Comcast Corp. v. Dep't of Revenue, TC 5265 (Control)

• Decision Date: 25 November 2020
• Docket Number: TC 5265 (Control),TC 5346
• Parties: COMCAST CORPORATION AND SUBSIDIARIES, Plaintiff, v. DEPARTMENT OF REVENUE, State of Oregon, Defendant.
• Court: Oregon Tax Court

COMCAST CORPORATION AND SUBSIDIARIES, Plaintiff, v. DEPARTMENT OF REVENUE, State of Oregon, Defendant.

TC 5265 (Control)

TC 5346

OREGON TAX COURT REGULAR DIVISION Corporation Excise Tax

November 25, 2020

ORDER ON SUMMARY JUDGMENT AND PLAINTIFF'S MOTION TO STRIKE

I. INTRODUCTION

In these consolidated cases the parties present multiple substantive and procedural issues for summary judgment following the Oregon Supreme Court's resolution of one issue in Comcast Corp. v. Dept. of Rev., 363 Or 537, 423 P3d 706 (2018). For reasons discussed below, the court first decides two motions for partial summary judgment filed by Plaintiff ("Taxpayer") relating, respectively, to the "audience/subscriber ratio" component of the special sales factor for interstate broadcasters, and the classification of three sets of income items as either apportionable or non-apportionable. The court then decides the issues, to the extent not otherwise addressed, presented in a motion for summary judgment filed by Defendant (the "Department"). Those remaining issues relate to the composition of Taxpayer's unitary group, the apportionability of certain income items, a claim for inclusion of certain receipts in the denominator of Taxpayer's sales factor, Taxpayer's carryforward deductions for net operating losses incurred in earlier years, the addback of taxes paid to other states, and computational issues relating to the Oregon Business Energy Tax Credit and certain penalties. The court begins with relevant procedural history of these cases.

A. Procedural Background

1. The 2007-09 Case--No. TC 5265

The Multistate Tax Commission ("MTC") audited Taxpayer for tax years 2007 to 2009 and, in April 2012, recommended various adjustments to Taxpayer's Oregon corporation excise tax returns, the most significant of which were (1) an increase to Taxpayer's Oregon apportionment percentage; and (2) a reclassification of certain items of Taxpayer's income from nonbusiness to business. (See Def's Decl of Mond at 1.) See ORS 305.655, Art VIII (allowing MTC member states to participate in interstate audits); ORS 305.675 (electing to participate).¹ In mid-2012, the Department issued notices of deficiency based on the MTC's determinations, resulting in an assessment of additional Oregon tax in the amount of $14,367,792. (Ptf's 2007-09 Compl, Exs 6-8.) Taxpayer appealed in the Magistrate Division in 2014, and on November 23, 2015, the court specially designated the case for hearing in the Regular Division as case TC 5265 (the "2007-09 Case").

In 2016, the Regular Division issued a limited judgment in the 2007-09 Case on a threshold issue involving apportionment of Taxpayer's taxable income as an interstate broadcaster under ORS 314.680 to 314.690, which the Supreme Court affirmed. Comcast, 363 Or 537, aff'g 22 OTR 295 (2016). The Supreme Court decided that, except for receipts from sales of real or tangible personal property, all gross receipts from transactions and activities in the regular course of Taxpayer's trade or business--not solely receipts from "broadcasting" activities--constitute "gross receipts from broadcasting" and are included in the numerator of Taxpayer's sales factor in the ratio that Taxpayer's Oregon audience bears to its total audience. Comcast, 363 Or at 551.

2. The 2010-12 Case--No. TC 5346

Meanwhile, starting in 2014, the Department conducted an audit of Taxpayer for tax years 2010 to 2012 and made similar adjustments for those years resulting in notices of deficiency, dated July 24, 2015, assessing additional Oregon tax of $23,825,934. (Ptf's 2010-12 Compl, Ex 1.) As in the 2007-09 Case, the two most significant issues were an increase to Taxpayer's apportionment percentage and reclassification of certain income from nonbusiness to business. Taxpayer appealed in the Magistrate Division in 2017 (the "2010-12 Case"), and the magistrate granted Taxpayer's unopposed motion to hold the 2010-12 Case in abeyance.

3. Consolidation

On October 2, 2018, the Supreme Court issued its appellate judgment in the 2007-09 Case. In October and November 2018, the parties resumed proceedings in the 2007-09 Case as to the remaining issues not covered by the limited judgment. Upon the parties' joint motion, the Regular Division also reactivated the 2010-12 Case, specially designated it for hearing in the Regular Division as case TC 5346, and consolidated it with the 2007-09 Case.²

4. Parties' Substantive Motions; Table of Legal Issues

The following table sets forth the issues, in the order covered below, identifying which party has moved, and with cross-reference to the claims identified in each of Taxpayer's complaints.³

Table of Legal Issues

 Issue Claim No. inComplaint Which Party's MotionApplies 2007-09 2010-12 Taxpayer Department  A  Audience/Subscriber Ratio  VII  VI  Plaintiff'sMotion forPartialSummaryJudgment(Apportionment- AudienceFactor Issue)  None  B  Apportionability of Dividends and Gainfrom Vodafone, Time Warner and A&E  II, III,IV  I, II, III  Plaintiff'sMotion forPartialSummaryJudgment(Business /NonbusinessIncome Issue)  Defendant'sMotion forSummaryJudgment("DefMSJ"),§§ III.B. andIII.C  C  Composition of Unitary Group (ComcastMO Financial Services, Inc.)  I   None  Def MSJ,§ III.A.  D  Apportionability of Other Income Items  II, III,IV  I, II, III  None  Def MSJ, §§III.B., III.C,III.D.  E  Sales Factor Relief  V  IV  None  Def MSJ,§ III.E.  F  Net Operating Loss CarryforwardDeductions  VIII  VII  None  Def MSJ,§ III.F.  G  Deduction/Addback of Tax Paid to OtherStates   VIII  None  Def MSJ,§ III.G.  H  Business Energy Tax Credit   IX  None  Def MSJ,§ III.H.  I  Penalties  IX  X  None  Def MSJ,§ III.I.  --  Costs of Performance/Definition of "GrossReceipts from Broadcasting"  VI  V  Decided in Supreme CourtAppeal4 

The Department moved for summary judgment on August 1, 2019. Its motion covers each of Taxpayer's claims except Taxpayer's audience or subscriber ratio claim. On the same day, Taxpayer filed two cross-motions for partial summary judgment. Taxpayer's first motion addresses the audience or subscriber ratio, which is used in determining the percentage of Taxpayer's taxable income that is apportioned to Oregon under the statutory regime for interstate broadcasters in ORS 314.680 to 314.690 as recently construed by the Supreme Court. The Department opposes Taxpayer's first cross-motion but, as noted, has not filed its own motion on the issue. In addition to its substantive objections, the Department urges the court to deny the motion as to tax years 2007 to 2009 on the grounds that Taxpayer's asserted computation method does not relate to any claim in Taxpayer's complaint for those tax years. Taxpayer's second cross-motion addresses the Department's characterization of certain gain and dividends as apportionable business income. Together, Taxpayer's two cross-motions address the great majority of the dollar amount of the tax deficiency the Department has assessed. Taxpayer opposes the Department's motion as to all remaining issues.

5. Taxpayer's Motion to Strike

The Department's motion for summary judgment includes a 42-page section entitled "Facts," of which approximately 35 pages⁵ are what the Department describes as "facts * * * taken from the MTC Audit Report[.]" (Def's Mot Summ J ("Def's Motion") at 4.) This content is a verbatim excerpt of the MTC auditor's "findings and conclusions" upon the completion of his audit for tax years 2007 through 2009. (See Def's Decl of Mond at 1.) It describes transactions and other events in Taxpayer's history, interspersed with conclusions about theirlegal significance. A substantial part of the content consists of unattributed quotations with no attempt to identify the source. Although the Department contends that the "auditor relies heavily on excerpts from plaintiff's own 10-Ks," there is no way to tell to what extent the auditor relied on any source. (Def's Obj at 2.) The court finds it impossible to separate purported facts from the subjective impressions, conclusions or inferences formed by the auditor or persons to whom the auditor may have been referring. Ignoring all evidentiary concerns, the court finds the MTC Excerpt devoid of reliable content or persuasive value. Taxpayer objects to the Department's characterization of the MTC Excerpt as factual, asserts that it is inadmissible hearsay incapable of supporting summary judgment, and asks the court to "strike" the MTC Excerpt. (Ptf's Motion to Strike.)⁶ The court agrees with Taxpayer that the MTC Excerpt is inadmissible hearsay. OEC 801. The MTC Excerpt therefore does not support the Department's motion. See Tax Court Rule ("TCR") 47 D ("declarations must be made on personal knowledge, must set forth such facts as would be admissible in evidence, and must show affirmatively that the * * * declarant is competent to testify to the matters stated therein."). The court regards the MTC Excerpt as nothing more than a statement of the Department's litigation position in this case.

In response to Taxpayer's motion to strike, the court will decline to admit the MTC Excerpt into evidence.⁷

B. Standard of Review

The court grants a motion for summary judgment only if "the pleadings * * * declarations, and admissions on file show that there is no genuine issue as to any material fact and that the moving party is entitled to prevail as a matter of law." TCR 47 C. See United Streetcar v. Dept of Rev., ___ OTR ___ (July 11, 2019) (slip op at 10-11) (citing Two Two v. Fujitec America, Inc., 355 Or 319, 331, 325 P3d 707 (2014)). The party moving for summary judgment has the burden of demonstrating that there are no material issues of fact and that it is entitled to judgment as a matter of law. McKee v. Gilbert, 62 Or App 310, 321, 661 P2d 97 (1983). The court must view the evidence and all reasonable inferences it may support in the light most favorable to the nonmoving party. The nonmoving party has the burden of producing evidence, including by affidavit or...