No Oregon Income Tax Nexus For Company Owning Intangibles Used In State

by Perkins Coie

A federal bankruptcy court judge has held that Washington Mutual, Inc. (WMI), a parent holding company that owned bank subsidiaries conducting business in Oregon, did not have nexus in Oregon by virtue of its ownership of the banks, the ownership of intangibles used by the banks in Oregon for no fee and the receipt of dividends from the banks.  In re Washington Mutual, Inc., No. 08-12229 (Bankr. D. Del. Dec. 19, 2012).

Under Oregon law, because WMI and its subsidiaries filed a consolidated federal income tax return, and some of the subsidiaries conducted business in Oregon, they were required to file Oregon consolidated income tax returns.  On September 25, 2008, the Office of Thrift Supervision seized the bank subsidiaries, and their assets were sold to JPMorgan Chase.  The day after, WMI filed a voluntary petition under Chapter 11 of the Bankruptcy Code.  Thereafter, Oregon asserted that WMI and its subsidiaries owed additional corporate excise taxes for the period 2002 through 2006.  The Oregon Department of Revenue filed a proof of claim in WMI’s Chapter 11 case seeking payment of approximately $30 million.

WMI objected to the claim on the basis that Oregon sought payment for excise taxes owed (if at all) by the seized subsidiaries, not WMI.  Oregon acknowledged that the taxes it sought to collect were incurred by the subsidiaries rather than WMI, but Oregon still responded that WMI was jointly and severally liable for the excise tax obligation of the subsidiaries under Oregon law.  WMI argued that Oregon lacked nexus and, therefore, WMI owed no tax.  The judge sustained the objection, finding that neither the Due Process Clause nor the Commerce Clause of the U.S. Constitution was satisfied.

Oregon made several assertions with which the judge disagreed.  First, Oregon asserted that because the Oregon return was filed in the name of WMI, WMI admitted to having done business in Oregon.  WMI successfully argued that inclusion in a consolidated return is neither an admission of taxability nor inconsistent with Oregon's own interpretation of its statutes – the inclusion of a company in a unitary return does not mean that the state is taxing such company.

Under the Due Process Clause, WMI argued that it did not purposely avail itself of the benefits of the state.  Its primary business offices were located in Seattle, and it did not operate any offices or own any property in Oregon.  It directed no business activity toward Oregon and had no sales or other operating revenue from Oregon sources.  It was a mere holding company with no business operations other than at its Seattle offices.  Oregon, on the other hand, argued that WMI was doing business in Oregon "through its banking subsidiaries."  The court disagreed with the state.  Furthermore, although Oregon asserted that the ownership of intellectual property (e.g., trademarks) used in Oregon constituted a profit-seeking activity, the court rejected this argument, noting that WMI received no benefit because it did not earn any income from the use. 

Under the Commerce Clause, the court rejected WMI’s claim that a physical presence was required, but it also rejected "the state courts' significant economic presence test," instead concluding that the constitutionality of the Oregon tax was subject to the "substantial nexus" test articulated in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977).  Under the facts, the court concluded that Oregon was "not seeking to tax the proceeds of any sale in Oregon of an intangible owned by WMI or the proceeds of the licensing of any intellectual property owned by WMI that was used in connection with business activity in Oregon."  Rather, Oregon was attempting to "hold WMI jointly and severally liable for corporate excise taxes incurred by the banking operations of its subsidiaries in Oregon."  The court noted that the majority of courts upholding nexus on the basis of intangible property in a state involved cases where the intangible property itself generated income for the taxpayer, which was not the case here. 

The court concluded, "Under Oregon's analysis, any shareholder who receives thousands (or less) in dividends from a subsidiary would be responsible for potentially millions in taxes incurred by that subsidiary.  Such a result would have devastating consequences to shareholders and to the United State's (sic) economy where investments play a crucial role.  The effect of finding a parent holding company liable for the corporate excise tax of its subsidiaries merely because it allowed the free use of its trademarks and received a dividend would deeply burden interstate commerce." For these reasons, the court concluded that WMI did not have substantial nexus in Oregon as required by the Commerce Clause.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Perkins Coie | Attorney Advertising

Written by:

Perkins Coie

Perkins Coie on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.