Santa Fe Natural Tobacco Co. v. Dept. of Rev.

No. 24 May 3, 2021 549

IN THE OREGON TAX COURT

REGULAR DIVISION

SANTA FE NATURAL TOBACCO COMPANY,

Plaintiff,

v.

DEPARTMENT OF REVENUE,

Defendant.

(TC 5372)

On cross-motions to strike expert testimony, Defendant Department of

Revenue (the department) argued that Plaintiff’s expert testimony about tax pol-

icy was legal opinion that intruded on the court’s province and did not assist the

court as trier of fact to “understand the evidence or to determine a fact in issue.”

Plaintiff argued that the testimony did not constitute an opinion of law and that

the court, sitting without a jury, was authorized and required to admit the tes-

timony. The court concluded that the testimony related to the background and

development of the law at issue, 15 USC section 381 (Public Law 86-272), could be

considered by the court, but not as factual evidence. To the extent that the expert

witnesses applied law to facts, the court concluded that the court was “equally

qualified” to make those determinations and therefore the testimony was not

admissible under Oregon Evidence Code (OEC) 702 because it did not help the

court understand the evidence or determine the ultimate facts. Therefore, por-

tions of the expert testimony were admitted to qualify the witnesses as experts

and for the limited purpose of informing the court on the origins and background

of the formation of Public Law 86-272.

Submitted on the parties’ motions to strike expert

testimony.

Mitchell A. Newmark, Blank Rome LLP, New York, filed

the motion for Plaintiff.

Darren Weirnick, Senior Assistant Attorney General,

Department of Justice, Salem, filed the motion for Defendant.

Decision rendered May 3, 2021.

ROBERT T. MANICKE, Judge.

I. INTRODUCTION

The substantive issue in this case is whether 15

USC section 381 (Public Law 86-272)1 protected Plaintiff

1

Public Law 86-272 provides, in pertinent part:

“(a) No state * * * shall have power to impose * * * a net income tax on the

income derived within such State by any person from interstate commerce if

550 Santa Fe Natural Tobacco Co. v. Dept. of Rev.

(taxpayer) from Oregon’s net income tax for tax years 2010

through 2013. During those years, taxpayer was an out-of-

state manufacturer, marketer, and distributor of cigarettes

and other tobacco products. The department contends that

taxpayer engaged in two activities that exceeded the protec-

tion of Public Law 86-272:

“1. Oregon wholesalers’ acceptance of returns from

Oregon retailers of [taxpayer’s] products covered by [tax-

payer’s] ‘100% Guarantee’ to Oregon retailers, pursuant to

agreements between [taxpayer] and Oregon wholesalers.

“2. [Taxpayer’s] Oregon employees’ activity directly

placing with Oregon wholesalers so-called ‘pre-book’ orders

by Oregon retailers, which orders Oregon wholesalers were

required to accept pursuant to agreements between [tax-

payer] and the wholesalers.”

Pub L 86-272, § 101, 73 Stat. 555 (1959). In response to

the department’s first allegation taxpayer asserts, alter-

natively, that Oregon wholesalers either did not act on tax-

payer’s behalf when accepting returns or were independent

contractors engaging in an activity that is not considered

a business activity of taxpayer under Public Law 86-272.

In response to the second allegation, taxpayer asserts that

the placing of pre-book orders with Oregon wholesalers was

a “missionary” activity that Public Law 86-272 protects.

The parties have stipulated to all relevant facts and have

the only business activities within such State by or on behalf of such person

during such taxable year are either, or both, of the following:

“(1) the solicitation of orders by such person, or his representative, in

such State for sales of tangible personal property, which orders are sent out-

side the State for approval or rejection and, if approved, are filled by ship-

ment or delivery from a point outside the State; and

“(2) the solicitation of orders by such person, or his representative, in

such State in the name of or for the benefit of a prospective customer of such

person, if orders by such customer to such person to enable such customer

to fill orders resulting from such solicitation are orders described in para-

graph (1).

“* * * * *

“(c) For purposes of subsection (a) of this section, a person shall not be

considered to have engaged in business activities within a State during any

taxable year merely by reason of sales in such State, or the solicitation of

orders for sales in such State, of tangible personal property on behalf of such

person by one or more independent contractors, or by reason of the main-

tenance of an office in such State by one or more independent contractors

whose activities on behalf of such person in such State consist solely of mak-

ing sales, or soliciting orders for sales, of tangible personal property.”

Cite as 24 OTR 549 (2021) 551

agreed that the factual record is closed, stating that “at trial

neither party may introduce witness testimony or exhibits

that are not contained in this Joint Stipulation of Facts.”

Accordingly, the parties’ arguments are based entirely on

their respective legal positions as to whether the activities

at issue subjected taxpayer to Oregon tax or were within the

protection of Public Law 86-272.

As part of the parties’ stipulations, taxpayer reserved

the right to call one expert witness at trial, and the depart-

ment reserved the right to present expert witness testimony

in rebuttal. The court set a one-day trial on October 15,

2020, solely for the purpose of hearing testimony from the

two witnesses. The parties were not required to, and did

not, exchange the identity of the witnesses they expected

to qualify as experts. As part of pretrial submissions, the

department filed a motion in limine setting forth grounds

for objections it anticipated raising to taxpayer’s proffered

expert testimony. At trial, the department made its objec-

tions to the admission of the testimony of taxpayer’s witness.

The court took the objections under advisement, allowed the

testimony of both witnesses to proceed, and directed the

parties to submit arguments in writing after trial for the

court to address in this order, to be followed by post-trial

briefing on the substantive issues. Taxpayer then offered

testimony of Professor Richard D. Pomp as an “expert in

tax policy and Public Law 86-272.” On rebuttal, the depart-

ment offered testimony of Benjamin F. Miller, also as “an

expert in tax policy.” Taxpayer’s counsel objected and asked

the court to exclude Miller’s testimony if the court excludes

the testimony of taxpayer’s proffered expert Pomp. Because

taxpayer’s objections are conditional, and the department’s

objections are more extensive, the court frames this order by

reference principally to the department’s objections.

The department’s general objection is that taxpay-

er’s proffered testimony about tax policy is indistinguish-

able from legal opinion that intrudes on the province of the

court and does not assist the court as trier of fact to “under-

stand the evidence or to determine a fact in issue * * *” as

required by Oregon Evidence Code (OEC) 702 (ORS 40.410).

Taxpayer argues that the department bases its objection on

the erroneous premise that “there is no such thing as tax

552 Santa Fe Natural Tobacco Co. v. Dept. of Rev.

policy that exists apart from black letter law,” and taxpayer

argues that Pomp’s testimony did not “cross the line into an

opinion of law.” Taxpayer also asserts that this court, as a

court without a jury, is authorized and required to admit the

testimony.

II. ISSUE

Is the proffered expert witness testimony admissible?

III. DISCUSSION

The court considers the proffered testimony and

objections in two parts, consistent with the order of presen-

tation: the origin and development of Public Law 86-272 and

cases applying that statute, and the application of tax policy

to the facts of this case. All of the testimony fits into one of

these categories, except testimony related to the witnesses’

qualifications, which the court addresses in the first part.

A. Testimony on Origin and Development of Public Law

86-272

After addressing qualifying questions, discussed

below, each witness testified generally about state taxation

of interstate commerce under Public Law 86-272 and consti-

tutional restrictions. Pomp testified about growth in inter-

state commerce after the Great Depression and about court

decisions and concerns within the business community that

led up to the passage of Public Law 86-272, as well as subse-

quent efforts to develop uniformity in state taxation through

the period preceding Wisconsin Dept. of Rev. v. William

Wrigley, Jr. Co., 505 US 214, 112 S Ct 2447, 120 L Ed 2d 174

(1992). Miller briefly discussed the age of Public Law 86-272

and referred to Wrigley and South Dakota v. Wayfair, Inc.,

585 US ___, 138 S Ct 2080, 201 L Ed 2d 403 (2018).

The court considers whether this testimony consti-

tutes legal analysis that is the province of the court and

is not a proper subject for expert testimony. See Jackson

v. Franke, 304 Or App 503, 512, 467 P3d 779, rev allowed,

367 Or 220 (2020) (reviewing trial court’s denial of crim-

inal defendant’s claim for post-conviction relief based on

ineffective assistance of counsel; approving trial court’s

Cite as 24 OTR 549 (2021) 553

exclusion of criminal defense lawyer’s testimony on “cor-

rect interpretation of case law”); see generally Stobie Creek

Investments, LLC v. U.S., 81 Fed Cl 358, 360 (2008) (in tax-

payer’s challenge to income tax adjustments, declining to

admit taxpayer’s proffered expert testimony of tax profes-

sor and tax attorney that “testifies about what the law is or

directs the finder of fact how to apply law to facts”); Laird

C. Kirkpatrick, Oregon Evidence 648 (7th ed 2020) (“In gen-

eral, questions of law are for the court and are not a proper

subject for expert testimony to the jury.”).

The court starts by considering whether a field of

tax policy may exist separate from the field of tax law. The

parties have not attempted to define “tax policy.” The court

generally understands tax policy to focus on the choices

that governmental leaders make in response to, or in antic-

ipation of, economic, social, and other concerns related to

taxation. See generally Webster’s Third New Int’l Dictionary

1754 (unabridged ed 2002) (defining “policy” as “a definite

course or method of action selected (as by a government,

institution, group, or individual) from among alternatives

and in the light of given conditions to guide and usually

determine present and future decisions”). Because taxation

is an inherently governmental function, the court focuses on

policy-making by government actors. See id. at 2345 (defin-

ing “tax” as a “charge imposed by legislative or other pub-

lic authority * * * for public purposes”). Based on this broad

understanding, the legislative branch has a primary role in

tax policy-making, which it exercises by hearing the con-

cerns of the public and of interested persons, choosing which

concerns to address and how to do so, and writing laws that

reflect those choices. The legislative branch also may make

policy less formally and without writing laws, for example,

by convening or encouraging work groups that result in

negotiated solutions without legislation, or by engaging in

budgetary and other oversight of the executive branch. Even

holding hearings and conducting other public factfinding

efforts might constitute a definite course of action intended

to influence public opinion and change the course of events.2

2

The court does not rule out the possibility that other actors within or with-

out government may influence or participate in making tax policy.

554 Santa Fe Natural Tobacco Co. v. Dept. of Rev.

The court concludes that a field of tax policy exists

that includes, but is broader than, the field of tax law. The

study of tax policy may, for example, encompass historical

evidence of the forces leading to policy-makers’ choices,

alternatives they could have pursued, and social and eco-

nomic consequences of enacted tax laws. The court does not

doubt that policy-makers and scholars in a range of disci-

plines such as law, but also history, economics, and other

social sciences, may achieve a high level of understanding of

tax policy, thus defined, and may help the court by adding

context to the text of the law. This seems to have been one

of taxpayer’s aims in presenting expert testimony at trial.

During taxpayer’s introduction to its case in chief, it urged

the court to “hear about the policy aspects of what was driv-

ing Public Law 86-272. What is happening in the nexus uni-

verse regarding Public Law 86-272.”

Having identified a field constituting tax policy, the

court considers the qualification of each party’s witness.3

Richard Pomp is a distinguished scholar: He is a profes-

sor at the University of Connecticut Law School and at the

New York University LLM program in taxation, the author

of numerous articles and teaching materials, and a fre-

quent speaker at tax-related conferences. The department

acknowledges his expertise in tax law but argues there is

no proof of his expertise in tax policy. It is uncontested, how-

ever, that Pomp has drafted tax laws as a consultant for

several states and led a commission to reform New York’s

corporate and personal income taxes. The court recognizes

this experience in particular as an indicator of his qualifica-

tion as an expert in tax policy. By definition, he worked for

and with policy-makers, and at a bare minimum this task

has required him to understand their tax policy goals and

translate them into tax laws. Benjamin Miller, a graduate of

Stanford Law School, had a long career with the California

Franchise Tax Board working on matters involving multi-

state taxpayers, and he served as California’s representa-

tive to the Multistate Tax Commission. Taxpayer did not

object to Miller’s qualification. The court finds both wit-

nesses qualified as experts in tax policy.

3

To do so, the court will admit as factual evidence the portions of testimony

related to each witness’s qualifications, as identified at the end of this order.

Cite as 24 OTR 549 (2021) 555

The court next considers whether it can benefit

from an expert’s view of tax policy as background. The court

decides statutory cases based on legislative intent. When

a federal statute governs the case, as Public Law 86-272

does here, the court applies federal principles of statutory

construction to better understand Congress’s intent. Etter

v. Dept. of Rev., 360 Or 46, 52, 377 P3d 561 (2016) (Oregon

courts must apply federal law when interpreting a federal

statute, which requires an analysis of the statute’s text,

structure, and legislative history). Federal principles allow

the court to consider a range of factors as relevant to the

“structure” or “context” of the statute. See id. (citing Dept. of

Rev. of Or. v. ACF Industries, 510 US 332, 339-46, 114 S Ct

843, 127 L Ed 2d 165 (1994)). However, the context supplied

by a deeper understanding of tax policy can be useful to the

court only if it reveals something that Congress did or did

not intend when it wrote the law. Therefore, the very insights

that make the proffered information helpful to the court,

when presented as witness testimony, also risk “intruding

on the province of the court.” See Hunters Ridge Condo. Ass’n

v. Sherwood Crossing, LLC, 285 Or App 416, 442-43, 395 P3d

892 (2017) (“It is well established that the adjudication of an

‘issue of law’ is generally the province of the judge, while an

‘issue of fact’ is ordinarily determined by a jury.”).

As a court that sits always in equity and without

a jury, this court has few concerns about intrusion on the

province of the court when the subject of the testimony is

the origin and development of the law. See ORS 305.425.

The court can determine for itself whether the testimony

aids the court’s understanding of the law and can assign the

testimony whatever weight is merited. Nor does testimony

of that limited sort implicate OEC 702, because the court

does not hear it in the court’s capacity as “trier of fact.” See

OEC 702 (allowing expert testimony if “specialized knowl-

edge will assist the trier of fact to understand the evidence

or determine a fact in issue”). The concerns about expert

testimony regarding legal background, as identified in cases

and scholarly articles, appear to stem primarily from the

risk that testimony on that subject during trial could con-

fuse a jury that receives a different summary of the law in

jury instructions. See Charles W. Ehrhardt, The Conflict

556 Santa Fe Natural Tobacco Co. v. Dept. of Rev.

Concerning Expert Witnesses and Legal Conclusions, 92 W

Va L Rev 645, 666-71 (1990) (courts have held legal opinion

testimony inadmissible under Federal Rule of Evidence 702

because it “interfere[s] with the province of the trial judge

to determine and instruct the jury on the law”); Thomas E.

Baker, The Impropriety of Expert Witness Testimony on the

Law, 40 U Kan L Rev 325, 337 (1992) (“If the expert’s tes-

timony conflicts with that of the judge, the testimony may

actually make the jury’s determination more difficult.”).

Having no risk of jury confusion, the court concludes

that so much of each party’s proffered expert testimony as

is limited to the origins and background of policy-makers’

decisions in the formation of the law will be admitted for the

purpose of informing the court in its role as interpreter of the

law. This means that the parties may refer in post-trial brief-

ing to the portions of testimony specifically identified at the

end of this order as statements by recognized experts on the

background and development of the law. The court will con-

sider those statements along with other sources, such as pub-

lished materials, and will assign to them whatever weight

the court considers them to merit based on factors such as

their grounding in sources available to the court and their

internal logic and inherent persuasiveness. The court will

not admit these portions of testimony as factual evidence.4

B. Testimony on Application of Tax Policy to Facts

The court now considers the department’s objec-

tions to proffered testimony on the application of tax policy

(which, as discussed, may encompass tax law) to the facts of

this case. In contrast to general background testimony on

policy or the law, this kind of testimony is squarely governed

by OEC 702. The legislature has chosen to make the Oregon

Evidence Code applicable specifically to this division of the

court, in full awareness that matters in this court are “tried

without a jury.” OEC 101(1)(a) (OEC applies to Regular

Division proceedings); ORS 305.425(1) (no jury).

4

The court encourages counsel in future to consider the alternatives avail-

able in this court. Although a trial court, this court has an established amicus

curiae procedure, as discussed in greater detail below. See Tax Court Rule (TCR)

48. And, of course, parties may cite the views of experts on policy or law in regu-

lar briefing.

Cite as 24 OTR 549 (2021) 557

To be admissible under OEC 702, expert testimony

must help the court, in its role as trier of fact, determine an

issue of fact or understand the evidence:

“If scientific, technical or other specialized knowledge

will assist the trier of fact to understand the evidence or to

determine a fact in issue, a witness qualified as an expert

by knowledge, skill, experience, training or education may

testify thereto in the form of an opinion or otherwise.”

OEC 702. In 1981, Oregon adopted verbatim the then-

existing text of Rule 702 of the Federal Rules of Evidence

and the accompanying commentary. OEC 702 Commentary

(1981) (“Oregon Rule of Evidence 702 * * * is identical to Rule

702 of the Federal Rules of Evidence, and the Legislative

Assembly adopts the commentary of the federal advisory

committee[.]”). Under OEC 702 and case law, the court should

admit testimony of a qualified expert if the testimony would

“aid or * * * help the [finder of fact] to conclude the ultimate

question framed by the pleadings.’ ” Brown v. Boise-Cascade

Corp., 150 Or App 391, 946 P2d 324 (1997) (applying OEC

702; quoting Yundt v. D & D Bowl, Inc., 259 Or 247, 258,

486 P2d 553 (1971)); see also OEC 701 (requiring that lay

testimony be “[h]elpful to a clear understanding of * * * the

determination of a fact in issue”). On the other hand, the

court should not admit expert testimony if the finder of fact

“clearly is equally qualified [to determine the facts] with-

out help from opinion testimony.” Yundt, 259 Or at 259. In

the “area between the clearly qualified [trier of fact] and the

clearly unqualified [trier of fact],” the court has “a certain

latitude of decision in excluding or receiving expert opin-

ion testimony.” Id.; see State v. Jesse, 360 Or 584, 599, 385

P3d 1063 (2016) (Supreme Court’s “decisions have confined

the role of judicial discretion to circumstances involving

factual issues neither clearly within, nor beyond, the jury’s

assumed level of understanding”). When a witness seeks to

apply the law to the facts of a case, Oregon courts repeatedly

have held the testimony inadmissible under OEC 702. E.g.,

Jackson, 304 Or App at 512; State v. Woodford, 293 Or App

484, 487-88, 428 P3d 971 (2018) (trial court committed non-

harmless error by admitting as expert testimony police offi-

cer’s statement that he saw “ ‘no elements of a crime being

committed’ ”); see also Olson v. Coats, 78 Or App 368, 370-71,

558 Santa Fe Natural Tobacco Co. v. Dept. of Rev.

717 P2d 176 (1986) (citing common law) (“A witness may not

testify regarding a legal conclusion.”).

The court finds that the testimony not addressed in

the first part of this order falls outside the range of testimony

that the court must, or may, admit. The testimony applying

tax policy to the facts is primarily limited to application of

tax law to the facts.5 At trial, Pomp discussed Justice Scalia’s

focus in Wrigley on whether and where “solicitation” occurs

in applying Public Law 86-272. He also described Wayfair as

determining that it is “sound policy to maintain a level playing

field between local merchants that are selling and collecting

the sales tax and remote vendors that are selling.” Further,

Pomp discussed returns under taxpayer’s business model and

opined on rights of parties under taxpayer’s contracts and

under Public Law 86-272 pursuant to various agency theories.

He went on to discuss application of agency law and “ancil-

lary” principle under Wrigley to pre-book orders.

The department’s expert, Miller, differentiated between

pre-solicitation and post-sale activities under Wrigley. He

continued with testimony applying Public Law 86-272 to

pre-book orders and gave testimony as to “control” on cross-

examination. As the court interprets Jackson and Woodford,

the court is deemed to be “equally qualified,” to the same

extent as any legal expert, to apply the law in determining

ultimate facts. Under Yundt, therefore, the court lacks discre-

tion to admit the testimony. See 259 Or at 259.

To the extent that either witness mentioned policy

other than Public Law 86-272 or case law, as applied to the

facts, the references are to general ideas or principles, with-

out citation. Professor Pomp described commercial activities

generally as win-win for buyers, sellers, states, and locali-

ties. Miller offered that “everybody’s been tightening down

on this idea that * * * if you’re doing a certain level of busi-

ness, why it’s reasonable to expect—you know, the state gets

compensation for that.” As to these relatively few references,

the court likewise concludes that it is “equally qualified,”

5

The court uses the term “tax” policy or law broadly, encompassing all law

governing the contracts in evidence, as well as concepts such as the degree of

control that a principal must exert before an agent’s actions are attributed to the

principal.

Cite as 24 OTR 549 (2021) 559

and that the testimony therefore does not help the court

understand the evidence or determine the ultimate facts as

required by OEC 702.

Taxpayer urges a more liberal standard for admis-

sion of its proffered testimony because this court conducts

bench trials. (Its brief cited Builders Steel Co. v. Comm’r, 179

F2d 377 (8th Cir 1950).) But beyond the court’s statutory

requirement to apply OEC 702 when acting as factfinder, the

court believes that doing so will help the court create a clear

record for appeal. The Supreme Court reviews this court’s

decisions de novo on “errors or questions of law” but as to

factual questions applies the standard of “lack of substan-

tial evidence in the record.” ORS 305.445. Avoiding expert

testimony on application of the law to the facts will better

enable the Supreme Court, upon review of this or any case,

to determine the capacity in which this court acts when dis-

cussing the law and the factual evidence.

Moreover, the legislature has seen fit to allow this

court some latitude to promulgate its own “rules of prac-

tice and procedure,” and the court several years ago used

that authority to incorporate procedures for an amicus cur-

iae to offer views on a case pursuant to TCR 48. See ORS

305.425(3). The court generally will entertain an application

by any person, with or without a private interest in the case,

to submit a brief as an amicus curiae in summary judgment

proceedings. The court also will consider an application to

participate in oral argument or in argument at trial. See

TCR 48 E, F. The court’s decision to allow an amicus curiae

to appear is discretionary and may be based on the court’s

view of the value of the applicant’s participation.6 The court

believes that the amicus rule—unusual if not unique among

Oregon trial courts—allows the court to entertain either an

explanation of the policy context affecting the development

of the law, or a policy-based interpretation of the facts, or

both. This alternative gives the amicus latitude to make its

point as persuasively as possible while leaving the parties

6

As the court stated at the beginning of trial in this case, in the course of

reserving its ruling on the admissibility of expert witness testimony, the value to

the court of any presentation on tax policy would depend largely on the extent to

which the applicant relies on credible, cited sources that substantiate the policy

explanation and that are available to the court.

560 Santa Fe Natural Tobacco Co. v. Dept. of Rev.

and the court free to adopt, add to, or refute the background

or arguments based on the admitted evidence.

In this case, the court thus admits and excludes

portions of the testimony as follows. The portions admit-

ted as factual evidence of witness qualification are Pomp’s

testimony at Transcript pages 28 through 48 and Miller’s

testimony at Transcript page 143 through page 153, line 2,

as well as related testimony on cross-examination and redi-

rect at Transcript page 117, line 10, through page 126, line

12 (Pomp) and page 162, line 16, through page 165, line 2

(Miller). The portions admitted for the limited purpose of

informing the court on the origins and background of policy-

makers’ decisions in the formation of the law, as described

above, are Pomp’s testimony at Transcript page 50 through

page 68, line 18, and Miller’s testimony at Transcript page

153, line 11, through page 155, line 19. The court excludes

all remaining testimony and will not consider it for any pur-

pose in deciding the case.7

This court has routinely heard expert testimony

and dealt with a range of objections. However, the issue of

the admissibility of expert testimony on tax policy has not,

to the court’s knowledge, been contested previously. Having

reached the foregoing conclusions with the assistance of the

parties’ briefs, the court in this case will entertain applica-

tions of any amici curiae to submit briefs pursuant to TCR

48, should they desire to do so. Any such brief of an amicus

curiae is due seven days after the due date of the post-trial

brief for the party with which the amicus is aligned or, if

the amicus is not aligned with any party, seven days after

taxpayer’s post-trial brief is due. See TCR 48 D.

IV. CONCLUSION

The court admits and excludes the proffered testi-

mony as listed above. Now, therefore,

IT IS ORDERED that Defendant’s Motion to Strike

Expert Testimony is granted in part and denied in part; and

7

The court therefore finds it unnecessary to consider the parties’ other objec-

tions to specific testimony, such as misstatement of the record, attempts to intro-

duce new evidence, or testimony beyond the scope of a witness’s expertise.

Cite as 24 OTR 549 (2021) 561

IT IS FURTHER ORDERED that Plaintiff’s motion,

made orally at trial, to strike the testimony of Benjamin

Miller is granted in part and denied in part.