Oregon Tax Court Holds Cable Company’s Video Services Subject

The Oregon Tax Court has held that an out-of-state cable company's video services constituted "broadcasting" and were subject to the special apportionment provisions for interstate broadcasters for purposes of Oregon corporate excise (income) tax.1 However, the cable company's Internet and telephone services were not considered to be broadcasting subject to the special apportionment rules. Under Oregon law, service revenue generally is apportioned using a cost of performance (COP) methodology, but interstate broadcasters were required to apportion income from broadcasting during the tax years at issue by using an audience or subscriber factor. The Tax Court determined that each of the company's services must be evaluated separately to determine whether the broadcasting classification applied.

Background

The taxpayer, a major provider of video, high-speed Internet and digital telephone services across the United States, reported its operations in separate cable and programming segments. The cable segment revenue, which accounted for the vast majority of the taxpayer's consolidated revenue and assets for the 2007-2009 tax years at issue in this case, primarily was derived from providing video, Internet and telephone services, and sales of advertising. The programming segment was comprised of several national programming networks. The taxpayer's video services permitted its subscribers to send electronic signals back to it across its cable network. The Oregon Department of Revenue argued that the taxpayer was an interstate broadcaster that was required to use a special statutory method to apportion its income to Oregon. In contrast, the taxpayer argued that it was not a broadcaster and could use the standard COP method to apportion its income. Both the Department and the taxpayer filed motions for partial summary judgment with the Tax Court.

Oregon Apportionment Methods

Oregon uses a single sales factor to apportion income to the state.2 In general, gross receipts from services are sourced to Oregon if a greater proportion of the income-producing activity is performed in the state based on COP.3 However, interstate broadcasters are subject to special apportionment provisions.4 For the relevant tax years, an interstate broadcaster's gross receipts from broadcasting were apportioned based on the ratio that its audience or subscribers located in Oregon bears to its total audience or subscribers located both within and without the state.5 For the tax...