CenturyTel, Inc. v. Dept. of Rev. ( 2013 )

316 March 7, 2013 No. 11
March 353 Or 11
CenturyTel, Inc. v. Dept.7, 2013
of Rev.
IN THE SUPREME COURT OF THE
STATE OF OREGON
CENTURYTEL, INC.,
Appellant,
v.
DEPARTMENT OF REVENUE,
State of Oregon,
Respondent.
(TC 4826; SC S059502)
En Banc
On appeal from the Oregon Tax Court.
Henry C. Breithaupt, Judge.
Argued and submitted September 18, 2012; resubmitted
January 7, 2013.
Gregg D. Barton, Perkins Coie, Seattle, argued the cause
and filed the briefs for appellant. With him on the brief was
Julia E. Markley, Portland.
Darren Weirnick, Assistant Attorney General, Salem,
argued the cause and filed the brief for respondent. With
him on the brief were John R. Kroger, Attorney General,
and Marilyn J. Harbur, Sr. Assistant Attorney General.
KISTLER, J.
The judgment of the Tax Court is affirmed.
Taxpayer reported the gain realized from the sale of its wireless
telecommunications assets as “nonbusiness” income allocable to Louisiana. 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 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 wireless telecommunication assets.
The judgment of the Tax Court is affirmed.
Cite as 353 Or 316 (2013) 317
KISTLER, J.
This case presents essentially the same issue that
we decided in Crystal Communications, Inc. v. Dept. of Rev.,
353 Or 300, ___ P3d ___ (2013). CenturyTel, Inc., is a public
utility subject to taxation under ORS 314.280. CenturyTel
operated as a multistate, unitary business that, until 2002,
provided both wireless and wireline telecommunications
services. In 2002, CenturyTel sold its assets related to its
wireless services but continued to provide wireline services.
As in Crystal, CenturyTel reported the gain from the sale of
its wireless assets as “nonbusiness income” and allocated
that gain to its state of commercial domicile. On audit,
the Department of Revenue (the department) reclassified
the gain as apportionable “business income.” CenturyTel
challenged the department’s reclassification, and the Tax
Court, relying on its decision in Crystal, granted summary
judgment in favor of the department. CenturyTel appealed
to this court. Consistently with our decision in Crystal, we
affirm the judgment of the Tax Court.
CenturyTel is a Louisiana corporation with its
commercial domicile and principal place of business in that
state. CenturyTel is the common parent of an affiliated group
of controlled entities (the CenturyTel Group), which included
a wholly owned subsidiary, CenturyTel Wireless, Inc. From
1985 until 2002, the CenturyTel Group provided wireless
cellular telecommunications services through CenturyTel
Wireless, Inc., in various areas of the United States. Before,
during, and after the relevant tax years, the CenturyTel
Group also provided wireline telecommunications services
to rural areas and small to mid-sized cities in 22 states.
Between 1983 and 2002, the CenturyTel Group periodically
considered and acted upon opportunities to acquire and
dispose of various interests in wireless and wireline assets.
In 2002, CenturyTel agreed to sell its wireless assets
to ALLTEL Communications, Inc. The sale was completed
on August 1, 2002, and, in exchange for the wireless assets
described in the sale agreement, CenturyTel received
approximately $1.59 billion.1 CenturyTel used $1.179 billion
1
That amount reflects the value of CenturyTel’s wireless assets, with the
exception of the CenturyTel Group’s 49 percent partnership interest in one wireless
318 CenturyTel, Inc. v. Dept. of Rev.
of that gain to finance the acquisition of wireline assets and
used the remaining amount to pay off certain debts. After the
sale, with the exception of its retained partnership interests,
the CenturyTel Group’s wireless operations were reflected
as “discontinued operations” on its consolidated financial
statements. For federal tax purposes, the transaction was
treated as a “deemed liquidation and cessation” under IRC
§ 338(h)(10). CenturyTel continued to engage in its business
of providing wireline telecommunications services.
The department accepted CenturyTel’s IRC
§ 338(h)(10) election, and, on its 2002 state income tax
returns, CenturyTel reported a capital gain of $820,863,205
from the asset sale transaction. For reasons similar to those
stated by the taxpayer in Crystal, CenturyTel reported
that gain as nonbusiness income allocable to Louisiana.
The department audited CenturyTel’s records and, among
other adjustments, reclassified the gain as apportionable
business income. CenturyTel sought review of the auditor’s
adjustment in the Tax Court, and the parties filed cross-
motions for summary judgment in that court. The Tax Court
ruled, as it had in Crystal, that the gain CenturyTel realized
was apportionable income under ORS 314.280.
As in Crystal, CenturyTel is a multistate utility
subject to taxation under ORS 314.280. That statute gives
the department the authority to determine whether “income
from [CenturyTel’s] business activity” should be apportioned
among the states in which CenturyTel engages in business,
but it does not specify whether some or all of CenturyTel’s
income should be apportioned. On that issue, the department
has adopted, by rule, the standards from the Uniform
Division of Income for Tax Purposes Act (UDITPA), codified
at ORS 314.605 to 314.675.2 See OAR 150-314.280-(B)
(adopting those standards). Under UDITPA, only “business
income,” which is defined both by statute and by rule, is
market and the assets purchased by certain partners in the CenturyTel Group’s
markets pursuant to those partners’ rights of first refusal. The retained 49 percent
partnership interest was excluded from the sale based on a cross-ownership
restriction that precluded the sale of that interest. As the Tax Court noted, that
retained interest and its associated assets “are not material for purposes of th[is]
analysis.”
2
As a general matter, UDITPA governs taxation of income earned by
businesses that are not subject to ORS 314.280.
Cite as 353 Or 316 (2013) 319
subject to apportionment. See ORS 314.610(1) (defining
business income under UDITPA); OAR 150-314.610(1)-(B)
(defining business income for the purposes of UDITPA).
The issue in this case arises, as it did in Crystal,
because CenturyTel argues that the income it realized
when it liquidated its wireless subsidiary did not constitute
“business income” as that phrase is defined in UDITPA.
CenturyTel recognizes that the definition of business
income in the rule implementing UDITPA is broad enough
to encompass the income it realized, but it argues that the
rule defining business income is invalid to the extent that it
goes farther than the statutory definition of that phrase.
As we explained in Crystal, we need not decide
whether the gain that CenturyTel realized when it sold its
wireless subsidiary would be classified as business income
within the meaning of UDITPA. Rather, in implementing
ORS 314.280, the department adopted a rule that includes
two definitions of business income—one comes from the
statutory definition of that term in UDITPA, the other
from the rule implementing that statutory definition. See
OAR 150-314.280-(B) (incorporating both definitions of
business income). For the reasons set out in Crystal, our
goal in interpreting OAR 150-314.280-(B) is to give effect to
both definitions, if possible. We can do that by interpreting
the statutory definition incorporated in OAR 150-314.280-
(B) consistently with Hoechst Celanese Corp. v. Franchise
Tax Board, 25 Cal 4th 508, 22 P3d 324, cert den, 534 U.S.
1040 (2001). So interpreted, the two definitions of business
income in OAR 150-314.280-(B) are consistent with one
another and reach the income that CenturyTel realized on
the sale of its wireless subsidiary.3
3
In its opening brief, CenturyTel asserted, without elaboration, that
taxing businesses subject to ORS 314.280 (utilities and financial organizations)
differently from businesses subject to UDITPA would violate the Uniformity
Clause of the Oregon Constitution and the Equal Protection Clause of the federal
constitution. We decline to reach those claims for the essentially the same reasons
that we did in Crystal. Not only does CenturyTel’s argument rest on a premise
that we have not yet decided, but CenturyTel provides little or no reason to think
that either the Uniformity Clause or the Equal Protection Clause would prevent
the state from taxing utilities and financial institutions differently from other
types of businesses. In these circumstances, we decline to reach CenturyTel’s
constitutional claims. See State v. Montez, 309 Or 564, 604, 789 P2d 1352 (1990)
(declining to reach constitutional arguments that had been raised only in passing).
320 CenturyTel, Inc. v. Dept. of Rev.
Given that holding, we need not reach CenturyTel’s
argument that the gain it realized does not constitute
business income within the meaning of UDITPA. Conversely,
we need not reach the department’s argument that, viewed
from a larger perspective, CenturyTel ‘s activities show that
it was in the business of buying and selling wireless and
wireline assets with the result that the gain it realized came
within even CenturyTel’s definition of business income under
UDITPA. Rather, it is sufficient to hold that CenturyTel’s
gain was “business income” within the meaning of OAR
150-314.280-(B), the rule that the department enacted to
implement ORS 314.280.
The judgment of the Tax Court is affirmed.