Corporate affiliates were subject to Oregon’s corporate income tax in 2006-2008 because they did business in Oregon. Further, they were liable for income tax even thought the notice of deficiency issued to the taxpayer was for corporate excise tax.
Affiliates Doing Business in Oregon
A taxpayer authorized to do business in Oregon sold car financing. The taxpayer filed a consolidated tax return for a group of affiliated companies. Two of the affiliated companies were banks not located in Oregon. The taxpayer did not report the income earned by the banks as Oregon taxable income.
The banks, although based outside Oregon, engaged in consumer and small business banking in Oregon. The banks charged Oregonians nearly $150 million in fees each year, including finance charges, late fees, and over-limit fees. The banks sold Oregon customers:
- credit card products;
- consumer loans; and
- accepted deposit products.
In addition, the banks had:
- 536,000 Oregon customers in 2007; and
- 495,000 Oregon customers in 2008.
Presence Not Required to Derive Income from Oregon Sources
The taxpayer claimed it did not have “income derived from sources within this state” under the income tax statute because the taxpayer did not have a physical presence in Oregon.
However, nothing about the statutory text or context suggested that the taxpayer must also have a physical presence in Oregon. The statute has the ordinary meaning of the text. It states a taxpayer must receive income from within Oregon.
Corporate Excise Tax vs. Income Tax
The Department of Revenue sent the taxpayer a notice of deficiency for corporate excise tax. However, in the tax court, Oregon argued that the banks were subject to the corporate income tax.
The tax court determined the banks had income derived from sources in Oregon. Thus, the banks income should be included when determining the taxpayer’s corporate income tax.
Accuracy of Tax Type Not Required for Notice of Deficiency
The taxpayer argued that, because the notice of deficiency was for excise tax, Oregon should not have been allowed to argue the corporate income tax applied. The taxpayer stated the tax court could correct the amount of tax, not impose a different tax.
The notice listed:
- a reason for the adjustment;
- a reference to the authority for the adjustment; and
- a certification of good faith.
The statute only required those three elements, and the notice met them all. The tax court was allowed to impose the correct amount of tax “even if determined upon grounds other or different from those asserted by the department.” Thus, the department could raise the corporate income tax issue before the tax court.
Capital One Auto Finance Inc. v. Department of Revenue, Oregon Supreme Court, No. SC S064803, August 9, 2018, ¶401-404