IN THE OREGON TAX COURT MAGISTRATE DIVISION Income Tax
RYAN FINLEY, ) ) Plaintiff, ) TC-MD 111135C ) v. ) ) DEPARTMENT OF REVENUE, ) State of Oregon, ) ) Defendant. ) DECISION
This matter is before the court on cross-motions for summary judgment. The filing of the
parties‟ motions and supporting memoranda was completed August 16, 2012, and oral argument
was held in Salem on September 17, 2012. Plaintiff was represented by Larry J. Brant and John
Rothermich, both of whom are attorneys at the law firm of Garvey Schubert Barer, Portland,
Oregon. Defendant was represented by Douglas M. Adair and James C. Wallace, Senior
Assistant Attorneys General, Oregon Department of Justice.
Plaintiff appeals Defendant‟s imposition of interest on underpayment of estimated tax for
the 2009 tax year, asserting that “Defendant should have used to the Prior Year Safe Harbor
Method to calculate the interest assessment for underpayment of Oregon estimated taxes.” (Ptf‟s
Compl at 3, ¶ IX.) Plaintiff‟s 2008 Oregon return was not timely filed and Defendant relied on
its administrative rule to deny Plaintiff the benefits of the statutory safe harbor provision found
in ORS 316.587(8)(b).1 (Def‟s Ans at 1-2; Def‟s Cross Mot for Summ J at 2.) In so doing
Defendant asserted an assessment of interest in the amount of $298,342.98, later reduced to
$224,863. (Ptf‟s Compl at 2-3, ¶¶ V, VIII; Def‟s Cross Mot for Summ J at 2.) Plaintiff contends
that the statutory safe harbor provision should apply and that the amount of interest should be
1 All references to the Oregon Revised Statutes (ORS) are to 2007.
DECISION TC-MD 111135C 1 only $42,268. (Ptf‟s Compl at 3, ¶ IX; Ptf‟s Mem Supp Summ J at 17.) Plaintiff argues that
Defendant‟s rule requiring the timely filing of the prior year‟s return is invalid because it
conflicts with the plain language of ORS 316.587(8) and “creates a disparity between the
application of the Prior Year Safe Harbor and its federal counterpart,” which, Plaintiff asserts,
contravenes the “clear legislative intent of the statute.” (Ptf‟s Mem Supp Summ J at 2.)
I. STATEMENT OF FACTS
Plaintiff ‟s memorandum in support of its request for summary judgment provides the
following facts, which Defendant does not dispute. (Def‟s Cross-Mot for Summ J at 1: “The
facts are not in dispute.”) Plaintiff was an Oregon resident in 2008 and 2009. (Ptf‟s Mem Supp
Summ J at 2.) Plaintiff filed his 2008 and 2009 Oregon individual tax returns on a calendar year
basis. (Id. at 2-3.) Both returns were based on taxable years of 12 months. (Id. at 3.)
Plaintiff filed his 2008 Oregon return on February 12, 2010, reporting a tax liability of
$2,153,260. (Id.) Eight months later, on or about October 15, 2010, Plaintiff filed his 2009
Oregon return reporting a tax liability of $9,928,537. (Id.) Plaintiff made Oregon estimated
income tax payments for 2009 totaling $8,771,633.2 (Id.)
On November 12, 2010, Defendant issued a Notice of Tax Assessment that included
interest on underpayment of estimated tax in the amount of $298,342.98. (Aff of Robert P.
Wiest, Ex 1 at 1.) Plaintiff, through his accountant Robert P. Wiest, CPA, sent two letters to
Defendant in February and March 2011 disputing the interest assessment. (Id. at 2, ¶ 5.) The
second of those two letters asserted that the imposition of interest for underpayment of estimated
tax should be further reduced (from the amount asserted in the first letter from Wiest to
2 It appears those payments were made as follows: $550,000 paid June 15, 2009, $417,974 paid January 15, 2010, $7,200,000 paid April 15, 2010, plus a payment of $603,659 applied to Plaintiff‟s 2009 tax liability based on an adjusted overpayment Plaintiff made on his 2008 tax liability. (See Aff of Robert P. Wiest at 1, Ex 1 at 2.)
DECISION TC-MD 111135C 2 Defendant) pursuant to ORS 316.587(8) because Plaintiff‟s estimated tax obligation for 2009
should have been determined under the safe harbor provisions of subsection (8)(b) of ORS
316.587. (Id.)
On July 14, 2011, Defendant issued a Notice of Abatement reducing the assessment of
interest from $298,342.98 to $224,863. (Id., Ex 2 at 1.) According to Defendant‟s abatement
notice, the reduction in the disputed interest (on underpayment of estimated tax) was due to an
adjustment made to reflect the use of the 2008 tax rates. (Id., Ex 2 at 3.) Defendant declined to
calculate the interest under the “safe harbor” method found in ORS 316.587(8), as requested by
Plaintiff. (Id.) Defendant explained in that notice that “the prior-year return must have been
filed timely, including extensions, and cover 12 months. The facts in your case do not qualify
you for this method since your 2008 tax return was not filed until 2/12/10 which is after the
extension period had expired. (ORS 316.587).” (Id.)
II. ISSUE
The issue in this case is whether, for purposes of computing interest on underpayment of
estimated taxes under ORS 316.587(1), a taxpayer can be required to timely file the prior year‟s
return in order to rely on the statutory safe harbor provision in subsection (8)(b) of ORS 316.587
when calculating the amount of estimated taxes required to be paid in the current year.
The case is not about whether Plaintiff paid any estimated taxes in 2009, or whether his
2008 or 2009 Oregon personal income tax returns were timely filed. The case really comes
down to whether the provision in the department‟s administrative rule (OAR 150-316.587 (8)-
(A) (3)(a)(B)) requiring that a taxpayer timely file his tax return for the prior year in order to rely
on the prior year‟s tax for purposes of determining the amount of estimated taxes paid in the
///
DECISION TC-MD 111135C 3 current year (safe harbor) is consistent with the statute (ORS 316.587) and the intent of the
legislature, or whether the rule is invalid, as Plaintiff asserts.
III. ANALYSIS
A. Introduction and overview
1. Statutory framework for declarations and payments of estimated tax
Plaintiff was required by ORS 316.563(1), ORS 316.577, and ORS 316.579 to declare
and pay estimated taxes in 2009 on income not subject to withholding. A declaration of
estimated tax must be filed on or before April 15 of the current taxable year, which in this case
was April 15, 2009. ORS 316.577 (“declarations of estimated tax required by ORS 316.563 (3)
from individuals * * * shall be filed on or before April 15 of the taxable year”). Generally,
estimated tax payments for the current year (in this case 2009) are due in quarterly installments
by the fifteenth day of April, June, and September, of the current taxable year, with the fourth
and final installment due on January 15 of the succeeding year. ORS 316.579(2); cf. IRC
§ 6654(c)(1).
If a taxpayer underpays his or her estimated taxes for any tax year, the taxpayer is
required by ORS 316.587(1) to pay interest on the underpayment. Plaintiff underpaid his
estimated taxes in 2009, and Defendant imposed interest on the underpayment. The parties
dispute the amount of interest that Defendant can legally impose.
2. Focus
ORS 316.587(8)(b) does not specifically require the prior year‟s return to be timely filed
in order to qualify for safe harbor. The timely filing requirement appears only in Defendant‟s
DECISION TC-MD 111135C 4 administrative rule, OAR 150-316.587(8)-(A)(3)(a)(B).3 Under the rule, the statutory safe
harbor provision is only available to taxpayers whose prior year Oregon return is timely filed,
including extensions, and Plaintiff‟s 2008 Oregon return was not timely filed. The due date for
the 2008 return was April 15, 2009, or October 15, 2009 (including the allowable extension), and
Plaintiff did not file his 2008 return until February 12, 2010.
Plaintiff challenges the validity of the rule as contrary to the statute and legislative intent.
Plaintiff contends that “[b]ecause the Administrative Rule conflicts with ORS 316.587(8), goes
beyond the interstices of and overcomes and overrides the statute‟s provisions, and produces a
result in contravention to federal law * * * the Administrative Rule is invalid to the extent it
imposes the Timely Return Limitation.” (Ptf‟s Mem Supp Summ J at 17.) Accordingly, Plaintiff
asks the court to grant its summary judgment motion and find that Plaintiff is only liable for
$42,268 of interest for underpayment of estimated taxes for tax year 2009. (Id.) Defendant
disagrees, contending that the disputed provision in the administrative rule provides a
“reasonable interpretation that is consistent with the statute, administrative needs, and the
ubiquitous requirements for timely filed returns.” (Def‟s Cross Mot for Summ J at 3.)
Defendant insists that:
“[s]tatutory analysis, including consideration of subsection (9)(a) [of the statute] and legislative history, support the provision of [OAR 150-316.587(8) (A)(3)(a)(B)] requiring that a prior year‟s return must be timely filed, including applicable extension. Thus, the rule is valid and the department may rely on it.”
(Def‟s Cross Mot for Summ J at 17.)
3 The court‟s references to the Oregon Administrative Rules (OARs) are to those in effect in 2010. Practically speaking, the only relevant rule in this case is OAR 150-316.587(8)-(A)(3)(a)(B), and the timely filing requirement was part of the two latest rule revisions pertinent to this case: 2008 and 2011.
DECISION TC-MD 111135C 5 B. Interest on underpayment of estimated tax - the statute and rule
As indicated above, the relevant statutory provision governing the imposition of interest
is ORS 316.587. Subsection (1) of that statute provides for the imposition of the interest “for
each month, or fraction thereof, on the amount underpaid for the period the estimated tax or any
installment remains unpaid.” Subsection (2) defines how the amount of underpayment is
determined by reference to “the required installment.” Subsection (8) defines the term “required
installment,” and explains the three alternative methods available for determining the amount to
pay when estimated tax payments (i.e., installments) are required. The required installment is the
lesser of the three available methods a taxpayer is entitled to utilize. ORS 316.587(8). Finally,
subsection (9) addresses the treatment of amended returns, return adjustments made by the
department “during initial processing,” and includes a directive regarding consideration of
section 6654 of the Internal Revenue Code (IRC). The dispute in this case centers primarily on
subsections (8) and (9) of ORS 316.587, and Defendant‟s administrative rule, OAR 150-316.587
(8)-(A).
ORS 316.587 provides, in relevant part:
“(8) For purposes of subsections (2) and (4) of this section [providing for the determination of the amount of any underpayment of estimated tax], the term „required installment‟ means the amount of the installment that would be due if the estimated tax were equal to the lesser of:
“(a) Ninety percent of the tax shown on the return for the taxable year (or, if no return is filed, 90 percent of the tax for such year);
“(b) If the preceding taxable year was a taxable year of 12 months, the percentage of the tax shown on the return filed by the individual for the preceding taxable year that is established by the Department of Revenue by rule [100 percent]; or
“(c) Ninety percent of the tax for the taxable year computed by placing on an annualized basis the taxable income for the months in the taxable year ending before the month in which the installment is required to be paid.
DECISION TC-MD 111135C 6 “(9) For purposes of subsection (8) of this section:
“(a) If an amended return is filed on or before the return due date (determined with regard to any extension of time granted to the taxpayer), then the term “return” means the amended return.4
“(b) if during initial processing of the return the department adjusts the amount of tax due, then the term „tax shown on the return‟ means the tax as adjusted by the department. This paragraph shall not apply if it is ultimately determined that the adjustment was improper.
“(c) The department shall consider the provisions of section 6654 of the Internal Revenue Code.” 5
(Emphasis added.)
The disputed administrative rule provides in relevant part:
“(3) Determination of required annual payment amount.
“(a) The required annual payment is the lesser of:
“(A) Ninety percent of the tax shown on the return for the taxable year * * *; or
“(B) One hundred percent of the tax shown on the prior year‟s return, if qualified. This is sometimes referred to as „safe harbor.‟ To use the prior year‟s tax to determine the required annual payment, the prior year’s return must have been a timely filed Oregon return, including extensions, and the prior tax year must consist of 12 months.”
OAR 150-316.587(8)-(A) (emphasis added).
/// 4 Subsection (9) was added to ORS 316.587 in 1993. Or Laws 1993, ch 726, § 35a. It was then that the legislature allowed an amended return to be considered a “return” for purposes of subsection (8) of the statute, provided the amended return was “filed on or before the return due date (determined without regard to extensions)[.]” The statute was subsequently amended in 2001 to allow the timeliness of an amended return to be gauged based on the due date of the [original] return “with” (as opposed to “without”) regard to extension, effectively extending the deadline for purposes of the safe harbor provision to at least October 15. Or Laws 2001, ch 660, § 4. 5 Paragraph (c) of subsection (9) of ORS 316.587 was added by the legislature in 1999 by House Bill 2137. Or Laws 1999, ch 90, § 18.
DECISION TC-MD 111135C 7 C. Court’s analysis
As indicated above, the question in this case ultimately comes down to whether or not the
department‟s administrative rule is valid because the statute itself is silent as to timing for
purposes of the safe harbor provision.
The parties agree that if this case cannot be resolved by the plain language of ORS
316.587(8), then commonly recognized rules of statutory construction apply. (Ptf‟s Mem Supp
Summ J at 8; Def‟s Cross Mot for Summ J at 3-5; Ptf‟s Reply at 3-5.) The parties also agree that
the court‟s ultimate task is to determine the legislative intent behind ORS 316.587(8). (Ptf‟s
Reply at 3; Ptf‟s Mem Supp Summ J at 7-8; Def‟s Cross Mot for Summ J at 3.) Finally, they
largely agree on the court‟s approach in determining the legislature‟s intent in enacting that
statute. (Compare Ptf‟s Mem Supp Summ J at 8 with Def‟s Cross Mot for Summ J at 3.) The
first step is for the court to examine the text and context of the statute in question. PGE v.
Bureau of Labor and Industries, 317 Or 606, 610, 859 P2d 1143 (1993) (PGE); State v. Gaines,
346 Or 160, 171-172, 206 P3d 1042 (2009) (Gaines). The second step is to consider legislative
history. PGE, 317 Or at 611-612; Gaines, 346 Or at 171-172. If the first two steps do not
resolve questions of legislative intent, Oregon courts apply “general maxims of statutory
construction to aid in resolving the remaining uncertainty.” PGE, 317 Or at 612; Gaines, 346 Or
at 172.
The parties note that there are three categories of statutory terms providing direction to an
administrative agency in terms of the agency‟s nature and scope of authority. (Def‟s Cross Mot
for Summ J at 4-5; Ptf‟s Reply at 3.) The three types of statutory terms are exact, inexact, and
delegative. Coffey v. Board of Geologist Examiners, 348 Or 494, 508, 235 P3d 678 (2010)
(citing Springfield Education Assn. v. School Dist., 290 Or 217, 223, 621 P2d 547 (1980)
DECISION TC-MD 111135C 8 (Springfield)). Plaintiff insists that the court‟s focus should be on the word “return,” and that that
term is an “exact” term, while Defendant insists that the term “return filed by the individual for
the preceding tax year” is the operative language of the statute, and that that term is an “inexact”
term. (Ptf‟s Reply at 3; Def‟s Cross Mot for Summ J at 4.)
An “exact” term is one which “impart[s] relatively precise meaning,” whereas an
“inexact” term is “less precise.” Springfield, 290 Or at 223-224. The court finds that the
relevant portion of the disputed statutory provision in ORS 316.587(8)(b) is “return filed by the
individual for the preceding taxable year,” and that the phrase is “inexact.” The court in
Springfield explained:
“To determine the intended meaning of inexact statutory terms, in cases where their applicability may be questionable, courts tend to look to extrinsic indicators such as the context of the statutory term, legislative history, a cornucopia of rules of construction, and their own intuitive sense of the meaning which legislators probably intended to communicate by use of the particular word or phrase.”
290 Or at 224. The court then went on to state that “[i]n any event, however, the inquiry remains
the same: what did the legislature intend by using the term.” (Id.)
Clearly, subsection (8) does not expressly require that the prior year‟s return be timely
filed. The relevant portion of ORS 316.587(8) entitles a taxpayer to pay estimated taxes for the
current year based on “the percentage of the tax shown on the return filed by the individual for
the preceding taxable year that is established by the Department of Revenue by rule[.]” On that
much, the parties agree, although Defendant hedges its concession, stating that “subsection (8)(b)
is silent as to timing, and, taken in isolation, could be read as neutral on the issue.” (Def‟s Cross
Mot for Summ J at 6 (emphasis added).)
Plaintiff asserts that that is the end of the matter because, as explained above, Plaintiff
satisfies the three specific requirements in the statute, and the statute does not require that the
DECISION TC-MD 111135C 9 prior year‟s return be timely filed. Defendant insists that Plaintiff is not entitled to rely on the
prior year‟s tax as a safe harbor for the amount of estimated tax payments because its
administrative rule, OAR 150-316.587(8)-(A)(3)(a)(B), requires that the prior return be timely
filed. The court agrees.
ORS 316.587 was enacted in 1980 as a one-time mechanism for increasing revenues at a
time when the state was in the throes of an economic recession. Then-Governor Vic Atiyeh
called a special session of the legislature to address “worse than projected economic
conditions[.]” (Def‟s Ex B at 2.) The governor explained in a memorandum written to state
agency heads that he had recommended to the legislative emergency board a combination of
budget cuts and increased revenues, including a projected $101 million through the enactment of
the estimated tax program and stepped-up tax collection efforts. (Id. at 7-8.) Notably, the
governor indicated that he was recommending that the legislature “institute programs to require
timely payment of taxes.” (Id. at 7.) The governor noted in that memorandum that although 90
percent of the State‟s taxpayers pay their income taxes through withholding on a pay-as-you-go
basis, there was no withholding on dividend and interest income, and that, as a result, “some
taxpayers postpone payment until the end of the year.” (Id.)
The result was House Bill 3183. (Ptf‟s Mem Supp Summ J at 11-12; Def‟s Cross Mot for
Summ J at 9; Def‟s Ex A.) That bill, which became ORS 316.587, originally provided for the
filing of a declaration of estimated tax in 1981 on or before April 15 of that year, two equal
payments of estimated tax, the first on April 15, 1981, and the second three months later on June
15, 1981, and interest on any underpayment of estimated tax. (Def‟s Ex A at 2-3, §§ 10a, 15a(2),
22(1).)
DECISION TC-MD 111135C 10 Applying accepted rules of statutory construction does not adequately answer the
question of whether Defendant‟s rule is valid or invalid. While it is true that rules of statutory
construction include the enjoinder not to insert words that have been omitted, the court, in
upholding Defendant‟s rule, is not inserting a word in the statute. Rather, it is merely
recognizing and sanctioning the validity of the department‟s rule, which was written to help
clarify the statute. The rule was promulgated to clarify how estimated tax payments are
determined for purposes of the imposition of interest on any unpaid estimated taxes. See OAR
150-316.587(8)-(A). Such clarification was needed because the operative phrase in the statute
imposing interest on underpayment of estimated taxes, ORS 316.587, is unclear in at least one
respect: subsection (8)(b) of the statute provides a method for determining the percentage of the
tax on an underpayment based on “the tax shown on the return filed by the individual for the
preceding taxable year.” The parties in this case disagree as to the meaning of the word “return”
or the phrase containing that term, “return filed by the individual for the preceding taxable year.”
A brief review of the interest statute is helpful at this juncture. ORS 316.587(1) requires
the imposition of interest on an underpayment of estimated tax based “on the amount underpaid
for the period the estimated tax or any installment remains unpaid.” Subsection (2) of that
statute provides a formula for determining the amount of any underpayment. It is “the excess of
the required installment over the amount (if any) of the installment paid on or before the due date
for the installment.” ORS 316.587(2). Finally, subsections (3) and (4) provide a method for
determining the period of underpayment and the order in which estimated payments are credited
against required unpaid installments. ORS 316.587(3), (4). Those provisions are fairly
straightforward in terms of meaning, and are not in dispute in this case.
DECISION TC-MD 111135C 11 The dispute arises out of subsection (8) of ORS 316.587, which provides three alternative
methods for calculating estimated taxes and the “required installment[s].” ORS 316.587(8) also
provides that the estimated tax is “equal to the lesser of [the three methods].” Plaintiff relies on
the second of the three methods, commonly referred to as the “safe harbor.” It is a safe harbor
because it enables the taxpayer to determine the tax due for the current year (i.e., the estimated
tax) by relying on the prior year‟s tax, which gives the taxpayer a precise number to work with
and affords “protection” where annual income fluctuates, especially where, as here, current year
income greatly exceeds income from the prior year. The statute, as has been noted, allows the
taxpayer to rely on “the tax shown on the return filed by the individual for the preceding taxable
year.” ORS 316.587(8)(b). The statute, however, does not state when the prior year‟s return
must be filed in order for a taxpayer to rely on it in estimating taxes for the current year, or more
importantly, reducing or avoiding the imposition of interest on an asserted underpayment. The
applicable rule, OAR 150-316.587(8)-(A)(3)(a)(B), requires that “the prior year‟s return must
have been a timely filed Oregon return, including extensions[.]”
Defendant correctly argued at the hearing on the motions that, without some sort of
deadline for the filing of the prior year‟s return, a taxpayer could conceivably wait several years
before filing that return. And, if none or only some of the required estimated tax payments are
timely paid for a given year (the “current” year), in contravention of ORS 316.579, then under
Plaintiff‟s rationale, the calculation of interest could nonetheless be based on that considerably
untimely prior year‟s return. In some cases, including the present matter, that results in a greatly
reduced estimated tax to use in determining the interest Defendant must impose on the
underpayments for the current year. That would occur in any case where the tax for the prior
year is less than the tax for the current year (because income differs greatly between the two
DECISION TC-MD 111135C 12 years). This case provides a perfect example; Plaintiff‟s income was considerably higher in 2008
than 2007.
Contrary to Plaintiff‟s assertions, Defendant‟s rule does not conflict with the statute,
which would be prohibited by Garrison v. Department of Revenue, 345 Or 544, 548-49, 200 P3d
126 (2008) (citations omitted), nor does it overcome and override the statute‟s provisions by
going farther than filling in the interstices of ORS 316.587(8), in violation of Gouge v. David,
185 Or 437, 464, 202 P2d 489 (1949). (Contra Ptf‟s Mem Supp Summ J at 6-7.) The statute
leaves unanswered when the prior year‟s return must be filed and Defendant has promulgated a
reasonable rule to resolve that question. Thus under the established framework for discerning
legislative intent when reviewing the validity of a rule, Defendant‟s rule does not conflict with
the statute. In the court‟s “own intuitive sense of the meaning which [the] legislators probably
intended to communicate” by the statute, Springfield, 290 Or at 224, Defendant‟s rule brings
clarity and reason to a poorly worded statute. It certainly does not overcome or override the
statute‟s provision or the apparent underlying legislative intent.
The court also rejects Plaintiff‟s assertion that the context of ORS 316.587(8)
demonstrates that there was never a legislative intent to make the prior year safe harbor
limitation conditional upon timely filing the prior year‟s return. (Ptf‟s Mem Supp Summ J at 9.)
As Defendant notes in its cross-motion, “ORS 316.587(9)(a) includes provisions that limit
reliance on amended returns to those returns filed by the due date including allowable extension.
* * * [T]here is no question that the legislature intended that the timing of returns be
considered.” (Def‟s Cross Mot for Summ J at 3.) The court agrees that “[t]he very nature of the
estimated tax payment scheme including the safe harbor provisions requires that there be some
limitation on the timing of returns,” that “the issue of timing constitutes an inexact term that is
DECISION TC-MD 111135C 13 subject to reasonable interpretation by the department,” and that Defendant‟s administrative rule
“provides a reasonable interpretation that is consistent with the statute, administrative needs, and
the ubiquitous requirements for timely filed returns.” (Id.)
Additionally, the fact that the legislature amended the statute in 1993 to include the
provision in paragraph (a) of ORS 316.587(9) that limits reliance on amended returns to those
returns filed by the prior year‟s return due date if they are to be considered a “return” for
purposes of subsection (8), including the safe harbor provision in subsection (8)(b), supports the
conclusion that original returns must also be timely filed. Under that provision, an amended
return filed within the time for a regular return replaces the original return. If the amended return
is limited to the filing deadline applicable to a regular return, “no purpose is served by allowing a
regular return to establish a „safe harbor‟ if it is filed after the filing period.” (Def‟s Cross Mot
for Summ J at 7.)
Plaintiff argues that Defendant was not given authority by the legislature to enact the
disputed rule requiring timely filing for purposes of the safe harbor provision in ORS 316.587.
While there may not be specific authority in that statute, the legislature gave the Oregon
Department of Revenue broad rulemaking authority. See generally ORS 305.100.
Moreover, contrary to Plaintiff‟s contention, the fact that the legislature in 1999 expressly
authorized Defendant to establish the applicable percentage of tax shown on the prior year‟s
return for determining estimated taxes for the current year, but did not also expressly grant
Defendant the authority to determine if or when the “return filed by the individual for the
preceding taxable year” had to be filed in order to qualify for the safe harbor, does not mean that
the legislature did not intend for Defendant to explain that term. (Contra Ptf‟s Mem Supp Summ
J at 9-10.) Plaintiff argues that “[p]ursuant to ORS 316.587(9)(c), when establishing the
DECISION TC-MD 111135C 14 Applicable Percentage, Defendant is required to „consider the provisions of section 6654 of the
Internal Revenue Code,‟ ” and that neither that code section nor the applicable treasury
regulations “require a taxpayer to timely file a prior year return to qualify for the federal prior
year safe harbor.” (Ptf‟s Mem Supp Summ J at 9-10) (emphasis in original). As Defendant
notes, “there was never a legislative intent to tie directly to such federal law as is the case with
Oregon‟s ties to federal law related to the determination of taxable income.” (Def‟s Cross Mot
for Summ J at 2.) The 1999 amendments introduced as part of House Bill 2137 involved a
different subject than the returns themselves. (Def‟s Cross Mot for Summ J at 10.) In 1999 both
Defendant and outside practitioners were aware that the federal percentage applicable to the safe
harbor was changing annually and HB 2137 gave Defendant the discretion to tie to those changes
by rule. (Id.; see also Decl of Lauren Rauch at 6-9, ¶¶ 21-23.) Defendant chose to keep the
percentage at 100 percent, which was the same percentage used by the federal government for
many years. (Ptf‟s Mem Supp Summ J at 9.) HB 2137 added the new subsection (9)(c) to ORS
316.587, directing the department to “consider” section 6654 of the IRC when establishing the
Oregon percentage for the prior year safe harbor provision in subsection (8)(b). There was no
intent for the department to consider that section for any purpose other than to set the applicable
percentage of the prior year‟s tax to be used as a safe harbor. ORS 316.587(9)(c) (“For purposes
of subsection (8) of this section * * * [t]he department shall consider the provisions of section
6654 of the Internal Revenue Code.”). Consequently, federal determinations are not relevant to
the analysis of Oregon‟s estimated tax payment regime addressing the consequences for
underpaying estimated taxes, found in ORS 316.587.
Finally, the court rejects Plaintiff‟s arguments about legislative history confirming lack of
intent to make the prior year safe harbor limitation conditional upon timely filing the prior return.
DECISION TC-MD 111135C 15 (Ptf‟s Mem Supp Summ J at 11-16.) Although Plaintiff is correct in noting that “the Oregon
estimated tax regime was „modeled after the current federal estimated tax law[,]‟ ” the legislative
enactment and subsequent amendments never required Defendant to tie Oregon‟s estimated tax
payment regime to the federal one. More importantly, the court does not believe the legislature
ever intended to preclude Defendant from clarifying what a “return filed * * * for the preceding
tax year” was for purposes of the safe harbor provision found in ORS 316.587(8)(b).
Again, ORS 316.563 requires certain taxpayers to “declare” estimated taxes and ORS
316.579 sets forth the timelines for payment. ORS 316.587 only addresses interest on
underpayments of estimated taxes. The taxpayer desiring to pay estimated taxes for the current
year based on the prior year‟s tax liability in order to avoid interest charges must, under the
statute and administrative rule, timely file the return for the prior year or suffer the consequences
for failing to do so.
III. CONCLUSION
The court concludes that Defendant‟s administrative rule, which imposes a timely filing
requirement on reliance on the statutory safe harbor provision ORS 316.587 (8) (b), is not
invalid; it does not conflict with the statute and is not contrary to legislative intent. Now,
therefore,
IT IS THE DECISION OF THIS COURT that Plaintiff‟s Motion for Summary Judgment
is denied;
DECISION TC-MD 111135C 16 IT IS FURTHER DECIDED that Defendant‟s Cross Motion for Summary Judgment is
granted.
Dated this day of November 2012.
DAN ROBINSON MAGISTRATE
If you want to appeal this Decision, file a Complaint in the Regular Division of the Oregon Tax Court, by mailing to: 1163 State Street, Salem, OR 97301-2563; or by hand delivery to: Fourth Floor, 1241 State Street, Salem, OR.
Your Complaint must be submitted within 60 days after the date of the Decision or this Decision becomes final and cannot be changed.
This document was signed by Magistrate Dan Robinson on November 15, 2012. The Court filed and entered this document on November 15, 2012.
DECISION TC-MD 111135C 17