Niemela v. Dept. of Rev. ( 2019 )

IN THE OREGON TAX COURT
MAGISTRATE DIVISION
Income Tax
CHAD A. NIEMELA )
and MICHAELA M. NIEMELA, )
)
Plaintiffs, ) TC-MD 180091R
)
v. )
)
DEPARTMENT OF REVENUE, )
State of Oregon, )
)
Defendant. ) FINAL DECISION1
Plaintiffs appealed Defendant’s Notice of Deficiency, dated December 20, 2017, for the
2014 tax year. A telephonic trial was held on August 2, 2018. Kevin Brown, CPA, represented
Plaintiffs. Chad Niemela (Niemela) testified on behalf of Plaintiffs. Stacie Rush appeared and
testified on behalf of Defendant. Plaintiffs’ Exhibits 1 to 11 were admitted into evidence.
Defendant’s Exhibits A to I were admitted into evidence.
I. STATEMENT OF FACTS
During the 2014 tax year Niemela was a resident of Washington and employed by the
Port of Portland as a dredge boat engineer. For approximately half the year (May 28, 2014
through October 25, 2014) Niemela worked on dredges at various locations on the Columbia
River between Oregon and Washington. During dredging season, he worked aboard the dredge
on the Columbia River five days a week and often performed maintenance and other tasks for
several dredge boats docked on the Oregon shore during weekends. During the off-season he
performed maintenance and duties on the dredges while they were docked on the Willamette
1
This Final Decision incorporates without change the court’s Decision, entered April 11, 2019. The court
did not receive a statement of costs and disbursements within 14 days after its Decision was entered. See Tax Court
Rule–Magistrate Division (TCR–MD) 16 C(1).
FINAL DECISION TC-MD 180091R 1
River or in a dry dock in Portland. Plaintiffs’ 2014 Oregon tax return reported $32,381 in
Oregon source wages based on the theory that part of Niemela’s income during the dredging
season was exempt from taxation in this state pursuant to 46 USC §11108(b) known as the
“Waterway Exclusion Act.” (Ex F at 3, 6.)
During the dredging season, Niemela drove his personal vehicle from his home in
Cathlamet, Washington, to various locations in Oregon and Washington where the dredging
operations were ongoing and took a deduction of $17,682 for his travel miles. Niemela testified
that he kept a daily log of his miles, but did not include the log in the exhibits presented to the
court. Instead, Niemela presented a hand-written log of miles that was based on the employer’s
records of Niemela’s specific work locations and activities along with an employer printout of
his daily work pay, location, and activity codes. Niemela’s travel miles are as follows:
Date from Date to location miles / days total
Jan. 1, 2014 Jun 18, 2014 Portland yard 146.8 x 123 days 18,056
Jun 19, 2014 Aug 4, 2014 Vista 22.4 x 47 days 1,053
Aug 5, 2014 Aug 13, 2014 Bradwood 124.4 x 9 days 1,120
Aug 14. 2014 Sept 11. 2014 Willowgrove 44.6 x 29 days 1,293
Sept 12, 2014 Nov 7, 2014 Tongue Point 114.6 x 57 days 6,532
Nov 8, 2014 Nov 30, 2014 Woodland 97.2 x 16 days 1,555
Dec 1, 2014 Dec 31, 2014 [unreadable] 63.4 x 31 days 1,965
Rush testified that she is employed by Defendant and conducted the audit of Plaintiffs’
2014 Oregon return. She testified that only wages Niemela earned while he was aboard a vessel
operating in the navigable waters of more than one state (i.e., the Columbia River) were exempt
from Oregon taxation. She testified that the remainder of his earnings were not exempt. She
FINAL DECISION TC-MD 180091R 2
testified that it was difficult to determine what work Niemela performed on a daily basis. Using
a summary of work locations and pay codes provided by Niemela’s employer, she determined
that he was primarily on the dredge on weekdays during the dredging season and exempted those
wages from Niemela’s Oregon income. She further determined that Niemela’s work on
weekends during the dredging season consisted of performing maintenance and other tasks on
the dredges while they were docked on the Oregon side of the Columbia River and were not
exempt. She testified that there was no risk of duplication of taxes as it was clear Niemela
worked on the Oregon side of the river on weekends. Rush created a spreadsheet of Niemela’s
daily work during the dredge season and added the hours he worked on weekends during the
dredging season along with his off-season dry dock work, and increased Niemela’s Oregon
source wages to $75,140. (Ex C at 1, 2.)
Rush testified that she denied Niemela’s travel expenses because he did not provide a
mileage log and did not substantiate the travel. (Ex H at 24.) Additionally, Rush found Niemela
did not show that any temporary work locations he traveled to were outside his “normal
metropolitan area.” (Id. citing Rev Rul 99-7.)
II. ANALYSIS
The primary issue in the case is whether Niemela’s earnings from work he performed as a
dredge boat engineer are exempt from Oregon income tax. Defendant’s position is that
ORS 316.127(10)2 and 46 USC §11108(b), the Waterway Exclusion Act, only exempt income
that Niemela earned while he was actively operating a dredge on the Columbia River and all
other work he performed in Oregon was taxable by this state. Plaintiffs’ position is that only
wages earned while he was at dry dock in Oregon are taxable in this state and the remaining
2
The court’s references to the Oregon Revised Statutes (ORS) are to 2013.
FINAL DECISION TC-MD 180091R 3
wages, even when the dredge was docked on the Oregon side of the Columbia River, are exempt
from taxation in this state by the Waterway Exclusion Act. A secondary issue in this case is
whether Niemela is entitled to a deduction for miles he drove from his home to the Portland Yard
and various work locations along the Columbia and Willamette rivers.
Oregon generally imposes a tax upon the income of nonresidents earned from Oregon
sources. ORS 316.127. The Commerce Clause of the United States Constitution empowers
Congress to limit states from taxing the income of interstate workers. US Const, Art 1, § 8.
Congress has done so in several instances, limiting the power of states to tax the income of
nonresidents such as railroad carriers (49 USC § 11502); motor carriers (49 USC § 14503), and
waterway workers (46 USC § 11108). Under those statutes, qualifying employees who perform
regularly assigned duties in more than one state may only be taxed in their state of residence. Id.The statutes were adopted to relieve both employers and employees from the burden of paying,
respectively, employment and income taxes in multiple states. S Rep No 91–1261, 91st Cong,
(1970) 5039–40 (discussing multiple state tax withholding burden on both employers and
employees); see Butler v. Dept. of Rev., 14 OTR 195 (1997); Etter v. Dept. of Rev., 360 Or 46,
52, 377 P3d 561 (2016).
The primary issue in this case turns on the meaning of a federal statute. “In construing
and applying a federal tax statute, federal law, rather than state law, governs.” Etter 360 Or
at 52. (citations omitted). “In interpreting a statute, the federal courts may examine the statute's
text, its structure, and its legislative history. See, e.g., Dept. of Revenue of Or. v. ACF Industries,
510 US 332, 339–46, 114 S Ct 843, 127 L Ed 2d 165 (1994) (examining text, structure, and
legislative history of federal statute).” Id. Thus, the court will start with the federal legislative
history to assist in interpreting the Waterway Exclusion Act.
FINAL DECISION TC-MD 180091R 4
A. Early History of the Waterway Exclusion Act 46 USC § 11108(b)
During the 106th Congress, nearly identical bills were introduced in the House and Senate
to “to provide equitable treatment with respect to State and local income taxes for certain
individuals who perform duties on vessels.”3 See Transportation Employee Fair Taxation Act of
1999, HR 1293, 106th Cong (1999); Vessel Worker Tax Fairness Act, S 893, 106th Cong (1999).
As explained by the House Report on HR 1293, the bills were:
“designed to clarify the taxing status of certain types of interstate waterway
workers, which under current law is ambiguous. This uncertainty in taxing status
allows States to tax the income of interstate waterway workers in a worker’s State
of residence and in any State in which the worker earns 50 percent or more of his
or her annual income. H.R. 1293 resolves this ambiguity by prohibiting any State
from taxing the income of a nonresident interstate waterway worker.”
HR Rep No 927(I), 106th Cong, 2d Sess, 1-2 (2000).
Congressional reports and statements by legislators show that members of Congress were
concerned that interstate waterway workers could face income taxation in multiple states, a
problem Congress had already addressed for other interstate transportation workers through
various pieces of legislation. See, e.g., 49 USC § 14503 (the Amtrak Act); see also Julian v.
Dept. of Rev., 17 OTR 384, 389–91 (2004), rev’d, 339 Or 232, 118 P3d 798 (2005) (discussing
the history of the Amtrak Act and related statutes). Representative Baird’s statements upon
introducing HR 1293 illustrate those concerns:
“I am deeply concerned that a significant number of interstate waterway
employees who are employed on vessels that operate on the Columbia River, the
Mississippi, the Ohio, the Missouri, the Kanawha, and many other inland
waterways throughout this Nation may be double or even triple-taxed for their
labor. These river pilots, officers and other crew members perform most of their
work on rivers which flow through multiple States, and in many cases these folks
are subject to income tax filings and additional withholdings from multiple States.
“* * * * *
3
A key difference between the two bills was that the House bill referred to “wages and employment” while
the Senate version referred to “compensation for the performance of duties.”
FINAL DECISION TC-MD 180091R 5
“When truck drivers, railway workers and aviation employees go about their jobs,
all of whom are required to conduct their work in States other than their home
State, Congress has seen fit to grant them an exemption from this double or triple
taxation unless a majority of the work is performed in another State.
“* * * * *
“My bill will expressly prohibit the taxation of income earned by waterway
workers by States other than the ones in which the workers reside. It will close
the unfortunate loophole that says we treat all the other groups of interstate
workers one way and bargemen and river pilots the other.”
145 Cong Rec H1791-09, 1999 WL 162877 (Mar 25, 1999).
A similar sentiment was voiced by Representative Bono:
“Through a patchwork of legislation spanning nearly three decades, Congress has
exempted interstate rail, motor, and air carriers from having to pay income taxes
in more than one State by making the income of these workers taxable only in the
worker’s State of residence. While these workers have escaped the onerous
burden of multiple taxation, Congress has failed to provide similar relief to
interstate water workers.
“* * * * *
“In response to this problem, [HR 1293] would exempt interstate waterway
workers from multiple State income taxation.”
146 Cong Rec H10633, 2000 WL 1585880 (Oct 24, 2000).
The statements of Senator McCain also echoed these concerns:
“S. 893 declares individuals engaged on a vessel to perform assigned duties in
more than one State to be exempt from income taxation laws of States or political
subdivisions of which that individual is not a resident.
“While the Interstate Commerce Act exempts truck drivers, airline pilots, and
railroad employees from being taxed by state and local jurisdictions in which they
do not reside, it does not recognize merchant mariners who operate vessels in
more than one state. It is time we correct this oversight and afford merchant
mariners the same tax treatment similar transport operators are provided due to
the interstate nature of their business.
“By passing this measure today, we will be providing much needed relief to
merchant mariners. Under existing law, water transportation workers, including
marine pilots, tow and tugboat workers and others who work aboard vessels are
often subjected to filing and tax requirements by states other than their state of
residence leading to possible double taxation. I do not believe that double
///
FINAL DECISION TC-MD 180091R 6
taxation is what Congress intended for any transportation worker when it crafted
the Interstate Commerce Act. By passing S. 893 today, we can make that intent
reality.”
146 Cong Rec S9553, 2000 WL 1434392 (Sept 28, 2000).
Washington Senator Gorton provided the following to specifically address taxation of
residents of his state by Oregon:
“This matter came to my attention through a series of constituent letters from
Columbia River tug boat operators who are currently facing taxation from Oregon
as well as Washington state. I am committed to pursuing this avenue of relief for
my constituents, as well as hard working tug boat operators across the nation.”
145 Cong Rec S4257-02, 1999 WL 245564Congress also understood that tracking employees’ locations across multiple jurisdictions
created an administrative burden for interstate workers and their employers, which added to the
ambiguity in waterway workers’ tax status. See HR Rep No 927(I), 2000 WL 1471522at *3–4 (“This lack of taxing clarity is compounded by the monitoring and reporting difficulties
that underlie the proper apportionment of income earned while navigating waterways that
delineate interstate boundaries.”). Congress was aware that these problems were especially acute
on the Columbia River.
“Oregon levies a broad based tax on personal income, while Washington does not.
Over the last several years, Washington residents who work on the Columbia
River as riverport pilots and barge operators have unexpectedly received tax
assessments of hundreds of thousands of dollars in back taxes by Oregon taxing
authorities. Since interstate water carriers along the Columbia River are unable
to precisely ascertain how much time their workers spend in Oregon waters,
Oregon taxing authorities have assumed that these workers spend half their time
in Oregon and are thus taxable under the 50 Percent Rule.”
Id. at 4 (footnote omitted).
In summary, the legislative history of HR 1293 and S893 demonstrate that Congress
intended to put interstate waterway workers on the same footing as other interstate transportation
FINAL DECISION TC-MD 180091R 7
workers by generally exempting them from taxation in states other than their state of residence.
The Senate bill (S 893) became law on November 9, 2000. PL 106-489 11 Stat 2207 (2000).
B. Oregon Cases, Statutes, and Administrative Rules after PL 106-489
In 2001, the Oregon Legislature added the protections of section 11108(b) into Oregon
law. See Ch 77 Or Laws § 1 (codified as ORS 316.127(10)). The text of ORS 316.127(10), to a
significant degree, mirrors the text of section 11108(b)(2) as originally enacted. Moreover,
OAR 150-316-0185 now provides that Oregon “imposes taxes on Oregon source income of
nonresidents to the extent allowed under Oregon and federal law and exempts Oregon source
income of nonresidents to the extent provided under federal law: 46 USCA 11108.” Both
statutes should therefore be understood as providing the same protections to nonresident
waterway workers.
Only two Oregon Tax Court cases have closely examined section 11108(b) or
ORS 316.127(10).4 The first case was Davis v. Department of Revenue, TC-MD 030062E,
WL 22908839 (Or Tax M Div Nov 25, 2003). In Davis, the taxpayer was a resident of
Washington who worked for a stevedoring company, working on vessels while they were docked
in Oregon and in Washington. The court focused its analyses on the use of the word “operating”
in ORS 316.127(10) and concluded that because “ ‘operating’ is an action word * * * the
legislature intended the vessels be moving rather than sitting idle.” Davis, 2003 WL 22908839at * 2. The court concluded the work the taxpayer performed while the vessels were docked did
not qualify for exemption. Id. In support of that conclusion, the court opined that the purpose of
the statute was to alleviate the hardship of determining when a vessel was operating on the
4
A third case, Mendoza v. Dept. of Rev., TC-MD 150516C, WL 4925101 (Or Tax M Div, Sept 14, 2016),
also examined that issue, but to a lesser extent.
FINAL DECISION TC-MD 180091R 8
Oregon or Washington side of the Columbia River. Because the vessels the taxpayer worked on
were docked on one side of the river or the other, the court concluded that there was no
uncertainty as to where the ships were located and, therefore, the exemption did not apply. Id.In the second case, Espinoza v. Department of Revenue, the taxpayer, a Washington
resident, was a merchant mariner who worked on a vessel in Oregon and California during the
tax year. TC-MD 050768B, WL 2992948 (Or Tax M Div, Oct 19, 2006). At issue was whether
the time the taxpayer spent in Oregon ports or on the Willamette River qualified for exemption.
The court first applied the reasoning of Davis and concluded that the exemption did not apply
because the taxpayer was unquestionably in Oregon while the vessel was docked in an Oregon
port or while traveling on the Willamette River. Id. at *2. Turning to section 11108(b), the court
in Espinoza noted its similarity to other federal statutes pertaining to interstate transportation
workers, particularly the Amtrak Act (49 USC §14503). Id. at *3. Comparing the two statutes,
the court observed that the text of the Amtrak Act exempted workers with regularly assigned
duties “ ‘in 2 or more states’ ” while section 11108(b) referred to “ ‘operat[tion] on the navigable
waters of more than one state.’ ” Id. (emphasis and alteration in Espinoza). Reasoning that
because “of” and “in” have different meanings, the court concluded that section 11108(b) only
applied while a vessel was operating on waters belonging to more than one state, like the
Columbia River, but not on purely intrastate waters, like Oregon coastal ports and the Willamette
River. Id. at *3–4.
The upshot of Davis and Espionza is that the exemptions of ORS 316.127(10) and
section11108(b) were deemed to only apply to vessels that were actively operating in waters that
belonged to more than one state. OAR 150-316.127(10) (2013), promulgated after Espinoza, is
illustrative. OAR 150-316.127(10)(1) stated that “only the Columbia and the Snake rivers are
FINAL DECISION TC-MD 180091R 9
navigable waters of more than one state.” Under that theory, unless the vessel was actively
“operating” on the Columbia or Snake rivers, the exemption did not apply. For instance, the rule
provided the example of “Kirk,” a nonresident working on board “a vessel plying the Columbia
River. He works half of each day on the vessel between Rainier and Portland and the other half
on the docks of the Oregon shore.” OAR 150-316.127(10), Example 2 (2013). The example
stated that Kirk should only be allowed the exemption for the time the vessel was on the
Columbia, not docked in Oregon. Id. Another example provided that “Remy,” whose vessel
traveled from Hood River to Tualatin on the Willamette and Columbia rivers, would only be
exempt for the time he spent on the Columbia; he would therefore be required to apportion his
income accordingly. Id., Example 3.
C. 2010 Amendment to Section 11108(b)
The court in Davis and Espinoza centered its analysis on one of the rationales underlying
the creation of section 11108(b): the administrative difficulties of tracking the location of
waterway workers as their vessels moved between states. However, the court did not consider
that Congress’s primary goal was to protect workers from the burdens of multi-state taxation by
providing an exemption to waterway workers similar to exemptions provided for other interstate
transportation workers. Regardless of whether those cases were correctly decided at the time,
Congress subsequently amended section 11108(b), and in doing so, expressly abrogated
Espinoza and undermined the rationale articulated in Davis.
In 2010, language amending section 11108(b)(2)(B) was included in a larger funding bill
for the Coast Guard. Coast Guard Authorization Act of 2010, PL 111-281, § 906, 124 Stat 290
(2010). The amendment replaced the phrase “operating on the navigable waters of more than
///
FINAL DECISION TC-MD 180091R 10
one State” with “operating on navigable waters in 2 or more states.” See id. That change was in
response to Espinoza. As Representative Baird5 explained:”
“[I]ncluded in this bill is language clarifying the rule related to the
taxation of interstate waterway workers. In an effort to address an unfair tax
situation of waterway workers, whose jobs require them to work in multiple
States, I authored legislation in the 106th Congress called the Transportation
Employment Fair Taxation Act. This legislation barred States from taxing a
nonresident waterway worker who performs regularly assigned duties while
engaged as a master, officer or crewman on a vessel operating on the navigable
waters of more than one State.
“As the House report for this legislation stated, the purpose of this
legislation was to prohibit any State from taxing the income of a nonresident
interstate waterway worker. The Senate version of this legislation was signed into
law on November 9, 2000.
“Unfortunately, a 2006 decision by one State’s tax court is wholly
inconsistent with the intent of the 2000 law. Due to the use of the word ‘of’
instead of ‘in,’ the court believes it only applies to the waterways that are owned
jointly by more than one State. This was clearly not the intent of the 2000 law.
The legislative history and Congressional Record make clear it was not the intent
of the law, and I happen to know a little about that intent because I authored the
legislation.
“This legislation today makes a slight wording change to clarify that the
law is intended to apply to all interstate waterway workers on all waterways. It is
my sincere hope that this minor change will make clear that States are prohibited
from taxing the income of a nonresident interstate waterway worker, period. I
want to make clear that this was the intent of the law I authored in 2000, and this
legislation before us today will reinforce that congressional intent.”
155 Cong Rec H11623-01, 2009 WL 3398976 (Oct 22, 2009).
It is clear that the representative from Washington was specifically referring to Espinoza.
Although the Oregon Legislature has not updated ORS 316.127(10) to mirror the text of the
federal law, OAR 150-316-0185 now makes clear that Oregon “exempts Oregon source income
of nonresidents to the extent provided under federal law[.]” The rule no longer limits the
5
Congressman from the state of Washington.
FINAL DECISION TC-MD 180091R 11
exemption to vessels on the Columbia and Snake rivers, and the examples have been updated to
reflect the clarified federal law. Thus, in Example 3, all of the income earned by Remy, whose
vessel plies the Columbia and Willamette rivers, will be subject to exemption; he is no longer
required to apportion his income between time spent on each river. Similarly, Example 2 no
longer distinguishes between the time Kirk spends navigating the Columbia River and the time
he spends docked on the Oregon shore. In the updated Example 2, Kirk spends two hours per
day maintaining mill equipment and performing other tasks in a saw mill. Presumably Kirk is
not being paid as a pilot while he works in the mill; therefore, the exemption does not apply.6
D. Application to Niemela
The department’s argument in this case is premised on the idea that the taxpayer qualified
for the exemption only while he was working on board a vessel that was actively operating, i.e.,
dredging, on the Columbia River. Defendant exempted Niemela’s earnings for weekday work
during the dredging season, but subjected them to Oregon taxation for weekend maintenance he
performed while docked on the Oregon side of the Columbia River. That day by day parsing of
Niemela’s duties and pay for performing work while the boat was docked on the Columbia River
is not supported by the federal legislative history; nor is it supported by the current state
administrative rule. The department’s argument is based in part on the court’s reasoning in
6
This example is defensible if one assumes that Kirk is doing work that is unrelated to his work as an
interstate waterway worker. On the other hand, the department seems to read this rule in this case as supporting its
position that work along the Oregon shore does not qualify for exemption. (See Def’s Closing Statement at 2.) But
were that still the case, the previous Example 2, where Kirk’s work while docked in Oregon was not exempt, would
provide a clearer example. The fact that the department changed that example suggests it has also changed its view
of the law. Disallowing the exemption where the worker is not being paid for work that relates to interstate water
travel is consistent with section 11108(b), which exempts “compensation for the performance of duties,” that relate
to interstate travel on waterways. However, requiring workers to distinguish between onboard and onshore duties,
especially if those duties were de minimis, would be inconsistent with the legislative intent. See State of
Connecticut, Ruling No. 2002-1, 2002 WL 984811, at *2 (Mar 26, 2002) (de minimis onshore duties of nonresident
ferry workers were exempt).
FINAL DECISION TC-MD 180091R 12
Davis: only a worker on a vessel that was actively operating on a river like the Columbia would
qualify for the exemption. (See Def’s Closing Statement at 3.) The court in Davis explained,
without citation, that the purpose of ORS 316.127(10) was to provide an exemption for times
when it would be difficult to track which state a vessel was operating in.
The history of section 11108(b) demonstrates that Congress was concerned with the
difficulties of tracking worker locations on rivers like the Columbia. However, that
administrative concern was just one facet of the problem Congress sought to address. Congress
was chiefly concerned with the burden and perceived unfairness of subjecting waterway workers
to income tax in multiple states, especially since Congress had already alleviated that burden for
other types of interstate workers. The concern with fairness and avoiding multiple taxation is
evident from statements by legislators and the House and Senate reports. See, e.g., S Rep No
106-421, 106th Cong, 2d Sess (2000) (“The bill will amend section 11108 of title 46, United
States Code, in order to prevent merchant mariners who perform duties on the navigable waters
of more than one state from being taxed in multiple jurisdictions.”); Statement of Senator
Gorton, 145 Cong Rec S4257-02, 1999 WL 245564 (Apr 27, 1999) (“This legislation will ensure
that transportation workers who toil away on our nation’s waterways receive the same tax
treatment afforded their peers who work on the nation’s highways, railroads, or navigate the
skies.”). Also clear is that Congress was focused primarily on the workers’ status generally, i.e.,
whether their jobs regularly required them to travel between states and was less concerned with
the activities of the vessel they worked on at any given moment. See H Rep No 111-303 Part 1,
at 136, 111th Cong 1st Sess (2010) (the 2010 amendment “limits State jurisdiction to tax worker
crewmembers on vessels that regularly work on the navigable waters of two or more States;
workers would only be taxed in one State.”). As Representative Baird explained, “States are
FINAL DECISION TC-MD 180091R 13
prohibited from taxing the income of a nonresident interstate waterway worker, period.” 155
Cong Rec H11623-01 (emphasis added). Allowing workers to claim the exemption while a
vessel is “actively operating,” but denying the exemption when the vessel is idle or undergoing
weekend maintenance docked on one side of a river, would frustrate that goal. Workers would
still be subject to taxation in multiple states, and workers would be faced with the additional
burden of tracking and apportioning their time. It does not appear that Congress intended such a
result.
The legislative history of section 11108(b) also demonstrates that Congress viewed the
protections for waterway workers on par with exemptions for other interstate transportation
workers, such as those set out in the Amtrak Act. It should be noted that those exemptions apply
to employees who perform regularly assigned duties in two or more states. See 49 USC 14503.
The fact that Congress updated section 11108(b) to mirror the Amtrak Act, in direct response to
Espinoza, is further evidence that Congress intended section 11108(b) to shield waterway
workers from multi-state taxation in the same way that laws like the Amtrak Act do. Thus, the
question to be asked under section 11108(b) should be whether a worker had regularly assigned
duties on a vessel that was engaged in interstate activity, not whether the vessel was “operating”
on any given day.
Moreover, the current OAR 150-316-0185 further calls into question the department’s
position. Recall that a prior version of the rule included an example where “Kirk” was allowed
an exemption for the time his vessel spent plying the Columbia, but not for the time he spent on
board the vessel while it was docked on the Oregon shore. That example has since been
changed; although, now Kirk leaves his vessel and works in a sawmill. That change to the rule
suggests that the department updated its interpretation of the statutes to be consistent with the
FINAL DECISION TC-MD 180091R 14
2010 changes to section 11108(b). Example 1 provides further support; it states that “Ben” is
exempt for the work he performed on board a dredging platform operating on the Willamette and
Cowlitz rivers. It appears to be enough that the dredge was operating in two states (in Oregon,
on the Willamette, and in Washington, on the Cowlitz) to allow Ben the exemption. Nowhere
does the current rule distinguish between “active” operations on a vessel and times when the
vessel sits idle.
In addition, although the 2010 amendment was in direct response to Espinoza, by
clarifying its intent, Congress also undercut the rationale for Davis. Recall that Davis was
premised on the idea that the legislature wanted to provide an exemption for times when it would
be difficult to determine which state a vessel was operating in. However, since 2010, it has been
clear that the exemption applies even on purely intrastate waters like the Willamette River. In
such cases, there is no question as to what state the vessel is located in, yet the exemption still
applies. It is because the vessel is engaged in interstate activity that gives rise to the exemption.
In summary, section 11108(b) should be read to apply to workers with regularly assigned
duties on vessels that travel between two or more states during the relevant period. Niemela was
paid as a crew member of a dredge that operated on the Columbia River between Washington
and Oregon during the tax year. Thus, his pay as a crew member should be exempt, regardless
of whether the vessel was actively dredging or not.
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FINAL DECISION TC-MD 180091R 15
E. The Amount of Niemela’s Exemption
Having found that Niemela’s income during the dredging season is exempt, the court
must still address the exact calculation of Niemela’s Oregon income.7 That is so because
Plaintiffs did not provide sufficient evidence on how they arrived at their Oregon taxable income
stated on their return at $32,381 (Ex F at 3), and Defendant’s spreadsheet calculations were
based on the erroneous assumption that Niemela’s weekend work during dredge season should
not be exempt. Based on the above analysis, the court finds that Niemela was performing
regularly assigned duties while engaged as a crewman on a vessel operating on navigable waters
in two or more states during the dredging season. Niemela should not have to parse his time
hour by hour depending on the work he performed as long as his work, day to day, and week to
week consisted of regularly assigned duties aboard the dredge. Consequently, the court starts
with Defendant’s calculation of exempt income Niemela earned from dredging as found in
Exhibit C, and also adds the wages from his weekend maintenance work as shown in
Attachment 1. Putting those figures together, the court finds that Niemela’s Oregon taxable
wages for the 2014 tax year were $46,723.79.
F. Travel Deduction
Defendant denied Plaintiffs’ vehicle expenses due to a lack of substantiation and on the
theory that “the mileage appears to be personal commuting mileage to Mr. Niemela’s principle
[sic] place of business [and] daily transportation expenses incurred in going between your
7
The interesting question of whether all of Niemela’s earnings should be exempt or merely those earned
during the dredging season is not decided by this court because it was not raised. The legislative history of section
11108(b) suggest that Congress intended to broadly exempt interstate workers. On the other hand, despite
Congress’s expressed intent to focus on all waterway workers, the text of section 11108(b)(1) does limit the
exemption to “compensation for the performance of duties.” Thus, at least some focus on the work being done by
waterway workers seems appropriate. See Mendoza v. Dept. of Rev., TC-MD 150516C, WL 4925101, at *7 (Or Tax
M Div, Sept 14, 2016) (distinguishing between law enforcement activities while on “boat patrol” on the Columbia
versus on dry land).
FINAL DECISION TC-MD 180091R 16
residence and your Portland/Vancouver metropolitan area work location are nondeductible
commuting expenses. (Rev. Rul. 99-7)” (Def’s Closing Statement at 3.)
Travel expenses are subject to strict substantiation rules under IRC section 274(d).
Although the court often engages in an extended discussion about mileage substantiation, it is
not necessary in this case. Plaintiffs provided a detailed log of work location from Niemela’s
employer. That log was corroborated by Niemela’s testimony. Thus, the court finds Plaintiffs’
mileage expenses are sufficiently substantiated. The more difficult question is whether the
mileage is deductible under IRC section 162.
IRC section 162(a) allows deductions for “all the ordinary and necessary expenses paid
or incurred during the taxable year in carrying on any trade or business[.]” Conversely, IRC
section 262(a) disallows deductions for “personal, living, or family expenses.” Generally, a
taxpayer cannot deduct the cost of commuting between the taxpayer’s residence and the
taxpayer’s place of business, except when the taxpayer travels “away from home in the pursuit of
a trade or business[.]” IRC § 162(a)(2); Treas Reg § 1.162–2(e); Comm’r v. Flowers, 326 US
465, 66 S Ct 250, 90 L Ed 203 (1946).
In Bogue v. Comm’r, the tax court succinctly identified three exceptions to the
commuting rule cited above:
“The first exception is that expenses incurred traveling between a taxpayer’s
residence and a place of business are deductible if the residence is the taxpayer’s
principal place of business (home office exception). The second exception is that
travel expenses between a taxpayer’s residence and temporary work locations
outside of the metropolitan area where the taxpayer lives and normally works are
deductible (temporary distant worksite exception). The third exception is that
travel expenses between a taxpayer’s residence and temporary work locations,
regardless of the distance, are deductible if the taxpayer also has one or more
regular work locations away from the taxpayer’s residence (regular work location
exception).”
///
FINAL DECISION TC-MD 180091R 17
Bogue v. Comm’r, 102 TCM (CCH) 41 (TC 2011) at *6, aff'd, 522 Fed Appx 169, 2013-1 US
Tax Cas ¶ 50354 (3d Cir 2013).
The first exception does not apply because Niemela did not assert his principal place of
business was his residence. The second exception for temporary work locations outside the
metropolitan areas where the taxpayer works and lives is problematic. No evidence was
presented at trial to establish the metropolitan area where Niemela works and lives. That is
especially troublesome in this case because he lives in Cathlamet, Washington, which is not
close to any designated metropolitan area or even any major population center. Niemela
commuted for much of the year to his employer’s yard located in Portland; more than 70 miles
each way from his home. Another nearby city and work location is in Astoria which, the court
takes judicial notice, is over 50 miles from Plaintiffs’ residence by highway. If a taxpayer does
not ordinarily work in the metropolitan area in which he resides, transportation expenses to travel
to temporary job sites in other metropolitan areas are nondeductible commuting costs. Aldea v.
Comm’r, 79 TCM (CCH) 1917 (TC 2000). It is possible that, because Niemela resides in such a
remote location, that other locations where he goes to work are outside of the metropolitan area.
However, unlike other commuter cases which are closer to well-defined metropolitan areas, the
court cannot take judicial notice of any particular fact to reach a result in this case. See, e.g.
Balvaneda v. Dept. of Rev., TC-MD 160156R, WL 384418 (Or Tax M Div Jan 25, 2017). In
other words, if going to a worksite in Portland is within his metropolitan area, then probably the
remainder of the worksites he commutes to along the Columbia River are also within his
metropolitan area because they are all in closer proximity to his residence, and the second
exception does not apply. If Portland is not within his metropolitan area, then he does not live
and work within the same metropolitan area, and the second exception also does not apply. As
FINAL DECISION TC-MD 180091R 18
explained in Bogue, the policy behind that exception is to cover long commuting expenses when
taxpayers commute for business, rather than personal reasons. Niemela did not present evidence
of the business purpose of residing more than 70 miles from Portland. The court is unable to
find the second exception is applicable in this case.
The third exception is the “regular work location” exception found in Rev Rul 99-7,
1991-1 CB at 362, which states: “If a taxpayer has one or more regular work locations away
from the taxpayer’s residence, the taxpayer may deduct daily transportation expenses incurred in
going between the taxpayer’s residence and a temporary work location in the same trade or
business, regardless of the distance.” Rev Rul 99–7 does not define “regular work location,” but
the US Tax Court inferred that the term should have the same meaning as “regular place of
business” as defined in Revenue Ruling 90–23, 1990–1 CB 28, 1990 IRB LEXIS 99 (Jan 1990)
(Rev Rul 90–23). Bogue, 2011 Tax Ct Memo LEXIS 164 at *36. Rev Rul 90–23 defines
“regular place of business” as “any location at which the taxpayer works or performs services on
a regular basis.” The US Tax Court also inferred that the terms “regular work location” and
“temporary work location” are mutually exclusive because they are contrasted with one another
in Rev Rul 99–7. Id. For purposes of both Rev Rul 90–23 and Rev Rul 94–47, a temporary
work location is defined as any location at which the taxpayer performs services on an irregular
or short-term (i.e., generally a matter of days or weeks) basis. In Bogue, the taxpayer normally
worked only at temporary locations in one metropolitan area and was unable to establish that he
performed work on a regular basis at any particular location. Id. at *38. Because the taxpayer
had no regular work location, the court held that the taxpayer did not qualify for the third
exception of Rev Rul 99–7. No evidence was presented to show that Niemela had any regular
work locations, rather, they all appear to meet the definition of temporary work locations.
FINAL DECISION TC-MD 180091R 19
Ultimately, the court concludes that Niemela’s commuting expenses are not deductible based on
the evidence presented.
III. CONCLUSION
The legislative history of section 11108(b) shows that Congress intended to shield interstate
waterway workers from taxation in multiple states in a manner consistent with federal exemptions for
other interstate transportation workers. In response to a narrow interpretation of the law by the
Magistrate Division, Congress amended section 11108(b) to clarify that the exemption applied even
when vessels could be found on intrastate waters. Consequently, the department’s position—that the
vessel must be actively operating, not docked or moored—is incorrect. Instead, all of the taxpayer’s
income during the dredging season seems to fit within the exemption. Now, therefore,
IT IS THE DECISION OF THIS COURT that Plaintiffs’ appeal is granted in part and
denied in part.
IT IS FURTHER DECIDED that Plaintiffs’ taxable earnings in this state for the 2014 tax year
were $46,723.79. Defendant shall make the appropriate adjustments to principal and interest.
IT IS FURTHER DECIDED that Plaintiffs’ deduction for travel mileage is denied.
Dated this day of May 2019.
_______________________
RICHARD DAVIS
MAGISTRATE
If you want to appeal this Final Decision, file a complaint in the Regular
Division of the Oregon Tax Court, by mailing to: 1163 State Street, Salem, OR
97301-2563; or by hand delivery to: Fourth Floor, 1241 State Street, Salem, OR.
Your complaint must be submitted within 60 days after the date of the Final
Decision or this Final Decision cannot be changed. TCR-MD 19 B.
This document was signed by Magistrate Richard Davis and entered on May 2,
2019.
FINAL DECISION TC-MD 180091R 20