Fidelity National Financial, Inc. v. Dept. of Rev

IN THE OREGON TAX COURT

MAGISTRATE DIVISION

Income Tax

FIDELITY NATIONAL FINANCIAL, INC., )

a Delaware corporation, )

)

Plaintiff, ) TC-MD 140440D

)

v. )

)

DEPARTMENT OF REVENUE, )

State of Oregon, )

)

Defendant. ) FINAL DECISION

This Final Decision incorporates without change the court’s Decision signed by Presiding

Magistrate Jill A. Tanner and entered December 29, 2015. The court did not receive a statement

of costs and disbursements within 14 days after its Decision was entered. See TCR-MD 16 C(1).

Plaintiff appeals Defendant’s Conference Decision Letter and Notice of Deficiency

Assessment dated September 10, 2014, for the 2010 and 2011 tax years. A trial was held in the

Oregon Tax Courtroom on September 15, 2015, in Salem, Oregon. Dan Eller, attorney, appeared

on behalf of Plaintiff. Richard Cox (Cox), Plaintiff’s Executive Vice President, Finance,

testified on behalf of Plaintiff. Darren Weirnick, Assistant Attorney General, appeared on behalf

of Defendant. Bruce Hale (Hale), tax auditor, testified on behalf of Defendant. No exhibits were

offered by Plaintiff. Defendant’s Exhibits A, C, D, E, F, G, J, K, L-1, L-2, L-3, L-4, L-8, M-1,

O-5, P-1, P-2, P-3, P-4, P-5, P-7, P-16, P-17, P-18, P-19, Q, R, T-9, W-4 and Y, and rebuttal

exhibit R-1 were received without objection. Defendant’s Exhibits M-2, P-13, L-6, P-6 and S-1

through S-6 were received with objection.

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FINAL DECISION TC-MD 140440D 1

I. STATEMENT OF FACTS

Cox, who held the position of Plaintiff’s Senior Vice President/Chief Tax Officer during

the tax years at issue, testified that Plaintiff is the “nation’s largest title insurance writer and

operator,” with operations in “all 50 states.” Cox testified that Plaintiff consists of

“approximately 300 different legal entities.” (See generally Def’s Ex Q.) Cox explained that

Plaintiff has existed since 1985 and that most of the legal entities that Plaintiff oversees have

been created or purchased to help manage the company’s title insurance business. Cox testified

that Plaintiff “do[es] a lot of acquisitions all pertaining to the title insurance business” and that

Plaintiff employs a strategy of targeting other title insurance companies or other “real estate

type” companies for acquisition in an effort “to grow” Plaintiff’s business. Cox testified that the

“title insurance business generated $4 billion in revenue” and Plaintiff’s investments in other

“non-core” businesses generated $2 million net earnings to the bottom line.”

Cox testified that as part of Plaintiff’s business strategy, Plaintiff disposed of some of its

subsidiary businesses at various times. For example, Plaintiff sold its wholly owned subsidiary

Fidelity National Capital, Inc. (“Capital”) in 2009, resulting in a pre-tax loss of $3.4 million.

(Def’s Ex K at 1012.) Cox described Capital as being “fully integrated” with Plaintiff’s regular

operations. Plaintiff’s annual report stated that in 2011, Plaintiff sold its flood insurance

business for a pre-tax gain of $154.1 million; and at the end of 2011 Plaintiff entered in to an

agreement to sell an 85 percent interest in its “at risk” insurance business for $119.5 million,

resulting in a pre-tax loss of $15.1 million. (Id. at 1011-12.)

Cox testified that “over the years” Plaintiff acquired interests in “about six” companies

that were unrelated to the title insurance industry. He testified that one of those companies was

Ceridian, in which Plaintiff acquired an interest in 2007. (See also Def’s Ex Y at 1.) Ceridian

FINAL DECISION TC-MD 140440D 2

was a “leading provider of human resources, transportation and retail information management

services[.]” (Def’s Ex Y at 1.) Plaintiff received $12.3 million in management fees in

connection with the acquisition. (Def’s Ex K at 295.) Cox testified that Plaintiff held an interest

in Remy International (Remy), a manufacturer of alternators, starters, and hybrid engines. (See

also id. at 250-51.) Cox testified that, “at some point” Plaintiff acquired notes in Remy, and

when Remy went into bankruptcy, the notes converted into equity ownership. (See also id.) Cox

described Plaintiff as overseeing Remy’s return to profitability by ensuring that that Remy had

“proper management.”

Plaintiff acquired interest in two companies at issue in this case: Fidelity Sedgwick

Holdings, Inc. (Sedgwick) and American Blue Ribbon Holdings, LLC (Blue Ribbon).

A. Sedgwick

Cox testified that Plaintiff acquired a 40 percent interest in Sedgwick in 2006. (See also

Def’s Ex M-1 at 2.) Cox testified that Sedgwick’s business was providing third-party

administration of workers compensation claims. Plaintiff entered into a Management Agreement

with Sedgwick. (See Def’s Ex L-3.) Under the terms of the Management Agreement, Plaintiff

agreed to advise Sedgwick on financial “negotiation[s]” and contracts, “strategies for improving

operating, marketing and financial performance”; “senior management matters related to the

business,” and “acquisition opportunities.” (Id. at 1.) The Management Agreement required

Sedgwick to pay Plaintiff an annual management fee of at least $200,000. (Id. at 2.) Cox

testified that the annual fees paid to Plaintiff between 2006 and 2010 totaled $1.5 million.

Sedgwick’s Stockholders Agreement provided that Plaintiff had the right to designate

two out of seven directors on Sedgwick’s board of directors, to be filled initially by Brent Bickett

(Bickett) and William P. Foley, II (Foley). (Def’s Ex L-2 at 6.) That agreement also provided

FINAL DECISION TC-MD 140440D 3

that Foley was appointed as Chairman of Sedgwick’s board of directors for a three year term.

(Def’s Ex L-2 at 7.) Foley and Bickett were members of Sedgwick’s Audit Committee and

Compensation Committee. (Id. at 8.) During the time that Plaintiff held its interest in Sedgwick,

Foley and Bickett were also members of Plaintiff’s board of directors. (Def’s Exs L-1 at 1, L-2

at 2.)

Cox testified that while Plaintiff held an interest in Sedgwick, Sedgwick actively

acquired other businesses. Cox testified that he had “limited due diligence involvement” in some

of Sedgwick’s acquisitions. Cox explained that Plaintiff’s strategy was to acquire “other little

businesses” to “enhance the revenue for Sedgwick.” Plaintiff’s board of directors minutes show

that regular reports were made to Plaintiff regarding Sedgwick, including Sedgwick’s

acquisitions of other companies. (See, e.g. Def’s Exs P-1 at 1, 5, 11; P-3 at 19; P-7 at 3.)

Cox testified that Sedgwick maintained its own books, records, and it did not “co-

mingle” its operations with Sedgwick. Cox testified that Sedgwick and Plaintiff did not

centralize purchasing, accounting, treasury, or administrative functions, or share operating assets,

real property, or customers. Cox testified that Plaintiff’s operations in Oregon did not depend on

or contribute to its investment in Sedgwick and that Plaintiff did not achieve any business

efficiencies though its ownership of Sedgwick.

Cox testified that Plaintiff sold approximately one-fifth of its interest in Sedgwick in

2008. (See also Def’s Ex P-18 at 4.) Hale testified that Plaintiff reported the sale of Sedgwick

stock as business income on its 2008 Oregon tax return. Cox testified that Plaintiff sold its

remaining interest in Sedgwick in 2010. (See also Def’s Exs P-19 at 4; Y at 10.) Plaintiff

reported a tax gain ($119,966,052) from the sale of Sedgwick as nonbusiness income on its 2010

Oregon tax return. (Def’s Ex F at 28.)

FINAL DECISION TC-MD 140440D 4

B. Blue Ribbon

During the tax years at issue, Plaintiff through its wholly owned subsidiary, Fidelity

National Special Opportunities, Inc., which held a minority ownership interest in Fidelity

Newport Holdings, LLC, owned 100 percent of Blue Ribbon. (See Def’s Exs Q at 51; P-5 at 1.)

Cox testified that Blue Ribbon was a “holding company” that owned family and casual dining

restaurants (Baker’s Square and Village Inn) and a pie manufacturing business (Legacy Pies).

Cox testified that prior to Plaintiff’s subsidiaries’ acquisition, Blue Ribbon was in

bankruptcy proceedings. Cox testified that Plaintiff viewed the company as a “great deal,” and

after the acquisition, Plaintiff installed a new board of directors and a hired a new CEO for Blue

Ribbon. Cox testified that Plaintiff was not a customer of Blue Ribbon, Plaintiff did not “co-

mingle” its operations with Blue Ribbon, and Plaintiff did not control Blue Ribbon. Cox

testified that Blue Ribbon had its own officers, located in Denver, Colorado and that Plaintiff had

no right to management positions within Blue Ribbon. Cox testified that Plaintiff’s Oregon

operations did not depend on or contribute to its investments in Blue Ribbon. Plaintiff reported

its income from Blue Ribbon as nonbusiness income on its 2010 and 2011 Oregon tax returns.

(Def’s Exs F at 28, G at 3.)

C. Audit and Conference Decision

Defendant audited Plaintiff’s 2009, 2010, and 2011 tax returns. (Compl at 3.) Plaintiff

disputed two adjustments made by Defendant: Defendant’s reclassification of Plaintiff’s tax

gains from its 2010 sale of Sedgwick stock as business income and Defendant’s reclassification

of income received from Blue Ribbon as business income in 2010 and 2011. (Id. at 3-5.)

Defendant upheld those adjustments in its Conference Decision Letter, dated September 10,

2010. (Id. at 6.) Hale testified that on its Florida corporate income tax return Plaintiff reported

FINAL DECISION TC-MD 140440D 5

the “Sedgwick sale as business income” and there was no “nonbusiness income reported for

either [tax] year.” (See Def’s Ex J.) Plaintiff timely appealed to this court. (See id. at 1-2.)

II. ANALYSIS

The issue is whether Plaintiff’s gains from the sale of its Sedgwick stock and income

attributable to Blue Ribbon are business income or nonbusiness income. Business income is

subject to formulary apportionment, as provided by the Uniform Division of Income for Tax

Purposes Act (UDIPTA), ORS 314.647 to 314.675. Nonbusiness income is not apportionable,

but is allocated based on its source. See generally, ORS 314.625 to 314.645.

ORS 314.610(1)1 defines business income as follows:

“ ‘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 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) contains two separate tests: the “functional test” and the “transactional test.”

See Pennzoil Co. v. Dept. of Rev. (Pennzoil), 332 Or 542, 546-47, 33 P3d 314 (2001); see also

Crystal Communications, Inc. v. Dept. of Rev. (Crystal), 20 OTR 111 (2010). “Under the

transactional test, ‘business income’ is ‘income arising from transactions and activity in the

regular course of the taxpayer’s trade or business.’ ” Pennzoil, 332 Or at 547 (quoting ORS

314.610(1)). The functional test requires that the “acquisition,” “management,” “use or rental”

and “disposition” of property be an “integral part of a taxpayer’s regular trade or business

operations.” Terrace Tower U.S.A., v. Dept. of Rev., 16 OTR-MD 131, 136 (1999) aff'd sub

nom. Dept. of Rev. v. Terrace Tower U.S.A., Inc. (Terrace Tower), 15 OTR 168 (2000). The

disposition of an asset that was integral to the taxpayer’s business will satisfy the functional test,

1

The court’s references to the Oregon Revised Statutes (ORS) are to 2009.

FINAL DECISION TC-MD 140440D 6

regardless of whether such disposition was a “regular” occurrence in the business. Crystal, 20

OTR at 129.

Income is “business income” if it satisfies either the transactional test or the functional

test. Pennzoil, 332 Or at 547. Income that satisfies neither test is nonbusiness income. See ORS

314.610(5) (“ ‘Nonbusiness’ income means all income other than business income.”).

A. Constitutional Standard – Unitary Business Principle

This court has observed that “UDITPA’s definitions of business income and nonbusiness

income ‘track in large part’” the unitary business principle. Pennzoil Co. v. Dept. of Rev., 15

OTR 101, 107 (2000) aff'd, Pennzoil, 332 Or 542, (quoting Container Corp. v. Franchise Tax

Bd., 463 US 159, 166, 103 S Ct 2933, 77 L Ed 2d 545 (1983)). The unitary business principle

has been described as the “linchpin of apportionability.” See, e.g, Fisher Broadcasting Company

& Subsidiaries v. Dept. of Rev. (Fisher Broadcasting), 22 OTR 69, 75 (2015). Under the Due

Process and Commerce clauses of the United States Constitution, a state may only tax income

earned outside its borders “if there is ‘some definite link, some minimum connection, between

[the taxing] state and the person, property or transaction it seeks to tax.’ ” Pennzoil, 332 Or at

549 (quoting Miller Brothers Co. v. Maryland, 347 US 340, 344-45, 74 S Ct 535, 98 L Ed 744

(1954) (alteration in Pennzoil). That connection is provided by the unitary business principle,

which permits states “to tax a corporation on an apportionable share of the multistate business

carried on in part in the taxing State.” Allied-Signal, Inc. v. Director, Division of Taxation

(Allied-Signal), 504 US 768, 778, 112 S Ct 2251, 119 L Ed 2d 533 (1992). By contrast, out-of-

state income “derived from unrelated business activity which constitutes a discrete enterprise” is

not subject to apportionment. Id. at 773 (internal quotation marks and alteration omitted).

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FINAL DECISION TC-MD 140440D 7

A unitary relationship between a parent and its subsidiary is not the only method

available for a state to tax income of a multistate entity. Capital transactions that serve an

“operational function” in the business can be apportioned, even if those transactions occur

outside the taxing state. See Pennzoil, 332 Or at 449. For example, if an investment, such as a

short term investment to raise working capital, can be shown to be related to the in-state

operations of a corporation that income could be taxed by the state. See Terrace Tower, 15 OTR

at 171. However, transactions that serve an “investment function” are not subject to

apportionment. Allied-Signal, 504 US at 787. If a transaction generally increases a business’ net

worth, or was acquired for a business purpose, or if proceeds from the transaction are comingled

with general business funds, or held for future use in the business, those facts alone will not

support a finding that the transaction serves an “operational function.” See Fisher Broadcasting,

22 OTR at 76. The court will consider the income at issue keeping in mind the unitary business

principle.

B. Sedgewick

1. Transactional test

The transactional test focuses on the specific “transaction or activity” that immediately

resulted in the disputed income, rather than the general activities of the taxpayer (or others) that

preceded the income producing event. See Pennzoil, 332 Or at 547-48. “Under the transactional

test, ‘business income’ is ‘income arising from transactions and activity in the regular course of

the taxpayer’s trade or business.’ ” Id. at 547. The first question under the transactional test is,

“[w]hat transaction or activity gave rise to the disputed income?” Id. at 547-48 (finding that the

“transaction” giving rise to settlement proceeds was the contract underlying the tortuous

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FINAL DECISION TC-MD 140440D 8

interference claim, not the activity of the tortfeasor). There is no dispute that Plaintiff’s sale of

the Sedgwick stock “gave rise to” to the disputed income.

The second question under the transactional test is, did that transaction occur in the

regular course of the taxpayer’s trade or business? Id. at 548. Under this test, the “frequency

and regularity” of a given transaction or activity may be considered, although it is not

dispositive. Id. at 549. Transactions that occur infrequently may still occur in the taxpayer’s

trade or business if such transactions are “customary in” or “within the scope of” activities in that

particular trade or business. Oregon Administrative Rule (OAR) 150-314.610(1)-(A)(4)(b); see

also Pennzoil, 332 Or at 549. “However, even if a taxpayer frequently or customarily engages in

investment activities, if those activities are for the taxpayer’s mere financial betterment rather

than for the operations of the trade or business, such activities do not satisfy the transactional

test.” OAR 150-314.610(1)-(A)(4)(b). This court has explained that

“the ‘taxpayer’s trade or business’ * * * must be one that has a reasonable

relationship to the taxing state because of business transacted and property located

in the taxing state (recognizing as we must that a given corporation may have

several ‘business activities’ or ‘nonbusiness activities,’ with some easily separated

from others and some inextricably mixed with others).”

Sperry & Hutchinson Co. v. Dept. of Rev. (Sperry), 5 OTR 301, 310 (1973) aff'd, Sperry &

Hutchinson v. Dept. of Rev., 270 Or 329, 527 P2d 729 (1974); see also OAR 150-314.610(1)-

(A)(3)(e) (“ ‘Trade or business’ means the unitary business of the taxpayer, part of which is

conducted within Oregon.”).

The issue in Sperry was whether income the taxpayer (S & H) received as interest from

investment securities was apportionable to Oregon. 5 OTR at 302. S & H was in the business of

selling promotional trading stamps (also known as “green stamps”) to retailers, a business it

conducted in 48 states, including Oregon. Id. S & H also maintained a considerable investment

portfolio. See id. at 303. S & H hired an investment expert and created an “office of investment

FINAL DECISION TC-MD 140440D 9

manager” to manage its investment activities. Id. S & H also created an “acquisition

department,” to identify potential “profitable subsidiaries.” Id. S & H held short-term securities

that were either used to maintain cash flow for S & H’s green stamp business or held for use in

S & H’s other investment and acquisition activity. See id. at 304–05. S & H also held long-term

securities as an investment. Id. at 304. Applying what is now described as the transactional test,

the court explained:

“The relationship of the activity to Oregon’s jurisdiction must be patent or be so

inextricably ‘mixed’ with the Oregon activity that it is impossible to allocate

specifically the profits earned by the processes conducted within its borders. * * *

A corporation may have a number of business activities. If each were clearly

segregable, there would be no problems of allocation and apportionment[.] * * *

When an activity is not readily segregable and it impinges on two or more states,

the formulae of apportionment come into play as to that activity.”

Id. at 310–11. The court concluded that only the short-term investments used to maintain cash

flow were “integrated with the stamp business in which Oregon has a relationship” and subject to

Oregon tax. Id. at 311, 313. The Oregon Supreme Court affirmed the Oregon Tax Court,

concluding that S & H’s long-term investments and short-term-investments not used to maintain

cash flow were “not apportionable to Oregon because neither the capital invested nor the income

derived therefrom are a part of the trading stamp business conducted in this state.” Sperry &

Hutchinson v. Dept. of Rev., 270 Or 329, 331-32 (1974).

The Oregon Tax Court and Oregon Supreme Court’s focus on S & H’s activities in

Oregon is consistent with the principle that the taxpayers “trade or business” under ORS

314.610(1) is its unitary business, “part of which is” conducted in the taxing state. See OAR

150-314.610(1) -(A)(3)(e). In Pennzoil, the court concluded that settlement proceeds from a

tortuous interference with contract lawsuit were business income because the lawsuit arose out of

Pennzoil’s attempts to secure oil reserves, an activity conduced in the regular course of

Pennzoil’s business. 332 Or at 549. The court further concluded that apportionment of the

FINAL DECISION TC-MD 140440D 10

settlement proceeds was consistent with the unitary business principle because securing oil

reserves served an operational function in Pennzoil’s Oregon business. Id. at 549. The court

explained that“[t]he acquisition of oil reserves is related—indeed is vitally important—to

[Pennzoil’s] continued blending and distribution of motor oil in Oregon.” Id. at 550 (emphasis

added).

In this case, for the “transaction” (the Sedgwick sale) to be considered a transaction in the

regular course of Plaintiff’s business, the sale must have been “inextricably mixed” with the

business that Plaintiff conducted in Oregon. Plaintiff describes its business as being “the

nation’s largest title insurance writer and operator” and argues that buying and selling interests in

companies like Sedgwick are not part of that business. (Ptf’s Post-Trial Mem at 2, 9.) In

Defendant’s view, Plaintiff’s “regular acquisition, management, and sale of substantial stakes in

Sedgwick and other companies is a regular part of [Plaintiff’s] business that meets * * * the

transactional test.” (Def’s Post-Trial Brief at 19.) Defendant defines Plaintiff’s unitary “trade or

business:” the “offering of title and specialty insurance products as [Plaintiff’s] primary activity,

but also, as a secondary activity, the active acquisition, management, and sale of other

companies.” (Id. at 19.) Defendant explained that “[s]ince the business is [Plaintiff’s] business

and that business included the secondary activity here, the requisite constitutional connection to

[Plaintiff’s] unitary business exists.” (Id. at 21.)

The parties agree that Sedgwick’s third-party claims administration operations and

Plaintiff’s title insurance operations were not part of the same unitary business. (See Def’s Post-

Trial Brief at 11.) The parties also agree that the Plaintiff bought, and at times sold, interests in

other businesses. Cox testified that Plaintiff engaged in “a lot” of acquisitions of other

complimentary businesses as part of a strategy aimed at growing Plaintiff’s title insurance

FINAL DECISION TC-MD 140440D 11

business. Defendant’s evidence supports Cox’s testimony that the majority of Plaintiff’s

acquisitions were aimed at growing its title insurance and related businesses. The testimony and

evidence show that Plaintiff acquired interests in other companies that were not integrated with

its title insurance business. Plaintiff viewed those companies, such as Ceridian, Remy, Blue

Ribbon, and Sedgwick, as “investments.” With respect to Sedgwick, Cox testified that

Plaintiff’s senior officers, such as Bickett, were involved in Plaintiff’s acquisition and

management of Sedgwick, and helped grow Sedgwick through the acquisition of other

companies to “enhance the revenue for Sedgwick.” Cox’s testimony shows that Plaintiff

employed a similar strategy with Sedgwick—acquiring other complimentary businesses as a

means for achieving growth—as it did in growing its title insurance business. Plaintiff’s title

insurance business can be readily separated from activities overseeing its interest in those “non-

core” subsidiaries.

Plaintiff’s investment activities are similar to those undertaken by the taxpayer in Sperry.

S & H’s “office of investment manager” invested in short-term securities to manage cash flow

for S & H’s green stamp business, but also used short-term securities to further S & H’s

acquisition and long-term investment activity. Sperry, 5 OTR 304–05. In that case, the court

concluded that only the securities used to manage cash flow for the green stamp business

generated “business income” because only those investments were “integrated with [the] stamp

business” in which Oregon has a relationship. Id. at 313. Income from S & H’s other short-term

investments did not generate “business income” merely because the same employees used

similar investment strategies and assets. This court concluded that a connection to the activity

conducted in Oregon was required for that income to be subject to Oregon tax. This court

explained in a subsequent case:

FINAL DECISION TC-MD 140440D 12

“Corporations may conduct one or more separate businesses. All, some, or none

of those businesses may be conducted interstate and may be unitary with another.

Both unitary property taxation and unitary income taxation distinguish between

the corporation and the businesses it conducts. In the case of a tax on an activity,

such as an income tax, ‘there must be a connection to the activity itself, rather

than a connection only to the actor the State seeks to tax.’ * * * For investments to

be related to the activity, in the language of the United States Supreme Court, they

must serve an ‘operational function.’ ”

Terrace Tower, 15 OTR at 172-73 (quoting Miller Brothers Co., 347 US at 778). With respect

to investments, this court explained that to

“serve an ‘operational function’ there must be a flow of value between the

investment and the activities sought to be taxed. When a corporation makes a

‘passive’ investment, there is a flow of value to the corporation, the actor, but not

to the unitary business activities that it conducts.”

Id. at 173.

In this case before the court, the connection between the Sedgwick sale and the business

that Plaintiff conducted in Oregon is absent. The acquisition and sale of Sedgwick was not so

“inextricably mixed” with Plaintiff’s title insurance business that it would be impossible to

segregate the Sedgwick gain from the revenues generated by Plaintiff’s Oregon activity.

Plaintiff’s partial ownership interest in Sedgwick was closer to a passive “investment” rather

than serving an “operational” function. Cox’s testimony stated that Plaintiff’s operations in

Oregon did not depend on or contribute to its interest in Sedgwick. There was no contrary

evidence presented. Even though Plaintiff expended substantial effort to grow Sedgwick prior to

selling Sedgwick at a substantial gain, those activities were not integrated with Plaintiff’s title

insurance business. Defendant provided no evidence of a connection between Oregon and

Plaintiff’s corporate acquisition business. Plaintiff’s activities managing and selling Sedgwick

were discreet business activities, unrelated to the business Plaintiff conducted in Oregon. The

sale of Sedgwick was not a transaction in the regular course of the unitary business Plaintiff

partially conducts in Oregon and does not satisfy the transactional test.

FINAL DECISION TC-MD 140440D 13

2. Functional Test.

In its Post-Trial Brief, Defendant acknowledged that if the court were to conclude that the

Sedgwick gain was not business income under the transactional test then the “Sedgwick Gain

would not otherwise meet the functional test for business income.” (Def’s Post-Trial Brief at

21–22 n 15.) Having concluded that the Sedgwick gain does not meet the transactional test, the

parties are in agreement that the Sedgwick gain is not business income under the functional test.

Because the Sedgwick gain does not satisfy either test, that income is not business income and is

not subject to apportionment.

C. Blue Ribbon

The parties’ positions with respect to Plaintiff’s income from Blue Ribbon are

substantially the same as their positions with respect to Sedgwick. Plaintiff characterizes its

interest in Blue Ribbon, which it held through partially and wholly owned subsidiaries, as a

“special opportunity” that was unrelated to its title insurance business. (Ptf’s Post-Trial Mem at

10.) Defendant argues that Plaintiff’s “income from its restaurant interests was income from

transactions and activity in the regular course of [Plaintiff’s] secondary business activity of

buying, managing, and selling interests in other companies.” (Def’s Post-Trial Brief at 24.)

Plaintiff’s “trade or business” that it conducts in Oregon is its title insurance business. In

order to generate business income, Plaintiff’s interest in Blue Ribbon must have been so

“inextricably mixed” with that business as to make apportionment appropriate. It is not enough

to say that Plaintiff regularly bought, managed, and sold other businesses as a secondary business

activity; that secondary activity must have been integrated with the activity that Plaintiff carries

on in Oregon. The court is not persuaded that Plaintiff’s “management” of Blue Ribbon was in

any way related to the title insurance business that it conducted in Oregon. The court concludes

FINAL DECISION TC-MD 140440D 14

that income from Plaintiff’s interest in Blue Ribbon was not business income and not subject to

apportionment for the tax years at issue.

III. CONCLUSION

After careful review of the testimony and evidence, the court concludes that Plaintiff

properly reported gains from the sale of its Sedgwick stock as nonbusiness income on its 2010

Oregon tax return. The court further concludes that Plaintiff properly reported income from Blue

Ribbon as nonbusiness income on its 2010 and 2011 Oregon tax returns. Now, therefore,

IT IS THE DECISION OF THIS COURT that Plaintiff’s appeal is granted.

IT IS FURTHER THE DECISION OF THIS COURT that Plaintiff properly reported

income from Fidelity Sedgwick Holdings, Inc. and American Blue Ribbon Holdings, LLC as

nonbusiness income on its 2010 and 2011 Oregon tax returns.

Dated this day of January 2016.

RICHARD DAVIS

MAGISTRATE

If you want to appeal this Final Decision, file a Complaint in the Regular

Division of the Oregon Tax Court, by mailing to: 1163 State Street, Salem, OR

97301-2563; or by hand delivery to: Fourth Floor, 1241 State Street, Salem, OR.

Your Complaint must be submitted within 60 days after the date of the Final

Decision or this Final Decision cannot be changed. TCR-MD 19 B.

This document was filed and entered on January 15, 2016.

FINAL DECISION TC-MD 140440D 15