Fisher Broadcasting, Inc. v. Department of Revenue

• Decision Date: 20 July 1995
• Parties: FISHER BROADCASTING, INC., Appellant, v. DEPARTMENT OF REVENUE, State of Oregon, Respondent. OTC 3290; SC S41134.
• Court: Oregon Supreme Court

Page 1333

898 P.2d 1333

321 Or. 341

FISHER BROADCASTING, INC., Appellant, v. DEPARTMENT OF REVENUE, State of Oregon, Respondent.

OTC 3290; SC S41134.

Supreme Court of Oregon In Banc.

Argued and Submitted Oct. 31, 1994.

Decided July 20, 1995.

[321 Or. 342-A] John R. Faust, Jr., of Schwabe, Williamson & Wyatt, Portland, argued the cause for appellant. With him on the briefs were Roy D. Lambert, Portland, and Timothy L. Austin and James Wm. Johnston, of Graham & Dunn, Seattle, WA.

Marilyn J. Harbur, Asst. Atty. Gen., Salem, argued the cause for respondent. With her on the brief was Theodore R. Kulongoski, Atty. Gen., Salem.

VAN HOOMISSEN, Justice.

Plaintiff Fisher Broadcasting, Inc. (taxpayer), brought this action in the Tax Court to obtain refunds of its Oregon corporate excise tax and Multnomah County business tax for the years 1983 and 1984. The Tax Court entered a judgment sustaining the opinion and order of defendant Department of Revenue (department), which denied the refunds. Fisher Broadcasting, Inc. v. Dept. of Rev., 13 OTR 32, 1994 WL 46914 (1994). We review de novo on the record. ORS 305.445; ORS 19.125(3). For the reasons that follow, we reverse.

FACTS AND PROCEDURAL BACKGROUND

Taxpayer owns and operates KATU television in Portland, Oregon, and KOMO television and radio in Seattle, Washington. We take the following undisputed facts from the Tax Court's opinion:

"[Taxpayer] is a Washington corporation with headquarters in Seattle. [Taxpayer] began operation in 1926 as Fisher's Blend Station, Inc., organized to operate KOMO radio station in Seattle. In 1953, [taxpayer] added KOMO television station. In 1958, a separate Oregon corporation was organized as Fisher Broadcasting Company. In 1961, Fisher Broadcasting acquired the license to operate KATU, a television broadcasting station in Portland. In 1966, the two corporations merged and Fisher's Blend Station, Inc. was the surviving corporation. The merger was to facilitate the refinancing of KATU. In 1978, [taxpayer's] name was changed to Fisher Broadcasting Company.

"The merger of the two corporations included some unusual conditions. The board of directors was divided into two executive committees, one for Washington and one for Oregon. As a consequence, the board of directors meets only once " 'Insofar as possible for accounting purposes, the books and records of such Division shall be maintained as if said Portland Division had continued operations after January 1, 1967, as a separate subsidiary corporation of this corporation with all allocations of income, expenses and taxes to be made accordingly in accordance with good accounting practices.' " 13 OTR at 33.

each year. The preferred shareholders of the Oregon operation retained the right to elect four directors who must be residents of Oregon. Those four directors, plus two generally elected directors, constitute the executive committee for KATU. Also, the merger agreement provided for separate accounting:

In 1974, taxpayer appealed the department's assessments of excise taxes for the years 1969 through 1971. The sole issue in that appeal was whether the segregated or apportionment method of accounting was proper in measuring the business operations of the taxpayer within the State of Oregon. ¹ In the resulting Opinion and Order, No. I-74-14, the director concluded that taxpayer was a "public utility" within the meaning of ORS 314.610(6) ² and, therefore, that ORS 314.280 ³ governed. The director further held that, under ORS 314.280, taxpayer was entitled to use the segregated method of reporting. Taxpayer continued to use the segregated method in the years following 1974.

In 1989, the department issued Notices of Assessment concerning adjustments made by the department to taxpayer's corporate excise tax and Multnomah County business income tax returns for 1983 and 1984. Those adjustments were based on the apportionment method of reporting. Taxpayer challenged those assessments, arguing that it was permitted to continue using the segregated method. The department disagreed and rejected taxpayer's challenge. Taxpayer appealed.

In the Tax Court, taxpayer first argued that the department is barred by the doctrine of res judicata from relitigating the appropriate method of reporting. Taxpayer further argued that, even if the department were not barred from relitigating that question, taxpayer nevertheless should be permitted to use the segregated method for 1983 and 1984, because the apportionment method In rejecting taxpayer's res judicata argument, the Tax Court stated that, generally, res judicata is not applicable in tax cases. Fisher Broadcasting, 13 OTR at 34-35. ⁴ The court also stated that the application of res judicata is inconsistent with the statutory direction in ORS 305.425(1) that Tax Court matters be heard de novo. The court concluded that the relevant statutes and administrative rules supported the department's decision to require taxpayer to use the apportionment method and that taxpayer had failed to show that the apportionment method fails to "fairly" reflect its "business activity" in Oregon. Taxpayer appeals the Tax Court's judgment. ⁵

did not "fairly and accurately" reflect its net income for business done within Oregon. ORS 314.280(1).

ISSUE PRECLUSION

Taxpayer first contends that the Tax Court erred in ruling that taxpayer was not entitled to the benefit of the doctrine of issue preclusion. We turn to that question.

ORS 305.425(1) provides:

"All proceedings before the [Tax] court shall be original, independent proceedings and shall be tried without a jury and de novo."

Neither the Tax Court's opinion nor the department's brief offers persuasive support for the department's assertion that issue preclusion is inherently irreconcilable with de novo review in tax cases. Nor does logic support that proposition.

In the only case in which this court has touched on the question in the context of a review of a decision by the Tax Court, this court indicated that

"[t]here is no reason in principle why an earlier determination should not be given this effect in successive tax litigation as in any other litigation, as long as the fact determined in the prior case was necessary to the earlier judgment and its possible significance for later tax controversies was not unforeseeable." Lethin v. Dept. of Revenue, 278 Or. 201, 205, 563 P.2d 687 (1977) (footnote omitted).

Lethin, however, involved the possible preclusive effect of an earlier Tax Court decision on a later Tax Court decision, rather than the possible preclusive effect of an earlier administrative decision on a later Tax Court decision. In declining to give preclusive effect to the earlier Tax Court determination of value in Lethin, this court stated:

"If we held that such an affirmance irrebuttably fixes the historic value of property for subsequent tax years, we would be giving the effect of collateral estoppel, not to a finding of the Tax Court, but to the administrative appraisal of the property by the county assessor. Administrative determinations are sometimes given such effect, depending on the formality of the administrative procedure and other factors, but * * * we do not believe, that Oregon tax procedures call for this effect of a county assessor's appraisal in one year upon an assessment in a different year." Id. at 206, 563 P.2d 687 (footnote omitted).

The analysis in Lethin supports a conclusion that the decision whether an earlier administrative determination in a tax case In Nelson v. Emerald People's Utility Dist., 318 Or. 99, 103, 862 P.2d 1293 (1993), this court stated that issue preclusion arises in a subsequent proceeding when an issue of ultimate fact has been determined by a valid and final determination in a prior proceeding. Issue preclusion can be based on the constitution, common law, or a statute. If one tribunal has decided an issue, the decision on that issue may preclude relitigation of the issue in another proceeding if five requirements are met, the first of which is that "[t]he issue in the two proceedings is identical." Id. at 104, 869 P.2d 1293. ⁶

should be given preclusive effect in a later tax case should depend on "the formality of the administrative procedure and other factors." Id. This court has elaborated, in other contexts, on such "other factors" relevant to a determination whether issue preclusion should be applied in a given case.

As was true in Nelson, the outcome in this case turns on the first question, viz., whether the issue in the two proceedings is identical. We conclude that the issue in the two proceedings is not identical, because the underlying facts relevant to the determination of taxpayer's status in those different years are not the same. For example, the manner in which management, marketing, and Washington, D.C., news bureau expenses were allocated between KOMO and KATU were not the same in the later years. In fact, the Washington, D.C., news bureau that served both KATU and KOMO did not even exist at the time of the earlier opinion and order. Those examples amply demonstrate that taxpayer's status in the different tax years was not identical.

Accordingly, we hold that the Tax Court did not err in ruling that taxpayer was not entitled to the benefit of the doctrine of issue preclusion in this case. We turn next to the issue of accounting methods.

STATUTORY CONSTRUCTION

Before 1989, taxpayer allocated income, and paid taxes, using the segregated method of income allocation. Under the segregated method of income allocation, businesses in different states that are connected by common ownership are permitted to report, and pay separate taxes on, the individual incomes of each business entity. In 1974, the department had approved that method, with respect to taxpayer's Portland and Seattle television stations, as permissible under ORS 314.280 (set out ante ). In 1989, the department notified taxpayer that additional taxes were...