TC 4127 | Or. T.C. | Oct 9, 1998
Decision for Plaintiff rendered October 9, 1998.
Aff'd
Appeal pending.
Plaintiff appeals from Defendant's denial of refunds and assessments of additional corporate excise taxes for tax years 1987 through 1992. Defendant relied upon its administrative rule defining sales for purposes of apportioning income under the Uniform Division of Income for Tax Purposes Act (UDITPA). ORS
"`Sales' means all gross receipts of the taxpayer not allocated under ORS
314.615 to314.645 ."
4. Defendant disallowed the inclusion of gross receipts from Plaintiff's investment securities but did allow the income realized therefrom. In doing so, Defendant relied upon an administrative rule in effect since 1971. Defendant states in its brief:
"* * * OAR
150-314.665(3) (3)(b) has excluded income from intangible assets from the sales factor and OAR150-314.665(1)-(A) has defined `sales' * * * to exclude gross receipts or proceeds from intangible assets * * *."
The court has examined both rules and is not persuaded that they provide what Defendant claims. Moreover, if they do *387 provide what Defendant claims, they are inconsistent with the statutes.
5, 6. As noted above, ORS
"[T]he term `sales' means all gross receipts derived by a taxpayer from transactions and activity in the regular course of such trade or business."
The rule continues to expound on what constitutes a sale. While it gives examples of what is included in the rule, it does not contain any provision which would exclude gross receipts from the sale of intangible assets. Furthermore, OAR
"In General. Subsection (3) of ORS
314.665 provides for the inclusion in the numerator of the sales factor of gross receipts from transactions other than sales of tangible personal property * * *."
The rule goes on to provide in OAR
"Where the income producing activity in respect to business income from intangible personal property can be readily identified, such income is included in the denominator of the sales factor and, if the income producing activity occurs in this state, in the numerator of the sales factor as well. For example, usually the income producing activity can be readily identified in respect to interest income received on deferred payments on sales of tangible property (OAR
150-314.665(1)-(A) ) and income from the sale, licensing or other use of intangible personal property (OAR150-314.665(3) )."
7. Inasmuch as the gross receipts in question clearly are not allocable under ORS
"`Business income' means income arising from transactions and activity in the regular course of the taxpayer's trade or business and includes income from tangible and *388 intangible property if the acquisition, the management, use or rental, and the disposition of the property constitute integral parts of the taxpayer's regular trade or business operations." ORS
314.610 (1). (Emphasis added.)
8. Defendant's rules appear to distinguish between income derived from intangible personal property which is "merely" held and income from intangible personal property which is used in some activity by Plaintiff.3 Defendant appears to assume that Plaintiff's investment securities are intangible personal property which is merely held by Plaintiff.
OAR
"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."
9. Neither the statute nor the administrative rule is limited to just sales of goods or products. Based on the stipulated facts, Plaintiff did not merely hold its investment securities but actively engaged in transactions for the ultimate purpose of obtaining gains or profit.
10. Defendant argues that if gross receipts are included in the sales factor, it will result in a misrepresentation or distortion of Plaintiff's true business activities. While this may be true, if a statute results in distortion, the legislature must correct the problem, not Defendant.4 Defendant may depart from the statutory formula to overcome distortion, but it may never depart from the statutory definitions.
11. The court concludes that Defendant erred in including only income rather than gross receipts from Plaintiff's investment securities in the sales factor. Nothing in the record supports a deviation from the statutory formula. Therefore, Plaintiff's Motion for Summary Judgment must be granted with regard to this claim. Now, therefore, *389
IT IS ORDERED that Plaintiff's Motion for Summary Judgment with regard to including gross receipts from its investment securities transactions in the sales factor is granted.
IT IS FURTHER ORDERED that Defendant's Cross Motion for Partial Summary Judgment is denied. Costs to neither party.