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Oregon's Definition of Business Income Still Less Than Crystal Clear

By Zachary Atkins and Andrew Appleby

The Oregon Supreme Court held that a taxpayer’s sale of an FCC license as part of a liquidation g

March 22, 2013

By Zachary Atkins and Andrew Appleby

The Oregon Supreme Court held that a taxpayer’s sale of an FCC license as part of a liquidation generated apportionable business income. The taxpayer, Crystal Communications, Inc., sold all of its assets to AT&T, including an FCC license. The gain on the FCC license was treated by the taxpayer as nonbusiness income allocable outside of Oregon. The Oregon Supreme Court determined that the gain met Oregon’s UDITPA-based definition of business income (a statutory definition) and the Oregon Department of Revenue’s additional definition of business income (a rule-based definition), the latter of which treats income from the sale of property as business income if the property was used in the taxpayer’s trade or business while owned by the taxpayer. The court rejected the taxpayer’s contention that the Department’s second definition of business income impermissibly overreaches because it captures income that is not captured by the UDITPA definition. The court concluded that the definitions could be construed harmoniously—especially if the second definition is interpreted consistently with the California Supreme Court’s opinion in Hoechst Celanese Corp. v. Franchise Tax Board, 25 Cal. 4th 508 (Cal. 2001), cert. den., 534 U.S. 1040. The court found that the Department’s interpretation of the two definitions in this case was reasonable. Although it declined to rule on the taxpayer’s uniformity claim, the court sent strong signals that the alleged differences in the treatment of financial institutions and public utilities and other multistate businesses do not violate the Uniformity Clause of the Oregon Constitution. Crystal Comms., Inc. v. Dep’t of Revenue, SC S059271 (Or. 2013).

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