By Zachary Atkins and Prentiss Willson

The Oregon Supreme Court held that the state’s sales factor exclusion for gross receipts from intangible assets not derived from a taxpayer’s primary business activity applies to all types of intangible assets. The taxpayer, Tektronix, sold its printer division to Xerox for approximately $925 million, of which almost $600 million represented gross receipts from intangible assets.  The fact that the income in question constituted business income was undisputed; however, the parties disagreed as to whether the gross receipts from the intangible assets should have been excluded from Tektronix’s sales factor for apportionment purposes. The exclusion at issue, ORS 314.665(6)(a), applies to “gross receipts arising from the sale, exchange, redemption or holding of intangible assets, including but not limited to securities, unless th[e] receipts are derived from the taxpayer’s primary business activity.” The Oregon Supreme Court disagreed with the Oregon Tax Court’s conclusion that the reference to “intangible assets” in ORS 314.665(6)(a) means “liquid assets,” although it conceded that it was clear from the legislative history that the provision was intended to exclude treasury function receipts from the sales factor. The court noted that the statute used the broader term “intangible assets” rather than “liquid assets”—evidence that the legislature intended to give broader effect to the exclusion. The court held that the gross receipts from the intangible assets did not derive from Tektronix’s primary business, which was the manufacture and distribution of electronic products, and therefore the gross receipts should have been excluded from Tektronix’s sales factor. Tektronix, Inc. & Subs. v. Dep’t of Revenue, ___ P.3d ____, 2013 WL 6508861 (Or. Dec. 12, 2013) (en banc).