On April 14, 2021, the Oregon Tax Court issued a ruling on cross motions for summary judgment in a case involving the inclusion of receipts from commodity hedging activities in the taxpayer’s sales apportionment factor. Chevron filed amended Oregon corporation excise tax returns including its gross hedging receipts in its Oregon sales apportionment factor, and the Department of Revenue issued notices of deficiency regarding these returns. The Department concluded that the gross hedging receipts were not includable in the taxpayer’s sales apportionment factor because they arose from the sale of intangible assets and were not derived from Chevron’s primary business activity. The Department included the net gain from the hedging activities within the sales factor.
On appeal to the Oregon Tax Court, Chevron argued that its hedging receipts were not receipts from the “sale, exchange, redemption or holding of intangible assets” because its commodity hedging transactions are inextricably linked to the underlying commodity and therefore are different in kind from other forms of financial and speculative hedging. Chevron further argued that summary judgment was not appropriate on the issue of whether its receipts from hedging activities constituted receipts from its primary business activity and thus the gross receipts from such activities should be included within the sales factor, since issues of material facts existed. The Department sought summary judgment on both questions, arguing that: (i) “intangible assets” is defined broadly; and (ii) that the hedging receipts are not derived from Chevron’s primary business activity. The tax court held in favor of the Department with respect to the characterization of the hedging receipts as receipts from intangible assets, despite the fact that the assets are treated as ordinary rather than capital assets under federal tax law, finding that the composition of the sales factor is a matter of state, not federal law. On the second issue as to whether the hedging receipts were derived from Chevron’s primary business activity, the tax court held that summary judgment was not appropriate given the fact-dependent nature of the analysis.
Chevron U.S.A. Inc. v. Dep’t of Revenue, TC-MD 190031N (Or. Tax Ct. Apr. 14, 2021).