Oregon Supreme Court Puts Comcast on Hook for Big Tax Bill

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By Paul Shukovsky

Oct. 7 — The Oregon Supreme Court granted the state Department of Revenue a victory by unanimously ruling that Comcast Inc.'s intangibles can be assessed, but the legal war is far from over (Comcast Corp. v. Dep't of Revenue, Or., No. S059764, 10/2/14).

The justices found Oct. 2 that the cable TV and Internet behemoth's business fits the statutory definition of “data transmission service” and thus is a communication company subject to central assessment by the revenue department.

Unlike counties that make local assessments, the department includes intangibles in its calculation. And the difference between local and central assessment is a whopping $701 million for 2009 alone.

The ultimate resolution of the case will impact the Oregon tax bills of some 125 other companies, including major players like Dish Network Corp., DirecTV and Charter Communications.

But in reversing and remanding to the Oregon Tax Court, Justice Virginia Linder's opinion instructs Judge Henry C. Breithaupt to determine whether Measure 50—which limits annual growth in assessed value to 3 percent—applies. The department says the Comcast valuation falls under an exception clause and isn't limited to the 3 percent annual growth cap. Comcast disagrees.

‘Bits are Bits.’

In a terse Oct. 6 e-mail, Comcast Vice President Theressa Dulaney wrote: “We are disappointed in the Oregon Supreme Court's decision to reverse the well-reasoned opinion of the tax court as it relates to cable television service not being subject to central assessment. There are both federal and state constitutional unresolved questions with the Department of Revenue's assessment of Comcast's property that have not yet been addressed. We look forward to the tax court's decision on these other issues.”

The case turned on the meaning of the phrase “data transmission services” found in statute at ORS 308.505, with such services being subject to central assessment by the department. Unlike Breithaupt, the justices rejected Comcast's contention that cable television is not such a service. They also rejected Breithaupt's resulting conclusion that television is the primary use of the property that Comcast employs for both TV and Internet service and therefore it isn't subject to central assessment.

The supreme court determined that the meaning of “data transmission services” extends to “any service that provides the means for transmission of electronically coded information between computers or computer-like devices” regardless of the nature of the content. “It does not matter if the data has been converted from voice to bits, video to bits, text to bits, or for that matter, atoms to bits. For purposes of our interpretation, bits are bits.”

Revenue departments and counties aren't breathing a sigh of relief yet. With the Measure 50 issue still to be resolved, an adverse ruling for the counties could mean they would have to refund to Comcast an unknown amount of taxes at 12 percent interest collected since 2009.

‘The Heart of Why They Filed.’

“What we're not real sure of is what prevailing looks like,” Michael Vaughn, the DOR's property tax evaluation manager, said in an Oct. 7 telephone interview. “Three percent is the rule. But there are exception events to determine maximum assessed value that can exceed 3 percent. We are picking up about $700 million dollars in exception value. We look at that to be an exception event. What the taxpayer is saying is that it is not an exception event. You need to use the $400 million as the base that is limited to the 3 percent.”

“This is the heart of why they filed the appeal and why jurisdiction matters so much,” Vaughn said, referring to central assessment as opposed to county assessment. “When we look at Comcast, we are looking at the entire value of the company, even though it may operate in other states and internationally, and allocate a value back to Oregon. Business value, the value of the brand of Comcast: that is really what the argument is going forward.”

The department began central assessment of Comcast in 2009 after it was told by competing companies such as Qwest Communications International Inc. and Verizon Communications Inc. that, while they were subjected to central assessment, Comcast wasn't, DOR Legislative Liaison John Phillips said in the Oct. 7 interview.

Phillips said the department doesn't know the total of deferred tax bills or how much has been collected. He said that he was told in a discussion with the assessor for Multnomah County—Oregon's largest by population—“they have a total of $30 million in deferred billing credit.”

Facebook Dodges a Bullet.

In addition to Comcast, the department also categorized in 2009 some 125 other companies as being communications companies by virtue of meeting the definition of a “data transmission service” and thus subjected them to central assessment. Vaughn said several companies such as DirecTV, Dish Network and Charter Communications appealed the communications-company designation to the tax court, which held those cases in abeyance pending resolution of the Comcast case.

In 2011, Facebook Inc. dodged the central assessment bullet when the Oregon Legislature granted Facebook's new data center and those of similarly situated companies term-limited tax abatement.

To contact the reporter on this story: Paul Shukovsky in Seattle at pshukovsky@bna.com

To contact the editor responsible for this story: Brett Ferguson at bferguson@bna.com