CDR SYSTEMS CORPORATION v. OKLAHOMA TAX COMMISSION
339 P.3d 848
| Okla. | 2014Background
- Oklahoma enacted the Capital Gains Deduction to promote investment; it allows a deduction for qualifying gains from asset sales when the seller’s primary headquarters have been in Oklahoma for at least three years.
- CDR Systems, a California corporation with an Oklahoma asset in Waynoka and Florida headquarters, sold all assets in 2008 and claimed the deduction on its Oklahoma return.
- CDR argued the deduction violated the Commerce Clause, Privileges and Immunities, and Equal Protection, but the Oklahoma Court of Civil Appeals found only a dormant Commerce Clause issue, which this court granted certiorari to review.
- OTC denied the deduction because CDR did not have its primary headquarters in Oklahoma for three years; CDR challenged the statute as facially discriminatory, discriminatory in purpose, and discriminatory in effect under the dormant Commerce Clause.
- The Supreme Court (through Oklahoma's highest court) conducted a Dormant Commerce Clause analysis, applying a case-by-case approach and considering whether the deduction is facially neutral, has a discriminatory purpose, or imposes a discriminatory effect, and ultimately upheld the deduction as non-discriminatory.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does §2358(D)(2)(a)(3) facially discriminate against interstate commerce? | CDR argues facial discrimination against non-Oklahoma HQ. | OTC contends statute is neutral on its face. | No facial discrimination found. |
| Does the deduction have a discriminatory purpose under the Dormant Commerce Clause? | CDR asserts purpose to favor in-state interests. | OTC asserts legitimate economic development purpose; no discriminatory motive shown. | No discriminatory purpose proven. |
| Does the deduction have a discriminatory effect on interstate commerce? | CDR argues the primary headquarters requirement burdens out-of-state interests. | OTC argues we are promoting intrastate investment without disadvantaging out-of-state activity. | No discriminatory effect proven. |
| If dormant Commerce Clause applies, does the deduction survive Pike balancing or strict scrutiny? | CDR contends strict scrutiny due to discriminatory impact. | OTC argues the tax incentive is non-discriminatory or justifiable given local benefits. | Dormant Commerce Clause analysis not violated; burden not shown excessive relative to local benefits. |
| Is the deduction constitutional under Complete Auto Transit analysis? | CDR claims the nexus, apportionment, and related criteria fail. | OTC maintains nexus to Oklahoma property and that the policy is a legitimate tax incentive. | Complete Auto four-part test satisfied; deduction upheld. |
Key Cases Cited
- Westinghouse Elec. Corp. v. Tully, 466 U.S. 388 (1984) (discriminatory tax credits harming interstate commerce invalid)
- Fulton Corp. v. Faulkner, 516 U.S. 325 (1996) (facially discriminatory intangibles tax invalid absent nondiscriminatory alternatives)
- Boston Stock Exch. v. State Tax Comm'n, 429 U.S. 318 (1977) (tax may not discriminate between intrastate and interstate transactions)
- Trinova Corp. v. Michigan Dep't of Treasury, 498 U.S. 358 (1991) (states may encourage intrastate growth; not per se discriminatory)
- Pike v. Bruce Church, Inc., 397 U.S. 137 (1970) (Pike balancing for nondiscriminatory regulation with incidental effects)