On August 23, 2022, the Regular Division of the Oregon Tax Court issued its opinion in Santa Fe Natural Tobacco Co. v. Department of Revenue, State of Oregon. The court determined that the taxpayer in that case is subject to the corporate excise tax.
The taxpayer, Santa Fe Natural Tobacco Co., required that its wholesale customers located in Oregon accept and process returned goods. In addition, the taxpayer’s in-state sales representatives, who did not maintain inventory, routinely confirmed and processed purchase orders between Oregon retailers and wholesalers.
After a thorough analysis of the facts and the applicable law, the tax court ultimately concluded that:
“[the taxpayer] was not immune from Oregon corporate excise tax under [Public Law 86-272].”
Santa Fe Natural Tobacco Co. exemplifies a possible erosion of the protections afforded by Public Law 86-272. The decision should be especially important to any out-of-state taxpayers that believe that their in-state activities will not subject them to state and local income taxes.
Andrea Muse, Senior Legal Reporter for Tax Analysts, interviewed me about the ruling. Her article in Tax Notes State provides a wonderful overview of the case and the ruling. It is a good read.
It is possible that Santa Fe Natural Tobacco Co. will appeal the tax court’s decision to the Oregon Supreme Court. In that event, the issue may not yet be settled. It will be prudent for taxpayers and tax advisors to keep a keen eye out for any future developments. Stay tuned!
Larry J. Brant
Larry J. Brant is a Shareholder and the Chair of the Tax & Benefits practice group at Foster Garvey, a law firm based out of the Pacific Northwest, with offices in Seattle, Washington; Portland, Oregon; Washington, D.C.; New York, New York, Spokane, Washington; Tulsa, Oklahoma; and Beijing, China. Mr. Brant is licensed to practice in Oregon and Washington. His practice focuses on tax, tax controversy and transactions. Mr. Brant is a past Chair of the Oregon State Bar Taxation Section. He was the long-term Chair of the Oregon Tax Institute, and is currently a member of the Board of Directors of the Portland Tax Forum. Mr. Brant has served as an adjunct professor, teaching corporate taxation, at Northwestern School of Law, Lewis and Clark College. He is an Expert Contributor to Thomson Reuters Checkpoint Catalyst. Mr. Brant is a Fellow in the American College of Tax Counsel. He publishes articles on numerous income tax issues, including Taxation of S Corporations, Reasonable Compensation, Circular 230, Worker Classification, IRC § 1031 Exchanges, Choice of Entity, Entity Tax Classification, and State and Local Taxation. Mr. Brant is a frequent lecturer at local, regional and national tax and business conferences for CPAs and attorneys. He was the 2015 Recipient of the Oregon State Bar Tax Section Award of Merit.