The Oregon Tax Court has held that an out-of-state cable company’s video services constituted “broadcasting” and were subject to the special apportionment provisions for interstate broadcasters for purposes of Oregon corporate excise (income) tax.1 However, the cable company’s Internet and telephone services were not considered to be broadcasting subject to the special apportionment rules. Under Oregon law, service revenue generally is apportioned using a cost of performance (COP) methodology, but interstate broadcasters were required to apportion income from broadcasting during the tax years at issue by using an audience or subscriber factor. The Tax Court determined that each of the company’s services must be evaluated separately to determine whether the broadcasting classification applied.


The taxpayer, a major provider of video, high-speed Internet and digital telephone services across the United States, reported its operations in separate cable and programming segments. The cable segment revenue, which accounted for the vast majority of the taxpayer’s consolidated revenue and assets for the 2007-2009 tax years at issue in this case, primarily was derived from providing video, Internet and telephone services, and sales of advertising. The programming segment was comprised of several national programming networks. The taxpayer’s video services permitted its subscribers to send electronic signals back to it across its cable network. The Oregon Department of Revenue argued that the taxpayer was an interstate broadcaster that was required to use a special statutory method to apportion its income to Oregon. In contrast, the taxpayer argued that it was not a broadcaster and could use the standard COP method to apportion its income. Both the Department and the taxpayer filed motions for partial summary judgment with the Tax Court.

Oregon Apportionment Methods

Oregon uses a single sales factor to apportion income to the state.2 In general, gross receipts from services are sourced to Oregon if a greater proportion of the income-producing activity is performed in the state based on COP.3 However, interstate broadcasters are subject to special apportionment provisions.4 For the relevant tax years, an interstate broadcaster’s gross receipts from broadcasting were apportioned based on the ratio that its audience or subscribers located in Oregon bears to its total audience or subscribers located both within and without the state.5 For the tax periods at issue, Oregon law defined “interstate broadcaster” as “a taxpayer that engages in the for-profit business of broadcasting to subscribers or to an audience located both within and without [Oregon].”6 The statutory definition of “broadcasting” is “the activity of transmitting any one-way electronic signal by . . . wires, coaxial cables, wave guides or other conduits of communications.”7 According to the Tax Court, this definition was the focus of the dispute.

Determination of One-Way Electronic Signals

In reaching its decision that the taxpayer’s video services were subject to the special interstate broadcaster apportionment provisions, the Tax Court thoroughly considered the competing arguments advanced by the Department and the taxpayer. Based on the legislative history of the interstate broadcaster apportionment provisions enacted in 1989, the Department argued that the special formula was intended for cable companies. Because the taxpayer met the statutory definition of interstate broadcaster, the Department argued that the taxpayer was subject to the special apportionment formula. The Department claimed that the most important terms in the “broadcasting” definition were “signal” and “one-way.” After providing the dictionary definition of these words, the Department argued that these words taken together show that “broadcasting” was an activity engaged by the taxpayer when it transmitted an electronic signal directly to a subscriber for profit. The taxpayer’s services allowed two-way communication such as movies on-demand, but the transmission of an electronic signal carrying some type of video was the fundamental service that the taxpayer provided to its subscribers.

The taxpayer argued that it was not an interstate broadcaster because of the statutory definitions of “interstate broadcaster” and “broadcasting.” Under this argument, the taxpayer emphasized that Oregon’s statutory definition involves the transmission of a one-way electronic signal, but its cable systems allowed two-way delivery of electronic signals. Thus, the taxpayer’s services were not “one-way” and did not meet the definition of “broadcaster.” The taxpayer also argued that the legislative intent did not support the taxation of its services because the electronic services that the taxpayer offered in 1989 were dramatically different from the wide variety of services that it offered during the 2007 through 2009 tax years. According to the taxpayer, the relevant statutory test was not whether it was a cable company, but whether it was an interstate broadcaster with respect to each of its services.

The Tax Court explained that the “key issue” in this case was the proper construction of the phrase “one-way electronic signal” in the statutory “broadcasting” definition. The Department argued that each of the taxpayer’s acts of transmitting a signal was “one-way,” whether or not a subscriber transmitted a signal back to the taxpayer. In response, the taxpayer argued that its services that allowed subscribers to transmit electronic signals back to the taxpayer were not “one-way.” The Tax Court rejected both sides’ arguments and explained that an alternative construction could be found by looking at the definition of the term “signal.” According to the Tax Court, the “electronic signal” is not the electrical impulse, but is the sound, image or other intelligible communication that the electrical impulses convey. If the “electronic signal” is a message rather than a physical impulse, the phrase “one-way” distinguishes types of messages rather than electrical quantities. Some messages, such as television, are one-way, but other messages, such as telephone conversations, are not one-way.

Each Service Separately Evaluated

The Tax Court agreed with the taxpayer that each of its services must be evaluated to determine whether it is “broadcasting.” Cable television programming is a one-way electronic signal even for subscribers that use the “on-demand” feature to order programming. These features are a convenience to the subscribers that allow them control over the timing of their viewing. Thus, the interactive elements of the taxpayer’s video service were ancillary to its one-way delivery of video to its subscribers. This approach is consistent with the same taxpayer’s property tax appeal that recently was decided by the Oregon Supreme Court.8 In the property tax case, the Supreme Court held that the transmitted content flows between the taxpayer and its subscribers predominantly in one direction. Although the property tax case construed a different statutory framework, the facts of the taxpayer’s business operations are the same regardless of the tax type involved.

The taxpayer’s video services constituted broadcasting and the taxpayer was an interstate broadcaster regarding these services. As a result, the taxpayer was required to use the special apportionment methodology for its video services. However, because the taxpayer was not a “broadcaster” for its Internet and telephone services, it was not required to use the special apportionment formula for these services. Finally, the record did not contain enough information regarding the taxpayer’s advertising, franchising and programming businesses for the Court to determine their relationship to the taxpayer’s video broadcasting business. Accordingly, the taxpayer’s motion for partial summary judgment was granted in part and the Department’s motion for partial summary judgment was granted in part.


The broadcasting and communications industries have changed tremendously since the state of Oregon enacted its special apportionment provisions for interstate broadcasters in 1989. At the time, cable companies primarily offered a traditional one-way transmission of television. However, this industry is much more complex today and a large variety of different types of services are offered. To a large extent, traditional one-way broadcasting services have become intertwined with two-way communication services, particularly as the customer has far greater ability to interact and control when and where to watch programming. This case is useful because it applies the traditional statutory language to the current broadcasting and communications services.

The Tax Court engaged in a careful evaluation of each of the taxpayer’s different types of services. The determination to view each of these services separately for purposes of apportionment resulted in a technically sound conclusion, though neither side was fully satisfied by the result. It would have been inequitable to consider all of the taxpayer’s services to be broadcasting merely because it was classified as a cable company. Considering that the primary function of the taxpayer’s video services was to convey video, the fact that the taxpayer offered its subscribers on-demand services did not change the classification of that particular service. However, the taxpayer’s Internet and telephone services clearly were not covered under the definition of “broadcasting,” and the ability of the taxpayer to track different revenue streams made it feasible for the Tax Court to require different sourcing rules for each revenue stream. The decision provides clear guidance to taxpayers with several distinct revenue streams that one sourcing rule does not always apply. Further, this decision may provide the impetus for taxpayers to consider unbundling specific services that they offer for one set price, or at least track how much they are receiving for each service, in order to utilize preferential sourcing rules where they exist.

Taxpayers should note that the special apportionment methodology for broadcasters does not apply to the 2014 through 2016 tax years.9 For these tax years, interstate broadcasters apportion gross receipts to Oregon if the commercial domicile of the customer is in the state or, in the case of an individual, the customer is a resident of the state. For tax years beginning on or after January 1, 2017, the original special apportionment methodology applies to interstate broadcasters. A report of the revenue impact of the temporary change must be made to the legislature by early 2017. Apparently, the legislature is considering a permanent change to the apportionment method for broadcasters depending on the revenue impact. Thus, the apportionment methodology that will be used for broadcasters in Oregon in the future is unclear at this point.