On April 12, 2018, the Oregon Supreme Court issued its opinion in Health Net Inc. v. Dep’t of Revenue.1 Unsurprisingly, the court found in favor of the state and upheld the denial of a refund based upon the taxpayer electing to use an equally weighted three-factor apportionment formula.
The court based its finding on the conclusion that the Multistate Tax Compact (MTC) did not create a binding contract with other states when enacting the alternate apportionment formula. The majority opinion relied on the U.S. Supreme Court holding in the U.S. Steel Corp. case.2 While that decision did not involve apportionment issues, the court held that the MTC was not a binding contract. The California decision in Gillette3 and the Minnesota decision in Kimberly-Clark4 were also relied on in the analysis by the Oregon Supreme Court. The court found both of those cases persuasive in reasoning that the MTC did not give rise to a contractual obligation. In its analysis of the Oregon standard to consider the MTC a binding contract, the court found that the Legislature in enacting the MTC must have clearly and unmistakably expressed its intent to create a contract.
Three of the Oregon Supreme Court justices entered a concurring opinion in which they agreed with the result, but on differing grounds. The concurring opinion found that while the MTC might have been a binding contract, the taxpayer was not entitled to relief under the contract, as it was not a party to the contract. These justices relied on the Texas Supreme Court decision in Graphic Packaging.5 The Texas court determined that the taxpayer was not unmistakably made a contractual party to the MTC’s apportionment provision.
Unless the taxpayer appeals to the U.S. Supreme Court, this decision effectively puts the final nail in the coffin for the position that a taxpayer may elect to apportion its income under Article IV using an equally weighted three-factor formula. It is unlikely that the taxpayer will appeal, in that the U.S. Supreme Court has denied a review of both the California Gillette and the Minnesota Kimberly-Clark cases.
1 Health Net, Inc. v. Dep’t of Revenue, Oregon Supreme Court, 4/12/18, Doc. 2018-16123.
2 U.S. Steel Corp. v. Multistate Tax Comm’n, 434 US 452 (1978).
3 Gillette Co. v. FTB, 62 Cal 4th 468 (2015).
4 Kimberly-Clark Corp. v. Comm’r of Revenue, 880 NW2d 844 (Minn. 2016).
5 Graphic Packaging Corp. v. Hegar, 538 SW3d 89 (Tex. 2017).