No. 34 September 11, 2015 691

IN THE SUPREME COURT OF THE

STATE OF OREGON

AT&T CORP.

& INCLUDIBLE SUBSIDIARIES,

Appellant,

v.

DEPARTMENT OF REVENUE,

Respondent.

(TC-RD 4814; SC S060150)

On appeal from the Oregon Tax Court.*

Henry C. Breithaupt, Judge.

Argued and submitted March 13, 2013.

John H. Gadon, Lane Powell PC, Portland, filed the brief 

and argued the cause for appellant.

Marilyn J. Harbur, Assistant Attorney General, Salem, 

argued the cause and filed the brief for respondent. With 

her on the brief were Ellen F. Rosenblum, Attorney General, 

and Douglas M. Adair and Darren Weirnick, Assistant 

Attorneys General.

Before Balmer, Chief Justice, and Kistler, Walters, 

Landau, Brewer, and Baldwin, Justices.**

BALDWIN, J.

The judgment of the Tax Court is affirmed.

____________

** 20 OTR 299 (2011)

** Linder, J., did not participate in the decision of this opinion.
692 AT&T Corp. v. Dept. of Rev.

Case Summary: Taxpayer AT&T sought a refund for part of the Oregon corporate excise taxes it had paid for tax years 1996 through 1999, asserting that 

its sale of interstate and international phone and data transmissions should 

not be counted in determining the fraction of AT&T’s income that Oregon can 

tax. Under the relevant statute, ORS 314.665(4) (1999), those sales should be 

counted only if the “income-producing activity” was entirely performed in Oregon 

or if Oregon was the state with the greatest share of the “costs of performance” 

for that activity. Based on its interpretation of what constituted an “incomeproducing activity,” AT&T presented a cost study that purported to show that 

Oregon did not have the greatest share of the “costs of performance.” The Tax 

Court denied the refund claim, and AT&T appealed. Held: (1) The analysis of 

an “income-producing activity” generally begins with each item of income — 

each individual sale — and determines the relevant transactions and activity 

associated with that sale; (2) the proper identification of the “income-producing 

activity” will drive whether particular costs count as part of the “costs of performance”; (3) AT&T failed to meet its burden of proof on the refund claim because 

its cost study did not identify the correct income-producing activities and did not 

correctly calculate the costs of performance for those activities.

The judgment of the Tax Court is affirmed.
Cite as 357 Or 691 (2015) 693

BALDWIN, J.

Appellant AT&T (together with its includible subsidiaries) appeals a Tax Court judgment that denied AT&T’s 

claim for a refund of a portion of the Oregon corporate excise 

taxes it paid for tax years 1996 through 1999. AT&T Corp. 

v. Dept. of Rev., 20 OTR 299 (2011) (Tax Court’s opinion). 

The dispute concerns AT&T’s sale of interstate and international phone and data transmissions. We must decide 

whether those sales are counted in determining the fraction of AT&T’s income that Oregon can tax. Under the relevant statute, ORS 314.665(4) (1999), those sales count as 

Oregon sales if the “income-producing activity” was entirely 

performed in Oregon or if Oregon was the state with the 

greatest share of the “costs of performance” for that activity. 

Based on its interpretation of what constituted an “incomeproducing activity,” AT&T presented a cost study that purported to show that Oregon did not have the greatest share 

of the “costs of performance.” The Department of Revenue 

(department) challenged AT&T’s interpretation of “incomeproducing activity” and attacked the validity of its cost 

study. The Tax Court ruled in favor of the department.

As we will explain, we conclude that AT&T did 

not use a correct definition of “income-producing activity.” 

AT&T’s proposed interpretation is network-based; it focused 

on the operation of its network as a whole. The correct 

understanding, however, is transaction-based; it examines 

individual sales to customers. AT&T thus failed to meet its 

burden of proof, because it did not correctly calculate the 

“costs of performance” for the correct “income-producing 

activities.” Accordingly, we affirm.

I. BACKGROUND

A. The Taxpayer

AT&T, the taxpayer, is a global telecommunications company. It provides voice and data telecommunications services over the global AT&T network, which AT&T 

constructed, maintains, and operates. The network works 

together as an integrated whole, and it is used to provide 

all of AT&T’s services at issue. In the United States, the 

network provides multiple pathways that a call may take, 
694 AT&T Corp. v. Dept. of Rev.

depending on traffic on the overall AT&T network. The path 

a particular call may take is not known in advance and is 

determined by a complex computer system that chooses the 

path in milliseconds. The network is managed from the 

AT&T Global Network Operations Center in Bedminster, 

New Jersey.

AT&T does not generally provide “last-mile service” 

to its customers over its own facilities. Instead, it provides 

service on its own facilities only from one “point of presence” 

to another “point of presence.” The last-mile service from 

the point of presence to the caller or the recipient is provided 

over the facilities of a local exchange carrier. AT&T pays the 

local exchange carriers an access charge for this last-mile 

service.

B. The Statute and Rule

This case involves income tax. For those taxpayers 

that do business in more than one jurisdiction, states generally may tax a representative fraction of the taxpayer’s total 

income. The fraction of income that a particular state can tax 

is determined, in part, by the amount of a taxpayer’s sales 

in that particular state. Specifically, that part of the calculation requires comparing “in state” sales to the taxpayer’s 

total sales. In this case, we must determine whether sales 

are considered to be “in this state” under ORS 314.665(4) 

(1999).1

 For purposes of income tax, that statute defines 

certain sales as Oregon sales depending on the location of 

the “income-producing activity.” The sales are in Oregon if 

(1) the income-producing activity occurs entirely in Oregon, 

or (2) Oregon’s share of the “costs of performance” of that 

income-producing activity is greater than any other state. 

Specifically, ORS 314.665(4) provides:

“Sales, other than sales of tangible personal property, are in this state if (a) the income-producing activity 

1 In general, all Oregon statutes and administrative rules discussed in this 

opinion are the 1999 versions, which were unchanged in their relevant parts 

during the tax years at issue here. The exception is OAR 150-314.665(4), in which 

we refer to the 2008 version containing amendments effective January 1, 2007: 

AT&T conceded in the Tax Court that the 2007 amendments to that rule applied 

retroactively to the tax years at issue here, and the parties and the Tax Court 

used that version.
Cite as 357 Or 691 (2015) 695

is performed in this state; or (b) the income-producing 

activity is performed both in and outside this state and a 

greater proportion of the income-producing activity is performed in this state than in any other state, based on costs 

of performance.”

The correct application of that statute depends in 

large part on the meaning of two terms: “income-producing 

activity” and “costs of performance.” The department has 

promulgated a rule that defines those terms, among other 

things. Briefly, the definition of “income-producing activity” 

is (in part):

“The term ‘income-producing activity’ applies to each 

separate item of income and means the transactions and 

activity directly engaged in by the taxpayer in the regular 

course of its trade or business for the ultimate purpose of 

obtaining gains or profit.”

OAR 150-314.665(4) (2). The second term, “costs of performance,” is defined in part as follows:

“The term ‘costs of performance’ means direct costs 

determined in a manner consistent with generally accepted 

accounting principles and in accordance with accepted conditions or practices in the trade or business of the taxpayer.”

OAR 150-314.665(4) (4).

C. Procedural Posture

1. AT&T’s Request for Refund

This action began when AT&T sought a refund 

on the taxes that it paid for tax years 1996 through 1999. 

AT&T filed amended tax returns seeking a refund. AT&T 

argued that the relevant statute and rule, correctly understood, indicated that its “income-producing activities” were 

some of the business activities associated with its network 

operations, because the network was necessary for AT&T to 

provide interstate and international transmissions of voice 

and data for consumers and businesses.2

2 AT&T admitted that some of its other business activities effectively did 

not qualify as “income-producing activities.” It also admitted that the “costs of 

performance” for intrastate consumer and business calls and data were primarily 

incurred in Oregon, and so those sales were taxable here.
696 AT&T Corp. v. Dept. of Rev.

Based on its interpretation of the law, AT&T offered 

a cost study of the “costs of performance” for what it considered to be its “income-producing activities.” The cost study 

was prepared for AT&T by BI Solutions Group, LLC—more 

specifically, by James Allen, a manager at BI Solutions and 

a specialist in cost accounting, who testified as an expert 

witness. The printed version of the study, including the associated schedules, is almost 300 pages long; our discussion 

here gives only a brief overview, often simplifying details 

that are not relevant to our holding.

Because AT&T’s understanding of “income-producing

activity” indicated that its activities were performed both 

in-state and out-of-state, the cost study analyzed the “costs 

of performance” for each activity. It then compared the costs 

incurred in Oregon to those incurred in New Jersey.3

 The 

study purported to show that the costs incurred in New 

Jersey exceeded the costs incurred in Oregon in every 

instance. Accordingly, AT&T argued that the requirement 

of ORS 314.665(4) for including the relevant sales as Oregon 

sales had not been met: Oregon did not have a “greater proportion” of the costs of performance than any other state. 

As a result, AT&T’s position is that none of its relevant revenues from sales—not even those revenues from Oregon

customers—count as being “in” Oregon.

The study consists of two parts. In the first part, 

the cost study analyzed AT&T’s costs based on its interpretation of the statute and rule. The second part of the study, 

anticipating the department’s position, analyzed AT&T’s 

costs incurred for “Oregon demand.”

The first part of the cost study began by identifying 

what it considered to be the “separate item[s] of income,” a 

term used in the rule defining “income-producing activity.” 

The cost study concluded that the items of income were “the 

Network Telecommunications Services” that AT&T provided to its customers. Because AT&T provided many such 

3 AT&T chose to compare Oregon costs to New Jersey costs because New 

Jersey was where its Global Network Operations Center was located. Under the 

statute, AT&T only needed to show that some state somewhere had a “greater 

proportion” of the costs of performance for the income-producing activity. ORS 

314.665(4).
Cite as 357 Or 691 (2015) 697

services, however, the cost study categorized them into “service families.” The service families used in the cost study 

were consumer voice, business voice, and business data, 

each of which was divided into interstate and international 

services.

The cost study then identified what AT&T considered to be the relevant income-producing activities, which 

were certain of AT&T’s business activities. Fundamentally, 

these activities were based around AT&T’s operation of the 

network as a whole. Of those, the cost study focused on those 

business activities whose costs would, in AT&T’s estimation, 

qualify as “direct costs” for the “costs of performance” part of 

the analysis. The three applicable income-producing activities identified by AT&T were: “service activation” (which 

Allen summarized as “setting up the customers and having 

them able to utilize AT&T’s network telecommunication services”), “service assurance” (meaning “work activity associated with maintaining the availability of the network”), 

and “service execution” (meaning “the physical network,” 

“the assets by which AT&T provides its network telecommunications services”). In other words, AT&T’s analysis of its income-producing activities was system-based or 

network-based.4

Based on those classifications, AT&T’s cost study 

generally analyzed the “costs of performance” for each 

4 It is not clear to what extent the cost study actually depended on this particular classification of “income-producing activities.” Although the cost study’s 

written description asserts that the relevant income-producing activities are 

“service activation,” “service assurance,” and “service execution,” the cost study 

itself breaks costs down according to a completely different set of categories: “network and other costs” (including network engineering, network support, network 

services, and field operations), “depreciation and amortization,” and “customer 

care.” Those are the only categories for which the cost study actually calculates 

costs; nowhere does the cost study identify the direct costs per year for “service 

activation,” for example. And the cost categories themselves (network, depreciation, customer care) are not simply different names for AT&T’s identified incomeproducing activities. The study indicates that those cost categories apply to more 

than one income-producing activity: Both “service activation” and “service assurance” include some share of “customer care” costs, for example, while “network 

and other costs” seemingly apply to all three identified “income-producing activities.” (The cost study contains a table that lists the cost categories involved in 

each “income-producing activity,” but that table does not contain any row identifying the cost categories for “service execution.” Presumably “service execution” 

involves both some share of “network and other costs” as well as “depreciation and 

amortization.”)
698 AT&T Corp. v. Dept. of Rev.

“income-producing activity” in the following manner: The 

study first identified all of AT&T’s costs that it believed 

qualified as “direct costs” under the rule, and specifically 

identified those costs incurred in Oregon and New Jersey. 

In particular, the study excluded the access charges, which 

it concluded did not qualify as a “direct cost.” The cost study 

then attributed the direct costs to the “income-producing 

activities” that it had concluded were recognizable under 

the statute and rule. Finally, the study attributed those 

costs to the service families that it had identified as “separate item[s] of income.” The result of those calculations purported to identify the direct costs for each income-producing 

activity as to each item of income. The summary calculations, however, were only by year, by service family (that 

is, AT&T’s classification of “item of income”), and by costs 

in Oregon and New Jersey. Here, for example, are the cost 

study’s summary calculations for 1999:

Oregon Costs New Jersey Costs

Business

Voice

Interstate $ 15,770,292 $ 260,731,804 

Int’l $ 911,698 $ 18,963,486 

Data

Interstate $ 15,715,660 $ 198,100,125 

Int’l $ 437,258 $ 5,511,749 

Consumer

Voice

Interstate $ 3,698,467 $ 70,274,114 

Int’l $ 1,113,686 $ 20,778,559 

Because the cost study showed similar results 

for the other tax years, AT&T argued that it had demonstrated that the New Jersey “costs of performance” exceeded 

Oregon costs. Accordingly, it maintained, the receipts from 

interstate and international voice and data should not be 

included in the numerator of the Oregon sales factor.
Cite as 357 Or 691 (2015) 699

As we noted, the cost study contained two parts. 

In the second part of its cost study, the study analyzed 

the costs associated with “Oregon demand,” to address the 

department’s anticipated legal analysis.5

 This second part of 

the cost study functionally paralleled the first part. Again, 

in general terms, the study took the figures for direct costs 

that it had attributed to the “income-producing activities” 

for each item of income, and then calculated (1) the share 

of Oregon costs that had been incurred to support Oregon 

demand, and (2) the share of New Jersey costs that had 

been incurred to support Oregon demand. AT&T’s cost 

study again purported to show that, even under an “Oregon 

demand” analysis, the “costs of performance” in New Jersey 

were greater than they were in Oregon. Here, for example, 

are its calculations for 1999:

OR Cost for OR 

Demand

NJ Costs for OR 

Demand

Business

Voice

Interstate $ 634,702 $ 2,638,468 

Int’l $ 55,649 $ 190,560 

Data

Interstate $ 391,277 $ 1,994,880 

Int’l $ 10,887 $ 55,504 

Consumer

Voice

Interstate $ 318,818 $ 709,725 

Int’l $ 88,889 $ 210,008 

If AT&T’s analysis was both legally and factually 

sound, then the relevant sales would not count as Oregon 

5 The cost study does not specifically define what it considers “Oregon 

demand,” but Allen in his testimony described what it meant, at least in the 

context of phone calls. Based on rules derived from sales and use taxes, a call 

would be counted as an Oregon call if Oregon was the state for at least two of the 

following three criteria: the state where the call began, the state where the call 

ended, or the state where the transaction was billed.
700 AT&T Corp. v. Dept. of Rev.

sales, and Oregon would not be entitled to tax as much of 

AT&T’s income. For example, AT&T’s original 1996 tax 

return indicated that Oregon could tax 0.7621 percent of 

AT&T’s total income of $7.3 billion, while AT&T’s amended 

1996 tax return suggested that Oregon could tax only 0.4303 

percent of that $7.3 billion. Similar differences would have 

applied to the other tax years.

The department opposed the claim for a refund. 

The department argued for a transaction-based application 

of “income-producing activity”; namely, that the relevant 

“income-producing activity” here was the activity that produced each individual interstate and international phone and 

data transmission billed to an Oregon customer. As the department stated in its pretrial memorandum to the Tax Court:

“The proper construction of ‘income producing activity’ *** 

applies to each item of income from each call billed on a 

per minute basis or each flat rate subscription. Thus, the 

income producing activity is AT&T’s connection of each 

Oregon long distance call to the network.”

The department maintained that the only “costs of performance” for those individual transactions—meaning “direct 

costs,” OAR 150-314.665(4) (4)—were (1) the cost of the electricity for the calls and data transmission, and (2) the access 

charges levied by the local exchange carrier for connecting 

the customer with AT&T’s network. The majority of those 

costs were incurred in Oregon, the department argued, and 

so the sales should be counted as Oregon sales. The result 

would be that AT&T’s tax liability to Oregon would remain 

unchanged from its initial tax returns.

In addition, the department offered expert testimony critical of AT&T’s cost study. Michael Starkey, a consultant who specialized in telecommunications cost analysis, testified and prepared a rebuttal report. He asserted 

that the department’s transaction-based interpretation of 

“income-producing activity” was correct, and he disagreed 

with AT&T’s network-based interpretation.

The Tax Court agreed with the department and 

denied AT&T’s request for a refund. The court first determined that the statutes and regulations required a threestep analysis:
Cite as 357 Or 691 (2015) 701

“[T]he analysis must begin with transactions that are or 

include ‘income producing activit[ies].’ The next step is to 

determine the gross receipt from that transaction. The final 

step is to determine where the direct costs of performance 

occurred geographically, as to the transaction or activity.”

20 OTR at 304-05 (second alteration in original; footnote 

omitted).

At the first step that it had identified, the court concluded that the statutes and regulations required a focus 

on individual transactions with customers, while AT&T 

instead had “focuse[d] on entire groups or classes of transactions.” Id. at 306. AT&T’s analysis was deficient, the court 

explained, because it “ha[d] begun its analysis with the 

wrong cost object [and] ha[d] not attempted to determine 

where costs of particular transactions are incurred.” Id. at 

307.6

Although the court concluded that that was enough 

to deny AT&T’s refund claim, it went on to consider other 

questions. Id. Because the court had agreed with the 

department that each separate phone call or flat-rate billing was an income-producing activity, the court rejected 

AT&T’s argument that the costs of performance—by rule, 

the direct costs—were those associated with operating 

the network generally. Id. at 307-09. The court apparently 

agreed with the department that the direct costs were only 

those costs that AT&T incurred in carrying a particular 

individual phone call—basically the electricity consumed 

by the call and the access charges that AT&T paid to the 

local exchange carrier on each end of the transaction. See 

id. at 309 (concluding that the department’s interpretation 

“has a number of points in its favor”). The Tax Court specifically rejected AT&T’s argument that the access charges 

paid to local exchange carriers did not count as direct costs 

for purposes of the “costs of performance” analysis. Id. at 

309-11.

6 The department had argued that one should begin with Oregon calls only. 

The Tax Court characterized that as a permissible “shortcut” that the department could take with “its analysis”; “the department is simply starting with a 

smaller census” of possible revenues, and doing so could only benefit AT&T. 20 

OTR at 305. We note, however, that the department did not present its own cost 

study. The only cost study before the court was that prepared by AT&T.
702 AT&T Corp. v. Dept. of Rev.

II. ANALYSIS

A. Standard of Review and Interpretive Methodology

AT&T has appealed the decision of the Tax Court. Our 

review is “limited to errors or questions of law or lack of substantial evidence in the record to support the tax court’s decision or 

order.” ORS 305.445. The appeal involves AT&T’s request for 

a refund, and as the party seeking affirmative relief, AT&T 

bears the burden of proof. See ORS 305.427 (in Tax Court proceedings “and upon appeal therefrom,” “[t]he burden of proof 

shall fall upon the party seeking affirmative relief”).

To address the issues before us, we must interpret 

Oregon statutes and administrative rules. In both instances, 

we apply the same methodology: We first consider the text 

and context, and then (in the case of statutes) examine any 

relevant legislative history. See State v. Gaines, 346 Or 160, 

171-72, 206 P3d 1042 (2009) (explaining that methodology 

for statutes); Wetherell v. Douglas County, 342 Or 666, 678, 

160 P3d 614 (2007) (court applies its statutory interpretation 

methodology to administrative rules). In the case of administrative rules, we ordinarily defer to the adopting agency’s 

interpretation if that interpretation is plausible and is not 

inconsistent with the rule in its context or with some other 

source of law. See Crystal Communications, Inc. v. Dept. of 

Rev., 353 Or 300, 311, 297 P3d 1256 (2013) (stating principle); Don’t Waste Oregon Com. v. Energy Facility Siting, 320 

Or 132, 142, 881 P2d 119 (1994) (same).

B. Uniform Division of Income for Tax Purposes Act

The statute at issue here, ORS 314.665(4), is a part 

of Oregon’s version of the Uniform Division of Income for 

Tax Purposes Act (UDITPA). In this state, UDITPA is codified at ORS 314.605 to 314.675.

Strictly speaking, Oregon’s UDITPA statutes apply 

here only by administrative rule. AT&T is a public utility, see

ORS 314.610(6),7

 and so it is taxed under ORS 314.280(1).8

7 ORS 314.610(6) defines a “public utility” to include “any business entity 

whose principal business is * ** the transmission of communications.”

8 A provision of Oregon’s UDITPA adds that UDITPA does not apply to public 

utilities. ORS 314.615. “Taxpayers engaged in activities as a financial organization 

or public utility shall report their income as provided in ORS 314.280 and 314.675.”
Cite as 357 Or 691 (2015) 703

The latter statute generally authorizes the department to 

determine whether and when a taxpayer may use what it 

terms the “the segregated method of reporting or the apportionment method of reporting.”9

 The department promulgated rules under ORS 314.280 that, for purposes of the 

apportionment method, have largely incorporated Oregon’s 

version of UDITPA. Crystal Communications, 353 Or at

303-04 (so noting); see OAR 150-314.280-(A) - (F) (incorporating various UDITPA statutes and administrative 

rules). AT&T here used the apportionment method of 

reporting, and the department does not question the propriety of AT&T using that method. Accordingly, we turn to 

UDITPA.

A brief overview of UDITPA may provide some helpful background. UDITPA was intended to address the problem of how to attribute income to taxpayers who do business 

in more than one state. It is often difficult or impossible for a 

taxpayer doing business in more than one state to attribute 

a particular dollar of income to a particular state. See, e.g., 

Walter Hellerstein, State Taxation of Corporate Income from 

Intangibles: Allied-Signal and Beyond, 48 Tax L Rev 739, 

745 (1993). The types of businesses that cannot attribute 

dollars to particular states are generally known as unitary 

businesses; they are “businesses in which a portion of the 

business done within the state is dependent upon or contributes to the operation of the business without the state.” 

Crystal Communcations, 353 Or at 303 (internal quotation 

marks and citations omitted); see Hellerstein, 48 Tax L Rev 

9 ORS 314.280 provides, in part:

“(1) If a taxpayer has income from business activity * ** as a public utility (as defined respectively in ORS 314.610 * ** (6)) which is taxable both 

within and without this state (as defined in ORS 314.610(8) and 314.615), 

the determination of net income shall be based upon the business activity 

within the state, and the Department of Revenue shall have power to permit 

or require either the segregated method of reporting or the apportionment 

method of reporting, under rules and regulations adopted by the department, 

so as fairly and accurately to reflect the net income of the business done 

within the state.

“(2) The provisions of subsection (1) of this section dealing with the 

apportionment of income earned from sources both within and without the 

State of Oregon are designed to allocate to the State of Oregon on a fair and 

equitable basis a proportion of such income earned from sources both within 

and without the state. * **”
704 AT&T Corp. v. Dept. of Rev.

at 745-46.10 To tax unitary businesses, states use what is 

known as formulary apportionment. Rather than attempt to 

attribute individual dollars of income to particular states, 

formulary apportionment uses a formula to estimate the 

fraction of the taxpayer’s total income that can be attributed 

to each state. See Hellerstein, 48 Tax L Rev at 745; Walter 

Hellerstein, State Income Taxation of Multijurisdictional 

Corporations: Reflections on Mobil, Exxon, and H.R. 5076, 

79 Mich L Rev 113, 117 (1980); Frank M. Keesling and John 

S. Warren, The Unitary Concept in the Allocation of Income, 

12 Hastings LJ 42, 43 (1960).11

UDITPA was intended to provide a uniform method 

for the states to determine the specific fraction to be used 

for the formulary apportionment. See, e.g., William J. Pierce, 

The Uniform Division of Income for State Tax Purposes, 35 

Taxes 747, 748 (1957) (noting the “amazing variety of formulas” then being used by the states, creating the danger 

that a taxpayer would be either double taxed or not taxed on 

everything). If UDITPA were adopted by every state, then 

its common formula would mean that all of a taxpayer’s 

income would be taxed in some state, but none of it would 

be taxed by more than one state. Pierce, 35 Taxes at 748 (so 

noting).

The apportionment formula used by UDITPA utilizes certain factors to estimate the extent to which a taxpayer’s income may be attributed to a particular state. 

See, e.g., Steve Christensen, Formulary Apportionment: 

More Simple—On Balance Better? 28 L & Pol’y in Int’l 

Bus 1133, 1147 (1997). The three factors used in UDITPA 

10 Unitary businesses are in contrast to nonunitary businesses, which are 

“business entities that are connected by common ownership but that exist independently and in different states.” Crystal Communications, 353 Or at 303. 

Nonunitary businesses are taxed using the segregated method of reporting mentioned in ORS 314.280. Id.

11 If a taxpayer does not operate a unitary business, then a state generally 

lacks the constitutionally necessary basis to use apportionment to tax the income 

that the taxpayer earned outside of the state. See, e.g., OAR 150-314.610(1)-(A) (6)

(discussing constitutional limits and “unitary business principle”). On the other 

hand, if the taxpayer does operate a unitary business, then taxing only those 

parts of the business operations that are located in-state is to “endeavor[] to treat 

separately what is, in fact, inseparable.” George H. Weissman, Unitary Taxation: 

Its History and Recent Supreme Court Treatment, 48 Albany L Rev 47, 50-51 

(1983) (internal quotation marks and citation omitted).
Cite as 357 Or 691 (2015) 705

apportionment are the property factor, the payroll factor, 

and the sales factor. Each factor is itself a fraction:

•	 the property factor is the ratio of in-state property 

to total property,

•	 the payroll factor is the ratio of in-state payroll to 

total payroll, and

•	 the sales factor is the ratio of in-state sales to total 

sales.

See UDITPA §§ 10, 13, 15 (defining each factor); ORS 

314.655 - 314.665 (Oregon’s version of those factors). Under 

UDITPA, the fractions representing the three factors are 

added together and divided by three. UDITPA § 9; compare

ORS 314.650(1) (during the relevant tax years, Oregon doubled the sales factor before adding, and then divided by four). 

The result is the fraction of the taxpayer’s total income that 

can be taxed by this state.

The first two factors, the property and payroll factors, estimate the state’s share of responsibility for the income 

stream by focusing on production. Those two factors track 

in-state capital and labor respectively, so they reflect obvious 

connections with the taxing state. See, e.g., Hellerstein, 48 

Tax L Rev at 754. The third factor, sales, generally tracks 

the extent to which the taxpayer takes advantage of the taxing state’s market. See Powerex Corp. v. Dept. of Rev., 357 Or 

40, 64-65, 346 P3d 476 (2015); John A. Swain, Reforming the 

State Corporate Income Tax: A Market State Approach to the 

Sourcing of Service Receipts, 83 Tul L Rev 285, 288 (2008); 

Christensen, 28 L & Pol’y in Int’l Bus at 1134.

C. UDITPA’s Sales Factor

As noted, this case involves the sales factor. We 

must begin by defining sales. Generally, “sales” are “gross 

receipts of the taxpayer.” UDITPA § 1(g); ORS 314.610(7) 

(both excluding gross receipts that are not allocated under 

other statutes).12

12 That is the general definition. For purposes of the sales factor, some 

other types of gross receipts are excluded from the definition of “sales.” See ORS 

314.665(6) (listing additional exclusions). This case does not involve any dispute 

over those exclusions from the definition of “sales.” For purposes of this opinion, 

it is adequate to treat “sales” as simply being gross receipts.
706 AT&T Corp. v. Dept. of Rev.

The sales factor generally is the taxpayer’s in-state 

sales divided by the taxpayer’s total sales. UDITPA section 

15 and ORS 314.665(1), which are identical, specifically 

state:

“The sales factor is a fraction, the numerator of which is 

the total sales of the taxpayer in this state during the tax 

period, and the denominator of which is the total sales of 

the taxpayer everywhere during the tax period.”

See also Powerex, 357 Or at 42, 60.

The denominator of the sales factor begins and ends 

by counting the gross receipts from all sales by the taxpayer 

everywhere. The numerator, however, is more complex. As we 

will explain, the relevant statute begins at the same point as 

the denominator: with all sales by the taxpayer everywhere. 

It then sets out an analytical method to determine which of 

those sales will be counted as sales “in this state.” This analytical method divides all of taxpayer’s sales into two classes: 

sales of tangible personal property, and all other sales, i.e., 

“sales, other than sales of tangible personal property.” See

ORS 314.665(2), (4); Powerex, 357 Or at 43 n 3, 60-61. For 

each class, the statute then prescribes which of those sales 

count as in-state sales. If the sales are of tangible personal 

property, then one set of criteria are used to determine which 

of those sales count as sales “in this state.” ORS 314.665(2); 

see Powerex, 357 Or at 43. If the sales are of anything other 

than tangible personal property, then another set of criteria 

are used to determine which of those sales count as sales “in 

this state.” ORS 314.665(4); see Powerex, 357 Or at 43. If all

sales in both classes meet the relevant criteria so that they 

are all considered to be “in this state,” then the numerator of 

the sales factor will be identical to the denominator, and the 

sales factor will be 1.0 (that is, 100 percent).

1. Sales of Tangible Personal Property

Sales of tangible personal property are controlled 

by ORS 314.665(2) (UDITPA section 16). Although that provision is not at issue here, it serves as useful context.

The Oregon statutory text provides:

“(2) Sales of tangible personal property are in this 

state if:
Cite as 357 Or 691 (2015) 707

“(a) The property is delivered or shipped to a purchaser, other than the United States Government, within 

this state regardless of the f.o.b. point or other conditions of 

the sale; or

“(b) The property is shipped from an office, store, warehouse, factory, or other place of storage in this state and

(A) the purchaser is the United States Government or (B) the

taxpayer is not taxable in the state of the purchaser.”

ORS 314.665(2); see also UDITPA § 16 (essentially identical).

Thus, ORS 314.665(2) sets out the criteria to be 

applied to all of a taxpayer’s sales of tangible personal 

property to determine which (if any) count as sales “in this 

state.” The statute focuses on individual sales to purchasers. 

The general rule counts an individual sale as “in this state” 

if this state is where the property is delivered or shipped to 

the purchaser. See Powerex, 357 Or at 46-52 (analyzing statute in detail). As a result, this part of the sales factor generally reflects that state’s contribution as a market toward the 

taxpayer’s income.

The statute does not always reflect the market state’s 

contribution, however. Sales of tangible personal property 

are not attributed to the market state in two instances: when 

the United States Government is a purchaser, and when the 

taxpayer cannot be taxed in the purchaser’s state. The latter exception is particularly significant, because it shows 

that UDITPA emphasized the interest of making all of the 

taxpayer’s income taxable somewhere over the interest of 

reflecting the market state’s contribution to the transaction. 

See Jerome R. Hellerstein, Walter Hellerstein, and John A. 

Swain, 1 State Taxation ¶ 9.18[1][b][i], 9-259 (3d ed 2014) 

(noting policy justification to avoid possibility of “‘nowhere’ 

income”). In short, sales of tangible personal property are 

generally—but not invariably—apportioned to the market 

state.

2. Sales Other Than Sales of Tangible Personal 

Property

The second sales factor provision of UDITPA, and the 

one at issue here, is the catchall provision. While the first factor deals with sales of tangible personal property, the second 
708 AT&T Corp. v. Dept. of Rev.

factor deals with all other sales—“sales, other than sales of 

tangible personal property.” Again, ORS 314.665(4) provides:

“(4) Sales, other than sales of tangible personal property, are in this state if (a) the income-producing activity 

is performed in this state; or (b) the income-producing 

activity is performed both in and outside this state and a 

greater proportion of the income-producing activity is performed in this state than in any other state, based on costs 

of performance.”

See also UDITPA § 17 (essentially identical). The framers 

of UDITPA did not provide any commentary for UDITPA 

section 17.

In any particular case, how ORS 314.665(4) will 

apply depends largely on the precise meaning of two terms: 

“income-producing activity” and “costs of performance.” 

Here, the department urges that “income-producing activity” 

is transaction focused and applies to each individual phone 

call or separate monthly billing. AT&T, on the other hand, 

contends that “income-producing activity” refers to broad 

swaths of its business. Its system-based or network-based 

interpretation, if accepted, would cause the statute to assign 

large chunks of revenue to a single state.

We make two observations about the text of ORS 

314.665(4). First, AT&T correctly notes that the provision 

does not look to the market where the sales occur. There 

is nothing specified about the geographic location of the 

taxpayer’s customers, which one would expect from a factor focused on a state’s contribution to the market. Instead, 

the provision looks to where the taxpayer effectively produces the income. The state where the taxpayer conducts its 

“income-producing activity” for a sale or class of sales may 

or may not happen to be the market state. Here, just as we 

noted in connection with certain sales of tangible personal 

property, the drafters of UDITPA apparently chose to run 

the risk that those sorts of sales would not reflect the market state’s contribution.

The second point, by contrast, is that ORS 314.665(4) 

seems to connect the term “income-producing activity” with 

particular “sales.” The statutory purpose is to assign the 

income from sales to particular states, and to do that, the 
Cite as 357 Or 691 (2015) 709

provision directs us to identify the activity that produces 

that income—the income from that particular sale. The 

statute thus suggests that the focus may be on individual 

sales. Such a reading would parallel the treatment of sales 

of tangible personal property under ORS 314.665(2): Just 

as that statute attributes each individual sale of tangible 

personal property to a particular state, so ORS 314.665(4) 

arguably attributes other individual sales to a particular 

state. That would imply, then, that the income-producing 

activity in ORS 314.665(4) means the activity that produces 

the income associated with a particular sale.

In saying that, we do not suggest that that is the 

only possible way to read the provision. Commentators have 

routinely criticized UDITPA section 17 for its ambiguity:

“[T]he commentators have found the rules to be ‘confusing and indefinite’ and plagued by ‘vagueness,’ ‘ambiguity,’ 

‘substantial debate,’ ‘lack of clear guidance,’ ‘whipsaw[ing],’ 

‘tremendous flexibility, and hence [tax planning] opportunity,’ ‘frequent litigation,’ ‘inconsistency,’ and ‘confusion for 

taxpayers and taxing authorities alike.’”

Swain, 83 Tul L Rev at 306 (second and third alterations in 

original; footnotes omitted). While there is room for doubt 

at the statutory level, then, it appears to us that the department’s interpretation of the statute is more likely to be 

within the range of permissible interpretations.

D. OAR 150-314.665(4)

As noted, the department adopted an administrative rule, OAR 150-314.665(4) (2007), that defines “incomeproducing activity” and “costs of performance” and that 

otherwise attempts to clarify how ORS 314.665(4) should be 

applied. That rule is almost identical to a model regulation 

that had been previously promulgated by the Multistate Tax 

Commission. See Multistate Tax Commission Allocation 

and Apportionment Regulation IV.17 (1997), available at 

http://bit.ly/1gbN3zv (accessed July 1, 2015) (essentially 

identical to OAR 150-314.665(4)).13 Neither party asserts

13 The Multistate Tax Commission amended its model regulation in 2007, 

but the department had not incorporated those changes into the version of OAR 

150-314.665(4) applicable to this case. See Multistate Tax Commission Allocation 

and Apportionment Regulations at 1, available at http://bit.ly/1RSr38z (accessed

July 14, 2015) (noting amendments to Regulation IV.17).
710 AT&T Corp. v. Dept. of Rev.

that the department’s rule is invalid or inconsistent with 

ORS 314.665(4). Accordingly, we now turn to that rule for 

guidance.

The first subsection of OAR 150-314.665(4) provides 

a detailed and informative restatement of ORS 314.665(4) 

itself:

“(1) In General. ORS 314.665(4) provides for the 

inclusion in the numerator of the sales factor of gross 

receipts from transactions other than sales of tangible 

personal property (including transactions with the United 

States Government); under this section gross receipts are 

attributed to this state if the income producing activity that 

gave rise to the receipts is performed wholly within this 

state. Also, gross receipts are attributed to this state if, 

with respect to a particular item of income, the income producing activity is performed within and without this state 

but the greater proportion of the income producing activity 

is performed in this state, based on costs of performance.”

OAR 150-314.665(4) (1).

We read that subsection to establish the appropriate framework to be used to determine whether sales other 

than sales of tangible personal property are included in the 

numerator of the sales factor. The subsection first directs 

us to begin with the gross receipts from sales of other than 

tangible personal property. Next, we identify the incomeproducing activity that generated those gross receipts. We 

then determine where that income-producing activity was 

performed. If the activity was entirely performed in Oregon, 

then the associated gross receipts are counted in the Oregon 

sales factor’s numerator. If the activity was performed in 

more than one state, then we determine which state had the 

largest share of that income-producing activity, based on the 

direct costs of producing the sale or sales.14 If more of that 

income-producing activity occurred in Oregon than in any 

other state, then all of the income is counted in the Oregon 

numerator. Otherwise, none of it is.

14 This does not necessarily require evidence of the costs of performance in 

every state. If a taxpayer is attempting to prove that sales of other than tangible 

personal property should not be counted in the Oregon numerator, then it is sufficient for the taxpayer to show that at least one state has a greater share of the 

costs of performing the related income-producing activity.
Cite as 357 Or 691 (2015) 711

The first question, then, involves the meaning of 

“income-producing activity.” Even before we turn to the 

subsection of the rule that defines the term, we can make 

certain generalizations about it. The statutory term itself 

indicates that an “income-producing activity” is something 

that produces income for the taxpayer. Similarly, the subsection that establishes the analytical framework adds that 

an “income-producing activity” is something that generates 

“gross receipts” and results in an “item of income.” See OAR 

150-314.665(4) (1) (focusing on whether “the income producing activity that gave rise to the receipts” meets certain 

conditions or whether, “with respect to a particular item of 

income, the income producing activity” meets other conditions); see also OAR 150-314.665(4) (2) (“the term ‘income 

producing activity’ applies to each separate item of income”).

The subsection defining “income-producing activity” provides as follows:

“(2) Income Producing Activity; Defined. The term 

‘income producing activity’ applies to each separate item 

of income and means the transactions and activity directly 

engaged in by the taxpayer in the regular course of its 

trade or business for the ultimate purpose of obtaining 

gains or profit. Except as provided otherwise in this rule, 

such activity does not include transactions and activities 

performed on behalf of a taxpayer, such as those conducted 

on its behalf by an independent contractor. Accordingly, 

income producing activity includes but is not limited to the 

following:

“(a) The rendering of personal services by employees 

or the utilization of tangible and intangible property by the 

taxpayer in performing a service.

“(b) The sale, rental, leasing, franchising, licensing or 

other use of real property.

“(c) The rental, leasing, franchising, licensing or other 

use of tangible personal property.

“(d) The sale, franchising, licensing or other use of 

intangible personal property. The mere holding of intangible personal property is not, of itself, an income producing 

activity.”

OAR 150-314.665(4) (2).
712 AT&T Corp. v. Dept. of Rev.

That definition adds that an income-producing 

activity itself includes “transactions and activity *** by the 

taxpayer.” OAR 150-314.665(4) (2). The “transactions and 

activity” that constitute the “income-producing activity” 

must have three qualities: they must be “directly engaged in 

by the taxpayer”; they must be done “in the regular course of 

[the taxpayer’s] trade or business”; and they must have the 

“ultimate purpose of obtaining gains or profit.” Id.

There is, however, an additional requirement. 

OAR 150-314.665(4) (2) states, “The term ‘income producing activity’ applies to each separate item of income[.]” The 

term “item of income” is not defined in the rules. Its ordinary meaning is not helpful in this context, and we cannot 

find any evidence that “item of income” is a term of art in 

the accounting industry.

The department takes the position that “item of 

income” means an individual exchange between a buyer and 

a seller: “Each particular or separate item of income is a 

sale—a transaction—an exchange between a buyer and a 

seller.” Whether the transmissions are sold individually or 

are sold in bulk, so to speak (for a flat monthly rate), is irrelevant to the analysis. The department’s position regarding 

the meaning of “item of income” is plausible and not inconsistent with the text of the rule in its context, or with the 

statute, or with any other source of law. Accordingly, we 

defer to that interpretation. See Don’t Waste Oregon Com., 

320 Or at 142.

That narrow interpretation of “item of income” necessarily limits the definition of “income-producing activity.” 

To identify the income-producing activity, we must identify 

for each “item of income”—for each individual sale—the 

“transactions and activity directly engaged in by the taxpayer in the regular course of its trade or business for the 

ultimate purpose of obtaining gains or profit.” OAR 150-

314.665(4) (2). The analysis thus generally begins with each 

item of income—each individual sale—and determines the 

relevant transactions and activity associated with that sale. 

The result is an “income-producing activity.”

Whatever ambiguity may exist in the statutory text 

of ORS 314.665(4) alone, then, the rule removes it. As we 
Cite as 357 Or 691 (2015) 713

noted earlier, it seems likely that Oregon’s UDITPA sales 

factor statutes were intended to allocate individual sales: 

sales of tangible personal property by where the goods are 

delivered or shipped (ORS 314.665(2)) and other sales by 

where the income-producing activity is mainly or entirely 

performed (ORS 314.665(4)). The rule, as permissibly interpreted by the department, removes any doubt.

Having identified the income-producing activity, we 

must next determine where the taxpayer performs it. The 

first part of the inquiry involves an ostensibly simple question: Was “the income producing activity that gave rise to 

the receipts * * * performed wholly within this state”? If so, 

then the analysis ends, and the receipts from that individual sale are counted as in-state sales for purposes of the 

numerator of the sales factor.

If the income-producing activity is performed in 

more than one state, however, the Tax Court must then 

determine whether “the greater proportion of the income 

producing activity is performed in this state, based on costs 

of performance.” To know whether “the greater proportion” 

of the activity occurs in this state, the Tax Court must necessarily compare the costs of performance in different states. 

As noted, the rule defines “costs of performance” as follows:

“(4) Costs of Performance; Defined. The term ‘costs of 

performance’ means direct costs determined in a manner 

consistent with generally accepted accounting principles 

and in accordance with accepted conditions or practices in 

the trade or business of the taxpayer. For purposes of this 

rule, direct costs do not include costs that are not part of 

the income producing activity itself, such as accounting or 

billing expenses.”

OAR 150-314.665(4) (4).

To identify the “costs of performance,” then, the Tax 

Court must identify the “direct costs.” The identification of 

direct costs will depend both on “generally accepted accounting principles” as well as “accepted conditions or practices in 

the trade or business of the taxpayer.”

Expert testimony at trial indicated that the proper 

identification of the “income-producing activity” would drive 
714 AT&T Corp. v. Dept. of Rev.

whether costs would count as “direct costs” for the “costs 

of performance” analysis. Witnesses on both sides—Allen 

for AT&T, and Starkey and Michelle Henney, accounting 

experts, for the department—all agreed in substance that 

one must know what is being “costed” in order to identify what constitute the “direct costs” of that thing. Allen 

testified:

“A direct cost is that cost which is directly attributable 

or directly related to that which I’m trying to cost. So I’m 

not trying to be obtuse here.”

Henney explained:

“[W]e have to specify what are we talking about before we 

can find the causal relationship that is direct or indirect.”

And Starkey noted:

“[F]or purposes of a separate call, as we have talked about 

earlier, a single call, those [direct] costs would be very different than they would be for all calls.”

E. Application

With that legal background, we turn to the issues 

presented in this case. Again, as noted, the burden of proof 

is on AT&T to demonstrate its entitlement to a refund. See

ORS 305.427. As a practical matter, that means AT&T had 

to introduce evidence showing that, in connection with its 

sales of interstate and international voice and data transmission, a greater share of the “costs of performance” for 

each “income-producing activity” was incurred in a state 

other than Oregon.

The parties here offered two competing interpretations of what constitutes AT&T’s income-producing activity. 

AT&T’s interpretation focused on the operation of the network broadly, which was part of its justification for treating 

network costs as “costs of performance.” The department’s 

interpretation focused on individual transactions with customers, and that was part of its justification for concluding 

that network costs should be left out of the “costs of performance” analysis.

As we have stated, we agree with the department’s 

interpretation. OAR 150-314.665(4) (2) indicates that an 
Cite as 357 Or 691 (2015) 715

“income-producing activity” is something associated with 

an individual “item of income.” The department interprets 

“item of income” to relate to individual sales, either perminute charges for phone calls or flat-rate monthly subscriptions (or similar data transmission sales). That interpretation is plausible and is not inconsistent with any source of 

law that AT&T has identified.

That narrow definition of “item of income” correspondingly affected the meaning of “income-producing 

activity.” An “income-producing activity” consists of the 

“transactions and activity” that the taxpayer performs 

for each individual transaction—“each separate item of 

income.” OAR 150-314.665(4) (2). In other words, the 

“income-producing activity” consists of those transactions 

and activity that produced each individual sale, i.e., each 

per-minute phone call or transmission or each monthly flatrate bill. AT&T’s network-focused interpretation of the term 

is too broad.

That alone would justify affirming the Tax Court’s 

decision. For AT&T to meet its burden of proof in this case, it 

had to first calculate the costs of performance for its incomeproducing activities. But AT&T’s cost study did not identify 

the correct income-producing activities. The cost study thus 

did not show what the costs of performance were for the correct income-producing activities.

In addition, AT&T’s erroneous interpretation of 

“income-producing activity” also distorted its calculation of 

the “costs of performance.” The experts here agreed that a 

transaction-based interpretation of “income-producing activity” would also narrow what constitute the “direct costs” for 

the “costs of performance” part of the analysis. AT&T’s own 

expert, Allen, acknowledged that, if the income-producing 

activity here was individual phone calls, then the “direct 

costs” arguably would not include network costs. After first 

explaining AT&T’s position that one should determine the 

“income-producing activity” at the level of the network or 

system—in which case all the costs of the network would be 

“direct costs”—Allen then explained that the “direct costs” 

might be different if one examined the “income-producing 

activity” at the level of individual calls:
716 AT&T Corp. v. Dept. of Rev.

“If *** I’m looking at a call-by-call basis, doing a different type of modeling, I might be able to consider something 

less direct in that nature. So an example might be if I were 

to determine that direct cost is based on what I’ll call this 

notion of the incremental cost.

“So as an example, the network is there. It exists. If I 

place a call on that network, I’m using it. However, if I don’t 

place that call, that network is still there. I don’t—that cost 

I have still incurred.

“So the argument might be made that, therefore, that 

call, the network is not a direct cost associated with that 

call. The argument I make is that’s an inappropriate level, 

especially as it relates to the questions we are attempting 

to answer.”

That is precisely the department’s position: The 

direct costs of the income-producing activity, each individual phone call or monthly flat-rate billing, are only those 

incremental costs associated with each individual call or 

billing, not overall network costs. Starkey testified:

“It is an issue of—just to preface, it is an issue of the 

increment that you are choosing. For one call—and kind of 

think of it from a marginal versus sunk cost perspective. 

If you are looking at the cost of one call and the network 

is there, then, as I think I describe in the report, the cost 

associated with that one call is just the additional expense 

you incur to carry that one call.

“And in this circumstance, that’s likely something very 

small. It is going to be the access charge you pay for purposes of using someone else’s network to help carry that 

call and then probably—and * * * also just the electricity 

necessary to carry that particular call.”

Thus, AT&T’s cost study again failed to meet 

AT&T’s burden of proof. AT&T’s network-based interpretation of “income-producing activity” implied that network 

costs counted as direct costs. But a transaction-based interpretation of income-producing activity means that network 

costs do not qualify as direct costs. AT&T’s cost study did 

not identify the relevant non-network costs for each incomeproducing activity. Without a correct calculation of those 

direct costs, the Tax Court could not tell where the greater 

part of those costs were incurred. The court certainly had 
Cite as 357 Or 691 (2015) 717

no basis to find that the greater part of those costs were 

incurred in some state other than Oregon.

The same problem also undermined the second part 

of AT&T’s cost study, which analyzed the costs of “Oregon 

demand.” As with the first part of the cost study, AT&T 

counted overall network costs as part of the “direct costs” of 

Oregon demand. However, the income-producing activities 

are the individual transactions, and so the “direct costs” are 

only those incremental costs associated with each transaction. Because the second part of the cost study treated network costs as “direct costs,” it failed to show what the true 

“costs of performance” were, and this resulted in AT&T not 

meeting its burden of proof. 15

III. CONCLUSION

To succeed on its claim for a refund, AT&T was 

required to (1) show the costs of performance for each 

income-producing activity, and then (2) show that the 

greater part of those costs had been incurred in some state 

other than Oregon. The cost study that AT&T submitted did 

not identify the correct income-producing activities and it 

did not correctly calculate the costs of performance for those 

activities. AT&T thus failed to make the showing required 

to meet its burden of proof.

Accordingly, we conclude that the Tax Court properly denied AT&T’s request for a refund. We need not, and 

do not, address the other questions presented by the parties, 

including whether the access charges paid to local exchange 

carriers should be counted as part of the relevant incomeproducing activity.

The judgment of the Tax Court is affirmed.

15 We note that, if the department’s interpretation of OAR 150-314.665(4) (2)

leads to unfair results in particular cases, then either the taxpayer or the 

department may seek an alternative method of apportionment. See ORS 314.670 

(UDITPA section 18; if ordinary method of apportionment under UDITPA does 

not “fairly represent the extent of the taxpayer’s business activity in this state,” 

then alternative method may be used); see also OAR 150-314.280-(M) (2) (for 

public utilities being taxed under ORS 314.280, if ordinary methods of apportionment “do not fairly and accurately reflect the net income of the business done 

within Oregon,” then alternative method of apportionment may be used).