Feb 02, 2015
From KPMG TaxWatch
The Oregon Tax Court recently ruled for a taxpayer in a dispute involving the interpretation a statute enacted in 1984 addressing when a unitary group of corporations is engaged in a single trade or business. Specifically, under the statutory definition of “single trade or business” in effect for the tax year at issue (2003), a unitary group was required to have (1) centralized management or a common executive force, (2) centralized administrative services or functions resulting in economies of scale, and (3) flow of goods, capital resources or services demonstrating functional integration. Effective for tax years beginning on or after January 1, 2007, the statute was revised to replace “single trade or business” with “unitary business” and, most importantly, the word “and” between the three factors was replaced with “or.” The dispute between the taxpayer and the Department of Revenue arose over whether all three factors or tests in the statute had to be met before the taxpayer could be considered engaged in a single trade or business and included in the 2003 unitary combined group. The Department argued that the “and” in the statute should be interpreted as an “or” to effectuate the intent of the legislature and avoid an absurd result. Furthermore, the Department’s own rule, revised in 2006, provided that one or two of the factors may be sufficient to support a finding that a unitary business exists. The taxpayer, on the other hand, argued that the plain language of the statute required it to meet all three tests to be combined.
The court, accepting the Department’s argument that in certain instances “and” can be read disjunctively where necessary to effect legislative intent, first reviewed the 1984 legislative history to determine whether the lawmakers intended to require taxpayers to meet all three tests. After reviewing the ample committee minutes and tapes of testimony available, the court held that the statute was clearly intended to be read conjunctively. In fact, the court noted that it is rare that a question presented in court was so specifically and definitively discussed in the course of the legislative process. Having discerned the legislature’s intent, the court rejected the Department’s additional argument that Oregon courts have interpreted the definition of a unitary business to apply to the full extent of the U.S. Constitution. The court noted that, even if the cases relied on by the Department’s supported position, subsequent court decisions cannot supersede legislative intent. Please contact Rob Passmore at 503-820-6844 with questions on Rent-A-Center, Inc. v. Dep’t of Revenue.
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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.