Has Case Law Provided Any Answers To The Mysteries Of UDITPA Section 18?

December 19, 2006

• Author(s):
• Curtis Schwartz

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Summary
An analysis of the principal cases decided under Sec. 18 of UDITPA and MTC the regulations thereunder lead to several conclusions. First, the courts for the most part seem guided by their sense of what the correct result should be. Second, the courts use whatever logic and analysis seems to be helpful in reaching the desired result. Third, while some courts have carefully tried to address the statute others have not and in so doing the result is, at best, a mixed bag of inconsistencies as to what the statute means and requires. Below I have tried to identify the key issues that face those, whether taxpayers or tax administrative agencies, seeking to invoke the equitable apportionment provisions of Sec. 18. As will be seen, there are a few issues which seem fairly clearly decided and there are developing trends with others. A taxpayer’s representative will be well served to be aware of state to state inconsistencies and to focus on how the forum state has interpreted Sec. 18.

Below I have tried to identify the key issues that face those, whether taxpayers or tax administrative agencies, seeking to invoke the equitable apportionment provisions of Sec. 18. As will be seen, there are a few issues which seem fairly clearly decided and there are developing trends with others. A taxpayer’s representative will be well served to be aware of state to state inconsistencies and to focus on how the forum state has interpreted Sec. 18.

A. Burden of Proof

Sec. 18 provides that “a taxpayer may petition or the [tax administrator] may require …” the use of an alternative formula including separate accounting but it is silent as to which party has the burden of proof. Keesling & Warren, in an article entitled, “California’s Uniform Division of Income for Tax Purposes Act (part I)” 15 UCLA L. Rev. 156 (1967) make clear that Sec. 18 is the exception to the rule and must be interpreted to apply narrowly so as to permit deviation from the standard allocation and apportionment scheme only in rare and unusual situations. That is so, because “under a broad construction the purposes of obtaining uniformity through adoption of the Uniform Act would be defeated.” Id., pp 170-171. In general, because implementation of a change to the standard allocation and apportionment provisions is the exception, courts have consistently held that the burden of proof is on the party seeking to invoke Sec 18. See, e.g., Montana Dep’t. of Revenue v. United Parcel Service, Inc., 252 Montana 476, 832 P.2d 1292 (1992); Crocker Leasing, Inc. v. Dep’t. of Revenue, 314 Or. 122, 838 P.2d 552 (Or. 1992); Twentieth Century-Fox Film Corp. v. Dep’t. of Revenue, 299 Or. 220, 700 P.2d 1055 (1985); and Deseret Pharm. Co. v. St. Tax Comm’n., 579 P.2d 1322 (Utah 1978). Other courts have held that the need for uniformity creates a presumption in favor of the standard formula, thereby getting to the same result as other states which have stated that the burden of proof is on the proponent. Roger Dean Enterprises, Inc. v. Dep’t of Revenue, 387 So 2d 385 (Fla. 1980) and Donald M. Drake, 263 Or. 26, 500 P.2d 1041 (1972).

B. Standard of Proof

Remarkably, courts have yet to agree upon the standard of proof necessary to implement the provisions of Sec 18. Most decisions do not address the issue. They simply approve or disapprove of the use of Sec 18. For example, the Utah Supreme Court in Kennocott Copper v. State Tax Commission, 27 Utah 2d 119, 493 P.2d 632 (1972) simply said that the three-factor formula did not fairly represent the extent of Kennocott’s business activity in Utah without any explanation. California and Michigan, to the contrary, have been very clear in stating that an exception to the general rule must be proven by clear and convincing evidence. See, e.g., Microsoft Corporation v. Franchise Tax Board, ___ Cal 4th ___ (Supreme Court of California, Docket No. S133343, August 17, 2006) and Donovan Construction Co. v. Dep’t of Treasury, 126 Mich. App. 11, 337 N.W. 2d 297, 300 (Mich. App. 1983).

Other states, such as Illinois, have opted for the constitutional standard of clear and cogent evidence. See, e.g., Miami Corp. v. Dep’t of Revenue, 212 Ill. App. 3d 702, 571 NE2d 800 (1991) and Lakehead Pipeline Company, Inc. v. Dep’t of Revenue, 192 Ill. App. 3d 756, 549 NE2d 598 (1989). It should be noted that when discussing the standard of proof both Illinois cases refer to Han Rees’ Sons, Inc. v. North Carolina, 283 U.S. 123, 51 S.Ct. 385 (1931) which discusses the U.S. constitutional standard for determining distortion under the Commerce and Due Process Clauses.

Oregon, on the other hand, has been very specific in finding that a mere preponderance of the evidence is the appropriate standard of proof necessary to invoke Sec 18. See, e.g., Crocker Leasing, Inc. v. Dep’t. of Revenue, 314 Or. 122, 838 P.2d 552 (Or. 1992) and Twentieth Century-Fox Film Corp. v. Dep’t. of Revenue, 229 Or. 220, 700 P.2d 1035 (1985).

C. What the Moving Party Must Prove

1. The standard allocation and apportionment provisions do not fairly represent the extent of the taxpayer’s business activity in the state. Sec 18, MTC Reg. IV.18(a)

The task facing the proponent of Sec 18’s use is to prove that the apportionment formula does not represent the extent of the taxpayer’s business activity in the state. While on its face this requirement may seem fairly straight forward, in practice, as will be seen below, it has proven to be a fairly elusive concept.

The New Standard. Early on, disputes focused on what was the norm against which the exception of Sec 18 was to be applied. Today, most of us assume without much thought that the norm is formulary apportionment using the three-factor formula or some deviation therefrom. The U.S. Supreme Court acknowledged in Container Corp. v. Franchise Tax Board, 463 U.S, 159 (1980) that the three-factor formula had become somewhat of a standard. However, one must recall that prior to the adoption of UDITPA and its method of formulary apportionment of income based on mathematical principles, the standard had been separate accounting which sourced income to a particular state based upon accounting principles.

Prior to the adoption of UDITPA, tax administrative agencies had fairly broad discretion with respect to requiring a taxpayer to use whatever method of assigning income to a state the tax administrative agency felt was appropriate. This practice was, of course, one of the things which cried out for the standardization and uniformity which UDITPA was designed to provide.

In Oregon in the late 1960s, Donald Drake Co., an Oregon-based construction company, made money on its Oregon contracts but lost a significant amount on its California contracts. Oregon wanted the taxpayer to determine its Oregon income using the “segregated” reporting method which we refer to today as separate accounting. The result of separate accounting, which of course did not consider the taxpayer’s losses in California, was that the taxpayer’s Oregon income was four times larger than its federal taxable income.

The state contended that after the adoption of UDITPA it still had broad discretion to determine the appropriate method to be used by a taxpayer to calculate its Oregon income. The thrust of the court’s opinion was that the Oregon Department of Revenue no longer had broad discretion to determine a taxpayer’s reporting method; rather the new standard under UDITPA was formulary apportionment and anything else was the exception. See, Donald M. Drake Co., supra. Similarly, the Director of Taxation in Kansas simply ordered Amoco Production Co. to use separate accounting. Under separate accounting the Kansas apportionment percentage was 23% while under formulary apportionment the apportionment percentage was 2.7%. Again, the courts determined that the new standard was formulary apportionment under the three-factor formula and that separate accounting was the exception. As in Oregon, the Kansas court noted that the goal of UDITPA was uniformity and that accordingly, the taxing agency could not simply, as it had done in the past, mandate the use of a particular method for sourcing income. Amoco Production Co. v. Arnold, 213 Kan. 636, 518 P.2d 453 (1974). In Amoco the court clearly instructed the Director of Taxation that it must make a finding that the new standard formula does not reflect the business activity of the taxpayer in Kansas before it could consider the use of an alternative method of sourcing income to the state.

Business Activity. In order to determine whether the standard apportionment formula adopted by the state fairly reflects the taxpayer’s business activity in that state, the proponent of the application of Sec 18 must identify and prove the taxpayer’s business activity. The term “business activity” is defined in UDIPTA Reg. IV.2(a)(4):

“Business activity” refers to the transactions and activities occurring in the regular course of a particular trade or business of a taxpayer or to the acquisition, management, and disposition of property that constitutes integral parts of taxpayer’s regular trade or business.

In short, it appears as if “business activity” is that which produces apportionable business income. Almost always this identification of business activity is simply assumed or totally overlooked. Only in one instance has the regulation been cited. In the Matter of the Protest of Wal-Mart Stores, Inc., Decision & Order No. 06-07, May 1, 2006, appeal pending in NM Court of Appeals, Docket No. 26,711.

Where courts have identified a taxpayer’s business activity, in general they have simply stated it. For example, in Sherwin-Williams, 989 SW2d 710 (Tenn. App. 1998) the court identified its business activity as the manufacture and sale of paint and related products. Other than in Wal-Mart, tribunals and courts have never attempted to identify a business activity by reference to the regulation. Nevertheless, the courts’ intuition has served them well. That is so because when courts have identified a taxpayer’s business activity in a state the result has consistently been an identification of that activity conducted in the state which produced apportionable business income.

Fair Representation – Not Determined by Reference to Income and Tax. In determining what constitutes a fair representation of the “extent of a taxpayer’s business activity” in a particular state, courts have been quick to point out that the test is not whether the apportionment formula clearly reflects income. Early on, the Supreme Court of Kansas in Amoco Production Co., supra, found that the Kansas Board of Tax Appeals at the urging of the Director wrongfully based its decision on the use of Sec 18 on whether the use of the standard three-factor apportionment formula clearly reflected income as opposed to the proper standard of a fair representation of business activity.

In a similar case the Michigan Court of Appeals ruled that the mere fact that separate accounting disclosed a greater tax liability was insufficient to invoke the relief provisions of Sec 18. Donovan Const., supra. That is so, the Donovan Court concluded because the whole purpose of uniformity would be destroyed if each state were allowed to cast aside formulary apportionment based on a dollar result from application of different reporting methods. Id. The Oregon Supreme Court reached the same conclusion in Twentieth Century-Fox when the court pointed out: “It is also important to note that it must be established that statutory apportionment does not adequately reflect business activity, not merely that it does not adequately reflect income earned in the state.”

However, not all of the courts have gotten the message. The Utah Supreme Court looked to whether the taxes paid to Utah fairly represents the taxpayer’s business activity in the state as opposed to whether the standard apportionment formula fairly represented business activity in the state. Deseret Pharmaceutical Co., supra.

Fair Representation – Comparison of the Taxpayer’s Three Factors. In Pennsylvania the commonwealth tried to prove that the standard three-factor formula did not fairly represent the taxpayer’s business activity by comparing the taxpayer’s factors to one another. In the case, the property and payroll factors were significant and the sales factor was 6 to 7 times smaller. That was so because the company involved was a Pennsylvania based manufacturing company and it would seem to follow that the sales factor would be much smaller because most of the taxpayer’s property and payroll were in Pennsylvania but the manufactured products were sold nationwide. The Pennsylvania Supreme Court soundly rejected the commonwealth’s argument saying “We reject the Commonwealth’s assertion that mere disparity between the magnitude of the property, payroll and sales fractions, is, in itself, indicative of a failure of the apportionment formula to fairly reflect the loci of business activity.’’ Paris Manufacturing Co., Inc. v. Commonwealth, 505 Pa. 15, 476 A2d 890 (1984).

Similarly, and as explained quite well by the Oregon Supreme Court, it is necessary to determine if: “the statutory formula as a whole does not ‘fairly represent the extent of the taxpayer’s business activity in this state.’ It is necessary to establish that the application of the three factors does not fairly represent business activity, not merely that one factor fails to meet this standard. This is so because in certain cases one factor may be unreasonably high and another unreasonably low but the application of the three factors together fairly represents business activity.” See, Twentieth Century-Fox, supra.

To the contrary, however, is an Ohio case where an Ohio-based company manufactured railroad cars in Ohio and primarily leased the railroad cars to third parties as opposed to selling the railroad cars. There, the Ohio Supreme Court noted that the only reason the company manufactured railroad cars was to lease them. Although the court did not clearly articulate the taxpayer’s business activity, it would seem that the court concluded that leasing was the taxpayer’s business activity and that was so in Ohio even though it had a manufacturing plant in Ohio. The court concluded without much meaningful discussion: “It is our view that the payroll factor which is 13 times the property factor and 27 times the sales factor puts the entire apportionment formula out of focus. The payroll factor should have been eliminated by the Tax Commissioner.” GAXT Corp. v. Limbach, 21 Ohio App 3rd 59, 486 NE2d 840 (1984).

Fair Representation – Inappropriateness of a Factor. Often courts have found that a particular factor is inappropriate because the factor does not reflect the extent of the taxpayer’s business activity conducted in the state. In doing so, courts have of necessity had to identify the taxpayer’s principal business activity and its business activity in the state and then explain why the factor as constructed under the three-factor formula causes the entire three-factor formula to unfairly represented the taxpayer’s business activity in the state. This seems to be a fairly acceptable and well-reasoned approach to the application of Sec 18.

Twentieth Century-Fox, decided by the Oregon Supreme Court and the recent decision in Microsoft by the California Supreme Court are a prime example of this approach. In Twentieth Century-Fox, the taxpayer had literally applied the property factor and determined that the value its tangible property in Oregon was (i) the cost of printing a film from the negative and (2) the cost of the reel upon which the film resided. The Court accepted the literal construction of the property factor. However, in deciding that the property factor needed to be adjusted under Sec. 18, the Oregon Supreme Court identified the taxpayer’s overall business activity as producing and distributing films. The business activity identified in Oregon was “the distribution for display of the embodiment of a story or theme, photographed, edited, acted and captured on film.” The Court said that it was inaccurate to limit the taxpayer’s business activity in Oregon to distribution reels of prints without reference to the negatives from which they are made using a “but for” argument. That is, but for all of the production costs of making the movie which is contained on the negative there would be nothing to distribute.

The taxpayer’s sales factor accurately reflected the taxpayer’s receipts in Oregon and it had no payroll in Oregon. Because these were factors accurate or otherwise not capable of being inaccurately high, these factors will not offset an under-evaluation in the property factor. Because the property factor reflected only the cost of prints measured by foot of film without regard to the contents, the court concluded the small property factor which did not include the actual value of the film, caused the three-factor formula as constructed under the standard provisions of UDITPA to substantial underrepresent the taxpayer’s business activity of the taxpayer in Oregon. Accordingly, the property factor was adjusted to include the value of the film including consideration of the contents.

In a similar fashion, the California Supreme Court held that Microsoft had properly constructed its sales factor by including return of capital from redemptions of short term investments as gross receipts for the purposes of the sales factor. This increased the denominator of the sales factor because all of Microsoft’s cash management by its treasury department occurred in Washington. The court then turned to whether the formula fairly reflected Microsoft’s business activity in California. Unfortunately, the court did not directly address Microsoft’s business activity in California other than to say that it did not include the its treasury function.

The Court focused on the purpose of the sales factor which it said was to reflect the markets for the taxpayer’s goods and services. It concluded that the inclusion of the taxpayer’s investment receipts did not serve that end. And that inclusion of the investment receipts in the denominator of the sales factor inadequately reflected the contribution of the markets provided by states other than Washington. Focusing on the relative contributions of gross profits from sales and services when compared to gross profits from investments the court concluded that the gross receipts produced by the investment activity and include in the formula greatly overstated the impact of the investment activity in terms of the production of Microsoft’s income from sales and services, which was the taxpayer’s activity in California.

The Court went on to discuss the issue of distortion, which we discuss immediately below.

Fair Representation - Distortion. Courts seem to view distortion as a short hand way of articulating that the standard formula does not fairly represent a taxpayer’s business activity in a particular state. The first and, of course, most difficult task is to identify what is being distorted and why that impacts on the fair representation of a taxpayers business activity in the state as embodied in the standard apportionment formula. This type of analysis in turn requires a determination of what level of distortion is necessary to cause the standard formula to not fairly represent the taxpayer’s business activity in a particular state. Some courts have been somewhat sloppy in their reasoning while others have been very articulate in identifying the level of distortion that the find and why the formula does not work as intended.

What level of distortion is required? We learned early on that a simple “gross disparity” of what the reporting methods yield is insufficient to meet the proponent’s burden that the standard apportionment formula does not work. That is, one cannot simply compare the income attributed to a state by the standard formula and that attributed by another methodology such as separate accounting. See, Donovan Const. Co., supra. The Donovan Court held that the three-factor formula may be adjusted only where it does not represent the extent of the taxpayer’s activity in a particular state. And that in order to demonstrate that the three-factor formula does not fairly reflect a taxpayer’s business activity in a particular state “requires an attack on each element of the formulary apportionment.” Id.

We also know from Lakehead Pipe Line and Miami Corp. that Illinois incorporates the constitutional test of gross distortion. This approach was also reflected in the Illinois Department’s regulations which required that a formula may not apportion income to Illinois which is out of all proportion to the taxpayer’s business transacted in Illinois. In Miami Corp. the Illinois Appellate Court found that the totality of the factors under three-factor formula grossly distorted the taxpayer’s business activity in Illinois and permitted the taxpayer to use separate accounting. The facts were quite unique because the taxpayer was in existence to manage a family’s wealth and 80% of the income was generated from oil and gas royalties in Louisiana yet the property factor did not include the value of the oil and gas reserves and the payroll factor did not consider that almost all activity of the company was performed by third party contractors as opposed to employees.

The use of the constitutional standard of distortion is a rarity. Rather, most courts seem to use an “I know it when I see it standard.” Unfortunately, to date, no court has established an objective standard for distortion that can easily be relied upon by others. That said, the task may be one that cannot be accomplished given the subjective wording of the statute and perhaps broad guidance is all that we can expect.

This seems particularly true in the cases where the denominator of the sales factor was properly increased by return of capital on short term investments. In these cases, the courts uniformly find that doing so causes distortion and that the distortion can be remedied by invoking the provisions of Sec. 18. See, Microsoft, supra; Union Pacific Corp. v. Idaho State Tax Comm’n., 83 P.3d 116 (Id. 2004); Sherwin-Williams Co. v. Johnson, supra; and American Telephone & Telegraph v. State Tax Appeals Board, 241 Mont. 440, 787 P.2d 754 (1990).

In Microsoft, the California Supreme Court, as mentioned above, compared gross profit margins from Microsoft’s sales of goods and services to its gross profit margins from its treasury activity. It then compared those numbers to gross receipts produced by each as reflected in the denominator of the sales factor formula. The court concluded that including the return of capital from redemptions of short term investments in the sales factor was distortive because the income from short term investments produced 2% of Microsoft’s income but accounted for 36% of its gross receipts in the denominator of the sales factor.

The Montana Supreme Court in AT&T, however, did not do much more than to say that the State Tax Board of Appeals had substantial evidence upon which to base its decision that including return of capital in the denominator of the sales factor was distortive. That evidence was a statement of an expert witness who testified that it was a “universally accepted interpretation of tax administrators in UDITPA states not to include gross receipts from the temporary cash investments in the sales factor. Otherwise a substantial distortion of the Taxpayer’s business activity in the state would result.” While the court did not comment on the level of distortion required, the Montana Department of Revenue argued that any level of distortion was enough but, of course, they did not bother to explain what they meant by distortion.

The Tennessee Appellate Court was clear to identify Sherwin-Williams principal business as the manufacture and sale of paint and related products. Here the taxpayer argued that the appropriate standard for invocation of the provisions of Sec 18 was a “gross disproportionate” standard, i.e., the Hans’ Rees constitutional standard. Sherwin-Williams is based in Ohio. That is where their treasury activity occurs. Looking at the numbers, the Tennessee Court noted that the income produced by Sherwin-Williams short term investments “barely increased the company’s overall net worth.” One can certainly question if that is the appropriate standard to use to determine distortion of business activity in a state. But the ultimate decision of the court rested on common sense when the Tennessee concluded “it strains the bounds of good sense to assert that the taxpayer is attempting to fairly and completely represent its business connection to this state, when, as fortune would have it, Ohio statutes do not require inclusion of “gross receipts” in its receipts factor.”

On the other hand, other courts have not quite gotten it correct. In Kmart Properties, Inc. v. Taxation & Revenue Dep’t, __ N.M. __, 131 P.3d 27 (Ct. App. 2001) the Court simply said the Department presented enough evidence to its hearing officer to convince him that the use of the standard three-factor formula “distorts the economic reality of KPI’s income.” This, of course, is not the test under Sec 18.

2. An unusual fact situation exists which produces incongruous results under the standard allocation and apportionment provisions. MTC Reg. IV.18(a)

It is fascinating to observe that only Wal-Mart makes mention of the regulation’s requirements. In Wal-Mart the taxpayer produced extensive evidence that intangible holding companies, whether holding company securities, intellectual property or other passive assets were common place noting that Delaware has over 5,000 intangible holding companies alone. The hearing officer in Wal-Mart discounted that and other facts demonstrating that Wal-Mart’s intangible holding company was not unusual when compared to other holding companies. Instead, the Hearing Officer basically took judicial notice that UDITPA was designed primarily for manufacturing and mercantile companies and concluded that any company which was not a manufacturing and mercantile company was per se unusual when considered in the context of the drafter’s intent. In doing so, the Hearing Office ignored the plethora of regulations under Sec. 18 and Sec. 18 of UDITPA which specifically deal with intellectual property and would seem to suggest that even if the drafters did not contemplate companies holding intangible assets, certainly the MTC and New Mexico did when they drafted regulations decades ago.

In no case has a court attempted to identify an unusual factual situation and directly link that unusual fact situation to incongruous results under the standard apportionment provisions.

3. The unusual fact situation is unique and nonrecurring or in the alternative why the unusual fact does not have to be unique and nonrecurring. MTC Reg. IV.18(a)

Only Microsoft mentioned the regulations’ limitation that the factual situation will ordinarily be unique and nonrecurring. In Microsoft, the court noted that Sec. 18 does not apply so as to require that all situations must be unique and nonrecurring, rather that regulation states that an unusual factual situation will be “ordinarily” be found to be unusual and nonrecurring. The court went on to point out that one must keep a focus on the touchstone which is an inquiry into whether the formula “fairly represents” the taxpayer’s business activity in a given state.

One cannot draw only actual conclusion from the courts’ collective failure to deal in any meaningful manner with the unusualness requirement of the regulation and it is exactly that – the courts simply seem to ignore the requirement. There may be reasons for the courts almost unanimous failure to discuss the meaning of the unusualness requirement of the regulation. First, one might suggest that attorneys for taxpayers have not fully articulated the unusualness requirement of the regulations. Alternatively, courts may simply have felt that it was unnecessary or unpleasant to deal with the regulation’s requirement. The answer is likely that the courts’ failure to deal with this issue is some combination of both. Reviewing the briefing in all cases would, of course, shed some light on the subject but that endeavor was beyond the scope of the effort this author was willing to undertake. Perhaps some enterprising graduate tax law student may find this a topic for a paper or law review comment or note.

4. The proposed modification to the formula is reasonable. Sec. 18

The statute requires that the proposed alternative method for sourcing income to a state must be reasonable. Only the Oregon Supreme Court has attempted to set out what the standard of reasonableness is. See, Twentieth Century-Fox, supra. Other states have followed by citing the Oregon Supreme Court’s decision in Twentieth Century-Fox favorably. In Twentieth Century-Fox the Oregon Supreme Court explained that reasonableness has at least three components: the division of income fairly represents business activity and (i) if applied uniformly would result in taxation of no more than 100% of the taxpayer’s income, (ii) does not create or foster lack of uniformity among UDITPA jurisdictions, and (iii) reflects the economic reality of the business activity engage in by the taxpayer in a particular state.

The first element of reasonableness simply incorporates the internal consistency criteria set forth in Container for determining under the Commerce Clause whether a tax is fairly apportioned. The second element focuses on whether the alternative method of sourcing income to the state maintains uniformity. The inquiry into uniformity seems to be sensible since that is the principal goal of UDITPA. The third element is stated in terms of economic reality which other court’s such as the California Supreme Court in General Motors Corporation, et al. v. FTB, ___ Cal 4th ___ (Supreme Court of California, Docket No. S127086, August 17, 2006) discussed in terms of Frank Lyon Co v. U.S., 435 U.S. 561 (1978). Economic reality and the external consistency test which relies on a sense of how income is earned appear to be somewhat comparable and are certainly not mutually exclusive.

While no court has said that the elements of reasonableness set out in Twentieth Century-Fox are the exclusive characteristics of reasonableness, it appears as if no other elements have been considered. That is so because courts often do not venture into a discussion of what constitutes reasonableness as opposed to merely concluding that the alternative formula which they have approve is inherently reasonable.

D. Conclusions

The world of equitable apportionment under Sec. 18 is uncertain at best. There are few set rules, if any, that all states agree on. That fact in and of itself creates all sorts of litigation hazards for taxpayers where a state has asserted that an alternative apportionment formula is appropriate. Of the twenty or so cases that have been decided by appellate courts, one can fairly conclude that the courts have tried to right a perceived wrong but for the most part have not gotten to the desired result by a demanding and exhaustive statutory analysis.

Donald M. Drake Co. v. Dep’t. of Revenue, 263 Or. 26, 500 P.2d 1041(1972)

Kennecott Copper Corp. v. State Tax Commission of Utah, 27 Utah2nd 119, 493 P.2d 632 (1972)

Amoco Production Co. v. Arnold, 213 Kan. 636, 518 P.2d 453 (1974)

Deseret Pharmaceutical Co., Inc. v. State Tax Commission, 579 P.2d 1322 (Utah 1978)

Roger Dean Enterprises, Inc. v. Dep’t of Revenue, 387 So 2d385 (Fla. 1980)

Donovan Construction Co. v. Dep’t of Treasury, 126 Michigan App. 11, 337 NW2d 297 (1983)

Communications Satellite Corp. v. Franchise Tax Board, 156 Cal App 3d 726, 203 Cal. Rptr. 779 (1984)

Paris Manufacturing Co., Inc. v. Commonwealth, 505 Pa. 15, 476 A2d 890 (1984).

GAXT Corp. v. Limbach, 21 Ohio App 3rd 59, 486 NE2d 840 (1984)

Twentieth Century-Fox Film Corp. v. Dep’t. of Revenue, 229 Or. 220, 700P.2d 1035 (1985)

Lancaster Colony Corp. v. Limbach, 37 Ohio St. 3rd 198, 524 NE2d 1389 (1988)

Lakehead Pipeline Company, Inc. v. Dep’t of Revenue, 192 Ill. App. 3d 756, 549 NE2d 598 (1989)

American Telephone & Telegraph v. State Tax Appeals Board, 241 Mont. 440, 787 P.2d 754 (1990)

Miami Corp. v. Dep’t of Revenue, 212 Ill. App. 3d 702, 571 NE2d 800 (1991)

Montana Dep’t of Revenue v. United Parcel Service, Inc., 252 Mont. 476, 830 P2d 1259 (1992)

Crocker Equipment Leasing Co. v. Dep’t of Revenue, 314 Or. 122, 838 P. 2d 552 (1992)

Sherwin-Williams Co. v. Johnson, 989 SW2d 710 (Tenn. App. 1998)

Kmart Properties, Inc. v. Taxation & Revenue Dep’t, __ N.M. __, 131 P.3d 27 (Ct. App. 2001)

Union Pacific Corp. v. Idaho State Tax Comm’n., 28 P.3d 375 (2001)

Union Pacific Corp. v. Idaho State Tax Comm’n., 83 P.3d 116 (2004)

Walgreen Arizona Drug Co. v. Arizona Dep’t of Revenue, 97 P.3d 896 (2004)

In the Matter of the Protest of Wal-Mart Stores, Inc., Decision & Order No. 06-07, May 1, 2006, appeal pending in NM Court of Appeals, Docket No. 26,711

Microsoft Corporation v. Franchise Tax Board, ___ Cal 4th ___ (Supreme Court of California, Docket No. S133343, August 17, 2006)

General Motors Corporation, et al. v. FTB, ___ Cal 4th ___ (Supreme Court of California,; Docket No. S127086, August 17, 2006)

1. This Paper was presented at the Institute for Professionals In Taxation Income Tax Symposium held in San Diego California on October 17, 2006.

2. For convenience, a copy of UDITPA Sec. 18 is attached as Exhibit A.

3. A copy of the model MTC regulations interpreting Sec. 18 is attached as Exhibit B.

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