Brief of Tax Law Professors as Amici Curiae in Support of the Department of Revenue of the State of Colorado in Department of Revenue of the State of Colorado v. Oracle Corporation & Subsidiaries

Amici write to address specific matters of tax policy and history raised by this case. In particular, amici address 1) the history and justification for water’s edge combined reporting (the “water’s edge method”) and 2) the history and justification for the remedial provisions that are uniformly part of state corporate income taxes. As to the first issue, amici emphasize that the water’s edge method represents a deviation from sound tax policy arrived at as a political compromise between states, the federal government, and foreign entities. As such, the method should reflect the terms of that compromise and not be expanded to exclude a U.S.-based entity with no foreign activities — such as the subsidiary at issue in this case — from its unitary business’ combined reporting group. As to the second issue, amici write to explain that state remedial provisions, as a matter of policy, exist to ensure that deviations from sound tax policy required to make a tax system administrable are not permitted to significantly harm the state tax base. In this case, the taxpayer relies on a technical reading of Colorado’s tax laws to exclude a domestic member of its unitary business from its Colorado combined group. That reading, if correct, would visit substantial harm on the Colorado corporate income tax base, making this case a strong candidate for application of the state’s remedial provisions.