• Off With Your Head(quarters)? Oklahoma's Headquarters Deduction Survives Constitutional Challenge
  • May 5, 2014 | Authors: Timothy A. Gustafson; Kathryn E. Pittman
  • Law Firms: Sutherland Asbill & Brennan LLP - Sacramento Office ; Sutherland Asbill & Brennan LLP - Washington Office
  • The Oklahoma Supreme Court held Oklahoma’s deduction for capital gains arising from the sale of a company headquartered in the state for three or more years does not violate the dormant commerce clause of the U.S. Constitution. The taxpayer, a California company with its headquarters in Florida, sold a manufacturing facility in Oklahoma and claimed the Oklahoma capital gains deduction. The Oklahoma Tax Commission denied the taxpayer’s deduction because it was not headquartered in Oklahoma for three years prior to the sale, and the taxpayer challenged the denial on constitutional grounds. The Oklahoma Supreme Court, an elected body, held that the application of the deduction had no negative impact on interstate commerce because the deduction was available to a qualified entity participating in any market or industry, regardless of whether it participated in intrastate or interstate commerce, and concluded that the dormant commerce clause did not apply. Even if the dormant commerce clause applied, the court held that the deduction on its face does not penalize the out-of-state activities of corporations doing business in Oklahoma; serves the non-discriminatory purpose of enticing out-of-state companies to locate in Oklahoma; and does not preclude tax-neutral decision-making or otherwise have a discriminatory effect on interstate commerce. CDR Sys. Corp. v. Oklahoma Tax Commission, Case No. 109886 (Okla. 2014). This decision raises an issue similar to that in DaimlerChrysler Corp. v. Cuno, 547 U.S. 332 (2006), a case ultimately dismissed on standing grounds. If appealed and granted review, the Oklahoma decision would give the U.S. Supreme Court the opportunity to revisit the constitutionality of tax incentives.