Ooma, Inc. v. Dept. of Rev. , 24 Or. Tax 48 ( 2020 )

48 March 2, 2020 No. 3
IN THE OREGON TAX COURT
REGULAR DIVISION
OOMA, INC.,
a foreign corporation,
Plaintiff,
v.
DEPARTMENT OF REVENUE,
Defendant.
(TC 5331)
On cross-motions for summary judgment concerning Oregon’s E911 Tax
under ORS 403.200(1), Plaintiff, a provider of Voice over Internet Protocol ser-
vices, argued that it was not subject to the E911 Tax and that imposing the E911
Tax would violate the Due Process and Commerce Clauses of the United States
Constitution. The court held that Plaintiff was a provider required by statute to
collect the tax from its consumers. Further, the court found no violation of the
federal Due Process Clause because Plaintiff maintained sufficient minimum
connections with Oregon to satisfy even the most rigorous of the various tests
outlined by US Supreme Court cases. J. McIntyre Machinery, Ltd. v. Nicastro,
564 US 873, 877, 131 S Ct 2780, 180 L Ed 2d 765 (2011). Finally, the court found
that imposition of the E911 Tax did not offend the Commerce Clause because a
substantial nexus existed between Oregon and Plaintiff, and the measurement of
the E911 Tax (a per line charge) was fairly related to Plaintiff’s Oregon activities
and not excessive.
Oral argument on cross-motions for summary judgment
was held January 17, 2019, in the courtroom of the Oregon
Tax Court, Salem.
Casey M. Nokes, Cable Huston LLP, Portland, and
Michael J. Bowen, Akerman LLP, Jacksonville, filed the
motion and argued the cause for Plaintiff.
James C. Strong, Assistant Attorney General, Department
of Justice, Salem, and Darren Weirnick, Senior Assistant
Attorney General, Department of Justice, Salem, filed the
motion and argued the cause for Defendant.
Decision for Defendant rendered March 2, 2020.
ROBERT T. MANICKE, Judge.
INTRODUCTION
Plaintiff Ooma, Inc. (taxpayer) provides national
interconnected Voice over Internet Protocol (VoIP) services,
Cite as 24 OTR 48 (2020) 49
including to customers in Oregon. Defendant Department
of Revenue (the department) has issued to taxpayer notices
of assessment of the tax imposed under ORS 403.200 (the
“E911 Tax”) in amounts totaling $677,444.88, including
penalties and interest as of August 30, 2016. Taxpayer
appeals from an adverse decision in the Magistrate
Division, and the parties have filed cross-motions for sum-
mary judgment on largely stipulated facts. The periods at
issue are the quarters ending March 2013 through March
2016.
II. ISSUES
(1) Is taxpayer subject to the E911 Tax under Oregon
law?
(2) Does the Due Process Clause of the United States
Constitution prohibit the department from subject-
ing taxpayer to the E911 Tax?
(3) Does the Commerce Clause of the United States
Constitution prevent the department from subject-
ing taxpayer to the E911 Tax?
III. FACTS
The following facts are not in dispute. Taxpayer is a
foreign corporation with its commercial domicile and princi-
pal place of business in Palo Alto, California. Taxpayer pro-
vides VoIP services to customers across the United States,
including to residents of Oregon. Taxpayer also provides
additional telecommunications services to Oregon custom-
ers that include voicemail, call waiting, call forwarding and
caller identification.
Taxpayer’s VoIP equipment allows Oregon cus-
tomers to conduct voice communications via a high-speed
(broadband) internet connection. In order to access taxpay-
er’s VoIP services, Oregon residents must first purchase
taxpayer’s equipment (“VoIP Equipment”) either directly
from taxpayer via taxpayer’s website, through indepen-
dent third-party retailers with locations in Oregon, or
through independent online retailers, including Amazon.
50 Ooma, Inc. v. Dept. of Rev.
When taxpayer’s customers use the VoIP Equipment to
make a call, the digital data sent from taxpayer’s call ini-
tiator is processed through one of several regional data
centers; otherwise the call is sent via broadband internet
connection.
During the periods at issue, Oregon customers were
required to enter into a contract (“Terms and Conditions”) as
a condition of accessing taxpayer’s VoIP services. Taxpayer
prepared marketing plans that targeted customers nation-
wide, including Oregon residents. Taxpayer also provided
promotional and marketing materials to select national
retailers for use in their retail locations, including retail
locations in Oregon. During the periods at issue, taxpayer
made recurring billings to Oregon customers. Taxpayer did
not file returns for the E911 Tax with the department for the
periods at issue.
Solely for purposes of the parties’ cross-motions for
summary judgment, the department does not dispute tax-
payer’s assertions that during the periods at issue: (1) none
of taxpayer’s employees visited Oregon; (2) taxpayer did not
hire or compensate anyone to act on its behalf to promote
or sell its VoIP services to Oregon residents; (3) taxpayer
did not participate in any court proceeding or any legal or
collection action in Oregon; (4) taxpayer owned no real or
tangible personal property in Oregon; and (5) taxpayer did
not possess any license, permit, registration, or authoriza-
tion issued by any entity, government, or organization in the
State of Oregon. The court will discuss additional facts as
relevant.
IV. ANALYSIS
A. Summary Judgment Standard
The court grants a motion for summary judgment
only if “the pleadings * * * declarations, and admissions on
file show that there is no genuine issue as to any material
fact and that the moving party is entitled to prevail as a
matter of law.” Tax Court Rule (TCR) 47 C. See Christensen
v. Dept. of Rev., 23 OTR 155 (2018) (citing Two Two v.
Fujitech America, Inc., 355 Or 319, 331, 325 P3d 707 (2014)).
Cite as 24 OTR 48 (2020) 51
“No genuine issue as to a material fact exists if, based upon
the record before the court viewed in a manner most favor-
able to the adverse party, no objectively reasonable [fact-
finder] could [find] for the adverse party on the matter that
is the subject of the motion for summary judgment.” TCR
47 C. The adverse party has the burden of producing evi-
dence on any issue raised in the motions as to which the
adverse party would have the burden of persuasion at trial.
Id.B. Statutory Background
Oregon imposes the E911 Tax on each person with
access to Oregon’s emergency communications system (com-
monly known as the “9-1-1” system), whether through VoIP
or through a wired or wireless telecommunications service.
See ORS 403.200(1) (imposing tax), ORS 403.105 (defini-
tions).1 As discussed below, ORS 403.215(1) requires a pro-
vider of a telecommunication service or of equipment with
access to the system to collect the E911 Tax from customers
and remit the payment to the department.2 The E911 Tax is
codified in ORS chapter 403, which begins with a policy state-
ment that reflects the role of the emergency communications
1
For the reasons discussed below, unless otherwise noted, all references
to the Oregon Revised Statutes (ORS) are to the 2015 edition. ORS 403.105(8)
defines the “emergency communications system” as the network, database, serv-
ers, other equipment, and services that provide the means to communicate with
a primary public safety answering point to request and provide assistance to
preserve human life or property.
2
As amended by Or Laws 2014, chapter 59, section 1a, the statutes dis-
tinguish between, on the one hand, “sellers” and “consumers” of prepaid wire-
less telecommunications service, and on the other hand “providers” and “sub-
scribers” of all other kinds of telecommunications service. See ORS 403.105
(definitions). Taxpayer does not sell prepaid wireless service and therefore is
a “provider,” and its customers are “subscribers.” Unless expressly stated,
this order does not further address “sellers” or “consumers.” The same 2014
act also specified that the E911 Tax is imposed on subscribers who have VoIP
service, and those amendments “apply to telecommunications service or inter-
connected Voice over Internet Protocol service, as defined in ORS 403.105,
provided on or after October 1, 2015.” Or Laws 2014, ch 59, § 8a. However,
taxpayer does not argue that the omission of a specific reference to VoIP pro-
viders before the 2014 act, or any of the later changes to the statutes, affects its
obligations with respect to any part of the periods at issue. See Or Laws 2015,
ch 247, § 1 (amending, inter alia, policy statement in ORS 403.100); Or Laws
2017, ch 27, § 1 (interest computation); Or Laws 2019, ch 653, § 1 (increasing
tax rate).
52 Ooma, Inc. v. Dept. of Rev.
system in public safety.3 Revenue from the E911 Tax is
used solely to maintain and improve the system. See ORS
403.245(1).4
In 2005, the Federal Communications Commission
(FCC) adopted regulations requiring all VoIP providers to
ensure that their users have access to local emergency ser-
vices when making 9-1-1 calls.5 See E911 Requirements for
IP-Enabled Service Providers, First Report and Order and
Notice of Proposed Rulemaking, 20 F.C.C.R 10266, ¶ 37 (2005),
https://transition.fcc.gov/cgb/voip911order.pdf (accessed Jan 29,
2020), 70 Fed Reg 43323-01, 2005 WL 1749493 (F.R.) (July 27,
2005), codified as 47 CFR § 9.5. The parties agree that those
federal regulations required taxpayer to provide its Oregon
subscribers access to Oregon’s emergency communications
system during the periods at issue.
C. Discussion of Arguments
1. Taxpayer’s statutory argument
Taxpayer first argues that it owes no E911 Tax
because the statute “imposes” the charge only on a “subscriber”
3
ORS 403.100 provides:
“It is the policy of the State of Oregon to:
“(1) Encourage and support the development of public safety networks
and an emergency communications system and the rapid deployment of
broadband or other communications services in areas of the state in which
the services do not exist;
“(2) Support redundancy of critical communications assets in order to
ensure homeland security protections in the state; and
“(3) Ensure that a secure conduit is available for the emergency commu-
nications system and public safety networks in all Oregon communities.”
4
ORS 403.245(1) provides, in part:
“[M]oneys received under ORS 403.240(8) may be used only to pay for plan-
ning, installation, maintenance, operation and improvement of the emer-
gency communications system as it relates to getting an emergency call from
a member of the public to the primary public safety answering point and
in transmitting the information from the primary public safety answering
point to the secondary public safety answering point or responding police,
fire, medical or other emergency unit by telephone, radio or computerized
means.”
5
See generally Nuvio Corp. v. F.C.C., 473 F3d 302, 303 (DC Cir 2006) (describ-
ing the difficulties associated with “nomadic” service provide by interconnected
VoIP providers; noting the “tragedies” that gave rise to the FCC’s 2005 order
requiring VoIP service companies to provide their subscribers access to local
emergency communication systems).
Cite as 24 OTR 48 (2020) 53
of VoIP services, i.e., taxpayer’s customers. See ORS
403.200(1) - (2). This argument asks the court to ignore
numerous statutes that require a “provider” such as taxpayer
to “collect” the tax from customers, “remit” the tax to the
department, keep “records” of the tax, and file “returns” with
the department, all while holding the proceeds “in trust” for
the benefit of the State of Oregon. See ORS 403.215(1) - (2);
ORS 403.225(1) - (2). Applying the analytical approach in
State v. Gaines, 346 Or 160, 171-72, 206 P3d 1042 (2009),
the court is not aware of a dispute about the meaning of
any part of the statutory text in isolation.6 Rather, the dis-
pute is about the meaning of the text in its context. A brief
examination of the foregoing statutes shows that the legis-
lature has elected to deputize providers to administer the
E911 Tax, much as the legislature for decades has required
employers to collect and remit tax, and file reports on their
employees’ wages, for purposes of the personal income tax,
which provides the overwhelming majority of this state’s
general fund. Cf. ORS 316.167 (requiring employer to with-
hold tax from wages); ORS 316.197 (requiring employer to
remit withheld tax); ORS 316.168 (requiring employer to file
returns); ORS 316.207(1) (employer holds withheld tax in
trust for State of Oregon). In fact, a provider plays an even
more central role with respect to the E911 Tax: while indi-
viduals, including those whose personal income tax liability
is fully satisfied by wage withholding, still must file annual
tax returns, in the case of the E911 Tax no statute requires a
provider’s customer to file a return. Instead, a “return made
by the provider or seller collecting the tax must be accepted
by the Department of Revenue as evidence of payments by
the consumer or subscriber * * *.” ORS 403.200(6).7
Taxpayer’s main statutory argument distills to the
notion that Oregon law allows it to disregard without con-
sequence its express statutory duty to collect and remit the
E911 Tax, simply because the legislature has chosen to also
6
Nor has either party proffered any legislative history regarding taxpayer’s
statutory argument.
7
In the case of prepaid wireless telecommunications service, only a con-
sumer “from whom the tax has not been collected” is required to file a return. See
ORS 403.217.
54 Ooma, Inc. v. Dept. of Rev.
tag customers with liability if taxpayer fails to perform its
duty.8 Taxpayer’s statutory argument fails.
2. Does the due process clause prohibit the department
from subjecting taxpayer to the E911 Tax?
Having concluded that Oregon law purports to
require taxpayer to pay over any amounts of E911 Tax it
should have collected from its customers, the court turns
to taxpayer’s argument that the requirement violates the
Due Process Clause of the United States Constitution. See
US Const, Amend XIV. Taxpayer acknowledges that its
marketing plans and business strategies “targeted cus-
tomers nationwide, including Oregon residents.” However,
taxpayer contends that, because its efforts did not “inten-
tionally or specifically target[ ] Oregon residents,” the Due
Process Clause prevented Oregon from acquiring jurisdic-
tion to impose tax on taxpayer. Essentially, taxpayer argues
that, because it targeted everyone in the nation, it did not
target anyone in Oregon—at least not sufficiently to cre-
ate nexus under the Due Process Clause. The court easily
concludes that Oregon’s imposition of the E911 Tax on tax-
payer is consistent with the guarantee of due process. As the
United States Supreme Court recently summarized, “[i]n
the context of state taxation, the Due Process Clause limits
States to imposing only taxes that ‘bea[r] fiscal relation to
8
Taxpayer also argues that ORS 403.230(1) confirms that it owes nothing
because it has not collected the E911 Tax from its customers. Taxpayer relies
on the closing sentence: “As to any amount collected and required to be remitted
to the Department of Revenue, the tax is considered a tax upon the provider or
seller required to collect the tax and that provider or seller is considered a tax-
payer.” ORS 403.230(1) (emphasis added). Contrary to taxpayer’s argument, this
sentence does not excuse a provider from its positive, unambiguous duty to collect
the tax as stated in ORS 403.215(1). Rather, this sentence presumes the provider
will comply with that duty.
Taxpayer asks the court to ignore the context of ORS 403.230(1) as a whole.
Like similar provisions in other excise tax statutes, ORS 403.230(1) simply
imports by reference the established and well-developed administrative pro-
visions of income tax law rather than inventing new such provisions. Cf. ORS
320.330 (statewide lodging tax); ORS 320.405 (privilege tax on vehicle dealers);
ORS 320.555 (transportation tax on employers and certain payers). In order to
apply those personal income tax provisions to an excise tax such as the E911
Tax, it is necessary to specially define the term “taxpayer.” Otherwise, the nar-
row definition in ORS 316.022(7) (essentially, one who owes personal income tax)
would apply by default, sowing confusion. In other words, the true purpose of the
sentence taxpayer seizes on is simply to clarify that the term “taxpayer” as used
in the imported administrative provisions includes a “provider.”
Cite as 24 OTR 48 (2020) 55
protection, opportunities and benefits given by the state.’ ”
N. Carolina Dept. of Rev. v. The Kimberley Rice Kaestner 1992
Family Tr., ___ US ___, 139 S Ct 2213, 2220, 19 Cal Daily
Op Serv 5832 (2019) (quoting Wisconsin v. J. C. Penney Co.,
311 US 435, 444, 61 S Ct 246, 85 L Ed 267 (1940)).9 The con-
trolling question is “whether the state has given anything
for which it can ask return.” Id. at 2220 (citation omitted);
see also Quill Corp. v. North Dakota, 504 US 298, 312, 112 S
Ct 1904, 119 L Ed 2d 91 (1992), overruled on other grounds,
South Dakota v. Wayfair, Inc., ___ US ___, 138 S Ct 2080,
2092-93, 201 L Ed 2d 403 (2018) (“Ultimately, only those who
derive ‘benefits and protection’ from associating with a State
should have obligations to the State in question.”).
Kaestner reiterated the Court’s longstanding two-
step analysis to decide whether a state tax abides by the Due
Process Clause. First, a court must test for “minimum con-
tacts,” i.e., “some definite link, some minimum connection,
between a state and the person, property or transaction it
seeks to tax * * * such that the tax does not offend traditional
notions of fair play and substantial justice.” Kaestner, ___
US at ___, 139 S Ct at 2220 (citations and internal quotation
marks omitted); see also Quill, 504 US at 312 (“Due process
centrally concerns the fundamental fairness of governmen-
tal activity. * * * We have, therefore, often identified ‘notice’ or
‘fair warning’ as the analytic touchstone of due process nexus
analysis.”). Second, “the income attributed to the State for
tax purposes must be rationally related to values connected
with the taxing State.” Kaestner, ___ US at ___, 139 S Ct at
2220. The court now applies this analysis.
The first step, the minimum contacts inquiry, “is
flexible and focuses on the reasonableness of the govern-
ment’s action.” Id. The approach used to determine whether
in personam jurisdiction lies also applies in cases involving
a state’s jurisdiction to tax. Quill, 504 US at 308-09. Under
that approach, “[i]t is settled law that a business need not
have a physical presence in a State to satisfy the demands of
due process.” Wayfair, ___ US at ___, 138 S Ct at 2093 (citation
9
Kaestner, decided after oral argument in this case, provides a helpful sum-
mary of the due process analysis but is otherwise inapposite due to its factual
dissimilarity.
56 Ooma, Inc. v. Dept. of Rev.
omitted). Rather, the required minimum contacts may be
present if the taxpayer “purposefully avails itself” of the
state’s market and thereby of the benefits and protections
that a state provides by its laws and other infrastructure.
J. McIntyre Machinery, Ltd. v. Nicastro, 564 US 873, 877,
131 S Ct 2780, 180 L Ed 2d 765 (2011) (plurality opinion)
(quoting Hanson v. Denckla, 357 US 235, 253, 78 S Ct 1228,
2 L Ed 2d 1283 (1958)). However, the United States Supreme
Court opinions on the meaning of “purposeful availment”
have been fragmented. Justice Brennan, writing for himself
and three other Justices concurring in the judgment in a
1987 products liability case, would have held that the “reg-
ular and anticipated flow of products from manufacture to
distribution to retail sale” that he found in that case sufficed
to establish minimum contacts with California. See Asahi
Metal Industry Co. v. Superior Court of Cal., Solano Cty.,
480 US 102, 116-17, 107 S Ct 1026, 94 L Ed 2d 92 (1987)
(Brennan, J., concurring in part and concurring in the
judgment). Justice O’Connor, writing for a different plural-
ity, would have required “something more” than a manu-
facturer’s mere awareness that its product would enter the
forum state through the stream of commerce. Id. at 111-12(O’Connor, J., plurality opinion).
More recently, the plurality opinion in Nicastro,
authored by Justice Kennedy, would have looked to “whether
the [foreign manufacturer’s] activities manifest an inten-
tion to submit to the power of a sovereign.” Nicastro, 564
US at 882. The plurality also stated its test as whether the
defendant’s actions “target[ ] the forum” and as “whether a
defendant has followed a course of conduct directed at the
society or economy existing within the jurisdiction of a given
sovereign * * *.” Id. at 882-84. As examples of conduct that
would evince such an intention, the Court cited “direct[ing]
marketing and sales efforts at” the state and advertising
in the state, as well as having an office within the state,
paying taxes in the state, or owning property there. Id. at
885-86. Justice Breyer’s opinion concurring in the judgment
in Nicastro concluded that the foreign manufacturer’s sale
of only one item into New Jersey negated either any “regular
* * * flow” or the “something more” referred to in the compet-
ing plurality opinions in Asahi. See id. at 888-89 (citations
Cite as 24 OTR 48 (2020) 57
omitted) (Breyer, J., concurring). Justice Breyer declined
to join the plurality opinion in Nicastro and instead would
have decided that case in favor of the manufacturer without
“announc[ing] a rule of broad applicability * * *.” Id. at 887.
Taxpayer devotes much of its argument to explain-
ing why three of the four opinions discussed above do not
apply,10 and why one of them (the Kennedy plurality opin-
ion in Nicastro) should control.11 The court concludes that
under any of the tests articulated in Asahi or Nicastro, tax-
payer purposefully availed itself of Oregon’s market. The
nature of taxpayer’s business as a seller of ongoing services,
the number and dollar volume of taxpayer’s Oregon sales, and
the pattern of their growth, show contacts that were suffi-
ciently targeted to Oregon to satisfy any of the tests. During
the three years at issue, taxpayer billed its Oregon subscrib-
ers a total of $2,807,135.90 on recurring cycles. Taxpayer’s
“total * * * product orders made by Oregon customers * * *
during the Period” were “$758,094.96,” and its total “recur-
ring billings and product orders for Oregon residents during
the Period” were “$2,768,405.78.” (Emphasis added.) During
the same period, taxpayer had thousands of VoIP lines in
Oregon and its revenue from Oregon customers increased
from $601,112.19 in 2013 to $1,152,233.39 in 2015.12 These
10
There are others. Justice Stevens wrote separately in Asahi and would
have declined to reach the minimum contacts issue. 480 US at 121. Justice
Ginsburg wrote a dissenting opinion in Nicastro and would have allowed juris-
diction in any state where a product is sold and caused injury. 564 US at 893-910.
11
Taxpayer also criticizes the Oregon Supreme Court’s decision in Willemsen
v. Invacare Corp., 352 Or 191, 282 P3d 867 (2012), cert den, 568 US 1143 (2013), for
applying a “regular flow” or “regular course of sales” standard. The court sees no
need to address this argument because the court concludes that taxpayer’s con-
tact satisfies any of the United States Supreme Court’s minimum contacts tests
and because taxpayer’s contact far exceeds that of the defendant in Willemsen.
12
The department provided a chart, recapitulated below, with four columns
showing the “Number of VoIP Lines in Oregon, Product Sales to Oregon cus-
tomers, Recurring Service Billings to Oregon customers,” and “Total Monthly
Revenue from Oregon customers” (“Chart”). The department determined the
amount of VoIP lines in Oregon by dividing the “per month tax” by $0.75. In
its response brief, taxpayer takes issue with statements in the department’s
cross-motion, asserting in part that the department failed to note in its refer-
ence to the Chart that “one customer may use multiple lines for VoIP service.”
Taxpayer contends that one VoIP line does not equal one customer. Taxpayer
also notes that the portion of the Chart listing the dollar value of equipment
sales to Oregon customers lacks a frame of reference and does not reflect the par-
ties’ stipulation that Oregon customers can purchase taxpayer’s VoIP Equipment
58 Ooma, Inc. v. Dept. of Rev.
amounts far exceed those at issue in Nicastro, which involved
a single sale13 (or, at most, four sales14) into New Jersey at
a price of $24,900 per unit.15 In this case, taxpayer’s thou-
sands of lines and its revenue from Oregon customers of
nearly $1 million per year dwarf the in-state activity of the
manufacturer in Nicastro.16
Applying the test Justice Brennan articulated
in Asahi, not only was the “flow” of products and services
“regular and anticipated,” but most of the revenues as well
were based on regular monthly subscriptions and actually
increased from one quarter to the next. Turning to Justice
Breyer’s reasoning in Nicastro, taxpayer’s sales and reve-
nues also vastly exceeded the “single sale” of $24,900 on
which Justice Breyer relied in seeking to apply precedent
involving isolated sales.17 And to the extent that “purposeful
availment” might require “something more” than taxpayer’s
awareness that its goods or services were entering Oregon
through the stream of commerce, as Justice O’Connor
from several sources; nor does it explain the price of the VoIP Equipment pur-
chases on a per unit basis. Taxpayer then notes, without explanation, that the
“issue of lines v. customers and the average price of equipment sold to Oregon
customers is important in light of the department’s reliance on the holding in
South Dakota v. Wayfair, Inc., 138 S Ct 2080.” As will be explained further below,
given the extent of taxpayer’s overall connection to Oregon during the periods
at issue, the court concludes that none of these points creates a genuine issue
of material fact sufficient to preclude summary judgment in the department’s
favor. See, e.g., Jones v. General Motors Corp., 325 Or 404, 413, 939 P2d 608 (1997)
(“In deciding whether a genuine issue of fact exists, courts generally read ‘gen-
uine issue’ to mean ‘triable issue[.]’ ” (Internal quotation marks and citations
omitted.)).
13
See Nicastro, 564 US at 889 (Breyer, J., concurring in the judgment) (refer-
ring repeatedly to a “single sale”).
14
See id. at 878 (plurality opinion) (one to four machines).
15
See id. at 894 (Ginsburg, J., dissenting) (stating sales price per unit).
16
The quantities and dollar amounts at issue in Asahi are less clear, but
between 20,000 and 100,000 of the department’s tire valve stems appear to have
ended up in California stores per year. See id., 480 US at 106 (Asahi sold 100,000
to 500,000 valve stems to distributor, which sold 20 percent of that stock into
California).
17
Taxpayer’s sales also dramatically exceeded the approximately $30,929
that defendant China Terminal & Electric Corp. received from selling 1,102
battery chargers into Oregon over a two-year period, amounts that the Oregon
Supreme Court found sufficient to satisfy the minimum contacts requirement in
Willemsen. See 352 Or at 196 (citing Justice Breyer’s opinion concurring in the
judgment in Nicastro).
Cite as 24 OTR 48 (2020) 59
posited in Asahi, taxpayer’s exclusively direct interactions
with its Oregon customers fulfill that requirement. (There
is no evidence that taxpayer used a distributor or other
intermediary.)
Finally, to the extent that taxpayer accurately
declares that the most restrictive test, Justice Kennedy’s
opinion in Nicastro, controls here, the evidence of taxpay-
er’s business model as a service provider clearly shows
that taxpayer has “targeted” Oregon as a market through
a “course of conduct.” Taxpayer earned the great majority
of its Oregon income from recurring billings for telephone
service and related services. At a minimum, taxpayer’s
periodic billing of customers proves that taxpayer had “fair
warning” that revenue was coming from existing custom-
ers in Oregon.18 Nor is that revenue stream purely the prod-
uct of blindly casting a wide net through generic broadcast
or Internet advertisements. Unlike the remote sellers in
Asahi or Nicastro, taxpayer’s business model depends in
large part on cultivating an ongoing relationship with its
customers, each of which provides a stream of monthly rev-
enue and the prospect to increase that stream. Taxpayer’s
standard form of contract indicates that customers are
not “locked in” to receiving their phone service from tax-
payer, except to the extent that taxpayer’s contract with a
particular customer may specify a minimum initial term.19
If taxpayer fails to satisfy a customer, therefore, taxpayer
risks losing the customer’s monthly revenue to a compet-
itor. Yet, as shown in the Chart below, over the course of
the periods at issue taxpayer not only doubled the number
18
The court takes an example from one of the stipulated exhibits:
“The term for each Service will begin on the date it is activated and will
continue until the Service is terminated by you or by us, as is more fully
set forth herein. Notwithstanding the preceding sentence, in some cases, the
description of the Services or the pricing for the Services may provide for or
require an initial minimum term. Likewise, the sale of an item of Equipment
at a particular price may require as a condition a minimum initial term for
a Service.”
Customer generally may terminate with five days’ notice and is liable for charges
for service through date of termination.
19
The facts here leave no doubt that taxpayer specifically had “fair warning”
that Oregon’s E911 Tax would apply as well. Taxpayer’s Terms and Conditions
included language notifying its subscribers that they would be subject to “911
fees.”
60 Ooma, Inc. v. Dept. of Rev.
of lines in Oregon, from 6,633 in January 2013 to 13,467 in
March 2016, it also increased the average monthly service
revenue it derived from each line substantially, by around
30 percent:
Month/ Number Product Recurring Total
Year of VoIP Sales to Service Monthly
Lines in Oregon Billings Revenue
Oregon customers to Oregon from
customers Oregon
customers
Jan 2013 6,633 $16,082.01 $33,507.64 $49,589.65
Feb 2013 6,790 $14,224.46 $32,967.47 $47,191.93
Mar 2013 6,987 $13,210.67 $33,843.44 $47,054.11
Apr 2013 7,167 $14,821.45 $36,082.81 $50,904.26
May 2013 7,334 $14,438.36 $35,971.98 $50,410.34
Jun 2013 7,549 $11,669.15 $35,253.42 $46,922.57
Jul 2013 7,747 $15,248.11 $33,887.25 $49,135.36
Aug 2013 7,985 $13,483.38 $32,222.04 $45,705.42
Sep 2013 8,162 $12,027.78 $36,448.84 $48,476.62
Oct 2013 8,390 $20,597.43 $37,052.04 $57,649.47
Nov 2013 8,575 $14,730.82 $38,126.52 $52,857.34
Dec 2013 8,853 $17,496.89 $37,718.23 $55,215.12
Jan 2014 9,043 $17,785.00 $42,778.21 $60,563.21
Feb 2014 9,178 $15,287.30 $43,507.99 $58,795.29
Mar 2014 9,409 $13,754.89 $42,851.97 $56,606.86
Apr 2014 9,667 $18,251.94 $45,548.31 $63,800.25
May 2014 9,891 $13,877.21 $48,731.28 $62,608.49
Jun 2014 10,052 $18,114.76 $47,207.67 $65,322.43
Jul 2014 10,229 $21,620.19 $43,763.36 $65,383.55
Aug 2014 10,383 $15,903.28 $47,055.89 $62,959.17
Sep 2014 10,537 $13,819.54 $47,794.36 $61,613.90
Oct 2014 10,711 $18,853.51 $50,180.17 $69,033.68
Nov 2014 10,838 $16,382.39 $53,128.75 $69,511.14
Dec 2014 11,132 $15,000.29 $53,777.15 $68,777.44
Cite as 24 OTR 48 (2020) 61
Month/ Number Product Recurring Total
Year of VoIP Sales to Service Monthly
Lines in Oregon Billings Revenue
Oregon customers to Oregon from
customers Oregon
customers
Jan 2015 11,315 $19,267.37 $56,151.83 $75,419.20
Feb 2015 11,460 $17,053.34 $59,321.22 $76,374.56
Mar 2015 11,594 $20,641.42 $58,856.10 $79,497.52
Apr 2015 11,724 $16,012.18 $71,122.95 $87,135.13
May 2015 11,852 $14,080.24 $87,044.32 $101,124.56
Jun 2015 11,991 $15,403.98 $81,164.60 $96,568.58
Jul 2015 12,163 $17,176.91 $79,635.00 $96,811.91
Aug 2015 12,343 $18,305.51 $80,513.53 $98,819.04
Sep 2015 12,528 $20,892.92 $90,400.07 $111,292.99
Oct 2015 12,709 $14,017.99 $95,126.27 $109,144.26
Nov 2015 12,872 $13,513.81 $93,545.67 $107,059.48
Dec 2015 13,068 $14,708.71 $98,277.45 $112,986.16
Jan 2016 13,231 $17,567.61 $102,096.87 $119,664.48
Feb 2016 13,342 $14,630.08 $101,113.77 $115,743.85
Mar 2016 13,467 $14,288.32 $97,169.72 $111,458.04
Taxpayer must at least have provided adequate VoIP ser-
vice to its existing customers in order to achieve that, and
the court considers that ongoing service—to known, exist-
ing Oregon customers—to be a course of conduct targeting
those customers.20 By the time taxpayer has established an
20
At least for the last two months at issue, taxpayer’s Form 10K for the fiscal
year ending January 31, 2017, eliminates any doubt that taxpayer engaged in a
course of conduct targeting its existing Oregon customers. Taxpayer introduces
its business model in Part I of its Form 10K as follows: “We drive the adoption
of our platform by providing communications solutions to the large and growing
markets for small business, home, and mobile users and then accelerate growth
by offering new and innovative connected services to our user base.” (Emphases
added.) Later in the same public document, taxpayer specifically states: “We
sell additional services to our existing customer base by offering free trials and
promotional offers, as well as sending email communications and leaving mes-
sages on their Ooma voicemail service.” (Emphases added.) And under the head-
ing of “Customer Support,” taxpayer notes: “In addition to providing support
62 Ooma, Inc. v. Dept. of Rev.
ongoing, but readily terminable, service relationship with
customers in Oregon, taxpayer may no longer rely on its
nationwide sales and marketing efforts for immunity from
tax even if, as taxpayer contends, those efforts target no one
by targeting everyone.
Turning to the second step in the due process
analysis, taxpayer does not seriously contest that the E911
Tax is “related to the benefit taxpayer receives from access
to the state.” State law plainly requires that the revenue
from the E911 Tax be spent to maintain Oregon’s emergency
communication network. See ORS 403.235 - 403.245. Thus,
the E911 Tax directly funds a service that taxpayer’s cus-
tomers may urgently need. More importantly, a federal reg-
ulation requires taxpayer as an “interconnected VoIP ser-
vice provider” to assure its subscribers access to their local
emergency communications system and imposes related
obligations on taxpayer. See 47 CFR 9.5(b), (d), and (e). Were
it not for Oregon’s emergency communications system that
taxpayer’s payments help to fund, taxpayer would be in con-
flict with federal law because taxpayer would be unable to
fulfill the requirement to connect its customers to a local
system. The court readily concludes that the E911 Tax is
rationally connected with value that Oregon’s emergency
network provides to taxpayer.
For the foregoing reasons, the court concludes that
the department’s imposition of the E911 Tax on taxpayer
does not violate the Due Process Clause of the United States
Constitution.
3. Does the commerce clause prohibit the department
from subjecting taxpayer to the E911 Tax?
The court turns now to taxpayer’s argument that
the E911 Tax violates the Commerce Clause of the United
States Constitution, which grants Congress the power “[t]o
regulate Commerce * * * among the several States.” US Const,
to our customers, we employ an active customer management strategy in which
we drive incremental revenue through cross-selling of products and services.”
The court finds that taxpayer, like almost any prudent service business, tar-
geted its base of existing customers as an obvious source of potential additional
profit, in addition to attending to customers’ immediate need for service and
support.
Cite as 24 OTR 48 (2020) 63
Art I, § 8, cl 3. Even absent congressional action, the United
States Supreme Court “has long held that in some instances
[the Commerce Clause] imposes limitations on the States,”
including on state taxing power. Wayfair, ___ US at ___, 138
S Ct at 2089.21 To reconcile those limitations with the now-
unquestioned rule that “interstate commerce may be made
to pay its way,” the Court more than 40 years ago adopted a
four-part test. See Complete Auto Transit, Inc. v. Brady, 430
US 274, 281 & n 15, 97 S Ct 1076, 51 L Ed 2d 326 (1977).
Under that test, a state tax will be sustained so long as it
“applie[s] to an activity with a substantial nexus with the
taxing State, is fairly apportioned, does not discriminate
against interstate commerce, and is fairly related to the
services provided by the State.” Id. at 279. This case raises
no issues regarding fair apportionment or discrimination
against interstate commerce; only the “substantial nexus”
and “fairly related” parts of the Complete Auto test are at
issue.
a. Substantial nexus
The Court in Wayfair recently reexamined the sub-
stantial nexus requirement, overruling the Court’s decisions
in Quill and National Bellas Hess v. Illinois, 386 US 753,
758-59, 87 S Ct 1389, 18 L Ed 2d 505 (1967) (Bellas Hess),
which had established and maintained a requirement that
21
The department notes that Congress has “specifically affirmed” the power
of states to impose 9-1-1 taxes on VoIP providers. Under 47 USC section 615a-
1(f)(1):
“Nothing in this Act, the Communications Act of 1934 (47 USC 151 et seq.),
the New and Emerging Technologies 911 Improvement Act of 2008, or any
[Federal Communications] Commission regulation or order shall prevent the
imposition and collection of a fee or charge applicable to commercial mobile
services or IP-enabled voice services specifically designated by a State [or]
political subdivision thereof * * * for the support or implementation of 9-1-1
or enhanced 9-1-1 services, provided that the fee or charge is obligated or
expended only in support of 9-1-1 and enhanced 9-1-1 services, or enhance-
ments of such services, as specified in the provision of State or local law
adopting the fee or charge.”
The department states: “When Congress has expressed an intent that its own
legislation and FCC regulations not be construed to prevent states from imposing
charges on VoIP providers to support 9-1-1 services, one may not assume that
Oregon’s 9-1-1 tax is subject to a dormant Commerce Clause challenge based on
Quill, even if Quill had not been overruled.” At oral argument, the department
acknowledged that it does not argue that this provision expressly preempts any
Commerce Clause challenge to the E911 Tax.
64 Ooma, Inc. v. Dept. of Rev.
the taxpayer have “physical presence” in the taxing state. ___
US at ___, 138 S Ct at 2096. This case requires the court to
apply the substantial nexus requirement in light of Wayfair,
taking into account the nature of the E911 Tax compared to
taxes that the United States Supreme Court has considered.
The court begins by examining the substantial
nexus requirement. Before Wayfair, the Court’s opinions
on the nexus requirement in state tax cases focused on the
physical presence rule and its underpinnings in the con-
text of sales and use taxes. See, e.g., Quill, 504 US at 298
(reaffirming Bellas Hess’s physical presence rule for sales
and use tax obligations imposed on mail-order sellers).22 In
Wayfair, after rejecting the physical presence rule, the Court
restated the substantial nexus requirement as follows:
“ ‘[S]uch a nexus is established when the taxpayer [or the
collector of the tax] ‘avails itself of the substantial privi-
lege of carrying on business’ in that jurisdiction.’’ ___ US
at ___, 138 S Ct at 2099.23 The Court then examined the
annual “quantity of business” that South Dakota required
as a threshold for application of its sales tax, namely, sales
exceeding $100,000, or at least 200 transactions. The Court
held that these thresholds showed a “clearly sufficient”
nexus. Id. Because each of the Wayfair taxpayers had agreed
that it exceeded these thresholds, the Court determined that
the nexus between the taxpayers’ activity and South Dakota
was established based on the taxpayers’ “economic and
22
The Court in other cases has easily found substantial nexus based on facts
indicating that the taxpayer maintained a physical presence in the taxing state.
Cf., e.g., National Geographic v. Cal. Equalization Bd., 430 US 551, 559, 97 S Ct
1386, 51 L Ed 2d 631 (1977) (taxpayer’s maintenance of office in taxing state
sufficient for nexus); D.H. Holmes Co. v. McNamara, 486 US 24, 32-33, 108 S
Ct 1619, 100 L Ed 2d 21 (1988) (nexus met where taxpayer distributed catalogs,
maintained multiple stores in taxing state and earned over $100 million from
sales in that state); Commonwealth Edison Co. v. Montana, 453 US 609, 617, 101
S Ct 2946, 69 L Ed 2d 884 (1981) (Montana tax on severance of coal in Montana
satisfied substantial nexus requirement); see also Capital One Auto Finance, Inc.
v. Dept. of Rev., 22 OTR 326, 343 (2016) (noting that there is “no clear Supreme
Court precedent with respect to income or excise taxes that requires a phys-
ical presence for such taxes), aff’d on other grounds, 363 Or 441, 423 P3d 80
(2018).
23
The Court here quoted Polar Tankers, Inc. v. City of Valdez, 557 US 1, 11,
129 S Ct 2277, 174 L Ed 2d 1 (2009), a property tax case involving the Tonnage
Clause, but the “avails itself” phrase is also used in the Due Process Clause
analysis in state income tax cases. E.g., Mobil Oil Corp. v. Commissioner of Taxes,
445 US 425, 437, 100 S Ct 1223, 63 L Ed 2d 510 (1980).
Cite as 24 OTR 48 (2020) 65
virtual contacts.”24 Id. Although the Court then raised the
possibility that “some other principle in the Court’s Commerce
Clause doctrine might invalidate” the South Dakota act, the
Court discussed no further principles or facts involving the
concept of substantial nexus. Id.25
As recounted above, taxpayer’s “quantity of busi-
ness” in Oregon, based on taxpayer’s sales revenue, greatly
exceeds the minimum sales revenue under South Dakota
law that the Court approved in Wayfair. Taxpayer had more
than $600,000 in annual revenue from Oregon customers
in the first 12 months at issue, and that amount grew to
more than $1 million for the last 12 months at issue. Based
on a straightforward application of Wayfair, then, taxpayer’s
activities obviously have a substantial nexus with Oregon.
Taxpayer argues that, notwithstanding Wayfair,
this court should apply a physical presence requirement in
this case. Taxpayer first seeks to distinguish Wayfair on
the grounds that the E911 Tax, together with other states’
“indirect”26 taxes, impose administrative and compliance
burdens so “crushing” that the Commerce Clause forbids
laying them on companies that lack a physical presence in
the taxing state. Taxpayer points out that the E911 Tax has
24
The Court stated that the taxpayers, as “large, national companies,”
“undoubtedly maintain an extensive virtual presence.” Id. However, the Court
discussed no specific factual findings on this point, the case having proceeded on
a spare factual record after the state conceded summary judgment in the trial
court based on the application of Quill. See id. at 2089. In this case, the court
finds the factual record of taxpayer’s economic presence in Oregon adequate
to decide the case without considering the extent, if any, of taxpayer’s virtual
presence.
25
The Court did mention three features of the South Dakota act that the
Court described as “designed to prevent discrimination against or undue burdens
upon interstate commerce.” Id. at 2099. Those features do not appear to relate
to the substantial nexus part of the Complete Auto Transit test, however, and
two of the features (safe harbor thresholds and anti-retroactivity provisions) do
not appear to be relevant here. The court discusses below the Wayfair Court’s
observations about the third feature, states’ efforts to streamline and standard-
ize local sales and use taxes.
26
Taxpayer does not define the term “indirect taxes.” The court understands
taxpayer to be referring to sales taxes and other charges that taxpayer is allowed
or required to collect from its customers. See Black’s Law Dictionary, (11th ed
2019) (defining “indirect tax” as “1. A tax on a right or privilege, such as an occu-
pation tax or franchise tax. • An indirect tax is often presumed to be partly or
wholly passed on from the nominal taxpayer to another person. 2. A tax that is
added to the cost of goods or services.”).
66 Ooma, Inc. v. Dept. of Rev.
some of the burdensome features of the sales and use taxes
involved in Bellas Hess, Quill, and Wayfair, namely, the
requirement to collect and remit tax from customers and to
determine the amount of liability immediately when making
sales to customers. Cf. Capital One, 22 OTR at 343 (describ-
ing typical sales tax collection burdens). Wayfair, however,
declared these burdens, by themselves, insufficient to jus-
tify a physical presence requirement. See ___ US at ___, 138
S Ct at 2093 (referring to seller’s collection duty as a “famil-
iar and sanctioned device”). But taxpayer asks the court to
consider these burdens in the greater context of all indirect
taxes imposed on telecommunications services nationwide,
which taxpayer claims are far more numerous and varied,
and require vastly greater numbers of returns, than is the
case for general, nontelecommunications businesses.
The court struggles with taxpayer’s evidence, which
consists of a 2004 study addressing the telecommunications
industry as a whole, including traditional wireline service
providers and wireless service providers. The study nowhere
mentions the then-nascent VoIP industry. Although the
study supports taxpayer’s factual position that telecom-
munications providers at that time were subject to a much
greater number and variety of taxes and filing obligations
than imposed on other businesses, the study attributes this
inequity to “outmoded statutes that originated during the
era when telecommunications companies were closely regu-
lated monopolies.” Taxpayer provides no evidence that these
“outmoded” statutes actually applied to the relatively new
VoIP industry.27 The same study also reports that the num-
ber of filings required had decreased by about 28 percent
over the five years preceding the study, due largely to efforts
by five states to simplify their telecommunications tax
structures. (Required filings dropped from 66,918 to 47,921
from 1999 to 2004.) If that reduction were trended to the
present (16 years later), it might be reasonable to suppose
that the problem taxpayer complains of has been solved—
there is no evidence either way. Finally, a 2017 study that
the parties introduced as a stipulated exhibit suggests that,
to the extent a problem persists, emergency access charges
27
Recall that the Oregon legislature in 2014 felt the need to update the E911
Tax to include VoIP providers. Or Laws 2014, ch 59, § 3a.
Cite as 24 OTR 48 (2020) 67
are not likely a significant cause: “Most wireless 911 fees are
levied at uniform rates statewide, although there are a few
exceptions.” From these materials the court cannot discern
anything approaching the “virtual welter of complicated
obligations to local jurisdictions” that moved the Court in
Bellas Hess to first declare a physical presence requirement
for sales and use taxes. See 386 US at 759-60.28
Taxpayer’s resort to the 2004 study also under-
mines its next argument. Taxpayer asserts that a physical
presence requirement for the E911 Tax would not distort the
market in which taxpayer operates, in contrast to the mar-
ket distortion that the Court found in Wayfair. The Court
in Wayfair took pains to illustrate how a physical presence
requirement for sales and use taxes could create market
distortion by driving business away from a hypothetical
company that placed its warehouse in the taxing state, and
by driving business into the arms of an otherwise identical
company that kept its warehouse a few miles across the state
line, safe from any requirement to collect sales or use tax.
See ___ US at ___, 138 S Ct at 2085. Taxpayer argues that
the Court’s distortion scenario does not apply in this case
because VoIP providers do not need a substantial physical
plant in any state (ignoring, for the sake of argument, any
office or headquarter facility). For purposes of its “no dis-
tortion” argument, taxpayer thus posits a comparison solely
among competitors within the VoIP industry; yet for pur-
poses of its earlier “crushing burden” argument, taxpayer
implicitly characterizes wireline and wireless providers as
among its competitors by relying on the 2004 study. The
Oregon statutes make it clear that any “distortion” analysis
must take non-VoIP providers into account. The Oregon
28
Even if taxpayer could show that other states unduly burden its business,
the court is not persuaded that the substantial nexus requirement, as articulated
in Wayfair, requires this court to strike down this state’s statute. As discussed
below, in concluding that substantial nexus was present, the Court described
with approval South Dakota’s adoption of the Streamlined Sales and Use Tax
Agreement, which, among other things, requires each state to adopt a single,
centralized administrative system statewide and to ensure that the tax base of
all localities is identical to the tax base of the tax that the state itself imposes. See
Wayfair, ___ US at ___, 138 S Ct at 2099-2100. Oregon goes providers one better,
imposing the E911 Tax solely at the state level. The E911 Tax also is inherently
straightforward, applying on a monthly basis, which enables taxpayer to build it
into its recurring billings, and it is modest in amount at 75 cents per “line,” a unit
that taxpayer understands.
68 Ooma, Inc. v. Dept. of Rev.
collection obligation applies to any “provider” of access to
the emergency communications system, which by definition
includes a “telecommunications utility” that “owns, operates,
manages or controls all or a part of any plant or equipment
in this state.” ORS 759.005(9)(a)(A) (defining “telecommu-
nications utility”); see ORS 403.215; ORS 403.105(19); ORS
403.105(27). The court concludes that taxpayer misapplies
the market distortion analysis by positing a class that is
artificially limited to VoIP providers, thus excluding other
providers that have obvious and extensive physical presence
in the state and that taxpayer’s own proffered study indi-
cates are its competitors. Therefore, even if the court were
persuaded that taxpayer is exposed to a large number of
local tax regimes, the court, following Wayfair, would not
adopt a physical presence requirement lest the court distort
the market in favor of taxpayer and to the detriment of utili-
ties and other competitors with physical presence in Oregon.
Taxpayer urges the court to conclude that its activi-
ties lack substantial nexus with Oregon because its advertis-
ing does not target the Oregon market. Taxpayer claims: “It
is clear from the Court’s holding in Wayfair that ‘substantial
nexus’ existed because the online retailers used ‘targeted
advertising’ that provided ‘instant access to most consum-
ers via any internet-enabled device.’ ” (Quoting ___ US at
___, 138 S Ct at 2095.) This court cannot find such a hold-
ing in Wayfair. The quoted language appears in the Court’s
discussion of the artificiality of the physical presence rule in
general. Nowhere does the Court “hold” that the taxpayers
in that case used advertising targeted at South Dakota, nor
does the Court cite any finding of fact to that effect. As noted
above, the limited factual record in Wayfair established only
that “[e]ach [taxpayer] easily meets the minimum sales or
transactions requirement of the Act.” ___ US at ___, 138 S
Ct at 2089 (emphasis added). The Court discussed ways in
which online retailers generally may maintain a “virtual
presence” in a state, but “targeted advertising” was only one
of the methods the Court listed for doing so. Others included
maintaining a “virtual showroom” and making the compa-
ny’s advertising available “via any internet-enabled device.”
Id. at ___, 138 S Ct at 2095. Taxpayer’s claim that the Court
found substantial nexus “because” of targeted advertising
Cite as 24 OTR 48 (2020) 69
by the taxpayers in that case is inaccurate, and taxpayer’s
attempt to build on that incorrect claim to construct an
argument premised on taxpayer’s lack of Oregon-targeted
advertising fails.
Finally, taxpayer argues that it and the entire VoIP
industry have “settled expectations” of a physical presence
requirement, which this court should now fulfill. The court
sees nothing in Quill that sets any reasonable expecta-
tion that a physical presence requirement would apply to
Oregon’s E911 Tax. Quill was not a unanimous decision, and
even the majority cautioned that “contemporary Commerce
Clause jurisprudence might not dictate the same result were
the issue to arise for the first time today.” 504 US at 311.
Taxpayer is compelled to distinguish the E911 Tax from the
kind of sales or use tax at issue in Quill and Bellas Hess
(because Wayfair overruled those opinions), yet taxpayer
also points to no instance in which the Court extended the
physical presence requirement of Quill and Bellas Hess to
any other kind of tax. Taxpayer has no good reason to expect
that a physical presence rule would apply to it.
b. Is the E911 Tax sufficiently related to the ser-
vices Oregon provides?
Taxpayer next attacks the E911 Tax on the ground
that it is insufficiently related to the services Oregon pro-
vides. Taxpayer offers two alternative tests by which to mea-
sure the degree of relationship: the test stated in Complete
Auto Transit, and a more demanding test that the United
States Supreme Court has applied to charges for the use of
state-provided facilities, both in Airport Authority v. Delta
Airlines, 405 US 707, 92 S Ct 1349, 31 L Ed 2d 620 (1972)
(Evansville-Vandenburgh) and in Commonwealth Edison
Co. v. Montana, 453 US 609, 101 S Ct 2946, 69 L Ed 2d
884 (1981). This court concludes that the E911 Tax satis-
fies either test. Therefore, the court does not wade into the
murky waters of distinguishing between a “general revenue
tax” covered by Complete Auto Transit and a “user fee” cov-
ered by Evansville-Vandenburgh.29
29
See American Trucking Assns. v. State of Oregon, 339 Or 554, 562-67, 124
P3d 1210 (2005) (considering both lines of cases in determining constitutionality
70 Ooma, Inc. v. Dept. of Rev.
The Complete Auto Transit test asks whether the “tax
* * * is fairly related to the services provided by the State.”
430 US at 279. The Court stated the test more specifically in
Commonwealth Edison as whether “the measure of the tax [is]
reasonably related to the extent of the contact, since it is the
activities or presence of the taxpayer in the State that may
properly be made to bear a ‘just share of State tax burden.’ ”
453 US at 626 (emphasis in original; citations omitted). In
that case, the tax was a severance tax imposed on the mining
of coal in Montana, and it was measured as a percentage of
the contract sales price for the coal. The Court easily con-
cluded that the percentage-of-value measure was in proper
proportion to the taxpayer’s activities within the state and
caused the taxpayer to “shoulder[ ] its fair share of supporting
the State’s provision of police and fire protection, the benefit
of a trained work force, and the advantages of a civilized soci-
ety.” Id. at 626 (internal quotation marks omitted).
Here, the “measure” of the E911 Tax is per month
and per “line.” See ORS 403.200(1). The parties agree that
taxpayer had a certain number of “telephone lines to Oregon
customers” at any given time, and that that number grew
from 6,633 in January 2013 to 13,467 in March 2016.30 As
discussed above, taxpayer’s monthly revenue from Oregon
customers grew at a faster rate than its number of lines,
but both grew substantially: The number of lines grew by
of per-mile charges; applying Complete Auto Transit). Distinctions between
taxes and fees arise under various provisions of Oregon law as well. See, e.g.,
AAA Oregon/Idaho Auto Source v. Dept. of Rev., 363 Or 411, 424, 423 P3d 71
(2018) (holding, in part, that voters intended Article IX, section 3a, of the Oregon
Constitution to apply only to “special highway user taxes” and not to all taxes
imposed on a status or activity involving motor vehicles); Sproul v. State Tax
Com., 234 Or 579, 581, 383 P2d 754 (1963) (statute levying an assessment to
fund forest fire prevention held to be an exercise of the state’s police power
and not an exercise of the state’s taxing power); PacifiCorp v. Dept. of Energy,
21 OTR 116, 117-18 (2013) (citing Multnomah County v. Talbot, 56 Or App 235,
641 P2d 617 (1982) (tax court lacked subject matter jurisdiction to consider
whether a charge imposed on certain energy resource suppliers under ORS
469.421(8) was a fee or a tax, and whether that charge violated the Oregon
Constitution)).
30
In response to a request by the court for clarification, the parties appear
to acknowledge that the statutory references to a “line” are imprecise and poten-
tially outdated when applied to VoIP providers. The court accepts for purposes of
this case the parties’ apparent operating assumption that the number of lines is
tied to the number of Oregon-resident customers, admitting the possibility that a
single customer might choose to subscribe to more than one “line.”
Cite as 24 OTR 48 (2020) 71
203 percent, while the monthly revenue grew by 290 per-
cent. The graph below shows the change in the number of
lines, monthly revenue from services, and total revenue,
over the course of the periods at issue. The graph illustrates
that taxpayer’s number of lines for Oregon customers grew
steadily, while gross revenues from Oregon fluctuated mod-
erately but also grew overall.
Considering as a baseline those taxes measured
as a percentage of sales or revenue, the court finds that
the per-line measure of the E911 Tax, too, is a reasonable
measure of the extent of taxpayer’s contact with Oregon.
In taxpayer’s business, having subscribed lines is a prereq-
uisite to deriving service revenue from Oregon customers.
Although taxpayer obviously has managed to grow rev-
enue faster than it adds new lines, apparently in part by
contacting existing customers to sell more services per line,
the court finds a strong connection between the number of
lines and revenue amounts. If anything, at least in taxpay-
er’s case, the charge per line is a conservative measure of
taxpayer’s activity in Oregon. The court concludes that the
“fairly related” requirement under Complete Auto Transit is
satisfied.31
31
Taxpayer also argues that under the “fairly related” requirement the state
must confer benefits that specifically help maintain the economic market for the
taxpayer’s revenue-producing activity. That is incorrect:
72 Ooma, Inc. v. Dept. of Rev.
The court now turns to the test stated in Evansville-
Vandenburgh. The Supreme Court considered two states’
“enplaning” charges: flat fees of $1 or less imposed each time
a passenger boarded an airplane for a commercial flight.
The funds were dedicated to various purposes related to
aeronautics or airport maintenance. The Court started its
analysis by noting:
“We therefore regard it as settled that a charge designed
only to make the user of state-provided facilities pay a
reasonable fee to help defray the costs of their construc-
tion and maintenance may constitutionally be imposed on
interstate and domestic users alike.”
405 US at 714. The Court then considered the analogous
subject of tolls, summarizing the test under its extensive
case law as follows:
“At least so long as the toll is based on some fair approxima-
tion of use or privilege for use, as was that before us in Capitol
Greyhound, and is neither discriminatory against interstate
commerce nor excessive in comparison with the governmen-
tal benefit conferred, it will pass constitutional muster, even
though some other formula might reflect more exactly the
relative use of the state facilities by individual users.”
Id. at 716-17. The Court applied this test to the enplaning
fees, easily concluding that the fees did not discriminate
against interstate commerce because the same fee applied
both to intrastate flights and to flights to destinations out-
side the state of enplanement.
The Court next found that the fees “reflect[ed] a fair,
if imperfect, approximation of the use of facilities for whose
“On the contrary, interstate commerce may be required to contribute to the
cost of providing all governmental services, including those services from
which it arguably receives no direct benefit. The fourth prong of the Complete
Auto test thus focuses on the wide range of benefits provided to the taxpayer,
not just the precise activity connected to the interstate activity at issue.
“* * * * *
“* * * The benefits that Illinois provides cannot be limited to those exact
services provided to the equipment used during each interstate telephone
call. Illinois telephone consumers also subscribe to telephone service in
Illinois, own or rent telephone equipment at an Illinois service address, and
receive police and fire protection as well as the other general services pro-
vided by the State of Illinois.”
Goldberg v. Sweet, 488 US 252, 267, 109 S Ct 582, 102 L Ed 607 (1989) (internal
quotation marks omitted; citations omitted; emphasis in original).
Cite as 24 OTR 48 (2020) 73
benefit they are imposed.” Id. at 717. The Court based that
finding on a review of the classes of fees and the transactions
to which they applied. That analysis revealed that no fee was
charged on the majority of enplanings due to numerous exemp-
tions. However, the Court concluded that this discrepancy did
not invalidate the fee because the exemptions and other clas-
sifications reflected “rational distinctions.” Id. at 718.
Finally, the Court found that the fee revenue was
not excessive in relation to the costs the taxing authorities
incurred. In the Indiana case, the annual fees at issue, plus
other earmarked revenue, added up to less than the annual
debt service cost for capital improvements at the airport.
In the New Hampshire case, the airline plaintiffs protested
that 50 percent of the fee revenue went to local governments
that owned the landing areas, without any requirement
that the funds be spent on airport-related costs. However,
the Court found that the airlines had not shown that the
revenues for local governments exceeded the local govern-
ments’ airport costs; therefore, the Court concluded that the
lack of a restriction on the funds the localities received did
not make the fees excessive. Id. at 720. The Court also noted
that imposition of the fees did not seem to conflict with fed-
eral air transportation policies.
Applying the test in Evansville-Vandenburgh, the
court now finds as follows with respect to the first and sec-
ond criteria: First, the E911 Tax is nondiscriminatory for
the same reason as in Evansville-Vandenburgh: each line
is associated with an Oregon customer, and the same flat
75-cent monthly charge applies to every line, regardless of
whether the customer uses the line for in-state calling or
calling out of state, and regardless of where the provider is
located. Second, the per-line charge is a fair approximation
of use of the emergency communications system because
the point of such a system is to facilitate access to emer-
gency services at all times. A phone line is a prerequisite
to that access; therefore, a charge that is levied periodically
(monthly) on that access is a reasonable way to assign the
burden among persons that receive the benefit of constant
access. The E911 Tax also is subject to certain exemptions,
see, e.g., ORS 403.205, but taxpayer does not assert that
these, or any classifications in the statute, are irrational.
74 Ooma, Inc. v. Dept. of Rev.
Regarding the third criterion in Evansville-
Vandenburgh, taxpayer asserts that the E911 Tax is exces-
sive, but not due to appropriation of funds for unrelated pur-
poses as the airlines alleged in that case. In fact, taxpayer
acknowledges: “Amounts collected as E911 Taxes are not
to be used to fund any other aspect of the Oregon govern-
ment.” Rather, taxpayer insists that the E911 Tax is exces-
sive because there is no evidence “that OOMA has received
anything of value from the state.” The court rejects this
argument. Taken to its logical end, taxpayer’s statement
would imply a belief that the existence of an emergency
9-1-1 communications system does not benefit taxpayer,
even though the system quite literally helps to keep tax-
payer’s customers alive and safe. Rather than ascribe such
a view to this or any reputable business, the court views the
statement as hyperbole. It is particularly overblown in this
case because all evidence is to the contrary. As discussed
above, taxpayer obviously is keenly interested in maintain-
ing long-term relationships with its customers, not merely
to preserve existing revenue streams but also because each
customer is a potential source of additional, new business
in the form of additional services from taxpayer. To the
extent the point requires any further reasoning, the court
finds that Oregon’s emergency communications system also
benefits taxpayer directly. If the system did not exist, tax-
payer could not comply with the requirement under federal
law to provide access to a local system. See 47 CFR § 9.5This is true even though, as taxpayer argues, federal law
also imposes an independent obligation on each state to pro-
vide an emergency communications system. The existence
of complementary obligations does not take away taxpayer’s
own obligation. The court concludes that the E911 Tax is not
excessive in comparison with the governmental benefit that
Oregon confers on taxpayer.
4. Penalties
The department assessed failure-to-file penalties
against taxpayer pursuant to ORS 314.400(1), (3)(a), (3)(b),
and ORS 305.992. Taxpayer argues that it has taken a rea-
sonable position in asserting that its activities were not sub-
ject to the E911 Tax and urges the court to reject taxpayer’s
imposition of penalties.
Cite as 24 OTR 48 (2020) 75
The court has jurisdiction to determine whether the
department has correctly applied statutes imposing penal-
ties.32 ORS 314.400(3)(a) - (b) provides:
“In the case of a report or return that is required to be
filed more frequently than annually and the failure to file
the report or return continues for a period in excess of one
month after the due date:
“(a) There shall be added to the amount of tax required
to be shown on the report or return a failure to file penalty
of 20 percent of the amount of the tax; and
“(b) Thereafter the Department may send a notice and
demand to the person to file a report or return within 30
days of the mailing of the notice. If after the notice and
demand no report or return is filed within the 30 days,
the Department may determine the tax according to the
best of its information and belief, assess the tax with
appropriate penalty and interest plus an additional pen-
alty of 25 percent of the tax deficiency determined by the
Department and give written notice of the determina-
tion and assessment to the person required to make the
filing.”
Taxpayer is responsible for collecting the E911 Tax and fil-
ing quarterly returns with the department. ORS 403.215(1).
Taxpayer stipulated that it did not file emergency commu-
nication tax returns with the department during the peri-
ods at issue. ORS 314.400 does not permit the court to take
into consideration the reasonableness of the legal argument
offered by taxpayer in order to reduce the amount of the
penalties. Cf. ORS 314.402(4)(b)(A) - (B) (reducing “substan-
tial underpayment” penalty if underpayment was based on
“substantial authority,” or had “reasonable basis” and was
“adequately disclosed”). The court concludes taxpayer is
subject to the penalty under ORS 314.400(3)(a) - (b).
32
Taxpayer has not alleged that it has requested a waiver of penalties from
the department, nor does taxpayer ask the court to review any denial of such
a request. See Pelett v. Dept. of Rev., 11 OTR 364, 365-66 (1990) (holding that,
under ORS 305.560(1), the court has the authority to review de novo whether
a penalty applies, but not whether defendant should have waived the penalty);
Pinski v. Dept. of Rev., 14 OTR 376, 379 (1998) (the question whether the depart-
ment should have waived the 100 percent penalty that was assessed pursuant to
ORS 305.992 is “not a question within the jurisdiction of the court”).
76 Ooma, Inc. v. Dept. of Rev.
The department also assessed penalties for each tax
period at issue as provided in ORS 305.992, which states:
“(1) If any returns required to be filed under * * * ORS
chapter * * * 314 * * * are not filed for three consecutive
years by the due date (including extensions) of the return
required for the third consecutive year, there shall be a pen-
alty for each year of 100 percent of the tax liability deter-
mined after credits and prepayments for each such year.
“(2) The penalty imposed under this section is in addi-
tion to any other penalty imposed by law. However, the total
amount of penalties imposed for any taxable year under
this section * * * 314.400 * * * may not exceed 100 percent of
the tax liability.”
As with the penalty under ORS 314.400, nothing in ORS
305.992 reduces the penalty based on the character of the
taxpayer’s position. Here there is no dispute that taxpayer
did not file quarterly returns for the periods at issue. The
court concludes that taxpayer is subject to the penalty under
ORS 305.992 for each period at issue in this case. See, e.g.,
Ashby v. Dept. of Rev., 21 OTR 47, 55 (2012) (holding that
taxpayer is subject to penalty of ORS 305.992 when there
is no dispute that taxpayer failed to file returns for the tax
years at issue in that case).
V. CONCLUSION
The court concludes that taxpayer is subject to
the reporting and remitting requirements of the E911 Tax
imposed by ORS 403.200(1). The imposition of the E911 Tax
on taxpayer does not violate the federal Due Process Clause
because taxpayer has sufficient minimum connections with
Oregon. The imposition of the E911 Tax is permissible under
the Commerce Clause because there is substantial nexus
between Oregon and taxpayer, and because the measure
of the E911 Tax is fairly related to taxpayer’s activities in
Oregon and is not excessive. Taxpayer is subject to penalties
pursuant to ORS 314.400 and ORS 305.992. Now, therefore,
IT IS ORDERED that Plaintiff’s motion for sum-
mary judgment is denied; and
IT IS FURTHER ORDERED that the Defendant’s
cross-motion for summary judgment is granted.