A taxpayer that operates membership warehouses selling merchandise to consumers had to include the income of its insurance company subsidiary on its Oregon corporation excise (income) tax return for the tax years at issue. For those tax years, the taxpayer filed a consolidated federal income tax return that included the income of the insurance company subsidiary. However, the taxpayer excluded the insurance company’s income from its Oregon consolidated return because the insurance company had no nexus with Oregon and was not independently subject to the state’s taxation. Under Oregon law, the taxpayer and the insurance company were unitary and the insurance company was not required to file an Oregon corporation excise tax return. Also, under Oregon law, if a corporation is included in a federal consolidated return, it must be included in an Oregon consolidated return, unless other provisions of Oregon law require or permit the exclusion of the income of the corporation.
ORS 317.710(5)(b) prohibits a corporation that is permitted or required by statute or rule to use different apportionment factors than a corporation with which it is affiliated from being included in a consolidated state return. The statute specifically states that insurance companies required to apportion income under ORS 317.660 may not be included in a consolidated return. However, the statute does not address companies, such as the insurance company in this case, over which Oregon has no jurisdiction.
Furthermore, the holding of Penn Independent Corporation v. Department of Revenue , 15 OTR 68 (1999), that the income of an insurance company not subject to Oregon tax was includable in the determination of the income of a unitary affiliate that did have an obligation to compute income and pay tax to Oregon, applies to this case. Although the statutory framework of Oregon’s taxation of insurance companies changed somewhat since that decision, those changes were not substantive for purposes of the issue in this case.
Costco Wholesale Corp. v. Department of Revenue , Oregon Tax Court, No. TC 4956, July 16, 2012 , ¶401-033
