not illegal or shams and defendants failed to show that they were not equivalent to arm’s length transactions. Allison v. Dept. of Rev., 11 OTR 431 (1990)

 

      Transaction lacking substantial legal and economic significance aside from tax considerations as to both buyer and seller is sham. Baisch v. Dept. of Rev., 316 Or 203, 850 P2d 1109 (1993)

 

      314.365

 

      See annotations under ORS 305.263.

 

      314.380

 

NOTES OF DECISIONS

 

      When a report of a federal correction is made it reopens a year to any refund claim or additional assessment which may not have been adjusted by the Internal Revenue Service. International Health & Life Ins. Co. v. Dept. of Rev., 269 Or 23, 523 P2d 223 (1974)

 

      If IRS changes or corrects taxpayer’s reported taxable income which results in change of net income subject to tax by Oregon, the taxpayer may file report within two years and report will serve as timely claim for refund. Case v. Dept. of Rev., 11 OTR 1 (1988)

 

      Procedures for claiming refund are separate and distinct from procedures for contesting assessment. Case v. Dept. of Rev., 11 OTR 1 (1988)

 

      314.385

 

NOTES OF DECISIONS

 

      In determining “due date” for filing returns, recognition must be given time extensions granted by Internal Revenue Service and adopted by Department of Revenue’s regulation. Davis v. Dept. of Rev., 9 OTR 465 (1984)

 

      314.400

 

NOTES OF DECISIONS

 

      Where no return is filed and deficiency is assessed on “best of information and belief,” assessment is not void if best of information is not used by department, but is merely voidable upon timely filed appeal. Arnold v. Dept. of Rev., 12 OTR 69 (1991)

 

      314.405

 

NOTE: Repealed October 4, 1977; ORS 314.466 enacted in lieu

 

      See annotations under ORS 314.466.

 

      314.410

 

NOTES OF DECISIONS

 

      When notice was not mailed to the taxpayer pursuant to ORS 314.410 (4), the department was without power to issue an order on the merits. Dickson v. Dept. of Rev., 5 OTR 315 (1973)

 

      Claim for refund of corporate excise taxes for 1964, filed within one year after corporate taxpayer filed report with Department of Revenue in March 1972 regarding change or correction of its federal taxable income resulting from reorganization, was not barred by statute of limitations. International Health & Life Ins. Co. v. Dept. of Rev., 269 Or 23, 523 P2d 223 (1974)

 

      Where defendant Department of Revenue, after giving plaintiff notice of proposed deficiency, failed to assess deficiency within one year required by this section, but rather, attempted to “start over again” by mailing plaintiff another notice of deficiency and proposed assessment for same deficiencies and tax years, Department of Revenue’s failure to follow procedure requiring deficiency be assessed within one year after notice rendered subsequent assessment invalid. Olympia Brewing Co. v. Dept. of Revenue, 284 Or 669, 588 P2d 30 (1978)

 

      Correction by Internal Revenue Service results in change in tax for state income tax purposes only if made with respect to tax year open for state tax assessment at time correction is made. Swarens v. Dept. of Rev., 320 Or 326, 883 P2d 853 (1994)

 

      State could not recalculate tax for tax year closed to review in order to prevent elective carry forward of tax credit to tax year subject to review. Smurfit Newsprint Corp. v. Dept. of Revenue, 329 Or 591, 997 P2d 185 (2000)

 

      Where, in 2005, taxpayer timely filed amended Oregon tax return for 1999 claiming refund carryback for that year based on change in 2002 tax year to federal tax liability, Oregon statute of limitations authorizes Department of Revenue to issue deficiencies to taxpayer only for year in which federal change occurred. Tektronix, Inc. v. Dept. of Revenue, 20 OTR 468 (2012)

 

      Where taxpayers attempted to carry over net operating loss from past tax year to year that Department of Revenue audited, department may challenge calculations from that past tax year only for purpose of determining taxpayers’ liability in year to which taxpayers carried over net operating loss, even though department is barred from issuing notice of deficiency for that past tax year. Hillenga v. Dept. of Revenue, 358 Or 178, 361 P3d 598 (2015)

 

      314.415

 

NOTES OF DECISIONS

 

      Claim for refund of corporate excise taxes for 1964, filed within one year after corporate taxpayer filed report with Department of Revenue in March 1972 regarding change or correction of its federal taxable income resulting from reorganization, was not barred by statute of limitations. International Health & Life Ins. Co. v. Dept. of Rev., 269 Or 23, 523 P2d 223 (1974)

 

      This section, creating entitlement to refund, did not preclude Department of Revenue from withholding tax refunds as setoff against debts owed state. Brown v. Lobdell, 36 Or App 397, 585 P2d 4 (1978), Sup Ct review denied

 

      In determining “due date” for filing returns, recognition must be given time extensions granted by Internal Revenue Service and adopted by Department of Revenue’s regulation. Davis v. Dept. of Rev., 9 OTR 465 (1984)

 

      Refund under ORS 291.349 of excess revenue received is not tax overpayment subject to offset for tax, penalty or interest owed. Parr v. Dept. of Revenue, 18 OTR 1 (2004)

 

      314.455

 

NOTE: Repealed October 4, 1977; ORS 314.466 enacted in lieu

 

      See annotations under ORS 314.466.

 

      314.466

 

      See also annotations under ORS 314.405, 314.455, 314.460 and 314.465 in permanent edition.

 

NOTES OF DECISIONS

 

Under former similar statutes (ORS 314.405, 314.455)

 

      Orders signed by Director or Chief Deputy of Department of Revenue constitute “final determination” for appeal purposes. Schnitzer Steel Prod. Co. v. Dept. of Rev., 7 OTR 28 (1977)

 

      Informal contacts and proceedings contemplated by this section apply to proposed assessment and formal proceeding of [former] ORS 314.455 applies to appeal to Director from final notice of deficiency and assessment. Schnitzer Steel Prod. Co. v. Dept. of Rev., 7 OTR 28 (1977)

 

      Legislative intent expressed by this section contemplates thorough initial examination, not succession of proposed assessments. Olympia Brewing v. Dept. of Rev., 7 OTR 301 (1977)

 

      The preassessment conference is obligatory if requested by the taxpayer, and failure of the department to comply with such request will result in the invalidation of the assessment. The Anaconda Co. v. Dept. of Rev., 278 Or 723, 565 P2d 1084 (1977)

 

      314.605 to 314.670

 

NOTES OF DECISIONS

 

      Interest income from long-term investments of an interstate corporation is not attributable to Oregon unless it arises from transactions in the regular course of the taxpayer’s business within the state. Sperry & Hutchinson v. Dept. of Rev., 270 Or 329, 527 P2d 729 (1974)

 

      It was not abuse of discretion for Revenue Department to require corporations to file combined rather than consolidated corporate excise tax returns where one corporation owned at least 95 percent of voting stock of other. Caterpillar Tractor Co. v. Dept. of Rev., 8 OTR 236 (1979), aff’d 289 Or 895, 618 P2d 1261 (1980)

 

      The Supremacy Clause gives Congress the authority to impose a brief moratorium on the collection of taxes for “insured depositories” in order to permit the development of a uniform state taxing system. Pac. First Fed. Savings & Loan v. Dept. of Revenue, 8 OTR 466 (1980), aff’d 293 Or 138, 645 P2d 27 (1982)

 

      Plaintiff’s use of apportionment method was proper because separate accounting would not fairly represent extent of plaintiff’s business activities in Oregon. Lane v. Dept. of Rev., 10 OTR 168 (1985)

 

      Intangible drilling and development costs (IDCs) should be included in property factor for purposes of apportioning income to Oregon. Atlantic Richfield Co. v. Dept. of Rev., 301 Or 242, 722 P2d 727 (1986)

 

      Exclusion of intangible property from formula to determine Oregon business income of California financial organization engaged in owning, leasing and financing tangible personal property did not represent fair apportionment of taxpayer’s business activity in Oregon. Crocker Equipment Leasing, Inc. v. Dept. of Rev., 314 Or 122, 838 P2d 552 (1992)

 

LAW REVIEW CITATIONS: 17 WLR 487 (1981)

 

 

      314.606

 

NOTES OF DECISIONS

 

      Where text of this section provides “tie-breaker” between two competing apportionment formulas, this section effectively disables formula of Multistate Tax Compact in favor of Oregon’s own apportionment formula. Health Net, Inc. v. Dept. of Revenue, 22 OTR 128 (2015)

 

      314.610

 

NOTES OF DECISIONS

 

      Interest income obtained from funds held in trust for plaintiff’s customers by plaintiff was income arising from transactions in regular course of taxpayer’s trade or business under this section. Gelderman and Company, Inc. v. Dept. of Rev., 10 OTR 249 (1985)

 

      Where business asset is involuntarily converted, whether compensation paid for conversion is “business income” depends on taxpayer’s disposition of compensation. Simpson Timber Company v. Dept. of Revenue, 13 OTR 315 (1995), aff’d 326 Or 370, 953 P2d 366 (1998)

 

      Interest received as delay compensation for involuntary conversion of business asset is “business income.” Simpson Timber Company v. Dept. of Revenue, 13 OTR 315 (1995), aff’d 326 Or 370, 953 P2d 366 (1998)

 

      Whether income arises from transactions and activities in regular course of business and whether income from property is integral part of taxpayer’s regular trade or business are separately applied tests for identifying business income. Pennzoil Co. v. Dept. of Revenue, 15 OTR 101 (2000), aff’d 332 Or 542, 33 P3d 314 (2001)

 

      314.615

 

NOTES OF DECISIONS

 

      Prescribed method of accounting under ORS 314.605 to 314.670, Uniform Division of Income for Tax Purposes Act, is apportionment method. Donald M. Drake Co. v. Dept. of Rev., 263 Or 26, 500 P2d 1041 (1972)

 

      Party, whether taxpayer or Department of Revenue, who seeks to invoke applicability of this section has burden of proof. Donald M. Drake Co. v. Dept. of Rev., 263 Or 26, 500 P2d 1041 (1972)

 

      Dependent-and-contributing test is proper test for determining whether vertically integrated parent and subsidiary constitutes unitary business for purposes of taxation. Coca-Cola Co. v. Dept. of Rev., 271 Or 517, 533 P2d 788 (1975)

 

      314.620

 

NOTES OF DECISIONS

 

      For allocation of sales under this section, the franchise tax paid to a foreign state must be valid and not merely volunteer tax payments. Miles Laboratories v. Dept. of Rev., 6 OTR 82 (1975), aff’d 274 Or 395, 546 P2d 1081 (1976)

 

      Where the amounts paid in a foreign state were described as an “annual license fee,” such fee is not a corporate stock tax for purposes of this section. Miles Laboratories v. Dept. of Rev., 6 OTR 82 (1975), aff’d 274 Or 395, 546 P2d 1081 (1976)

 

      Plaintiff’s activities gave Washington jurisdiction to impose a net income tax and allowed for allocation of sales under this section. Miles Laboratories v. Dept. of Rev., 6 OTR 82 (1975), aff’d 274 Or 395, 546 P2d 1081 (1976)

 

      314.650

 

NOTES OF DECISIONS

 

      This section states three-factor apportionment formula by using dollar values assessed to property, sales and payroll aspects of taxpayer’s business. Twentieth Century-Fox v. Dept. of Rev., 299 Or 220, 700 P2d 1035 (1985); Crocker Equipment Leasing, Inc. v. Dept. of Rev., 314 Or 122, 838 P2d 552 (1992)

 

      314.655

 

NOTES OF DECISIONS

 

      Intangible drilling and development costs (IDCs) should be included in “original cost” in establishing property factor. Atlantic Richfield Co. v. Dept. of Rev., 301 Or 242, 722 P2d 727 (1986)

 

      314.665

 

NOTES OF DECISIONS

 

      If consignee sells tangible personal property and is an independent taxable entity, then income from such sale is apportionable under this section. Northwest Textbook Depository v. Dept. of Rev., 11 OTR 280 (1989)

 

      Goodwill, measured and disposed of in connection with disposition of all assets of business, it not intangible property under subsections (6)(a) and (b) of this section and cannot be appropriately included in sales factor computation. Tektronix, Inc. v. Dept. of Revenue, 20 OTR 468 (2012)

 

      Taxpayer, in business of developing and selling electronic equipment, may exclude from income portion of proceeds from sale of division of company attributable to intangible assets because sale of division was not taxpayer’s primary business activity even though division itself was central to taxpayer’s operation. Tektronix, Inc. v. Dept. of Revenue, 354 Or 531, 316 P3d 276 (2013)

 

      For purposes of this section, electricity is “tangible personal property.” Powerex Corporation v. Dept. of Revenue, 357 Or 40, 346 P3d 476 (2015)

 

      Where taxpayer telephone company did not identify correct income-producing activities and did not correctly calculate costs of performance of those activities, taxpayer did not meet burden of proof and is not entitled to refund. AT&T Corporation v. Dept. of Revenue, 357 Or 691, 358 P3d 973 (2015)

 

      314.667

(formerly 314.670)

 

NOTES OF DECISIONS

 

      Where Oregon lime operation was separate and autonomous from midwestern headquarters of plaintiff’s manufacturing complex and had net loss for tax purposes during years in question, refund of taxes improperly assessed through use of allocation and apportionment formula of this section was required. Ash Grove Cement Co. v. Dept. of Rev., 7 OTR 6 (1977)

 

      This section is applicable to remedy unconstitutional results, or to provide alternatives to statutory allocation and apportionment in unusual cases where statutory formula does not fairly represent business activity of taxpayer. Twentieth Century-Fox Film v. Dept. of Rev., 299 Or 220, 700 P2d 1035 (1985)

 

      314.670

 

      See annotations under ORS 314.667.

 

      314.712

 

NOTES OF DECISIONS

 

      Guaranteed distributions to nonresident partners are subject to apportionment and taxation as part of distributive share of partnership income. Pratt & Larsen Tile v. Dept. of Rev., 13 OTR 270 (1995)

 

      Tax on distributive share of partnership income applies to both general and limited partners. CRIV Investments, Inc. v. Dept. of Revenue, 14 OTR 181 (1997)

 

      314.734

 

NOTES OF DECISIONS

 

      Income from sale of intangible property used in trade or business that is located in Oregon is source of Oregon derived income for nonresident individual. Crystal Communications, Inc. v. Dept. of Revenue, 19 OTR 524 (2008), aff’d 353 Or 300, 297 P3d 1256 (2013)

 

      314.835

 

NOTES OF DECISIONS

 

      Prohibition against disclosure of tax return information by public official does not make tax return privileged document immune from court discovery order. State ex rel Thesman v. Dooley, 270 Or 37, 526 P2d 563 (1974)

 

      Confidentiality of tax returns under this section did not preclude Department of Revenue from withholding tax refunds as setoffs against debts owed state. Brown v. Lobdell, 36 Or App 397, 585 P2d 4 (1978), Sup Ct review denied

 

ATTY. GEN. OPINIONS: Department of Revenue disclosures of information from taxpayer return or report, (1984) Vol 44, p 232

 

      314.840

 

ATTY. GEN. OPINIONS: No authority to disclose income tax information to a county, (1976) Vol 38, p 103; divulgence by Department of Revenue of names of taxpayers who have paid the 100 percent fraud penalty, (1981) Vol 41, p 455; Department of Revenue disclosures of information from taxpayer return or report, (1984) Vol 44, p 232