Title: Donald M. Drake Company v. Department of Revenue

State: oregon

Issuer: Oregon Supreme Court

Document:

500 P.2d 1041 (1972)
DONALD M. DRAKE COMPANY, an Oregon Corporation, Respondent,
v.
DEPARTMENT OF REVENUE, State of Oregon, Appellant.

Supreme Court of Oregon, In Banc.
Argued and Submitted July 6, 1972.
Decided September 8, 1972.
Donald C. Seymour, Asst. Atty. Gen., Salem, argued the cause for appellant. With him on the brief were Lee Johnson, Atty. Gen., and Theodore W. deLooze, Asst. Atty. Gen., Salem.
Lee A. Hansen, Portland, argued the cause for respondent. With him on the brief were Jones, Brown, Hansen & Steenson, Portland.
HOWELL, Justice.
The Department of Revenue appeals from a decree of the Tax Court which allowed plaintiff a corporate excise tax refund *1042 for each of the tax years 1965, 1966, and 1967.
The plaintiff is a general construction contractor with its principal office located in Portland. During the tax years involved, plaintiff worked on projects in Washington, California, and Oregon. For some time prior to and during 1965, 1966, and 1967, the plaintiff filed its Oregon corporate excise tax returns on the segregated basis. Under this method, the Oregon projects resulted in profits and the California projects in substantial losses. Also as a result of this method, the plaintiff was required to pay taxes to Oregon on three to four times the income on which it paid taxes to the federal government. In 1967 the state of California required the plaintiff to compute its taxes on the apportionment basis. After this occurred, the plaintiff filed amended Oregon corporate excise tax returns for 1965, 1966, and 1967, using the apportionment method, which resulted in some refunds due plaintiff for each of the years.
The Department of Revenue denied the claims for refunds, contending that plaintiff was required to use the segregated method of reporting. On appeal, the Tax Court found plaintiff to be a unitary business, that plaintiff was entitled to use the apportionment method of computing its income for corporate excise tax purposes, and reversed the order of the Department of Revenue.
The defendant contends that this case is not distinguishable from and is controlled by the decision of this court and the Tax Court in Utah Const. & Mining v. State Tax Com., 255 Or. 228, 465 P.2d 712 (1970), 3 OTR 385 (1969).
The Utah case is distinguishable on two grounds: (1) the facts are substantially different, and (2) the applicable laws have been changed by the legislature since the decision in Utah.
In Utah the taxpayer was a Delaware corporation with its principal place of business in San Francisco. From 1952 until 1962, when it started construction of the Round Butte Dam on the Deschutes River, it had conducted no activity in Oregon. As pointed out in the Tax Court opinion, Utah conducted only one separate construction project in Oregon and it was not related at all to other construction projects elsewhere. Its activity in Oregon was clearly segregable.
While we believe that the facts in Utah and in the case at bar are distinguishable, we prefer to base our decision on the same ground as found by the Tax Court  the statutory changes in the law enacted in 1965 require apportionment of income in this case.
During the tax years involved in Utah, ORS 314.280 was in effect and provided:
As was pointed out, both in the Tax Court opinion and our decision in Utah, the statute above gave the Tax Commission authority to permit or require either the segregated or apportionment method of accounting as long as either method would "fairly and accurately * * * reflect the net income of the business done within the state." Neither method was endorsed.
In 1965 the legislature amended ORS 314.280 above and adopted the Uniform Division of Income for Tax Purposes Act, *1043 ORS 314.605 to 314.670. ORS 314.615 of the new Uniform Act now provides:
The defendant argues that apportionment is not mandatory under the above statute because the Uniform Act also contains the following provision, ORS 314.670.
The defendant contends that ORS 314.670 gives it the same discretion to require either the segregated or the apportionment method of accounting as it had prior to the enactment of the Uniform Act.
The defendant is incorrect. As the Tax Court pointed out in its opinion, apportionment under the Uniform Act is now the "prescribed" method. Beaman, "Paying Taxes to Other States" (1963). The apportionment method is now the general rule and any other system, including the segregated method, is the exception. Keesling & Warren, in an article entitled, "California's Uniform Division of Income for Tax Purposes Act (Part I)" 15 UCLA L.Rev. 156 (1967), aptly describe the reasons why the drafters of the Uniform Act included a provision such as ORS 314.670 above. They state, at pp. 170-171:
The same authors articulated the interpretation to be given to the exceptions contained in ORS 314.670:
We agree with the conclusion of the Tax Court that the use of any method other than apportionment should be exceptional and the party  the taxpayer or the Department of Revenue  who seeks to invoke the applicability of ORS 314.670 has the burden of proof.
The defendant makes an additional argument that the Oregon law requires construction companies to use the segregated method. It clearly does not. ORS 314.615 states that taxpayers having income from business activity taxable both within and without the state shall apportion their net income. Exceptions are specifically granted to a "financial organization" and a "public utility." If the legislature had intended construction companies to be included in the exceptions, it could easily have so provided.
The decree of the Tax Court is affirmed. No costs.