2 Or. Tax 124 | Or. T.C. | 1965
Decision in part for plaintiff and in part for defendant rendered March 11, 1965. This is a suit for refund of income taxes for the tax years 1958, 1959 and 1960 and for abatement of income taxes for the year 1961. It is before this court on a stipulation of facts.
The plaintiff is an Oregon banking corporation, with its principal place of business in Portland, Oregon. It is engaged in making loans to individuals, corporations and associations in Oregon, Washington and California, which loans are secured by mortgages on real property.
The plaintiff's employees make regular trips into southwest Washington for the purpose of soliciting business from prospective customers, appraising real property for the purpose of making loans, and otherwise carrying on plaintiff's business. Loans in the State of Washington are made directly by plaintiff through its home office or purchased from lending agencies in the State of Washington. Collections on loans in the State of Washington are made by plaintiff at its home office and also through designated servicing agents who make collections and remit the proceeds to plaintiff. Loans secured by real property in the State of California are purchased from lending agencies in that state who act as plaintiff's agent in servicing the loans by making collections thereon and remitting the proceeds to plaintiff. Plaintiff is licensed to do business in the State of Washington although *126 not in the State of California. When a loan becomes delinquent, the plaintiff forecloses the mortgage on the real property securing the loan and takes title to the same in its name.
Plaintiff contends that it is doing business in Washington and California and should be allowed to allocate income as provided by ORS
The term "doing business" has been defined by ORS
1. The Supreme Court of Oregon in Welch Holding Co. v.Galloway,
2. The defendant has cited many cases from other jurisdictions about what activities constitute doing business in a state. It appears that this issue has been resolved in Oregon by the Welch and Haas cases *127 above. Tested by the standard of engaging in activities in the pursuit of gain it would appear that plaintiff is doing business in Washington and California. Plaintiff's business is lending money. Soliciting loans, appraising property, loaning money, and, on occasion, foreclosing the mortgages is engaging in activities in the pursuit of gain for plaintiff bank.
The defendant argues that ORS
The plaintiff is permitted to do, and is, doing business in the States of Washington and California and is entitled to allocate its income accordingly.
The next issue is whether a guaranty fund is a bad debt reserve.
The plaintiff contends that the amount it credited to a guaranty fund is deductible from plaintiff's gross income because its guaranty fund is the same as a reserve for bad debts. *128
ORS
3, 4, 5. Bad debts are between the bank and the borrowers and the guaranty fund is clearly between the bank and the depositors. In addition, the bad debt reserve generally must bear a direct relationship to loss experience of the plaintiff. There is no showing here of any relationship between additions to the guaranty fund and the plaintiff's loss experience. Plaintiff's guaranty fund is not the same as a reserve for bad debts and not deductible.
The last issue is whether plaintiff is required to pay a tax on the amount credited to this guaranty fund regardless of the source of the funds.
ORS
"If at the close of any dividend period the guaranty fund of any savings bank is impaired or shall be less than 10 percent of the amount due to depositors there shall be deducted from its net earnings for such period and credited to its guaranty fund a sum not less than five percent of its net earnings during that period, if such deduction will not compel it to reduce its dividends to depositors below the rate of one percent per annum. * * *" (Emphasis supplied.)
Plaintiff contends and defendant does not dispute, that it had a loss for the tax year 1961. The plaintiff also contends that the amount credited to the guaranty fund in 1961 was acquired from earnings of prior years. The defendant apparently does not dispute this but argues that ORS
Plaintiff's net income for tax purposes for 1961 should not be based on the amount credited to the guaranty fund. No costs to either party.
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"(2) No saving bank or any officer or director shall receive deposits nor transact any of its usual business at any place other than its principal place of business or a branch thereof."
"(a) In notes or bonds secured by mortgage or deed of trust upon improved unencumbered real estate in Oregon, Washington, Idaho or California. * * *"