Oregon Supreme Court Decides Sales Factor Case

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On December 12, 2013, the Oregon Supreme Court issued its decision in Tektronix, Inc. v. Oregon Dep’t. of RevenueThe court held that the taxpayer’s receipts from the sale of goodwill, making up a part of the sale of a business division, were excluded from the sales factor under ORS 314.665(6)(a).  ORS 314.665(6)(a) specifically excludes from the sales factor gross receipts from the sale of “intangible assets” unless derived from the taxpayer’s “primary business activity.”  The Oregon Supreme Court reasoned that, although goodwill was an intangible asset, the taxpayer’s primary business activity was not the sale of business divisions.  The court rejected the Tax Court’s conclusion that “intangible assets” were limited to liquid assets and did not include goodwill.

Although the decision results in the exclusion of goodwill from the taxpayer’s sales factor, it is unclear whether other taxpayers will obtain the same result.  The parties and the court focused exclusively on the question of whether the taxpayer’s gross receipts from the sale of goodwill were excluded from the sales factor under ORS 314.665(6)(a).  The parties and court did not address whether the gain from the sale of goodwill was specifically included in the sales factor under a separate subsection of the statute.  ORS 314.665(6)(b) includes net “gain” from the sale of “intangible assets” in the sales factor if not derived from the primary business activity of the taxpayer but included in business income.  In this case, the sale of goodwill was included in the taxpayer’s business income but, according to the court, was not part of the taxpayer’s “primary business activity.”  Because the taxpayer had no basis in the goodwill, it appears that all of the taxpayer’s receipts should have been included in the sales factor under (6)(b) once the court decided that the sale of goodwill met the “intangible asset” requirement.  For more background regarding this case, see our article “2012-2013 Northwest State Tax Summary: Oregon,” State Tax Notes, March 25, 2013.