Oregon: Compact election not available, excise tax apportionment

Oregon corporate excise tax apportionment

The Oregon Tax Court issued a decision, holding that a taxpayer could not elect to use the Multistate Tax Compact allocation and apportionment provisions in computing its Oregon corporate excise tax for the tax years at issue (2005-2007)

Related content

Oregon law

Prior to 1989, two separate Oregon statutes—ORS 314.655, Oregon’s codification of the Multistate Tax Compact, and ORS 314.650, Oregon’s adoption of UDITPA—mandated use of an evenly weighted three-factor apportionment formula. 

In 1989, the Oregon legislature amended the UDITPA formula to provide for double-weighting of the sales factor, but did not revise the Compact formula. The legislature subsequently amended the statute several more times, providing for 80% sales factor weighting in 2001, and finally moving to a single sales factor in 2005.

In 1993, the Oregon legislature enacted ORS 314.606, providing that:

 

..in any case in which the provisions of ORS 314.605 to 314.675 [Oregon’s enactment of UDITPA] are inconsistent with the provisions of ORS 305.655 [the Compact], the provisions of ORS 314.605 to 314.675 shall control.

 

ORS 314.606 thus mandated that the single-sales factor apportionment formula adopted in 2005 be used in lieu of the evenly weighted three-factor Compact formula.

Background

The taxpayer engaged in the delivery of managed health care services throughout the United States.

On its original returns, the taxpayer used the single-sales factor apportionment formula. However, following a federal tax audit, the taxpayer filed amended returns/claims for refund using the equally weighted three-factor formula set forth in ORS 305.655.

After the Oregon Department of Revenue denied the taxpayer’s requested refunds, the matter came before the Oregon Tax Court. 

Oregon Tax Court decision

The Oregon Tax Court held that the adoption of ORS 314.606 was intended to disable the Compact election, and that such action did not violate any procedural or substantive provision of the Oregon Constitution. 

Also, the court found that this legislative change did it violate any provision of federal statutory law, the federal Compact Clause, or federal Contract Clause. As such, the taxpayer was not entitled to elect use of the Compact in determining its Oregon corporate excise for the tax years at issue.

The case is: Health Net, Inc. v. Oregon Dep’t of Revenue, TC 5127 (Ore. Tax Ct. September 9, 2015). Read the Oregon Tax Court’s opinion [PDF 221 KB]

KPMG observation

This is the third taxpayer loss in a Compact election case since June 2015.  It is important to keep in mind that the analysis in each of these cases is slightly different because each state adopted and/or attempted to modify the Compact in a different manner.  The next decision will likely be the California Supreme Court’s opinion in Gillette, as oral arguments in that case will be held on October 6, 2015. 

 

Read a September 2015 report [PDF 221 KB] prepared by KPMG LLP.

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us

 

Request for proposal

 

Submit

KPMG's new digital platform

KPMG's new digital platform