Crystal Comunications, Inc. v. Dept. of Rev.

300 March 7, 2013 No. 10

March 353 Or 10

Crystal Comunications, Inc. v. Dept.7, 2013

of Rev.

IN THE SUPREME COURT OF THE

STATE OF OREGON

CRYSTAL COMMUNICATIONS, INC.,

an Oregon corporation;

C. G. McKeever;

Myra McKeever;

James E. Bryant;

Camella L. Ryan;

Terry Pinna;

and Erica Pinna,

Appellants,

v.

DEPARTMENT OF REVENUE,

State of Oregon,

Respondent.

(TC 4769; SC S059271)

En Banc

On appeal from the Oregon Tax Court.

Henry C. Breithaupt, Judge.

Argued and submitted September 18, 2012; resubmitted

January 7, 2013.

Scott G. Seidman, Tonkon Torp LLP, Portland, argued

the cause and filed the briefs for appellants. With him on

the brief were Mark F. LeRoux and Michael J. Millender.

Darren Weirnick, Assistant Attorney General, Salem,

argued the cause and filed the brief for respondent. With

him on the brief was John R. Kroger, Attorney General.

KISTLER, J.

The judgment of the Tax Court is affirmed.

Taxpayers reported the gain from the sale of its FCC license as “nonbusiness”

income allocable to Florida, its state of commercial domicile. The department, on

audit, reclassified the gain as apportionable “business income” under OAR 150-

314.280-(B), which incorporates by reference two potentially conflicting definitions

of “business income” from the Uniform Division of Income for Tax Purposes Act

(UDITPA) and the rules promulgated to implement UDITPA. The Tax Court agreed

with the department’s construction of those definitions of “business income” and

Cite as 353 Or 300 (2013) 301

granted summary judgment in its favor. Held: The department’s resolution of the

two potentially conflicting definitions of business income in OAR 150-314.280-(B)

is a reasonable one that is consistent with the text of ORS 314.280. So construed,

OAR 150-314.280-(B) is broad enough to reach the gain from the sale of taxpayer’s

FCC license.

The judgment of the Tax Court is affirmed.

302 Crystal Comunications, Inc. v. Dept. of Rev.

KISTLER, J.

The primary question in this case is whether

the Oregon Department of Revenue (the department)

properly classified income resulting from the sale of Crystal

Communication’s assets as “business income.” Crystal

operated as a multistate business providing wireless cellular

telecommunications services and, in the relevant tax years,

sold its assets related to those services.1 It reported the gain

from the asset sale as “nonbusiness income” and allocated

that gain to Florida, its state of commercial domicile. See

OAR 150-314.280-(D). On audit, the department reclassified

the gain as apportionable “business income.” See OAR 150-

314.280-(B); OAR 150-314.610(1)-(B)(2). Crystal challenged

the reclassification, and the Tax Court granted summary

judgment in favor of the department and entered judgment

accordingly. Crystal has appealed to this court. We now

affirm the Tax Court’s judgment.

Before turning to the relevant facts, we discuss

briefly the statutory and regulatory context in which this

case arises. Under Oregon tax law, two separate statutory

mechanisms exist for the purpose of allocating income

earned by multistate businesses. The first is codified at

ORS 314.280 and applies only to financial organizations

and public utilities. See ORS 314.280(1). The second, the

Uniform Division of Income for Tax Purposes Act (UDITPA),

is codified at ORS 314.605 to 314.675 and applies generally

to all other businesses, subject to a third exclusion not

relevant here. Crystal is a public utility and is therefore

governed by ORS 314.280.2 That statute provides,

1

The tax years at issue are 1999 and 2000. Thus, the statutes and regulations

referred to in this opinion are the 1999 Oregon Revised Statutes and the 1999

Oregon Administrative Rules, unless otherwise noted.

2

The terms “financial organization” and “public utility” are defined by ORS

314.610. That statute defines “public utility” as

“any business entity whose principal business is ownership and operation

for public use of any plant, equipment, property, franchise, or license for the

transmission of communications, transportation of goods or persons, or the

production, storage, transmission, sale, delivery, or furnishing of electricity,

water, steam, oil, oil products or gas.”

ORS 314.610(6). Crystal does not dispute that it is a “public utility” under state

law.

Cite as 353 Or 300 (2013) 303

“If a taxpayer has income from business activity as a

financial organization or as a public utility (as defined

respectively [under UDITPA]) which is taxable both within

and without this state (as defined in ORS 314.610(8)

and 314.615), the determination of net income shall be

based upon the business activity within the state, and

the Department of Revenue shall have power to permit

or require either the segregated method of reporting or

the apportionment method of reporting, under rules and

regulations adopted by the department, so as fairly and

accurately to reflect the net income of the business done

within the state.”

ORS 314.280(1).

ORS 314.280 governs the allocation of income

earned by financial organizations and public utilities

engaged in business activities “both within and without this

state.” It gives the department discretion to apply either of

two methods of allocation—segregation or apportionment—

to “income from business activity” earned by those entities,

as long as the method it chooses “fairly and accurately

[reflects] the net income of the business done within the

state.” ORS 314.280(1). Under the segregated method of

allocation, business entities that are connected by common

ownership but that exist independently and in different

states—i.e., nonunitary businesses—may report and pay

separate taxes on the individual incomes earned by each

entity. See Fisher Broadcasting, Inc. v. Dept. of Rev., 321 Or

341, 348, 354, 898 P2d 1333 (1995). That method treats the

business entity or entities within the state as separate and

distinct from the business entities outside the state. Coca

Cola Co. v. Dept. of Rev., 271 Or 517, 521 n 1, 533 P2d 788

(1975).

The apportionment method of allocation, on the

other hand, generally has been understood to apply to

unitary businesses—that is, to businesses in which a

“portion of the business done within the state is dependent

upon or contributes to the operation of the business without

the state[.]” Id. at 524 (internal quotation marks omitted);

see also Allied-Signal, Inc. v. Div. of Taxation, 504 US 768,

778, 112 S Ct 2251, 119 L Ed 2d 533 (1992) (discussing

the unitary business principle and acknowledging that

304 Crystal Comunications, Inc. v. Dept. of Rev.

the apportionment method derives from that principle).

Under that method, if an entity’s business conducted in a

particular state depends upon or contributes to its business

outside that state, the state may tax a portion of the entity’s

total net income. Generally, the state tax law mechanism

for apportioning income involves a three-factor formula

by which the state calculates the ratio of the taxpayer’s

property, payroll, and sales within that state to its total

property, payroll, and sales. See Jerome R. Hellerstein

& Walter Hellerstein, State Taxation ¶ 9.02, 9-16 (3d ed

2000 & Supp 2013). The income apportioned to the state is

calculated by multiplying that ratio by the taxpayer’s total

net income. Id. ¶ 9.02 at 9-17.

ORS 314.280 does not specify a formula for

apportionment, nor does it establish a method for allocating

“income from business activity” earned by the entities

that it governs. The department has promulgated rules to

provide further guidance. Those rules largely incorporate

by reference the methods of apportioning business income

established under UDITPA. Specifically, one of those rules

provides,

“The provisions of ORS 314.650 [for apportioning

business income] apply to all tax returns of financial

organizations and public utilities for all tax years beginning

on or after January 1, 1991.”

OAR 150-314.280-(A)(2). Another rule provides,

“The definitions of ‘business income,’ ‘commercial domi-

cile,’ ‘compensation,’ ‘financial organization,’ ‘nonbusiness

income,’ ‘public utility,’ ‘sales,’ and ‘state’ contained [in

UDITPA] and the related rules are by this reference incor-

porated herein[.]”

OAR 150-314.280-(B) (emphasis added).

The issue in this case arises because OAR 150-

314.280-(B) incorporates by reference two potentially

conflicting definitions of business income from UDITPA and

makes those definitions applicable to utilities and financial

organizations, which are taxed under ORS 314.280. To put

the issue in context, we discuss UDITPA briefly. Under

UDITPA, whether income is allocated to a single state

Cite as 353 Or 300 (2013) 305

or apportioned among several depends on whether that

income is classified under the statute as “business income”

or “nonbusiness income.” See Hellerstein & Hellerstein,

State Taxation ¶ 9.05[1][a] at 9-36. When a multistate

business subject to UDITPA earns “business income,” that

income is apportioned among the several states in which the

taxpayer conducts business.3 “Nonbusiness income” earned

by a multistate business subject to UDITPA is allocated to

a designated state, generally the taxpayer’s commercial

domicile or, if the nonbusiness income derives from property,

the property’s situs. See ORS 314.625 - 314.645.

The terms “business income” and “nonbusiness

income” are defined terms under UDITPA:

“ ‘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). “Nonbusiness income” is “all income

other than business income.” ORS 314.610(5). This court

previously has explained that each of the two verb phrases

within the statutory definition of “business income” reflects

a separate test defining business income in terms of the

source from which the income derives. Willamette Industries,

Inc. v. Dept. of Rev., 331 Or 311, 316, 15 P3d 18 (2000). The

first verb phrase defines what has been referred to as the

“transactional test.” Under that test, business income

“means income arising from transactions and activity in the

regular course of the taxpayer’s trade or business[.]” ORS

314.610(1). The second verb phrase defines what has been

referred to as the “functional test.” Under that test, business

income “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.” Id.

The department has promulgated a rule that

further defines what constitutes “business income” for the

3

Consistently with the general practice, UDITPA provides a three-factor

formula for apportioning the entity’s net business income based on the business’s

payroll, property, and sales. See ORS 314.650.

306 Crystal Comunications, Inc. v. Dept. of Rev.

purposes of UDITPA. See OAR 150-314.610(1)-(B). Under

that rule, “business income” includes “[g]ain or loss from

the sale, exchange or other disposition of real or tangible

or intangible personal property *  * if the property while

*

owned by the taxpayer was used in the taxpayer’s trade or

business.” OAR 150-314.610(1)-(B)(2). Crystal refers to this

rule as “the Business Income Rule,” and so do we.

As noted, the department has promulgated rules to

implement ORS 314.280 (the statute governing taxation of

utilities and financial institutions) that adopt, practically

wholesale, UDITPA’s statutory provisions and related rules.

As pertinent to this case, OAR 150-314.280-(B) provides that

two definitions of “business income” drawn from UDITPA

apply under ORS 314.280. One is the statutory definition

of business income found in ORS 314.610(1). The other is

the definition of business income found in the Business

Income Rule, OAR 150-314.610(1)-(B)(2). The issue in this

case arises because Crystal contends that the definition

of “business income” found in the Business Income Rule

reaches more broadly than the statutory definition of that

term. Specifically, Crystal does not dispute that the gain that

it realized from the sale of its assets is “business income”

subject to allocation under the Business Income Rule, but

it argues that the gain is not “business income” within the

meaning of the statutory definition of that term in UDITPA,

and thus is not subject to allocation under ORS 314.280.

With that statutory and regulatory background

in mind, we turn to the facts of this case, which we take

from the stipulated record. Crystal Communications is

an Oregon entity that was organized as an S corporation

under the Internal Revenue Code during the relevant tax

years. Taxpayers McKeever, Bryant, Ryan, and Pinna

(the individual taxpayers) are shareholders of Crystal and

nonresidents of Oregon. Until 1999, Crystal held a license

from the Federal Communications Commission (the FCC

license) to operate wireless telecommunications services in

a designated service area in Oregon. That area was known

as Oregon #1 Rural Service Area and included Columbia,

Clatsop, Tillamook, and Yamhill counties.

Cite as 353 Or 300 (2013) 307

Between 1990 and 1999, Crystal contracted with

McCaw Cellular Communications, Inc., and AT&T to

construct and operate cellular telecommunications sites

throughout Crystal’s four-county service area. Over that

time period, Crystal also contracted with AT&T to outfit

certain of the cellular sites with retail outlets and service

centers and entered into license agreements with Cellular

One to promote Crystal’s cellular telecommunications

services. The purpose of Crystal’s outfitting its system with

retail outlets and service centers was to enhance the value

of the system for ultimate sale.

In June 1999, with FCC approval, Crystal agreed

to sell its assets to AT&T for $51.5 million. Of that amount,

approximately $47.8 million was allocated to various

intangibles (including the FCC license), and the balance

was allocated to other assets (including cell towers and

equipment). The sale proceeds were distributed to Crystal’s

shareholders, and Crystal ceased operations. In 2000, the

corporation filed an Oregon excise tax return in which

it classified the gain on the sale of the FCC license as

“nonbusiness income” allocable to Florida. The individual

taxpayers also filed Oregon income tax returns for that year.

Crystal was later audited by the department. The

auditor issued a report that, among other adjustments,

reclassified the gain on the sale of the FCC license as

apportionable business income. Based on that report, the

department issued notices of deficiency to the individual

taxpayers. A conference officer subsequently upheld the

auditor’s adjustment, and in 2004, the individual taxpayers

and Crystal (collectively Crystal) appealed the department’s

conference decision to the Magistrate Division of the Tax

Court, which also upheld the treatment of the gain as

apportionable business income. In 2006, Crystal appealed

to the Regular Division of the Tax Court.

In the Tax Court, Crystal and the department filed

cross-motions for summary judgment. In the Tax Court and

this court, the parties’ primary arguments have proceeded

from two separate premises. Crystal has argued that the

gain from the sale of the FCC license is not “business

income” under ORS 314.610(1), which defines that term for

308 Crystal Comunications, Inc. v. Dept. of Rev.

the purposes of UDITPA. On that issue, Crystal has argued

(and the department has not disputed) that the gain does not

qualify as “business income” under the transactional test.

Crystal also has argued that the gain is not business income

under the functional test, as defined in ORS 314.610(1).4

Specifically, Crystal notes that income from tangible and

intangible property will qualify as business income under

the functional test only “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.” See ORS 314.610(1) (stating that condition for

business income under the functional test).

On that point, Crystal reasons that the legislature’s

use of the word “and” in the functional test means that

(1) the acquisition; (2) the management, use, or rental;

and (3) the disposition of the property all must constitute

“integral parts of the taxpayer’s regular trade or business

operations.” Crystal further contends that, when the

disposition of property occurs as part of the liquidation

of a business, the disposition is not an “integral par[t]

of the taxpayer’s regular * * * business operations.” See

ORS 310.610(1) (emphasis added). Crystal thus reads a

“liquidation exception” into the functional test. Applied

to this case, Crystal’s interpretation of the functional test

means that, when Crystal sold its assets to AT&T and

liquidated its business, none of the gain realized from the

sale was “business income” within the meaning of UDITPA

and thus was not apportionable to Oregon.

Crystal does not dispute that the gain from the

sale of the FCC license qualifies as “business income” under

the Business Income Rule, the rule that the department

promulgated to implement UDITPA. See OAR 150-

314.610(1)-(B)(2). However, it argues that, to the extent

that the Business Income Rule reaches further than the

statutory definition of “business income” in UDITPA, the

4

On appeal, Crystal recognizes that, even though some gains may qualify

as business income under both tests, the functional test captures gains that

the transactional test does not. See Willamette Industries, Inc., 331 Or at 316

(recognizing that the two tests do not always capture the same income). We note

that some courts and scholars have construed UDITPA’s text differently. See

Hellerstein & Hellerstein, State Taxation ¶ 9.05[2][e] at 9-72 - 9-74 (discussing

states’ differing resolution of that issue).

Cite as 353 Or 300 (2013) 309

rule is invalid under UDITPA. Crystal recognizes, as it

must, that the question in this case is not whether the gain

from the sale of its assets constitutes “business income”

under UDITPA. Rather, because Crystal is a public utility

subject to taxation under ORS 314.280, and not UDITPA, the

question under ORS 314.280 is whether the gain constitutes

“income from business activity,” which may be apportioned

among the various states in which the taxpayer engaged

in business. Crystal points out, however, that the depart-

ment has promulgated a rule—OAR 150-314.280-(B)—

that makes both the statutory definition of business income

found in UDITPA and the definition of business income

found in the Business Income Rule applicable under ORS

314.280. In Crystal’s view, the result of OAR 150-314.280-(B)

is that two conflicting definitions of “business income” apply

to public utilities under ORS 314.280.

Crystal resolves that conflict by interpreting

OAR 150-314.280-(B) to incorporate by reference only the

“UDITPA definitions and related rules validly enacted and

in force under UDITPA.” In Crystal’s view, because the

Business Income Rule was not validly enacted, the only

valid definition of business income that OAR 150-314.280-

(B) makes applicable to utilities is the statutory definition

from UDITPA. To interpret OAR 150-314.280-(B) differently,

Crystal argues, would be to give effect to the Business Income

Rule at the expense of UDITPA’s statutory definition of

business income. Moreover, Crystal contends, apportioning

income of businesses subject to UDITPA differently from

income of businesses subject to ORS 314.280 would violate

the Uniformity Clause of the Oregon Constitution. See Or

Const, Art I, § 32.

The department, for its part, primarily takes

issue with the premise of Crystal’s argument; that is, the

department argues that there is no “liquidation exception”

to the functional test for “business income,” as that phrase

is defined in UDITPA. In support of that argument, the

department urges us to interpret the functional test defined

in UDITPA the same way that the California Supreme

Court did in Hoechst Celanese Corp. v. Franchise Tax Board,

310 Crystal Comunications, Inc. v. Dept. of Rev.

25 Cal 4th 508, 22 P3d 324, cert den, 534 US 1040 (2001).5

Following Hoechst’s reasoning, the department contends

that what matters under the functional test is the business’s

power to dispose of an asset that was, until its disposition,

an integral part of the business’s regular operations. The

department contends that, if the statutory definition is

interpreted that way, then the Business Income Rule is not

broader than the functional test, as defined in UDITPA, and

the premise of Crystal’s argument fails.

Alternatively, the department argues that, even if

the Business Income Rule is broader than the definition of

“business income” in UDITPA, the Business Income Rule

is still valid under ORS 314.280. The department reasons

that it understood that the Business Income Rule would be

valid in its entirety when it promulgated OAR 150-314.280-

(B) and accordingly made both the Business Income Rule

and the statutory definition of business income applicable

to public utilities under ORS 314.280. The department

reasons that, because its construction of its own rule, OAR

150-314.280-(B), is reasonable, we should defer to it. It

also observes that nothing in the Business Income Rule is

inconsistent with the text of ORS 314.280.6

On appeal, the parties reiterate the arguments

described above. We conclude that we need not decide

whether the premise of Crystal’s argument is correct to

resolve this case; that is, we need not decide whether

the Business Income Rule is broader than the statutory

definition of “business income” in UDITPA and thus invalid

5

The department argues that California’s interpretation of its statute

is persuasive because UDITPA is a uniform law developed by the National

Conference of Commissioners on Uniform State Laws. Of the 45 states that have a

corporate income tax, at least 17 have adopted UDITPA while others have adopted

a modified version of UDITPA. Hellerstein & Hellerstein, State Taxation ¶ 9.01 at

9-12. California adopted UDITPA in 1967. Oregon adopted a modified version of

UDITPA in 1965, but the modifications under Oregon’s version do not affect the

outcome of this case.

6

The Tax Court concluded that the Business Income Rule, which OAR 150-

314.280-(B) incorporates by reference, is valid in its entirety under ORS 314.280.

The Tax Court reasoned initially that the validity of the Business Income Rule, as

applied by OAR 150-314.280-(B) to businesses subject to ORS 314.280, must be

measured against the text of ORS 314.280, not the text of UDITPA. Alternatively,

the Tax Court reasoned that the Business Income Rule is consistent with the

functional test for “business income,” as that phrase is defined in UDITPA.

Cite as 353 Or 300 (2013) 311

under that statute. Even if it is, this case presents a

different question. The question in this case is what OAR

150-314.280-(B), the rule promulgated to implement ORS

314.280, means. More specifically, the department has

interpreted the two definitions of business income in OAR

150-314.280-(B) consistently with each other, and it argues

that its interpretation of its own rule is a reasonable one

to which we should defer. In evaluating the department’s

argument, the initial question is whether the two definitions

of business income reasonably can be read together, as the

department has done, in a way that gives effect to both. If

they can, then the remaining question is whether OAR 150-

314.280-(B), so interpreted, is consistent with the terms of

ORS 314.280, the statute that that rule was intended to

implement. We turn to the first question.

As a general rule, we construe a statute in a manner

that gives effect, if possible, to all its provisions. See ORS

174.010 (“[W]here there are several provisions or particulars

such construction is, if possible, to be adopted as will give

effect to all.”); Northwest Natural Gas Co. v. Dept. of Rev.,

347 Or 536, 556, 226 P3d 28 (2010) (same). That principle

applies by analogy to the construction of an agency’s

administrative rules when those rules deal with the same

subject. City of Klamath Falls v. Environ. Quality Comm.,

318 Or 532, 543, 870 P2d 825 (1994) (citing Columbia Steel

Castings Co. v. City of Portland, 314 Or 424, 430, 840 P2d

71 (1992)). Additionally, when an agency interprets its own

rules, this court defers to the agency’s interpretation as long

as its interpretation is a plausible one and not inconsistent

with the rule, its context, or any other source of law. Coffey

v. Board of Geologist Examiners, 348 Or 494, 509, 235 P3d

678 (2010).

One plausible way to read the two definitions of

business income in OAR 150-314.280-(B) together,7 as

7

As discussed above, OAR 150-314.280-(B) incorporates two definitions of

business income. One is the definition found in UDITPA:

“ ‘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.”

312 Crystal Comunications, Inc. v. Dept. of Rev.

the department does, is informed by the opinion of the

California Supreme Court in Hoechst. In Hoechst, the

California Supreme Court first decided that the definition

of “business income” under UDITPA consists of two tests:

the transactional test and the functional test. See 25 Cal 4th

at 526. Under the functional test, according to that court,

the taxpayer’s “acquisition, management, and disposition

of the property” is based not only on the taxpayer’s actual

acquisition, management, and disposition of property, but

also on the taxpayer’s power to control the acquisition,

management, and disposition of that property. See id. at

528-29 (citing dictionary definitions of those terms). As

we understand the California Supreme Court’s reasoning,

it concluded that, read together, the terms “acquisition,”

“management,” and “disposition” describe a business’s

use of property. Id. at 529 (quoting a comment to UDITPA

“that ‘[i]ncome from the disposition of property’ is business

income if the property is ‘used in a trade or business of

the taxpayer’ “ (emphasis and modification added by the

California Supreme Court)).

The court also contrasted the use of the word

“regular” in the transactional and functional tests. The court

reasoned that the transactional test requires proof that the

transactions or activity giving rise to the income occur “in

the regular course of the taxpayer’s trade or business.” Id. at

530. The court reasoned that, by contrast, in “the functional

test—which focuses on the income-producing property—

‘regular’ modifies ‘trade or business operations’ and follows

the phrase ‘an integral part of.’ ” Id. The court concluded:

“Consequently, ‘regular,’ as used in the functional test,

does not refer to the nature of the transaction, and the

extraordinary nature or infrequency of the income-

producing transaction is irrelevant.”

Id. In addition to requiring that the property that produces

the income be used in the regular course of the business’s

ORS 314.610(1). The other is the definition found in the Business Income Rule,

which the department promulgated to implement ORS 314.610(1):

“Gain or loss from the sale, exchange or other disposition of real or tangible or

intangible personal property constitutes business income if the property while

owned by the taxpayer was used in the taxpayer’s trade or business.”

OAR 150-314.610(1)-(B)(2).

Cite as 353 Or 300 (2013) 313

operations, the functional test, according to the California

Supreme Court, also requires that the property be an

“integral” part of the business. Id.; see also id. at 531-

32 (defining when property used in a business will be an

“integral part” of the regular business operations).8

We conclude that the decision in Hoechst is a plausible

interpretation of the statutory definition of the functional

test in UDITPA. We note that the California Supreme Court

did not decide in Hoechst whether there is a liquidation

exception to the functional test. However, its reasoning is

inconsistent with recognizing a liquidation exception. See

Jim Beam Brands Co. v. Franchise Tax Board, 133 Cal App

4th 514, 525-26, 34 Cal Rptr 874 (1st Dist 2005) (so holding);

Hellerstein & Hellerstein, State Taxation ¶ 9.05[2][c] at

9-69 - 9-70 (agreeing with Hoechst’s interpretation of the

functional test and reasoning that Hoechst’s interpretation

of the functional test is inconsistent with a liquidation

exception). Although that conclusion is not uniform, see

Hellerstein & Hellerstein, State Taxation ¶ 9.05[2][c] at

9-69 - 9-70, we cannot say that it is unreasonable.

By interpreting the UDITPA definition of business

income included in OAR 150-314.280-(B) consistently with

Hoechst, the department reasonably gave effect to both

definitions of business income included in that rule. So

construed, both definitions of business income included in

OAR 150-314.280-(B) are broad enough to reach the gain

from the sale of Crystal’s FCC license.9 In holding that the

department’s interpretation of its own rule is reasonable,

we need not and do not decide whether ORS 314.610(1), the

statute that defines “business income” for the purposes of

UDITPA, includes gain realized from the sale of an asset

during the course of liquidating a business. The question

before us is not what ORS 314.610(1) means in a case arising

under UDITPA. Rather, the question before us is whether,

in a case arising ORS 314.280, the department reasonably

interpreted the two definitions of “business income” in OAR

8

In reaching that conclusion, the California Supreme Court noted that the

definition of “business income” in UDITPA derived from California decisional law,

and it relied on those decisions. See Hoechst, 25 Cal 4th at 531-32.

9

There is no dispute that the FCC license was integral to Crystal’s business

operations.

314 Crystal Comunications, Inc. v. Dept. of Rev.

150-314.280-(B) in a way that gives effect to both. Our

decision is limited to the latter question.

As noted, Crystal raises two objections to that

interpretation of OAR 150-314.280-(B). First, it contends

that that interpretation of the rule does not give full effect

to the definition of business income set out in UDITPA.

However, Crystal’s reading of the rule does not give full

effect to the Business Income Rule, which OAR 150-

314.280-(B) also incorporates. As between the two readings,

the department’s reading gives greater effect to both

definitions than Crystal’s does. Second, Crystal argues that,

if the department’s interpretation of OAR 150-314.280-(B)

is correct, then the functional test will apply differently

depending on whether a business is subject to ORS 314.280

or UDITPA and, in doing so, violate the Uniformity Clause

of the Oregon Constitution. Crystal contends that we should

interpret OAR 150-314.280-(B) to avoid that result.

In some respects, Crystal’s constitutional argument

is premature. We have not yet determined whether, for

businesses subject to UDITPA, the functional test does

or does not reach income realized during the course of

liquidating a business. Until we decide that issue, we have

no occasion to decide whether any difference in treatment

would run afoul of the Uniformity Clause of the Oregon

Constitution. Beyond that, the court has recognized that

government “may lay an excise on the operations of a

particular kind of business, and exempt some other kind

of business closely akin thereto.” See Garbade and Boynton

v. City of Portland, 188 Or 158, 192, 214 P2d 1000 (1950)

(upholding ordinances taxing different types of businesses

differently) (internal quotation marks omitted), overruled

on other grounds by Multnomah County v. Mittleman, 275

Or 545, 556-57, 552 P2d 242 (1976). In our view, the prospect

that taxing utilities and financial institutions differently

from other types of businesses would violate the Uniformity

Clauses is remote. Without more persuasive authority, we

cannot say that the interest in avoiding an unconstitutional

construction of OAR 150-314.280-(B) requires us to interpret

that rule differently than we have.10

10

Crystal relies on a statement from Jarvill v. City of Eugene, 289 Or 157,

613 P2d 1, cert den, 449 US 1013 (1980), to support its constitutional argument.

Cite as 353 Or 300 (2013) 315

Having reached that conclusion, we turn to the

question whether our interpretation of OAR 150-314.280-(B)

is consistent with the text of ORS 314.280. We conclude

that it is. ORS 314.280 grants the department authority

either to segregate or to apportion “income from business

activity” earned by multistate public utilities as long as its

method “fairly and accurately [reflects] the net income of the

business done within the state.” As explained earlier, the

dichotomy that ORS 314.280 establishes, by permitting the

department to apply either segregation or apportionment, is

the dichotomy between unitary and nonunitary businesses,

not that between business and nonbusiness income

established under UDITPA. Thus, the wording of ORS

314.280 is broad enough to reach the department’s reading

of OAR 150-314.280-(B), which, as we also explained, would

allow the department to apportion income derived from

property used in Crystal’s unitary business. Nothing in the

wording of ORS 314.280 precludes the apportionment of

gain from assets sold in the course of liquidation. The Tax

Court correctly granted summary judgment in favor of the

department.

The judgment of the Tax Court is affirmed.

It notes that Jarvill states that “a tax classification is constitutionally valid if it

rests upon genuine differences.” See id. at 180 (so stating). The issue in Jarvill,

however, concerned the government’s ability to draw tax classifications based

on geographical distinctions within the taxing authority. Both linguistically

and historically, such tax classifications have been more difficult to justify.

See Or Const, Art I, § 32 (providing that “all taxation shall be uniform on the

same class of subjects within the territorial limits of the authority levying the

tax”); United States v. Ptasynski, 462 US 74, 80-81, 84, 103 S Ct 2239, 76 L Ed

2d 427 (1983) (discussing the purposes and limitations of the similarly worded

federal Uniformity Clause). In our view, Jarvill does little to advance Crystal’s

constitutional argument.