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Supreme Court of Oregon
March 5, 1985, Argued and submitted ; April 1, 1986
SC No. S30995
[*639] [**613] Taxpayer Atlantic Richfield Corporation is a Pennsylvania corporation with its principal place of business in California. It is qualified to do and does business in Oregon and elsewhere in the United States. For tax years 1973 through 1977, taxpayer filed Oregon corporate excise tax returns with the defendant Oregon Department [***2] of Revenue. Taxpayer reported its net income from business activity both within and without Oregon. The question in this case is how much of that income is attributable to taxpayer's business activities in Oregon.
ORS 314.615 provides that "[a]ny taxpayer having income from business activity which is taxable both within and without this state * * * shall allocate and apportion the net income of the taxpayer as provided in ORS 314.605 to 314.675." ORS 314.650 through 314.670 are the relevant apportionment statutes. They list and define three factors -- property, payroll and sales -- to be included in a fraction which, when multiplied by the total net business income, [**614] gives a figure representing that portion of total net business income attributable to and taxable in Oregon.
To illustrate the issue that brings the parties here: Suppose a taxpayer has multistate net business income of $ 100,000 and the property factor 3 [***4] is 3/8 (.375), the payroll factor 4 is 5/9 (.555), the sales factor 5 is 1/3 (.333). The ORS 314.650 formula would be:
$ 100,000 X (.375 + .555 + .333)/3 = 100,000 X 1.263/3 = $ 126,300/3 = $ 42,100 Oregon income.
[*640] [***3] Changing the factors in the numerator of the fraction of the ORS 314.650 formula (the denominator is a constant, three) affects the determination of income attributable to Oregon. All else being equal, a larger property factor fraction results in a greater Oregon tax liability, a smaller property factor fraction results in a lesser Oregon tax liability. For example, if the property factor in the above example were 5/8 (.625) rather than 3/8 (.375), the Oregon income would be $ 50,433.33. If the property factor were 1/8 (.125), the Oregon income would be $ 33,766.66.
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300 Ore. 637 *; 717 P.2d 613 **; 1986 Ore. LEXIS 1131 ***
ATLANTIC RICHFIELD COMPANY, Appellant, v. DEPARTMENT OF REVENUE, Respondent
Subsequent History: [***1] Reconsideration Allowed by Opinion April 22, 1986.
Prior History: On appeal from the Oregon Tax Court. 1 Samuel B. Stewart, Judge. TC No. 2001.
Disposition: The decision of the Tax Court is reversed.
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