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)


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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.


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.

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