In Health Net Inc. v. Dep’t of Revenue, Docket No. S063625 (Apr. 12, 2018), the Oregon Supreme Court rejected a business taxpayer’s constitutional challenges to a 1993 Oregon statute that eliminated the right to utilize a three-factor apportionment formula in calculating Oregon income tax. The Oregon Supreme Court joined courts in Texas, Minnesota, California and Michigan in rejecting taxpayer arguments that states which have enacted Article IV of the Multistate Tax Compact, thereby incorporating the UDITPA three-factor (payroll, property and sales) formula, have entered into a binding contractual obligation which may not be overridden.

Oregon enacted UDITPA in 1965 (ORS 314.605 – 314.675) and the Multistate Tax Compact (including Article IV) (ORS 305.655), in 1967. In 1993, however, following a series of amendments to the apportionment formula in Oregon’s version of UDITPA, which moved the state to a single sales factor formula, the Oregon legislature eliminated taxpayers’ ability to elect the three factor apportionment formula incorporated via ORS 305.655.

In Health Net, the taxpayer argued that when Oregon enacted the MTC in 1967, it had entered into a binding contract with other states that was violated by the state’s 1993 elimination of the three factor apportionment formula, in violation of the Contract Clause of the state and US constitutions. In Oregon, a statute is considered “a contractual promise only if the legislature has clearly and unmistakably expressed its intent to create a contract.”  The Oregon Supreme Court determined that the text, context, and legislative history of ORS 305.655 did not “clearly and unmistakably” establish that the Oregon legislature intended to execute a binding contract with other states. The court found ORS 305.655 to have only created statutory obligations—according to the majority, it was a uniform law, not a compact—and, thus, there was no Contract Clause violation.


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States are moving to advance different solutions in their efforts to address federal tax reform. Illinois recently introduced legislation to addback the new deduction for foreign-derived intangible income (a topic we’ve previously covered), and its Department of Revenue has issued its position on other aspects of federal reform. Oregon, after resolving a controversy between

Most states are well off to the races with their 2017 legislative sessions and several states have gift card legislation pending that would impact unclaimed property holders.

Oregon

On January 9, 2017, a bill (SB 113) was introduced in the Senate that would create a new unclaimed property reporting obligation for gift cards, which would