Opinion ID: 1087040
Heading Depth: 3
Heading Rank: 3

Heading: Past Proceedings

Text: Tesoro first appealed the assessments for the years 1994 to 1998 during informal conferences with DOR; it next appealed in proceedings before an administrative law judge; it finally appealed to the superior court. The adjudicators at each stage agreed with DOR’s initial assessment that Tesoro was a single unitary business during the relevant years; that the three-factor formula applied to Tesoro produced a constitutionally and statutorily fair apportionment of Tesoro’s total income; and that Tesoro’s conduct in filing its tax returns justified penalties. Thus, Administrative Law Judge Mark T. Handley conducted a ten-day hearing at which Tesoro and DOR presented testimony from Tesoro employees and executives, DOR auditors, and expert witnesses familiar with Tesoro’s business activities. The administrative law judge also reviewed hundreds of exhibits, including Tesoro’s internal financial records, Tesoro’s public financial filings, correspondence between Tesoro employees, and reports drafted by expert witnesses. In determining that Tesoro’s subsidiaries were a unitary business for the relevant years, the administrative law judge made factual findings referring to the evidence and relied heavily on the testimony and reports of two of DOR’s expert witnesses: Professors James Smith and Richard Pomp. The administrative law judge found these two witnesses to be “very persuasive,” and stated that “these experts demonstrated an impressive understanding of -8- 6838 Tesoro’s organization and business activities.” Both experts looked at evidence in the record and found Tesoro to have exhibited functional integration, centralized management, and economies of scale and thus found Tesoro’s subsidiaries to be one unitary business. The administrative law judge found these witnesses were particularly persuasive as compared to Tesoro’s witnesses, whom he found “less convincing” because he found Tesoro’s witnesses tried to divert focus away from relevant facts and were dismissive of the relevant legal factors. By contrast, the administrative law judge found that Professors Pomp and Smith identified which facts in the record were significant and that these experts provided “strong, but objective, opinions” as to the import of these facts. When Tesoro appealed to the superior court, Superior Court Judge Fred Torrisi affirmed the administrative law judge’s decision. The superior court held that Tesoro was a unitary business, that the formula applied to it was not constitutionally unfair, and that penalties were justified. In its unitary-business holding, the superior court relied mainly on the factual findings of the administrative law judge and cited to the findings of shared administrative and financial services across Tesoro’s subsidiaries. Tesoro now appeals to us.