By Todd Betor and Pilar Mata

Oregon’s $29 million corporate excise tax claim against the taxpayers’ parent company was held to violate both the Due Process and Commerce Clauses of the U.S. Constitution by the U.S. Bankruptcy Court for the District of Delaware. Oregon claimed that Washington Mutual, Inc. (WMI) was liable for its subsidiaries’ tax because WMI had (as the parent corporation) filed consolidated corporate tax returns on behalf of itself and its subsidiaries and therefore could be held jointly and severally liable for the tax due. WMI maintained that its inclusion in the consolidated group was required and was not a concession that it was doing business in Oregon, and that if WMI was liable for its subsidiaries’ tax under Oregon law, the tax was unconstitutional. The court agreed, finding that the imposition of the tax upon WMI was in violation of the Due Process Clause because WMI and its subsidiaries were separate legal entities; WMI’s sole source of income related to Oregon was dividends received from its related subsidiaries (of which no portion of the $29 million claim was related); and WMI received no income from its subsidiaries’ use of its trademarks within the state. The court further held that WMI could not be liable for the tax based on the Commerce Clause because WMI did not satisfy the “substantial nexus” test set forth in Complete Auto Transit. In reaching this holding, the court declined to apply a physical presence or economic presence standard to Oregon’s corporate excise tax, though it conceded that economic presence was a factor to be considered when determining whether WMI possessed a substantial nexus with Oregon. In re: Washington Mutual, Inc., 485 B.R. 510 (Bankr. D. Del. 2012).