On July 21, 2022, the Regular Division of the Oregon Tax Court ruled that flights operated by all members of a unitary group are included in a taxpayer’s departure ratio and that receipts for selling tickets on flights operated by third parties do not constitute transportation revenue under the state’s special industry apportionment rules for airlines.
Alaska Airlines entered into capacity purchase agreements with an affiliate airline, Horizon Air Industries, to purchase all of Horizon’s seat capacity. However, Alaska eliminated Horizon’s flight data in calculating its departure ratio (one component used to compute an airline’s sales factor in Oregon) on amended returns for 2012-2014, arguing that each separate airline entity must compute its own departure ratio regardless of whether the entities are part of a single unitary group and apply that ratio to its own transportation revenue. The Department of Revenue rejected Alaska’s amended position at audit and included Horizon’s flight data in the filing group’s departure ratio. Alaska also sold tickets for flights on aircraft operated by other, non-affiliated airlines, excluded the receipts from its transportation revenue, and instead sourced the receipts using the standard cost-of-performance rule. Here the Department disagreed on the ground that all revenue from airline ticket sales is included as transportation revenue, regardless of which airline operates the plane.
On appeal, the Court first held that the “taxpayer” in Oregon’s consolidated reporting regime includes all corporations included in the consolidated state return, such that the departure ratio used in the special airline apportionment rules necessarily includes the aggregate flight data for all airlines filing as part of a single return. The Court then ruled that transportation revenue only includes revenue from operating aircraft that move passengers or freight, such that Alaska’s receipts from tickets for flights operated by other airlines was properly excluded from transportation revenue and sourced based on costs of performance.