Oregon Supreme Court Provides Definition of "Data Transmission Services" for Central Assessment Purposes

The Oregon Supreme Court today released its long-awaited decision in Comcast Corporation v. Department of Revenue, 356 Or 282, (Oct 2, 2014) (argued January 8, 2013). In a 54-page opinion, the Supreme Court reversed the Oregon Tax Court. The Supreme Court’s opinion holds that the property of Comcast’s cable television business is subject to central assessment, along with the property of the company’s internet and voice-over-internet protocol (VOIP) service businesses, because each involves data transmission services, which the court defined as “the service of transmitting coded electronic information between computer and computer-like devices.”

As in most states, “central assessment” (or “state assessment”) generally means that the value of taxable property is determined “centrally” by the state’s Department of Revenue rather than by the local county assessor. In Oregon, however, a major additional consequence of central assessment is that intangible property of a centrally assessed business is subject to tax, while the intangible property of a locally assessed business is not. Furthermore, central assessment is based on the value of the taxable “unit” of property, as allocated and apportioned to Oregon taxing jurisdictions by formula. For these reasons, central assessment can, at least in theory, use the entire worldwide brand value of a business, including goodwill, as its starting point, as well as all of its real and tangible personal property. The resulting value assigned to Oregon can be dramatically different than if particular buildings, fixtures or equipment were valued by the local county assessor. For example, pursuant to the Department’s position, subjecting Comcast to central assessment for 2009 nearly tripled the 2008 maximum assessed value of Comcast’s property.

Both courts focused on defining the phrase “data transmission services” as used in ORS 308.505(3), which is part of the definition of a “communications” business that must be centrally assessed. The Tax Court emphasized that the test involved whether the business was providing “data transmission services” for others, and the court concluded there was no “service” if the business merely transmitted its own content. Applying this test, the Tax Court decided that Comcast’s property used in cable TV should not be centrally assessed because the cable TV business involved content in which Comcast had substantial property rights. By contrast, the Tax Court held that Comcast’s internet and VOIP service property should be centrally assessed because in that line of business Comcast transmitted content, including phone conversations, in which Comcast had no ownership rights.

In reversing the Tax Court, the Supreme Court focused on the entire phrase “data transmission services” as a technical term that was in use in 1973 when the legislature added the term to the statutes. Based on an extensive review of Federal Trade Commission publications, treatises, and testimony in the 1973 legislature, the Supreme Court held that the technical term has a broad meaning: sending information in electronically coded form between devices capable of encoding the information at the sending end and decoding it at the receiving end.

Among many other points, the Supreme Court briefly addressed Comcast’s state constitutional argument against an expansive definition of “data transmission services.” Comcast argued that an expansive definition would require the Department of Revenue to select businesses for central assessment without a meaningful standard, in violation of the uniformity clauses of the Oregon constitution. The court noted that the following kinds of businesses are not subject to central assessment:

• Publishers that merely create content that is transmitted electronically. (But the business that transmits that content electronically is centrally assessable, including Comcast’s internet service.)
• Paper magazine publishers and sellers.
• Paper newspaper publishers and sellers.
• The billboard industry.

While noting that the case of television and radio broadcasters was not before it, the court also suggested that the property of these businesses would likely not be centrally assessed because they do not subscribe viewers or listeners for a fee and do not provide the equipment necessary to decode the transmitted data at the receiving end.

The Supreme Court did not resolve the question of whether the increase in the maximum assessed value (MAV) sought by the Department was allowed by Measure 50. As the court explained, this will depend on whether the increase satisfied certain exceptions for new property or new improvements. The Supreme Court remanded this issue to the Tax Court. Given the court’s extensive discussion of the evolution of cable television, including a “third evolutionary period * * * in the mid-1990’s with the migration from analog to digital technology,” it remains to be seen whether the Department has missed its opportunity to increase the MAV of some portion of Comcast’s property.

The decision may rekindle a long-running debate over the scope of Oregon’s central assessment statutes and its unusual requirement to include intangible property in the tax base. Legislative efforts in the 2015 session seem likely.

Please contact your Stoel Rives attorney or a key contributor if you have questions.