Time Warner v. Dept. of Rev.

IN THE OREGON TAX COURT

MAGISTRATE DIVISION

Corporation Excise Tax

TIME WARNER, INC. and SUBSIDIARIES, )

)

Plaintiff, ) TC-MD 220337N

)

v. )

)

DEPARTMENT OF REVENUE, ) ORDER GRANTING DEFENDANT’S

State of Oregon, ) MOTION FOR PARTIAL SUMMARY

) JUDGMENT IN PART, DENYING

Defendant. ) PLAINTIFF’S CROSS-MOTION

This matter comes before the court on the parties’ Cross-Motions for Partial Summary

Judgment.1 For the 2011 to 2013 tax years, the parties dispute two issues: (1) whether Plaintiff

or any of its affiliates were “broadcasters” for purposes of the special apportionment formula in

ORS 314.680 to 314.690,2 and (2) whether Plaintiff or any of its affiliates has “substantial

nexus” with Oregon under both the Due Process Clause of the 14th Amendment to the United

States Constitution and the Commerce Clause of the United States Constitution. (Ptf’s MPSJ at

3; Def’s MPSJ at 1.) If Plaintiff does not prevail on those issues, Plaintiff claims Defendant’s

“proposed adjustments have resulted in an apportionment of income to Oregon which does not

fairly represent the extent of [Plaintiff’s] business activities in the State” under ORS 314.670.

(Ptf’s MPSJ at 3.)

I. STATEMENT OF FACTS

Plaintiff, a Delaware corporation, is “a leading media and entertainment company” with

“four reportable segments: (1) Turner, consisting principally of cable networks and digital media

1

Oral argument held in Tax Court courtroom on July 11, 2024.

2

Unless otherwise noted, the court’s references to the Oregon Revised Statutes (ORS) are to 2009.

ORDER GRANTING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

IN PART, DENYING PLAINTIFF’S CROSS-MOTION TC-MD 220337N 1

properties; (2) Home Box Office [HBO], consisting principally of premium pay television

services domestically and premium pay and basic tier television services internationally; (3)

Warner Bros., consisting principally of feature film, television, home video and videogame

production and distribution; and (4) Time Inc., consisting principally of magazine publishing and

related websites and operations.” (Ptf’s MPSJ at 1, 4; Ptf’s Ex 1 at 3 (10-K); Def’s MPSJ at 2.)

Plaintiff’s affiliated group included more than 100 separate corporations. (Decl of Kerri Clark at

4.) At audit, Defendant determined the following network affiliates were broadcasters and

applied the special formula to source their receipts: HBO, TBS, CNN, Courtroom TV, Cartoon

Network, Turner Classic Movies (TCM), and Turner Network Television (TNT).3 (See Ptf’s

MPSJ at 1; Ptf’s Resp at 1; Decl of Clark at 1.) This Order focuses on those seven networks

because they are the entities for which facts were developed and presented to the court.

A. Overview of Seven Networks

The seven networks each “distributed different cable programming networks through

third party cable and satellite distributors and cable television systems.” (Decl of Clark at 1.)

HBO is “a premium cable television network and was not ad supported.” (Id.) It generated

revenue from cable customers who subscribed to HBO. (Id.) The remaining Turner networks

“were all ad supported.” (Id. at 1-2.)

Plaintiff makes numerous assertions related to the disconnect between the seven networks

and Oregon viewers based on Plaintiff’s third-party affiliation agreements with “cable and

3

Plaintiff further alleges that Defendant “erroneously applied the special apportionment formula for

interstate broadcasters to all members of Time Warner’s consolidated return group.” (Ptf’s MPSJ at 8.) As

discussed in more detail in the Order’s Analysis, this court recently clarified that the applicable apportionment

formula is determined at the entity level and, accordingly, that the special broadcaster formula applies only to those

entities that were broadcasters, not the entire affiliated group. See generally ABC v. Dept. of Rev., TC 5431, 2024

WL 2146943 (Or Tax 2024). Defendant acknowledges the impact of that ruling but continues to assert that more, or

perhaps all, of Plaintiff’s affiliates were broadcasters. (Def’s Resp at 11-12.)

ORDER GRANTING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

IN PART, DENYING PLAINTIFF’S CROSS-MOTION TC-MD 220337N 2

satellite distributors and cable television systems.” (Decl of Clark at 1.) For instance, Plaintiff

asserts that the networks “had no privity of contract” with “Oregon residents or customers” and

“did not collect revenues” from them. (Id. at 3.) Nor did they “receive any income from the

licensing of intangible property in Oregon.” (Id. at 2.) The seven networks “did not transmit

their programming content or otherwise broadcast to Oregon viewers.” (Id. at 4.) Rather,

Plaintiff’s third-party affiliates did those things. (See id. at 2-4.) The seven networks “uplinked

their programming content from outside Oregon to a satellite located outside the State.” (Id. at

3.) The distributors then downlinked the programming and transmitted it to subscribers. (Id.)

The seven networks received income attributable to Oregon audiences or subscribers

pursuant to the third-party affiliation agreements: $40 million in each year for HBO and $60 to

$70 million each year for the ad-based Turner networks. (Def’s MPSJ at 2; Def’s Resp at 4-5.4)

Oregon subscribers comprised a portion of the total subscribers as follows:

TBS CNN TNT Cartoon TCM Court HBO

2011 1.0086% 0.9980% 1.0280% 0.8332% 0.7169% 1.0635% 1.12%

2012 0.9988% 0.9686% 1.0056% 0.7975% 0.7375% 1.0629% 1.10%

2013 0.9818% 0.9755% 1.0048% 0.7878% 0.7603% 1.0850% 1.07%

(Def’s Exs D-G.)

None of the seven networks had employees, offices, or real or tangible personal property

in Oregon. (Decl of Clark at 2.) They did not sell or otherwise provide equipment to Oregon

customers or residents. (Id. at 3.) The networks “did not own an FCC license granting a

designated market area to broadcast in Oregon.” (Id.) However, they were subject to FCC

4

Defendant used both “audience” and “subscriber” throughout its briefing and perhaps interchangeably.

(See, e.g., Def’s MPSJ at 10-11 (stating HBO requires Comcast “to track HBO’s audience down to the individual

subscriber level”). Plaintiff similarly seems to use the terms interchangeably, while denying that its networks had

either. (See, e.g., Ptf’s MPSJ at 7 (stating the networks “did not transmit their programming content or otherwise

broadcast to Oregon viewers. The third-party distributors broadcasted to their Oregon subscribers and audience”).

Accordingly, the court uses both terms, though the affiliation agreements largely use the term “subscriber.”

ORDER GRANTING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

IN PART, DENYING PLAINTIFF’S CROSS-MOTION TC-MD 220337N 3

regulations, “either directly or indirectly through their distribution partners[.]” (Ptf’s Ex 1 at 21.)

None of the affiliates sent “any solicitations for business to Oregon residents or customers.”

(Decl of Clark at 2.) However, “HBO incurred approximately $300 million in marketing

expenditures” for nationwide advertising during the tax years at issue, including cable and

internet advertising that indisputably reached Oregonians. (See Def’s Ex J at 1-2.)

Given the importance of the third-party affiliation agreements to the parties’ positions,

the court recites additional facts relating to the seven networks’ business models and their

affiliation agreements under which they received the income at issue in this case.

B. HBO’s Affiliate Agreements

HBO’s “businesses consist principally of premium pay television services” including the

“multi-channel HBO and Cinemax” services operated by HBO. (Ptf’s Ex 1 at 8.) HBO

“generates revenues principally from providing programming to domestic affiliates that have

contracted to receive and distribute such programming to their customers who choose to

subscribe to the premium pay television services.” (Id.) It is “the most widely distributed

domestic multi-channel premium pay television service” with 43 million domestic premium pay

subscribers in 2013. (Id. at 8-9.) HBO also generates revenue “from the exploitation of its

original programming through multiple distribution outlets.” (Id. at 9.)

During the tax years at issue, HBO had an affiliation agreement with Comcast that

granted Comcast the right to market, transmit, and subdistribute HBO and Cinemax television

programming. (Ptf’s Ex 3 at 1-2.) Under the agreement, HBO sent Comcast “a video and audio

signal” via domestic satellite “used for transmission of cable television programming * * *.” (Id.

at 16-17.) Comcast maintained, at its own expense, a “suitable facility” to receive the

programming. (Id. at 17.) All programming decisions were within the sole discretion of HBO,

ORDER GRANTING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

IN PART, DENYING PLAINTIFF’S CROSS-MOTION TC-MD 220337N 4

and Comcast was required to distribute programming in its entirety, exactly as delivered by HBO

and without any modifications. (Id. at 18.)

Comcast was required to pay HBO “a monthly service charge” for each HBO and

Cinemax subscriber. (Ptf’s Ex 3 at 27.) If Comcast reduced a subscriber’s bill due to failure of

transmission of HBO programming, then Comcast could make a pro rata reduction in its service

charge due to HBO. (Id. at 28.) Comcast was required to “keep accurate and complete records

and accounts of billings [and] subscribers” and to send to HBO monthly a statement of the total

number of HBO and Cinemax subscribers for which services charges were due. (Id. at 45-46.)

A “List of Systems” was attached to the affiliate agreement, which reflected “Qualifying

Systems” carrying HBO programming and subject to the agreement. (Id. at 5, 57-71.) The list

includes the following Oregon locations: Corvallis regional, Eugene regional, East Portland

regional, Linn County regional, McMinnville regional, Salem regional, St Helens regional,

Tualatin Valley regional, and West Portland regional. (Id. at 57-71.)

Comcast agreed to actively market HBO programming to increase the number of

subscribers. (Ptf’s Ex 3 at 44.) To aid that effort, HBO provided Comcast with millions of

dollars in matching funds to cover Comcast’s marketing expenses during the contract period.

(Id. at 45.) HBO agreed to provide closed captioning to ensure Comcast complied with FCC and

other federal law. (Id. at 16.) HBO also agreed to coordinate with Comcast to comply with any

applicable state or local laws. (Id.) HBO permitted Comcast to use its trademarks and logos in

programs guides, listings, bill stuffers, and similar materials. (Id. at 38-39.) HBO agreed to

indemnify and hold Comcast harmless for any claim “arising out of or caused by its distribution

in accordance with this Affiliation Agreement of any programming,” including libel, slander,

copyright infringement, or right of privacy. (Id.at 47.) The agreement provided that no Comcast

ORDER GRANTING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

IN PART, DENYING PLAINTIFF’S CROSS-MOTION TC-MD 220337N 5

subscriber “shall be deemed to have any direct or indirect contractual relationship with HBO or

any other direct relationship with HBO by virtue of” the agreement. (Id.)

C. Turner Networks’ Affiliate Agreements

“Turner generates revenues principally from providing programming to cable system

operators, satellite service distributors, telephone companies and other distributors (known as

affiliates) that have contracted to receive and distribute this programming to subscribers and

from the sale of advertising.” (Ptf’s Ex 1 at 3.) Fee arrangements under the affiliate agreements

“are generally related to the number of subscribers served by the affiliate, the package of

programming provided to the affiliate by each network and the competitive market.” (Id. at 4.)

Turner sells consumer advertising on a national basis and receives revenue based on the size and

demographics of audience reach. (See id.) Turner networks – including TBS, TNT, TCN, and

others – reached between 90.8 and 98.6 million US television households in 2013. (Id. at 5.)

During the tax years at issue, Turner had an affiliation agreement with the National Cable

Television Cooperative (NCTC) for the distribution of Turner networks’ programming. (Def’s

Ex H at 350.5) NCTC negotiates programming agreements with members that own and operate

cable television systems. (Id.) The members received a nontransferable license to distribute

Turner network programming to “subscription television customers” nationwide. (Id. at 350-

353.) Turner transmitted programming via satellite. (Id. at 358.) The members were required to

cablecast Turner’s programming “in its entirety, displayed full screen, on a single dedicated

channel, dedicated to and used solely for the full-time delivery of such [programming], without

any editing, delay, additional, alternation, deletion or interruption * * *.” (Id. at 355.)

5

The agreement was by Turner Network Sales, which “transmits the satellite-delivered video programming

services” including CNN, TNT, TBS, Cartoon Network, and TCM. (Def’s Ex H at 350.)

ORDER GRANTING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

IN PART, DENYING PLAINTIFF’S CROSS-MOTION TC-MD 220337N 6

NCTS was required to pay Turner on behalf of its members a monthly rate for each

network, and to provide Turner with reports of subscriber information for the preceding month,

listing subscribers by network. (Def’s Ex H at 359-361.) Service addendums to the agreement

authorized members to advertise in specified time blocks per hour (e.g., one, two, or three

minutes) with a monthly rate per subscriber. (Id. at 375-377.) The monthly rates varied

depending on the total subscribers to the network. (See id.) Additional provisions limited the

permissible advertisements that could be inserted into programming by members, such as

advertising appropriate for children on Cartoon Network. (Id. at 355-56.)

The agreement included a provision stating that it did not create a “joint venture,

partnership or agency relationship between the parties” and that no “privity of contract” existed

between a member’s customer and Turner by virtue of the agreement. (Def’s Ex H at 364.)

II. ANALYSIS

As noted above, the issues presented are whether Plaintiff or any of its affiliates were

interstate broadcasters subject to the special apportionment provisions contained in ORS 314.680

to 314.690 and, if so, whether those broadcaster affiliates had substantial nexus with Oregon as

defined by state law and under the United States Constitution’s Due Process Clause of the 14th

Amendment and the Commerce Clause. In accordance with the “first things first” doctrine, the

court begins with state law claims before addressing federal claims. See Capital One v. Dept. of

Rev., 22 OTR 326, 330 (2016).6 Here, that means the court begins with whether the interstate

broadcaster statutes apply to Plaintiff or any of its affiliates.

///

6

Oregon’s corporate excise and income taxes extend to the full extent permitted by the federal constitution,

so “constitutionality and proper statutory construction are really one issue, turning upon the application of

constitutional limitations upon state taxation of interstate commerce.” Id. at 333.

ORDER GRANTING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

IN PART, DENYING PLAINTIFF’S CROSS-MOTION TC-MD 220337N 7

A. Whether the Seven Networks Were Interstate Broadcasters

Oregon created a special sales factor for interstate broadcasters in 1989. Comcast Corp.

and Subsidiaries v. Dept. of Rev., 363 Or 537, 541, 423 P3d 706 (2018). An “interstate

broadcaster” is “a taxpayer that engages in the for-profit business of broadcasting to subscribers

or to an audience located both within and without this state.” ORS 314.680(3). “Broadcasting”

is “the activity of transmitting any one-way electronic signal by radio waves, microwaves, wires,

coaxial cables, wave guides or other conduits of communications.” ORS 314.680(1). This court

and the Oregon Supreme Court have written numerous decisions involving the interstate

broadcaster statutes at issue here. A review of those cases provides helpful background and

comparisons in considering whether Plaintiff or any of its affiliates were interstate broadcasters.

1. Overview of broadcaster cases

In the first case, Comcast challenged the application of the interstate broadcaster statutes

because it derived income from internet and voice over internet protocol services in addition to

its cable television service. Comcast Corp. v. Dept. of Rev., 22 OTR 295, 296 (2016). The court

upheld the application of the broadcaster statutes explaining: “The consequence of a taxpayer

engaging in any interstate broadcasting is that the numerator of the sales factor for that taxpayer

includes ‘all gross receipts attributable to this state, with gross receipts from broadcasting to be

included as specified in subsection (4) of [ORS 314.684].’ ” Id. at 297, citing ORS 314.684(3)

(emphasis in opinion). On appeal, the Oregon Supreme Court considered Comcast’s challenge

to the scope of the term “gross receipts from broadcasting” and rejected its narrow reading of

that phrase, affirming the tax court opinion. Comcast Corp., 363 Or at 541.7

///

7

Comcast did not challenge the tax court’s conclusion that it was an interstate broadcaster. Id.

ORDER GRANTING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

IN PART, DENYING PLAINTIFF’S CROSS-MOTION TC-MD 220337N 8

More recently, Comcast litigated in this court how to calculate the broadcaster formula

for its broadcasting activities: “operating television networks and providing cable television

service.” Comcast Corp. and Subsidiaries v. Dept. of Rev., 24 OTR 250, 265 (2020). Comcast

had a total of 29 television networks, including NBC, USA, and CNBC. Id. at 262.

Programming was transmitted over the air, via cable television to subscribers, or via direct

broadcast satellite to subscribers. Id. at 263. Comcast’s networks generated revenue from two

primary sources: license fees and advertising, both of which were dependent on the size of the

audience for the network or the number of subscribers. Id. The court ultimately accepted

Comcast’s proposed apportionment using Nielson data to determine the audience for over-the-air

broadcasting and then adding subscriber data from cable and satellite broadcasting. Id. at 272.

The court observed that, “[a]t a high level, the legislature’s purpose in enacting ORS 314.680 to

314.690 was to find a way to account for the location of the market in the sales factor of

interstate broadcasters.” Id. at 270.

“Over the course of the legislative session, the bill was amended to also ensure

that a broadcaster based outside Oregon would (assuming it had nexus with

Oregon) be required to include an amount in its sales factor reflecting the value of

the Oregon audience to advertisers, as opposed to having no sales attributed to

Oregon under the cost-of-performance rules.”

Id. at 271.

ABC also challenged its status as an interstate broadcaster, arguing among other things

that references to “broadcasting” in its 10-Ks had a different meaning than that term as used in

statute. See ABC, Inc. v. Dept. of Rev., TC-MD 170364N, 2020 WL 3412334 (Or Tax M Div,

Apr 22, 2020.) That court rejected ABC’s argument based on the activities of its media networks

segment, which included “a domestic broadcast television network, television production and

distribution operations, domestic television stations, international and domestic cable networks,

ORDER GRANTING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

IN PART, DENYING PLAINTIFF’S CROSS-MOTION TC-MD 220337N 9

[and] domestic broadcast radio networks and stations.” Id. at *2, *12 (internal quotation marks

omitted). The court noted that ABC networks derived advertising revenue depending on the size

and nature of their audiences. Id.

On appeal, the Regular Division of this court considered whether “ORS 317.715(3)(b)

requires each affiliate to determine its own apportioned percentage of the group’s overall

income” or rather “that a single percentage must be determined for the group as a whole.” ABC

Inc. v. Dept. of Rev., TC 5431, 2024 WL 2146943 (Or Tax 2024). If so, then some of ABC’s

affiliates were “interstate broadcasters” subject to the special formula and others, such as parks,

were not. Id. The court ultimately concluded that the broadcaster determination must be made at

the entity level. Id. at *14, *19.

Finally, NBC challenged its status as an interstate broadcaster despite owning and

operating news and entertainment television networks and television stations. NBCUniversal,

Inc. v. Dept. of Rev., TC-MD 170037R, 2022 WL 3444001 at *1 (Or Tax M Div, Aug 17, 2022).

NBC argued that it lacked “privity of contract” or direct subscribers: “they distribute content to

independent third parties – cable, satellite, and independently owned television stations located

in Oregon – and not directly to persons in Oregon and thus they do not broadcast to Oregonians

because there is a third-party break in the distribution chain.” Id. at *3. The court rejected that

argument, observing the plain language of ORS 314.680 required only that a taxpayer engage “in

the business of broadcasting”; it did “not require a contractual relationship or privity with the end

user.” Id. Upon reviewing legislative history, the court found that “[t]he legislature was aware

that multistate companies like [NBC] were using affiliates to transmit their programming to its

citizens and considered them interstate broadcasters.” Id. at *4.

///

ORDER GRANTING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

IN PART, DENYING PLAINTIFF’S CROSS-MOTION TC-MD 220337N 10

From that review of case law, the court observes that whether an entity was a broadcaster

is determined at the level of the entity. However, an entity that engages in both broadcasting and

non-broadcasting activities may still be subject to the broadcaster formula. The definition of an

“interstate broadcaster” looks to the entity’s business, especially whether it derives revenue from

subscribers or an audience. Nothing in the plain language of the statute or the legislative history

suggests that a broadcaster must have a contractual relationship with its audience. Operating a

television network that receives revenue based on the audience size or number of subscribers

qualifies as “the business of broadcasting.”

2. Application of ORS 314.680(3) and case law to seven networks

Based on the foregoing conclusions about Oregon’s broadcaster case law, the seven

networks at issue qualify as interstate broadcasters within the meaning of ORS 314.680(3).

Under their affiliation agreements, they transmitted programming to viewers nationwide and

received income based on the number of subscribers. To the extent that a network engaged in

additional activities (e.g., HBO’s creation and sale of original programming), that does not alter

the conclusion that it was a broadcaster.

Plaintiff resists the conclusion that the networks were broadcasters, describing them as

“content providers” and maintaining that they merely transmitted programming to a satellite

located outside of Oregon.8 (Ptf’s MPSJ at 2, 25.) The third-party affiliates, not Plaintiff’s

networks, did the broadcasting. Plaintiff’s position ignores the economic reality of the networks’

business models, including the extent of control they retained over their programming. Under

the affiliation agreements, the networks permitted no modifications to programming except the

8

Plaintiff does not appear to challenge that this qualified as “transmitting any one-way electronic signal”

under ORS 314.680(1).

ORDER GRANTING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

IN PART, DENYING PLAINTIFF’S CROSS-MOTION TC-MD 220337N 11

insertion of approved advertising in the case of the Turner networks. Comcast was required to

distribute HBO’s programming in its entirety, “exactly as delivered by HBO.” (Ptf’s Ex 3 at 18.)

Similarly, the Turner networks’ affiliates were required to deliver programming “in its entirety,

displayed full screen, on a single dedicated channel, dedicated to and used solely for the full-time

delivery of such [programming], without any editing, delay, additional, alternation, deletion or

interruption * * *.” (Def’s Ex H at 355.) Plaintiff’s affiliate agreements demonstrate that

Plaintiff’s business model required delivery of its programming unaltered to viewers, not merely

to its affiliates.

Similarly, the networks’ revenue under the affiliation agreements was determined based

on the number of subscribers to each network, as contemplated by the definition of an interstate

broadcaster in ORS 314.680(3). Or, to put it another way, the subscribers were the relevant

market. Other aspects of the affiliation agreements reveal the centrality of subscribers to the

compensation structure. HBO provided Comcast with a significant amount of matching funds to

cover Comcast’s expenses of marketing HBO and increasing its subscribers. Comcast was

permitted to reduce its payment to HBO pro rata if an HBO subscriber did not receive the

programming due to a transmission failure. The Turner networks similarly received payment

based on the number of subscribers to the network. Both HBO and Turner required affiliates to

maintain and share detailed subscriber records on a monthly basis.

In sum, the business model of Plaintiff’s seven networks reveals them to be interstate

broadcasters within the meaning of ORS 314.680(3). Plaintiff makes additional arguments why

the interstate broadcaster statutes do not apply, which the court considers in the next section.

3. Plaintiff’s other challenges under broadcaster statutes

Plaintiff argues that the interstate broadcaster statutes do not apply to the seven networks

ORDER GRANTING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

IN PART, DENYING PLAINTIFF’S CROSS-MOTION TC-MD 220337N 12

because: 1) they were not “taxpayers” under ORS 314.680(3); and 2) they had no “income-

producing activity in the state” under ORS 314.684(4). (See Ptf’s MSPJ at 3, 20; Ptf’s Resp at 6-

7; Ptf’s MSJ at 20.) Plaintiff’s argument that the networks were not “taxpayers” appears to be

coextensive with its argument that they lacked substantial nexus. (See Ptf’s MSPJ at 20, Ptf’s

Resp at 7.) Accordingly, the court addresses that argument in a subsequent section.

With respect to Plaintiff’s second argument, the language “income producing activity in

this state” appears in ORS 314.684, which explains how to determine the sales factor for an

interstate broadcaster. See ORS 314.684(1). Subsection (4) states in full:

“Gross receipts from broadcasting of an interstate broadcaster which engages in

income-producing activity in this state shall be included in the numerator of the

sales factor in the ratio that the interstate broadcaster’s audience or subscribers

located in this state bears to its total audience and subscribers located both within

and without this state.”

ORS 314.684(4). Two other broadcaster statutes provide necessary context to understand that

language. First, ORS 314.690 states that “[t]he provisions of ORS 314.680 to 314.688 are not

intended to change the meaning of the terms ‘income-producing activity,’ ‘sources within this

state,’ ‘business activity’ taxable in this state or ‘doing business’ in this state contained in this

chapter or ORS chapter 317 or 318.” The term “income-producing activity” is used in ORS

314.665(4), addressing when sales of other than tangible personal property are in this state.9

The second relevant broadcaster statute is ORS 314.682, which states:

“(1) Notwithstanding any provisions of ORS 314.605 to 314.675 to the

contrary, ORS 314.680, 314.684 and 314.686 shall apply to the apportionment of

the income of an interstate broadcaster.”

“(2) Except as provided in subsection (1) of this section, all other provisions

9

The term “sources within this state” appears in ORS 318.020, imposing a corporate income tax to the

extent a corporation is not subject to the excise tax in chapter 317. See Capital One v. Dept. of Rev., 22 OTR 326,

332 (2016) (explaining that “the corporate excise and corporate income tax regimes were intended to operate as one

cohesive tax regime” with the corporate income tax only reaching income not already subject to the excise tax).

Neither party presented any arguments under ORS 318.020, so the court declines to address here.

ORDER GRANTING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

IN PART, DENYING PLAINTIFF’S CROSS-MOTION TC-MD 220337N 13

of ORS 314.605 to 314.675 shall apply to the apportionment of the income of an

interstate broadcaster.”

ORS 314.605 to 314.675 are known as the Uniform Division of Income for Tax Purposes Act

(UDITPA). ABC, 2024 WL 2146943 at *3. In ABC, the court considered the relationship

between the interstate broadcaster statutes and UDITPA, concluding “the interstate broadcaster

statutes are not separate from, nor do they replace, all of UDITPA. An interstate broadcaster

must look to many provisions of UDITPA in order to attribute its income to Oregon.” Id. at *18.

However, in accordance with the directive in ORS 314.682(1), the court considered which

provisions of UDITPA may be “contrary” to the interstate broadcaster statutes. Id. at *15-16.

“Certainly, the sales factor statute in UDITPA, ORS 314.665, is largely contrary to the interstate

broadcaster statutes, as ORS 314.684(1) and ORS 314.680(4) prescribe a unique ratio-based

computation for all gross receipts other than receipts from sales of real or tangible personal

property.” Id. at *17.

Putting all of that together, the court concludes that the legislature intended the phrase

“income-producing activity” to have the same meaning as in ORS 314.665(4).10 However, the

legislature did not intend to adopt the cost of performance sourcing method contained in that

statute for gross receipts from broadcasting. Rather, it prescribed a ratio-based computation

based on the location of the audience or subscribers for gross receipts from broadcasting.

Under ORS 314.665 and the related administrative rule, “an ‘income-producing activity’

is something that produces income for the taxpayer * * * [it] generates ‘gross receipts’ and

results in an ‘item of income.’” AT&T Corp. v. Dept. of Rev., 357 Or 691, 711, 358 P3d 973

10

The parties appear to agree that ORS 314.665(4) and the related administrative rule OAR 150-314.665(4)

are relevant to understanding the phrase “income-producing activity.” (See Ptf’s MPSJ at 22-23.) Defendant did not

address the rule in its briefing but did at oral argument.

ORDER GRANTING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

IN PART, DENYING PLAINTIFF’S CROSS-MOTION TC-MD 220337N 14

(2015).11 OAR 150-314.665(4)(2)(d) provides a non-exclusive list of “income producing

activit[ies]” including “[t]he sale, franchising, licensing or other use of intangible personal

property.” Plaintiff argues that “all of the income producing activities of HBO [and the other

networks] related to their licenses with the third-party distributors occurred outside Oregon * *

*.” (Ptf’s MPSJ at 29.) Plaintiff supports that assertion with the following points: 1) “all of their

activities in connection with the licensing of their programming to their Licensees occurred

outside of Oregon” and 2) “the transmission [or] delivery of the programming content of HBO

and [other networks] to the third-party distributors was via satellite located outside Oregon.”

(Id.) At oral argument, Defendant responded by noting that the definition of “income producing

activity” includes “transactions and activities performed on behalf of a taxpayer, such as those

conducted on its behalf by an independent contractor.” See OAR 150-314-665(4)(2).

In applying the term “income-producing activity” to Plaintiff’s networks, it is important

to consider the context of the interstate broadcaster statutes. Plaintiff’s first argument about the

location of “activities in connection with licensing” appears to be an attempt to use the cost of

performance sourcing rule in ORS 314.665(4). That approach is contrary to Oregon’s interstate

broadcaster formula, which relies on the location of the audience or subscribers to source gross

receipts from broadcasting. ORS 314.684(4).

Plaintiff’s second argument relies on the idea that the networks’ “income-producing

activity” is transmitting programming to its distributors. (See also Ptf’s MPSJ at 20 (stating the

networks’ “principal customers * * * were the third-party distributors/licensees”).) Plaintiff’s

point appears to be that its networks delivered programming to a location outside of Oregon: a

11

AT&T applied an earlier version of OAR 150-314-665(4) that did not include the activities of

independent contractors. The rule in effect for the tax years at issue included activities of independent contractors.

ORDER GRANTING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

IN PART, DENYING PLAINTIFF’S CROSS-MOTION TC-MD 220337N 15

satellite.12 Yet, at this point, the incoming producing activity was incomplete, and the networks’

income was indeterminate. The distributors were required to transmit network programming to

viewers in Oregon and elsewhere and compensate the networks based on the number of

subscribers, including any pro rata reductions for failed transmission in the case of HBO. Once

again, Plaintiff’s argument attempts to apply a sourcing method other than the one prescribed by

ORS 314.684(4), which is based on the ratio of the broadcaster’s audience or subscribers in this

state compared to its total audience and subscribers.

4. Broadcaster conclusion

The court concludes that the seven networks were interstate broadcasters within the

meaning of ORS 314.680(3). Assuming they each were taxable in Oregon – that is, they had

substantial nexus – they are subject to the special sourcing formula in ORS 314.684.

B. Whether the Seven Networks were Taxable in Oregon

Oregon imposes an excise tax on corporations “doing business” in the state.13 ORS

317.010(5); see also Capital One, 22 OTR at 331 (discussing imposition of tax on financial

institutions). “Doing business” is defined as “any transaction or transactions in the course of its

activities conducted within the state by a national banking association, or any other corporation *

* *.” ORS 317.010(4). “A taxpayer is doing business when it engages in any profit-seeking

activity in the State of Oregon.” OAR 150-317.010(4)(1). “Oregon imposes taxes on or

measured by net income to the extent allowed under state statutes, federal Public Law 86-272,

and the Oregon and U.S. Constitutions.” OAR 150-317.010(1).

12

The court notes that ORS 318.020(2) states that “[i]ncome from sources within this state includes income

from tangible or intangible property located or having a situs in this state * * *.”

13

As noted above, a corporation that is not “doing business” in Oregon may still be subject to tax if it has

“income derived from sources” within the state. See OAR 150-317.010(4)(6); see also ORS 318.020.

ORDER GRANTING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

IN PART, DENYING PLAINTIFF’S CROSS-MOTION TC-MD 220337N 16

For purposes of “jurisdiction to impose an excise tax for the privilege for doing business

under ORS Chapter 317 * * * there must exist a substantial nexus between the state and the

activity or income it seeks to tax.” OAR 150-317.010(1).14 “ ‘Substantial nexus’ * * * does not

require a taxpayer to have a physical presence in Oregon.” OAR 150-317.010(2). It “exists

where a taxpayer regularly takes advantage of Oregon’s economy to produce income for the

taxpayer and may be established through the significant economic presence of a taxpayer in the

state.” Id. The court begins by considering whether substantial nexus exists under the rule and,

if so, whether it also exists under both the Due Process Clause of the 14th Amendment and

Commerce Clause of the United States Constitution.

1. Nexus under OAR 150-317.010

OAR 150-317.010(3) lists non-exhaustive factors that Defendant may consider to

determine whether a taxpayer has a substantial nexus with Oregon. Here, Defendant relied on:

“(a) Maintains continuous and systematic contacts with Oregon’s economy or

market [audience];

“(b) Conducts deliberate marketing to or solicitation of Oregon customers

[audience];

“* * * * *

“(d) Receives significant gross receipts attributable to customers [audience] in

Oregon;

“* * * * *.”

(See Def’s MPSJ at 14-15, quoting OAR 150-317.010(3) with brackets inserted by Defendant.)

Defendant reasons that the networks had significant gross receipts attributable to Oregon

customers based on compensation received per subscriber, including in Oregon. (See id. at 17.)

14

The rule also applies to the corporate income tax under ORS chapter 318, not at issue here.

ORDER GRANTING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

IN PART, DENYING PLAINTIFF’S CROSS-MOTION TC-MD 220337N 17

The networks’ contacts with Oregon’s market were continuous and systematic as illustrated by

the numerous Oregon systems attached to HBO’s affiliation agreement and the monthly

subscriber reports, which included Oregon subscribers. (See id.) HBO spent $300 million on

marketing, including cable television and interactive advertising that reached Oregonians. (Id. at

18.) Plaintiff disputes that any of those factors apply, reiterating that it “did not send any

solicitations for business to Oregon residents or consumers” and noting that the networks’ only

contracts were with the third-party distributors, not Oregon customers or residents. (Ptf’s Resp

at 4.)

For reasons discussed above, the court agrees with Defendant that several factors in OAR

150-317.010(3) support its conclusion that the networks had substantial nexus with Oregon. The

networks maintained continuous and systematic contacts with the Oregon market, sending

programming that ultimately reached Oregon viewers and receiving payment on that basis. The

networks received “significant gross receipts attributable to customers in Oregon” under the

subscriber-based compensation structure of the affiliation agreements. Indeed, Defendant

determined that the networks received income in excess of $100 million each year attributable to

Oregon audiences or subscribers.

Similarly, the court agrees with Defendant that HBO conducted deliberate marketing in

Oregon. The fact that HBO’s marketing was nationwide rather than specifically targeted to

Oregon does not change that outcome. See Ooma Inc. v. Dept. of Rev., 369 Or 95, 105-106, 501

P3d 520 (2021) (rejecting taxpayer’s argument that “targeting a forum” means targeting only one

state to the exclusion of others; taxpayer’s “effort to target customers in other states does not

affect or diminish the constitutional significance of its effort to target customers in Oregon.”)

Finding the substantial nexus standard in OAR 150-317.010 satisfied, the court next considers

ORDER GRANTING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

IN PART, DENYING PLAINTIFF’S CROSS-MOTION TC-MD 220337N 18

whether Oregon’s taxation of the networks violates the Due Process Clause of the 14th

amendment to the United States Constitution.

2. Due Process Clause

Plaintiff maintains that the networks lack nexus under the Due Process Clause of the 14th

Amendment because the networks had no physical presence in Oregon and “did not directly

receive any revenues from Oregon residents or customers.” (See Ptfs’ MPSJ at 12-13, citing In

re Washington Mutual, Inc., No. 08-12229, 485 BR 510 (Bankr D Del 2012).)

Nexus under the Due Process Clause involves a “two-step analysis” under N. Carolina

Dept. of Rev. v. The Kimberly Rice Kaestner 1992 Family Tr., 588 US 262, 139 S Ct 2213, 204 L

Ed 2d 621 (2019): 1) a “minimum connection” between the state and the person, property, or

transaction taxed; and 2) a rational relationship between the “income attributed to the State for

tax purposes” and “values connected with the taxing State.” Ooma, 369 Or at 99-100. Plaintiff

does not address that analysis anywhere in its briefing. Plaintiff does not appear to distinguish

between substantial nexus under the Commerce Clause and Due Process Clause. (See Ptf’s

MPSJ at 8 (subsection B addressing all “substantial nexus” issues under one heading).) That

may be based on a reading of South Dakota v. Wayfair, 585 US 162, 177-78, 138 S Ct 2080, 201

L Ed 22 403 (2018), stating that there are “significant parallels” between “Due Process and

Commerce Clause standards” though they are “not identical or coterminous * * *.” See also

Global Hookah v. Dept. of Rev., 24 OTR 562, 592-93 (2021) (describing Due Process Clause

nexus as a “second relevant level of nexus” under Wayfair and considering as a “check” on

Commerce Clause analysis). Based on Plaintiff’s limited briefing, the court confines its review

here to Washington Mutual.

///

ORDER GRANTING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

IN PART, DENYING PLAINTIFF’S CROSS-MOTION TC-MD 220337N 19

Washington Mutual was a pre-Wayfair bankruptcy case concerning WMI, a holding

company for Washington Mutual Bank. 485 BR at 513. Applying both the Due Process and

Commerce Clauses, the court rejected Oregon’s “attempt[] to hold WMI jointly and severally

liable for corporate excise taxes incurred by the banking operations of its subsidiaries in

Oregon.” Id. at 520-521. WMI conducted no business activity in Oregon. Id. at 516. It “was

simply a parent company that held stocks in its subsidiaries” and “[i]ts only source of income

related to Oregon came from cash dividends from” its subsidiaries. Id. WMI owned intangible

property – such as the “Power of Yes” slogan – that was used by its subsidiaries in Oregon, but

WMI did not receive any income from the use of its intangible property. See id. Moreover,

Oregon was “not seeking to tax the proceeds of any sale in Oregon of an intangible owned by

WMI or the proceeds of the licensing of any intellectual property owned by WMI that was used

in connection with business activity in Oregon.” Id. at 520. Instead, the issue was WMI’s

liability for excise taxes incurred by its subsidiaries. Id. at 521. The court observed that the

intellectual property itself must generate income to subject its holder to taxation. Id.

This case is readily distinguishable from Washington Mutual. The networks at issue here

were not mere holding companies receiving dividends from subsidiaries. Rather, they generated

significant income – including from Oregon viewers – through the activity of distributing cable

programming. Plaintiff also notes its networks’ lack of a physical presence in Oregon. Yet there

is no such requirement for the corporate excise or income tax. See Capital One, 22 OTR at 332-

34 (“doubting” that any such requirement exists for the corporate excise tax and finding no such

requirement for the corporate income tax); see also Capital One Auto Finance Inc. v. Dept. of

Rev., 363 Or 441, 423 P3d 80 (2018), aff’g 22 OTR 326 (rejecting physical presence requirement

for corporate income tax, which is imposed on income from sources within this state). “[N]exus

ORDER GRANTING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

IN PART, DENYING PLAINTIFF’S CROSS-MOTION TC-MD 220337N 20

[to tax] exists whenever the corporation takes advantage of the economic milieu within the state

to realize a profit.” Capital One, 22 OTR at 334, quoting American Refrigerator Transit v. State

Tax Comm’n, 238 Or 340, 395 P2d 127 (1964). Plaintiff received significant income from the

distribution of its programming in Oregon, realizing a profit from the state’s “economic milieu.”

Thus, Due Process Clause nexus requirements are satisfied in this case.

3. Commerce Clause

As with the broadcaster determination, nexus is determined at the level of the entity.

ORS 717.715(3)(b). Here, again, the court is focused on the seven networks at issue. The court

begins by reviewing and applying the substantial nexus test under Wayfair. The court then

considers Plaintiff’s argument against a finding of substantial nexus based on the networks’ lack

of direct sales to or contractual privity with Oregon viewers.

a. Substantial nexus under Wayfair

State laws “may not impose undue burdens on interstate commerce.” Wayfair, 585 US at

173. To review the validity of a state tax under the Commerce Clause, the court applies the four-

part test in Complete Auto: “The Court will sustain a tax so long as it (1) applies to an activity

with a substantial nexus with the taxing State, (2) is fairly apportioned, (3) does not discriminate

against interstate commerce, and (4) is fairly related to the services the State provides.” Id. at

174, citing Complete Auto Transit, Inc. v. Brady. 430 US 274, 97 S Ct 1076, 51 L Ed 2d 326

(1977). Here, Plaintiff’s only challenge is under part one of the test, “substantial nexus.”15

Prior to Wayfair, the Court had concluded under the “substantial nexus” test that physical

presence was required for an out-of-state retailer in the sales and use tax context. 585 US at 174-

75. Finding the physical presence rule was unnecessary to the Commerce Clause and created

15

Plaintiff claims unfair apportionment under ORS 314.670, discussed below. (Ptf’s MPSJ at 25.)

ORDER GRANTING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

IN PART, DENYING PLAINTIFF’S CROSS-MOTION TC-MD 220337N 21

market distortions, particularly with the rise of online retailers, the court eliminated the physical

presence rule in Wayfair. See id. at 176-188. The court observed that in the modern,

interconnected economy, with “targeted advertising and instant access to most consumers via

any internet-enabled device, ‘a business may be present in a State in a meaningful way without

that presence being physical in the traditional sense of the term.’” Id. at 181 (citation omitted).

In overruling the physical presence requirement, the court explained that the substantial nexus

prong of the Complete Auto test is satisfied “when the taxpayer [or collector] ‘avails itself of the

substantial privilege of carrying on business’ in that jurisdiction.” Id. at 188 (citation omitted).

The South Dakota law at issue in Wayfair was triggered by a business having $100,000 in

sales or 200 or more separate transactions. 585 US at 188. The court concluded that that

“quantity of business could not have occurred unless the seller availed itself of the substantial

privilege of carrying on business in South Dakota.” Id. The Court further observed that the

sellers challenging the law were “large, national companies that undoubtedly maintain an

extensive virtual presence.” Id. Thus, substantial nexus was satisfied. Id.

Both the Oregon Supreme Court and this court have now applied the ruling in Wayfair.

In Ooma, the Oregon Supreme Court affirmed the Tax Court’s conclusion that Oregon could

impose its E911 tax on a California-based provider of VoIP services. 369 Or at 107-109. The

court noted that “Ooma did more than $2.2 million in business in 39 months and provided

thousands of lines of VoIP service,” greater than the amounts sufficient for nexus in Wayfair. Id.

This court’s application of the Wayfair ruling came in Global Hookah. 24 OTR at 564.

The taxpayer in that case was a North Carolina based distributor of tobacco products that

received orders through its website, sent a newsletter to a subscriber list, had an Oregon

distributor license, and registered as a foreign corporation in Oregon after a state employee

ORDER GRANTING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

IN PART, DENYING PLAINTIFF’S CROSS-MOTION TC-MD 220337N 22

directed it to do so. Id. In 2008, its Oregon sales “amounted to less than $10,000 * * * and

fewer than 20 invoiced transactions * * *.” Id.16 Yet, the court found the taxpayer availed itself

of the privilege of “carrying on a business” in Oregon. Id. at 597. Taxpayer “knew from its

customers’ shipping addresses that it was selling shisha into Oregon[,]” and it made sales into

Oregon on a regular monthly basis. Id. With respect to the “substantial” requirement, the court

concluded that a taxpayer whose activity rises to the level of ‘carrying on business’ necessarily

exercises a privilege that is substantial in character. Id. To avoid nexus, a taxpayer “either must

avoid the intentional connection with the state that is implicit in the term ‘avail,’ or the activities

must lack the continuity implicit in ‘carrying on’ business.” Id. at 598.

Returning to the present case, Plaintiff’s networks generated revenue in excess of $100

million annually based on Oregon viewers. The networks were clearly aware of their viewers in

Oregon: they received monthly subscriber reports from third-party affiliates, upon which

payment was calculated. HBO’s affiliation agreement with Comcast appended a list of systems,

including numerous in Oregon. That is significantly more business in Oregon than was

sufficient for nexus in either Ooma or Global Hookah. Nevertheless, Plaintiff argues that the

networks lack nexus because they did not make direct sales to or otherwise contract with Oregon

customers. (Ptf’s MPSJ at 9, Resp at 3.) “[T]here is a complete absence of the requisite

substantial economic or virtual contacts with consumers in Oregon noted by the Court in

Wayfair.” (Ptf’s Resp at 3.) Plaintiff’s argument leads to a new question: : Does the networks’

use of third-party affiliates to distribute programming alter the conclusion that the networks were

carrying on business in Oregon under Wayfair?

///

16

The taxpayer’s business grew in subsequent tax years, also at issue. 24 OTR at 564.

ORDER GRANTING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

IN PART, DENYING PLAINTIFF’S CROSS-MOTION TC-MD 220337N 23

b. Use of third-party affiliates to carry on business

In considering whether substantial nexus exists for taxation, the Supreme Court has held

that taxpayer’s use of an independent contractor to conduct business in the state does not defeat a

finding of nexus. Tyler Pipe v. Washington State Dept. of Rev., 483 US 232, 250, 107 S Ct 2810,

97 L Ed 2d 199 (1987). “[T]he crucial factor governing nexus is whether the activities

performed in this state on behalf of the taxpayer are significantly associated with the taxpayer’s

ability to establish and maintain a market in this state for the sales.” Id. More recently, states

have considered some version of this issue in the contexts of online businesses and companies

that license the use of intangible property.

Several states have considered whether nexus existed with online travel agencies that

contracted with in-state hotels for the right to hotel reservations online. In each case, the hotels

were unrelated to the online travel agencies. In Travelscape v. South Carolina Department of

Revenue, 391 S.C. 89, 705 S E 2d 28 (2011), the South Carolina Supreme Court held that an out-

of-state, online travel agency had substantial nexus with South Carolina based on its contracts

with in-state hotels for the right to offer discounted reservation rates online. Id. at 37. The court

explained:

“Without the hotels actually providing the sleeping accommodations to the

customer, Travelscape would be entirely unable to conduct business within the

state. For Commerce Clause nexus purposes, it simply does not matter that

Travelscape specifically disclaims any agency relationship with the hotels in the

contracts it enters into.”

Id. The Supreme Court of Wyoming similarly concluded that various online travel companies

had substantial nexus with the state, notwithstanding the fact that unrelated hotels provided the

lodging. See Travelocity.com v. Wyoming Dept. of Rev., 2014 WY 43, 329 P3d 131, 148 (Wyo.

2014). In another case, Mayor & City Council of Baltimore v. Priceline.com, 2012 WL

ORDER GRANTING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

IN PART, DENYING PLAINTIFF’S CROSS-MOTION TC-MD 220337N 24

3043062, an online travel company sought to avoid nexus, explaining that an online hotel

booking involved two distinct transactions: money paid for the use of a hotel room and money

paid for the company’s “travel facilitation services.” Id. at *3. Despite doubting that a consumer

would make that distinction, the court found nexus existed based on the “travel facilitation”

because the hotels were in Baltimore. Id. at *4. An out-of-state company may not avoid nexus

because it relies on third-party contracts to conduct its business in-state.

In the same way that the online travel companies relied upon contracts with unrelated

hotels to carry on their business, Plaintiff’s networks needed distributors (such as Comcast) to

transmit their programming to viewers, including in Oregon. Otherwise, the networks had no

business. As with travel agencies, for substantial nexus, it does not matter that the distributors

were third parties or that Plaintiff disclaimed any agency relationship with them. From the

consumers’ perspective, they paid to see the networks’ programming. That is acknowledged in

the HBO affiliation agreement with Comcast: failure to receive a transmission of HBO permits

Comcast to reduce the fee due from the subscriber and, in turn, remit a pro rata reduced fee to

HBO.

Plaintiff notes a lack of direct sales to Oregon consumers, but that is not necessary for

nexus. For instance, in KFC Corp. v. Iowa Dept. of Rev., 792 N W 2d 308 (2010), the Iowa

Supreme Court found substantial nexus to tax an out of state corporation with no physical

presence in Iowa that received revenue from use of its intangible property within state. Taxpayer

licensed its trademarks and “related system[s]” to “independent franchisees” who owned KFC

restaurants. Id. at 310. Under the franchise agreements, the franchisees were required to adhere

to taxpayer’s requirements for menu items, advertising, marketing, and physical facilities. Id. at

311. The court found that “the presence of transactions within the state that give rise to KFC’s

ORDER GRANTING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

IN PART, DENYING PLAINTIFF’S CROSS-MOTION TC-MD 220337N 25

revenue provide a sufficient nexus under established Supreme Court precedent.” Id. at 323.

Similarly, Plaintiff’s networks received revenue from the distribution of their programming to

Oregon viewers by third-party affiliates, creating a sufficient nexus with Oregon. The court

finds no support for Plaintiff’s contention that the networks lacked substantial nexus with

Oregon based either upon the networks’ use of third-party distributors to conduct their business

or upon the networks’ lack of direct sales to Oregon customers.

C. Fair Apportionment

Plaintiff argues that “the auditor’s proposed adjustments to the numerator of Time

Warner’s sales factor have resulted in an apportionment formula which does not fairly reflect the

extent of Time Warner’s business activity in Oregon” under ORS 314.670.17 (Ptf’s MPSJ at 24-

25.) Many of Plaintiff’s arguments are restatements of points addressed in this Order. (See id. at

25 (asserting networks were not broadcasters or taxable in Oregon). One point of contention is

well-taken: the auditor’s “application of an audience factor to source the gross receipts of all

members of Time Warner’s consolidated return group.” (Id.) In light of the recent ruling in

ABC, Defendant now agrees that the special broadcaster apportionment formula applies only to

those entities that were interstate broadcasters. (Def’s Resp at 11-12.) Defendant requests more

time and possibly discovery to make that determination. (Id.) The court concludes the issue of

fair apportionment under ORS 314.670 is premature and declines to rule on it at this time.

III. CONCLUSION

Upon careful consideration, the court concludes that seven of Plaintiff’s networks were

interstate broadcasters under ORS 314.680(3) and were taxable in Oregon: HBO, TBS, CNN,

17

ORS 314.670 permits an alternative method of apportionment “[i]f the application of the allocation and

apportionment provisions of ORS 314.605 to ORS 314.675 do not fairly represent the extent of the taxpayer’s

business activity in this state * * *.”

ORDER GRANTING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

IN PART, DENYING PLAINTIFF’S CROSS-MOTION TC-MD 220337N 26

Courtroom TV, Cartoon Network, TCM, and TNT. Whether any of Plaintiff’s other affiliates

were broadcasters has yet to be determined so Plaintiff’s challenge of unfair apportionment

under ORS 314.670 is premature. Now, therefore,

IT IS ORDERED that Plaintiff’s Cross-Motion for Partial Summary Judgment is denied.

IT IS FURTHER ORDERED that Defendant’s Motion for Partial Summary Judgment is

granted in part, with respect to the seven networks at issue, and denied in part, with respect to

Plaintiff’s other affiliates.

IT IS FURTHER ORDERED that, within 30 days from the date of this Order, the parties

will file a joint written status report proposing next steps.

This interim order may not be appealed. Any claim of error in regard to this

order should be raised in an appeal of the Magistrate’s final written decision

when all issues have been resolved. ORS 305.501.

This Order was signed by Presiding Magistrate Allison R. Boomer, and entered

on March 31, 2025.

ORDER GRANTING DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

IN PART, DENYING PLAINTIFF’S CROSS-MOTION TC-MD 220337N 27