Income/Franchise:
Oregon Tax Court Addresses Inclusion of Commodities Hedging Receipts in Company’s Sales Factor

Case No. TC-MD 190031N, Or. Tax Ct. (5/17/23). In an unpublished order of the Magistrate Division of the Oregon Tax Court, the presiding magistrate denied the taxpayer’s motion for summary judgment and granted summary judgment to the Oregon Department of Revenue in a matter involving whether to include the taxpayer’s commodities hedging receipts in its sales factor for Oregon corporate excise (income) tax purposes. In a 2021 ruling in the same case [see Case No. TC-MD 190031N, Or. Tax Ct. (4/14/21) and State Tax Matters, Issue 2021-16, for more details on this earlier ruling], the presiding magistrate held that the commodities hedging receipts arose from sales of intangible assets within the meaning of Or. Rev. Stat. section 314.665(6)(a); therefore, she reasoned that such gross receipts must be excluded from the taxpayer’s sales factor unless they derive from the taxpayer’s “primary business activity,” a fact which had yet to be determined. After considering the case’s underlying facts, the presiding magistrate now holds there was insufficient evidence to support a finding that any or all of the taxpayer’s hedging receipts derived from its primary business activity of developing and producing crude oil and natural gas and refining and marketing those products for sale. According to the presiding magistrate, while the taxpayer’s hedging program “played an important, and perhaps integral, supportive function,” the receipts from its hedging program did not derive from its primary business activity and thus must be excluded from its sales factor. Please contact us with any questions.