Court Opinion

ID: 9800321
Source: CourtListenerOpinion
Date Created: 2023-08-31 08:12:01.851726+00
Date Added: 2024-06-11T09:42:22.623031
License: Public Domain

COMBS, J.,
dissenting.
T1 I disagree with the majority's holding that the deduction found in 68 O.S. Supp. 2007, § 2358(D)(2)(a)(3), does not discriminate against interstate commerce. I believe this deduction is facially discriminatory or at least discriminatory in effect against interstate commerce and violates the dormant Commerce Clause of the United States Constitution. I also disagree with the majority's reliance on Gen. Motors Corp. v. Tracy, 519 U.S. 278, 117 S.Ct. 811, 136 L.Ed.2d 761 (1997). The majority opinion asserts pursuant to Tracy, competition in a single market by similarly situated entities is a requirement for finding discrimination against interstate commerce. However, other cases discussed infra, such as Fulton Corp. v. Faulkner, 516 U.S. 325, 116 S.Ct. 848, 133 L.Ed.2d 796 (1996), found a dormant Commerce Clause violation when there was no competition in any single market.
*860T2 The Commerce Clause, found in Article I, § 8, cl. 3 of the United States Constitution, provides in pertinent part, "[the Congress shall have Power ... to regulate commerce . among the several states...." The purpose of the Commerce Clause is to impose a limit on states' powers in order to create an area of free trade among the several states.1 The Commerce Clause was not merely an authorization to Congress to enact laws for the protection and encouragement of com-meree among the states, but by its own force it created an area of trade free from interference by the states.2 The Commerce Clause is the source of constitutional limits imposed on a state's ability to interfere with interstate commerce through regulation and taxation; this implied restriction on state regulation of interstate commerce is known as the negative or "dormant commerce clause.3 This Court has previously determined the dormant Commerce Clause's limitations apply not just to taxation but also to discriminatory tax exemptions.4
T3 The United States Supreme Court has held when asked "to make the delicate adjustment between the national interest in free and open trade and the legitimate interest of the individual States in exercising their taxing powers ... the result turns on the unique characteristics of the statute at issue and the particular cireumstances in each case. This case-by-case approach has left 'much room for controversy and confusion and little in the way of precise guides to the States in the exercise of their indispensable power of taxation'" Boston Stock Exch. v. State Tax Comm'n, 429 U.S. 318, 328, 97 S.Ct. 599, 606, 50 L.Ed.2d 514 (1977) (quoting Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450, 457, 79 S.Ct. 357, 362, 3 L.Ed.2d 421 (1959)). The Court in Boston also found "the prohibition against discriminatory treatment of interstate commerce follows inexorably from the basic purpose of the Clause. Permitting individual States to enact laws that favor local enterprises at the expensé of out-of-state businesses 'would invite a multiplication of preferential trade areas destructive' of the free trade which the Clause protects." Boston, 429 U.S. at 329, 97 S.Ct. 599 (quoting Dean Milk Co. v. Madison, 340 U.S. 349, 356, 71 S.Ct. 295, 299, 95 L.Ed. 829 (1951)). Boston also noted a state "tax may not discriminate between transactions on the basis of some interstate element."5
T4 The first step is to determine whether the challenged law discriminates against interstate commerce or whether it regulates evenhandedly with only incidental effects on interstate commerce.6 If the law is nondiscriminatory (Le., regulates evenhandedly) and has only incidental effects on interstate commerce, it will be found to be valid, unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits.7 This test is known as the Pike balancing test. See Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90 S.Ct. 844, 847, 25 L.Ed.2d 174 (1970). If a legitimate local purpose exists for the challenged law, then the question becomes one of degree; the extent of the burden tolerated will de*861pend on the nature of the local interest involved and whether it could be promoted with a lesser impact on interstate activities.8 If the law regulates evenhandedly, then the burden of proof lies on the challenger to show the incidental burden on interstate commerce is exeessive compared to the local interest.9
15 By contrast, if a law discriminates against interstate commerce either "on its face or in its practical effect," it is subject to the strictest serutiny.10 The Pike balancing test is not the appropriate legal standard in such a case.11 When considering the stated purpose of the challenged law, the court will not be bound by the name, description or characterization given by the legislature but will determine for itself its practical impact.12 Discrimination in this context simply means differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter.13 If the law discriminates against interstate commerce it will be found to be virtually per se invalid.14 Onee a law is determined to be virtually per se invalid, that finding can only be overcome by a showing it advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.15 In such a case, the burden of proof shifts to the governmental entity to prove the legitimacy of the purported local interest and the lack of an alternative means to further the local interest with less impact on interstate commerce.16 However, the state's burden is so heavy that facial discrimination by itself may be a fatal defect.17
T6 The deduction found in 68 0.8. Supp. 2007, § 2858(D)(2)(a)@8) became effective January 1, 2008, pursuant to SB 685, 2007 Okla. Sess. Laws c. 346, §$ 8. The technical explanation of this deduction is as follows: a corporation, estate or trust is allowed to take a deduction from Oklahoma taxable income for the net capital gains received and included on its federal return that resulted from the sale of real property and/or tangible or intangible personal property located in Oklahoma that was part of a sale of all or substantially all the assets (asset sale), directly or indirectly, owned by an Oklahoma Company or by the owners of such Oklahoma Company and such property had been used or derived by such company at least 3 years prior to the sale. The statute provides, an Oklahoma company, limited liability company or partnership means an entity whose primary headquarters have been located in Oklahoma for at least three (8) uninterrupted years prior to the date of the transaction from which the net capital gains arise. For *862purposes of my dissent, I will refer to this as an "Oklahoma Company." In other words, if a corporation, estate or trust is in a position to receive net capital gains from an asset sale of an Oklahoma Company (having some ownership interest in an Oklahoma Company or is itself the Oklahoma Company) it can deduct those applicable net capital gains earned from the sale from its Oklahoma taxable income as long as it claimed such gains on its federal income tax return. The deduction is only allowed if the company selling all its assets had its primary headquarters in Oklahoma for 3 years prior to the sale and is therefore based on the level of activity that company initiated in the State. Here, even though CDR had made a significant investment in the State by operating a physical plant employing Oklahomans in Waynoka, it could not claim this deduction. CDR is a Subchapter S corporation with a single shareholder, who happens to choose to live in Florida;: CDR's principle place of business.18
T7 In the present case, CDR is both the corporation claiming the deduction and the company that sold all its assets. The Tax Commission asserted if CDR were an Oklahoma Company it otherwise would have qualified for the deduction.19 However, CDR was denied this deduction because it did not have its primary headquarters in Oklahoma. CDR argued the primary headquarters requirement discriminates against interstate commerce on its face and in effect pursuant to Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S.Ct 1076, 51 L.Ed.2d 326 (1977). In Complete Auto the Supreme Court reasoned that in previous cases concerning the Commerce Clause, it has:
considered not the formal language of the tax statute but rather its practical effect, and have sustained a tax against Commerce Clause challenge when the tax is applied to an activity with a substantial nexus with the taxing State, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided by the State.
Complete Auto Transit, Inc. v. Brady, 430 U.S. at 279 [97 S.Ct. 1076] (emphasis added).
These considerations make up the four-prong Complete Auto test.20 CDR argued the deduction does not meet the third prong of this test. '
T8 CDR also asserted in its Response to Petition for Certiorari that the issue is "not merely whether a state tax provision discriminates against non-resident taxpayers; the standard is whether such a provision 'taxes a transaction or incident more heavily when it crosses state lines than when it occurs entirely within the State'" (Quoting Fulton Corp. v. Faulkner, 516 U.S. 325, 116 S.Ct. 848, 133 L.Ed.2d 796 (1996)). CDR also relied on Boston Stock Exch. v. State Tax Comm'n, 429 U.S. 318, 332, n. 12, 97 S.Ct. 599, 608, n. 12, 50 L.Ed.2d 514 (1977), wherein the Supreme Court noted a state tax "may not discriminate between transactions on the basis of some interstate element." CDR further asserted, a "State may no more use discriminatory taxes to assure that nonresidents direct their commerce to business within the State than to assure that residents trade only in intrastate commerce." Boston, 429 U.S. at 334-35, 97 S.Ct. 599.
T 9 The majority opinion asserts the deduction applies to any corporation, estate or trust and therefore does not facially discriminate against interstate commerce. It places *863the burden of proof on CDR under a Pike balancing test which determines whether any burden on interstate commerce is clearly excessive in relation to the putative local benefits. The majority opinion also concludes courts are ill-equipped to make such assessments.
10 Here, the deduction is only allowed if the company selling all or substantially all of its assets has its primary headquarters in Oklahoma for at least three years prior to the asset sale. The primary headquarters requirement makes the deduction one based upon the level of business a company conducts in Oklahoma. In its Answer Brief, the Tax Commission stated the self-evident purpose of this deduction is to "promote significant investment in Oklahoma's economy by offering incentives to those investing in companies doing business here. The end goal of requiring significant investment in Oklahoma is to retain that investment and any subsequent. investment within the state, thus boosting the state's economy on a long-term basis." The goal is essentially to promote business in Oklahoma by offering a tax incentive to taxpayers investing in companies which have a significant presence in the state (primary headquarters). The question is whether or not the deduction has a discriminatory effect on interstate commerce. Similar tax schemes have been found to violate the Commerce Clause.
1 11 Unlike the majority opinion, I believe the United States Supreme Court cases of Westinghouse Elec. Corp. v. Tully, 466 U.S. 388, 104 S.Ct. 1856, 80 L.Ed.2d 388 (1984) and Fulton Corp. v. Faulkner, 516 U.S. 325, 116 S.Ct. 848, 133 L.Ed.2d 796 (1996), are pertinent and applicable to this case. In Westinghouse Elec. Corp. v. Tully, 466 U.S. 388, 104 S.Ct. 1856, 80 L.Ed.2d 388 (1984), New York enacted a franchise tax requiring the consolidation of the receipts, assets, expenses, and liabilities of a parent corporation with any of its subsidiary domestic international sales corporations (DISC). The tax was assessed against the parent corporation on the basis of the consolidated amounts. The tax statute also provided an offsetting tax credit. The credit was limited to gross receipts from export products shipped from a regular place of business of the taxpayer in New York. The Court found this taxing scheme had "the effect of treating differently parent corporations that are similarly situated in all respects except for the percentage of their DISC's shipping activities conducted in New York." Westinghouse Elec. Corp., 466 U.S. at 400, 104 S.Ct. 1856. It determined the tax scheme not only provided an incentive for increased business activity in New York but it also would penalize increased shipping activity in other states. Id. at 401, 104 S.Ct. 1856.
€ 12 In finding a Commerce Clause violation, the Court relied upon the basic principle that the very purpose of the Commerce Clause is to create an area of free trade among the several states. Id. at 402, 104 S.Ct. 1856. The Court quoted from its previous decisions holding "[njo State, consistent with the Commerce Clause, may 'impose a tax which discriminates against interstate commerce ... by providing a direct commercial advantage to local business.'" (Citations omitted). The Court found it has "struck down state tax statutes that encouraged the development of local industry by means of taxing measures that imposed greater burdens on economic activities taking place outside the State than were placed on similar activities within the State." Id. at 403-04, 104 S.Ct. 1856 (citing Maryland v. Louisiana, 451 U.S. 725, 101 S.Ct. 2114, 68 L.Ed.2d 576 (1981) and Boston Stock Exch. v. State Tax Comm'n, 429 U.S. 318, 97 S.Ct. 599, 50 L.Ed.2d 514 (1977)). While the Federal Government may grant tax advantages to those who produce in the United States, a state "may not encourage the development of local industry by means of taxing measures that 'invite a multiplication of preferential trade areas' within the United States in contravention of the Commerce Clause." Id. at 405, 104 S.Ct. 1856 (citing Dean Milk Co. v. Madison, 340 U.S. 349, 356, 71 S.Ct. 295, 299, 95 L.Ed. 329 (1951)). The Court further found it made no difference that New York discriminated against business carried on outside the state by disallowing a tax credit rather than by imposing a higher tax; the discriminatory economic effect would be identical. Id. at 404, 104 S.Ct. 1856.
*864{13 The New York Tax Commission in Westinghouse argued even if the tax is discriminatory the burden it placed on interstate commerce was not of constitutional significance and the actual effect of the tax credit was only slight compared to the entire taxing scheme. Westinghouse Elec. Corp., 466 U.S. at 405, 104 S.Ct. 1856. It asserted the credit was not intended to divert new activity into New York but rather to prevent the loss of economic activity already in the state at the time the tax was enacted. Id. at 406, 104 S.Ct. 1856. The Supreme Court, however, determined "[wlhether the discriminatory tax diverts new business into the State or merely prevents current business from being diverted elsewhere, it is still a discriminatory tax that 'forecloses tax-neutral decisions and ... creates ... an advantage' for firms operating in New York by placing 'a discriminatory burden on commerce to its sister States'" Id. at 406, 104 S.Ct. 1856 (quoting Boston Stock Exch., 429 U.S. at 331, 97 S.Ct. 599). It found the state violated the prohibition in Boston "against using discriminatory state taxes to burden commerce in other States in an attempt to induce 'business operations to be performed in the home State that could more efficiently be performed elsewhere."" Id. (quoting Boston Stock Exch., 429 U.S. at 336, 97 S.Ct. 599). The Court was concerned the taxing scheme would "impose an artificial rigidity on the economic pattern of the industry." Id. at 406, 104 S.Ct. 1856 (quoting Pike 397 U.S. at 146, 90 S.Ct. 844).
1 14 In Fulton Corp. v. Faulkner, 516 U.S. 325, 116 S.Ct. 848, 133 L.Ed.2d 796 (1996), North Carolina levied an intangibles tax on the fair market value of corporate stock owned by residents of North Carolina or having a business, commercial, or taxable situs in the state. State residents, however, were allowed a tax deduction equal to the fraction of the issuing corporation's income that was subject to North Carolina corporate income tax; i.e., the more business the corporation did in North Carolina, the less tax the resident stockholder would have to pay. The Supreme Court found:
A regime that taxes stock only to the degree that its issuing corporation participates in interstate commerce favors domestic corporations over their foreign competitors in raising capital among North Carolina residents and tends, at least, to discourage domestic corporations from plying their trades in interstate commerce.
Fulton Corp., 516 U.S. at 333, 116 S.Ct. 848.
The intangibles tax was based upon the amount of business a corporation participates in interstate commerce (the more business it does out of state, the more its stock is taxed); it favored corporations who do business in North Carolina by helping them to raise capital because their stocks would be more luerative with North Carolina residents since they were not taxed as highly. The taxing scheme also discouraged domestic corporations from engaging in interstate commerce because the amount of interstate commerce they engaged in would subject their stock to more taxation.
T15 The State suggested the tax was so small it would have no practical impact on interstate commerce; however, the Court noted "we have never recognized a 'de min-imis' defense to a charge of discriminatory taxation under the Commerce Clause." Fulton Corp., 516 U.S. at 333, n. 3, 116 S.Ct. 848 (quoting Maryland v. Louisiana, 451 U.S. 725, 760, 101 S.Ct. 2114, 2135, 68 L.Ed.2d 576 (1981) ("Iwle need not know how unequal the Tax is before concluding that it unconstitutionally discriminates"); Associated Indus. of Mo. v. Lohman, 511 U.S. 641, 650, 114 S.Ct. 1815, 1822, 128 L.Ed.2d 639 (1994) ("actual discrimination, wherever it is found, is impermissible, and the magnitude and seope of the discrimination have no bearing on the determinative question whether discrimination has occurred").
116 The Court held there was no doubt the intangibles tax facially discriminated against interstate commerce. Fulton Corp., 516 U.S. at 333, 116 S.Ct. 848. It found facial discrimination "invokes the strictest serutiny of any purported legitimate local purpose." Id. at 344, 116 S.Ct. 848 (quoting Hughes v. Oklahoma, 441 U.S. 322, 337, 99 S.Ct. 1727, 1737, 60 L.Ed.2d 250 (1979). Because the tax was facially discriminatory, the burden was on the state to show the tax *865achieved "a legitimate local purpose that cannot be achieved through nondisceriminatory means." Id. at 344, 116 S.Ct. 848 (quoting Oregon Waste Systems, Inc. v. Dept. of Envtl. Quality of State of Or., 511 U.S. 93, 102, 114 S.Ct. 1345, 1352, 128 L.Ed.2d 13 (1994)). The Court found the state did not meet this burden and further said "we doubt that such a showing can ever be made outside the limited confines of sales and use taxes...." Fulton Corp., 516 U.S. at 344, 116 S.Ct. 848.
€17 In the present case, the deduction seeks to attract and retain the business of a company's primary headquarters. If the company performs the business of a primary headquarters in Oklahoma then those who have an ownership interest in that company may receive a 100% deduction from an asset sale. On the other hand, if the company does not perform the business of a primary headquarters in Oklahoma, regardless of the nature and extent of other business investment in Oklahoma, then those who have an ownership interest in that company receive a 0% deduction from an asset sale. In effect, this amounts to an out-of-state primary headquarters tax. Earnings from asset sales of non-Oklahoma Companies, those having an out-of-state primary headquarters, are taxed at a greater rate than those for Oklahoma Companies. Oklahoma Companies also receive an advantage over non-Oklahoma Companies by appearing more lucrative to investors. This scheme is similar to the one found to be facially discriminatory in Fulton.
18 The Tax Commission asserted there is no interstate commerce discrimination because a company is not prohibited from having multiple headquarters in other states. It argued the dormant Commerce Clause is not violated here because the deduction does not require a business to operate in-state if it could operate more efficiently elsewhere. The majority opinion also determined the primary headquarters requirement is not as coercive as the law in Pike v. Bruce Church, 397 U.S. 137, 145, 90 S.Ct. 844, 849, 25 L.Ed.2d 174 (1970). Even so, I disagree with the argument that the primary headquarters requirement does not require companies to perform operations in-state even though they may more efficiently operate elsewhere. In Pike v. Bruce Church, Inc., the Supreme Court said:
For the Court has viewed with particular suspicion state statutes requiring business operations to be performed in the home State that could more efficiently be performed elsewhere. Even where the State is pursuing a clearly legitimate local interest, this particular burden on commerce has been declared to be virtually per se illegal.
Pike v. Bruce Church, Inc., 397 U.S. 137, 145, 90 S.Ct. 844, 849, 25 L.Ed.2d 174 (1970) (emphasis added). See also Boston Stock Exch. v. State Tax Comm'n, 429 U.S. 318, 336, 97 S.Ct. 599, 610, 50 L.Ed.2d 514 (1977).
The primary headquarters requirement places a discriminatory burden on interstate commerce by inducing companies to move their primary headquarters to Oklahoma and discouraging companies in Oklahoma from moving their primary headquarters out-of-state, even if those functions could be more efficiently performed elsewhere.
T 19 Although, it is true the deduction does not prohibit a company from having additional headquarters out-of-state, it still requires the primary headquarters be located in Oklahoma. The term "primary headquarters" is not defined in the statute, but surely, there is a difference in the functions of a primary headquarters from other headquarters.21 The Legislature thought it significant enough to make the distinction. The Tax Commission asserted the primary headquarters requirement indicates a "significant investment" in Oklahoma.22 The operations of a primary headquarters are *866what the deduction was intended to attract or retain in Oklahoma; otherwise, the Legislature would have simply used the term headquarters. It is not inconceivable that there will be situations where the functions of a primary headquarters could very well be performed more efficiently elsewhere.
{20 I believe the deduction's primary headquarters requirement forecloses tax-neutral decision making and imposes an artificial rigidity on economic business patterns. It creates an advantage for companies operating their primary headquarters in Oklahoma as well as a disadvantage for those who operate their primary headquarters elsewhere, regardless of the extent of the company's investment in Oklahoma. This requirement is facially discriminatory or at least discriminatory in effect against interstate commerce and is unconstitutional under the dormant Commerce Clause. Strict serutiny is the proper test to be applied and the Tax Commission has not met its burden .of proof under this test.

. Boston Stock Exch. v. State Tax Comm'n, 429 U.S. 318, 328, 97 S.Ct. 599, 606, 50 L.Ed.2d 514 (1977).

. Id.

. Panhandle Producers & Royalty Owners Ass'n v. Oklahoma Tax Comm'n, 2007 OK CIV APP 68, n. 19, 162 P.3d 960, n. 19 (approved for publication by the Oklahoma Supreme Court) (noting Mt. Hood Beverage Co. v. Constellation Brands, Inc., 149 Wash.2d 98, 63 P.3d 779 (2003).

. Koch Fuels, Inc. v. Oklahoma Tax Comm'n, 1993 OK 140, ¶ 33, 862 P.2d 471, 480.

. Boston Stock Exch. v. State Tax Comm'n, 429 U.S. 318, 332 n. 12, 97 S.Ct. 599, 602 n. 12, 50 L.Ed.2d 514 (1977).

. See Fulton Corp. v. Faulkner, 516 U.S. 325, 331, 116 S.Ct. 848, 854, 133 L.Ed.2d 796 (1996); Oregon Waste Systems, Inc. v. Dept. of Envtl. Quality of State of Or., 511 U.S. 93, 99, 114 S.Ct. 1345, 1350, 128 L.Ed.2d 13 (1994).

. Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90 S.Ct. 844, 847, 25 L.Ed.2d 174 (1970). See also Panhandle Producers & Royalty Owners Ass'n v. Oklahoma Tax Comm'n, 2007 OK CIV APP 68, ¶ 23, 162 P.3d 960 (approved for publication by the OK Supreme Court); Oregon Waste Systems, Inc. v. Dept. of Envtl. Quality of State of Or., 511 U.S. 93, 99, 114 S.Ct. 1345, 1350, 128 L.Ed.2d 13 (1994); Dorrance v. McCarthy, 957 F.2d 761 (10th Cir.1992).

. Pike, 397 U.S. at 142, 90 S.Ct. 844. See also Panhandle, at ¶ 23 and Dorrance, 957 F.2d at 763.

. Panhandle, at ¶ 23. See also Dorrance, 957 F.2d at 763; Hughes v. Oklahoma, 441 U.S. 322, 336, 99 S.Ct. 1727, 1736, 60 L.Ed.2d 250 (1979).

. Dorrance, 957 F.2d at 763.

. Oregon Waste Systems, Inc. v. Dept. of Envtl. Quality of State of Or., 511 U.S. 93, 100, 114 S.Ct. 1345, 1351, 128 L.Ed.2d 13 (1994).

. Hughes, 441 U.S. at 336, 99 S.Ct. 1727.

. United Haulers Ass'n, Inc., v. Oneida-Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330, 338, 127 S.Ct. 1786, 1793, 167 L.Ed.2d 655 (2007); Oregon Waste Systems, Inc., 511 U.S. at 99, 114 S.Ct. 1345.

. Oregon Waste Systems, Inc., 511 U.S. at 99-100, 114 S.Ct. 1345.

. Oregon Waste Systems, Inc., 511 U.S. at 101, 114 S.Ct. 1345.

. Id. See also Hughes, 441 U.S. at 336, 99 S.Ct. 1727 (quoting Hunt v. Washington Apple Adver. Comm'n, 432 U.S. 333, 353, 97 S.Ct. 2434, 2446, 53 L.Ed.2d 383 (1997)) ("[when discrimination against commerce ... is demonstrated, the burden falls on the State to justify it both in terms of the local benefits flowing from the statute and the unavailability of nondiscriminatory alternatives adequate to preserve the local interests at stake.")

. Camps Newfound/Owatonna, Inc. v. Town of Harrison, Me., 520 U.S. 564, 582, 117 S.Ct. 1590, 1601, 137 L.Ed.2d 852 (1997) (quoting Oregon Waste Systems, Inc., 511 U.S. at 101, 114 S.Ct. 1345). See also Hughes, 441 U.S. at 337, 99 S.Ct. 1727 (quoting Philadelphia v. New Jersey, 437 U.S. 617, 626, 98 S.Ct. 2531, 2537, 57 L.Ed.2d 475 (1978) ("[sfuch facial discrimination by itself may be a fatal defect, regardless of the State's purpose, because 'the evil of protectionism can reside in legislative means as well as legislative ends." ")).

. See the provisions of 26 U.S.C. § 1361 et seq. In Bufferd v. Comm'r of Internal Revenue, 506 U.S. 523, 524-525, 113 S.Ct. 927, 928-929, 122 L.Ed.2d 306 (1993), the United States Supreme Court explained that the purpose of the special tax status afforded by Subchapter S of the Internal Revenue Code, is "to eliminate tax disadvantages that might dissuade small businesses from adopting the corporate form and to lessen the tax burden on such businesses." The primary advantage of a Subchapter S corporation is the avoidance of taxation at both the corporate and individual shareholder level. Under Subchapter S, taxable income is determined at the corporate level, but is passed through to the S corporation's shareholders and taxed to them at their individual rates, in a manner similar to the tax treatment afforded partnerships. See Blitz U.S.A., Inc. v. Oklahoma Tax Comm'n, 2003 OK 50, ¶ 2, 75 P.3d 883, 884.

. The Tax Commission made this assertion in Exhibit A to its Response to Petition in Error and in its Answer Brief on appeal.

. Koch Fuels, Inc. v. State ex rel. Oklahoma Tax Comm'n, 1993 OK 140, ¶ 18, 862 P.2d 471, 476.

. At oral argument on January 28, 2014, the Tax Commission acknowledged "primary headquarters" was not defined in statute but described "primary headquarters" as the "nerve center" of the corporation. CDR is a Subchap-ter S corporation with a single shareholder who lives in Florida.

. CDR asserted it made a significant investment in Oklahoma by having a physical plant located in Waynoka, Oklahoma.