Boquist v. Dep't of Revenue, TC 5332

• Decision Date: 21 March 2019
• Docket Number: TC 5332
• Parties: SENATOR BRIAN J. BOQUIST, SENATOR HERMAN BAERTSCHIGER, Plaintiffs, v. DEPARTMENT OF REVENUE, State of Oregon, Defendant.
• Court: Oregon Tax Court

SENATOR BRIAN J. BOQUIST,SENATOR HERMAN BAERTSCHIGER, Plaintiffs, v. DEPARTMENT OF REVENUE, State of Oregon, Defendant.

TC 5332

OREGON TAX COURT REGULAR DIVISION Property Tax

March 21, 2019

ORDER GRANTING DEFENDANT'S CROSS-MOTION FOR SUMMARY JUDGMENT AND DENYING PLAINTFFS' MOTION FOR SUMMARY JUDGMENT

I. INTRODUCTION

Plaintiffs seek a declaratory judgment that Senate Bill 1528 of the 2018 legislative session¹ ("SB 1528") was a "bill for raising revenue" enacted in violation of the "Origination" and "Supermajority" Clauses of the Oregon Constitution, Article IV, sections 18 and 25(2), respectively. The parties filed cross-motions for summary judgment solely on that issue.

II. BACKGROUND

On December 22, 2017, United States Congress made wide-ranging changes to the Internal Revenue Code of 1986 in a law popularly known as The Tax Cuts and Jobs Acts("TCJA").² In one such change, the TCJA created a 20-percent deduction from taxable income for a non-corporate taxpayer with "qualified business income" from a domestic business operated as a sole proprietorship or through a partnership or S corporation. IRC § 199A(a) (2017) ("Section 199A(a)"); see also Prop Treas Reg § 1.199A-1, 83 Fed Reg 40884, 40885 (August 16, 2018) (to be codified at 26 CFR pt 1). Section 199A(a) applies to tax years commencing after December 31, 2017. Pub L No 115-97, § 11011(e).

The 2018 Oregon legislative session began on February 5, 2018. On March 2, 2018, one day before adjournment, the legislature passed SB 1528. Section 10 of the bill requires Oregon taxpayers to "add" to their federal taxable income any amount allowable as a deduction under Section 199A(a):

"There shall be added to federal taxable income for Oregon tax purposes the amount allowable as a deduction under section 199A(a) of the Internal Revenue Code for the tax year."

Or Laws 2018, ch 108, § 10. Section 9 adds section 10 to chapter 316 of the Oregon Revised Statutes, the Oregon Personal Income Tax Act of 1969. See ORS 316.002.³ Section 11 states that section 10 (like Section 199A(a)) applies to tax years beginning on or after January 1, 2018. Finally, section 12 sets the effective date of the bill as the 91st day after the end of the legislative session (June 2, 2018). (Jnt Leg Hist Ex 2 at 6-7.)⁴

Each plaintiff asserts that he may be eligible for the Section 199A(a) deduction because he is an owner of one or more entities that are capable of generating "qualified business income." (Ptfs' 2d Am Compl at 2-3.) Each also is a duly elected member of the Oregon Senate. (Id. at 2; Def's Ans to 2d Am Compl at 2.) Defendant Department of Revenue (the "Department") agrees that Plaintiffs have standing to bring this action as Oregon taxpayers. (Id. at 5.)⁵

On June 19, 2018, Plaintiff Boquist filed the original complaint in this case. Plaintiff Baertschiger joined the case on July 6, 2018, when he and Plaintiff Boquist together filed an amended complaint before any response was filed by the Department. Plaintiffs ("Taxpayers") later filed their Second Amended Complaint, in which the sole change was to remove individual officials originally named as co-defendants with the Department. The sole claim of Taxpayers is that SB 1528 is of no legal force or effect because it was a "bill for raising revenue" enacted in violation of the Origination and Supermajority Clauses. (Ptfs' 2d Am Compl at 10).⁶

The Origination Clause, Article IV, section 18, was adopted as part of the original Oregon Constitution and provides:

"Where bills to originate. Bills may originate in either house, but may be amended, or rejected in the other; except that bills for raising revenue shall originate in the House of Representatives."

/ / /(Emphasis added.) The Supermajority Clause, Article IV, section 25(2), was adopted by amendment on May 21, 1996 and provides:

"Three-fifths of all members elected to each House shall be necessary to pass bills for raising revenue."

(Emphasis added.) The parties agree that SB 1528 did not originate in the House of Representatives or receive the approval of a three-fifths majority in either legislative chamber. (Ptfs' 2d Am Compl at 1; Def's Ans to 2d Am Compl at 1; Jnt Leg Hist Ex 2 at 6.)

III. ANALYTICAL FRAMEWORK

The Oregon Supreme Court has identified three basic levels of inquiry when interpreting a provision of the Oregon Constitution: "[I]ts specific wording [of the provision], the case law surrounding it, and the historical circumstances that led to its creation." Priest v. Pearce, 314 Or 411, 415-16, 840 P2d 65 (1992). When applying Priest v. Pearce to a provision of the original constitution, the purpose "is not to freeze the meaning of the state constitution in the mid-nineteenth century. Rather it is to identify, in light of the meaning understood by the framers, relevant underlying principles that may inform our application of the constitutional text to modern circumstances." State v. Davis, 350 Or 440, 445-46, 256 P3d 1075 (2011) (citing State v. Hirsch/Friend, 338 Or 622, 631, 114 P3d 1104 (2005)). When interpreting a constitutional amendment, the court looks to the text, context and legislative history of the amendment, including documents introduced during any legislative referral. See State v. Lane, 357 Or 619, 624, 355 P3d 914 (2015).

A. Bobo's Two-Part Test for "Bills for Raising Revenue"

The Oregon Supreme Court first applied the Priest analysis to the phrase "bills for raising revenue" in Bobo v. Kulongoski, 338 Or 111, 119-20, 107 P3d 18 (2005). Bobo concernedSB 963 (2001), which retroactively transferred certain Medicaid funds out of the General Fund, resulting in a reduction of the amount of money to be returned to taxpayers as part of the statutory "kicker" refund. Id. at 113. Petitioners sought declaratory relief against the state, challenging SB 963 as invalidly enacted because it did not originate in the House of Representatives or receive a three-fifths vote in each chamber. Id.

After considering the text of the phrase "bills for raising revenue" as used in the Origination Clause, the history of that clause,⁷ and the case law surrounding it,⁸ the Court established a two-part framework to determine whether a bill is "for raising revenue":

"[The first question] is whether the bill collects or brings money into the treasury. If it does not, that is the end of the inquiry. If a bill does bring money into the treasury, the

/ / /

remaining question is whether the bill possesses the essential features of a bill levying a tax."

Id. at 122. The Court held that SB 963 was not "for raising revenue" within the meaning of the Origination Clause because it failed the first test in the framework: it did not "collect" or "bring" money into the treasury consistent with the meaning of those words as understood at the time the Clause was drafted. Id. "Raise" would have meant:

"[t]o collect; to obtain; to bring into a sum or fund. Government raises money by taxes, excise and imposts."

Id. at 120 (quoting Noah Webster, An American Dictionary of the English Language (1828) (emphasis in original)).⁹ The Court noted that the bill did not "impose a new tax" or "increase an existing one." 338 Or at 122. Rather, the bill transferred funds already in hand from one program (the "kicker" tax refund) to another set of programs (expenditures for health-related purposes). Id. ("A bill that allocates existing monies among different programs does not 'raise' revenue within the meaning of [the Origination Clause] and did not have to originate in the House of Representatives."). The Court then held that the same interpretation applied to the Supermajority Clause because the Court saw nothing in the text or context of the Supermajority Clause that suggested that the phrase had a different meaning than in the Origination Clause. Id. at 123. The Court did not need to reach the second part of its framework and thus did not determine whether SB 963 had the essential features of a bill levying a tax.

B. City of Seattle's application of Bobo

Ten years later, the Oregon Supreme Court had occasion to apply both parts of the Bobo framework, in City of Seattle v. Dept. of Rev, 357 Or 718, 731-42, 357 P3d 979 (2015). The issue was whether SB 495 (2009), a Senate bill repealing a property tax exemption for out-of-state public entities,¹⁰ was a "bill[ ] for raising revenue" within the meaning of the Origination Clause.¹¹ See former ORS 307.090(3) (2005), repealed by SB 495 (codified as Or Laws 2009, ch 804, § 1).

The Court in City of Seattle easily concluded that, by repealing the property tax exemption, SB 495 "br[ought] money into the treasury," thereby satisfying the first test within the Bobo framework. 357 Or at 732. In analyzing whether the bill "possesses the essential features of a bill levying a tax" under the second part of the Bobo framework, the Court turned to its most recent pre-Bobo substantive opinion, Northern Counties, 30 Or at 388.¹²

Northern Counties involved an 1893 act, and its 1895 amendatory act, that changed the system of fees that county officials charged for various services and instituted fixed salaries for sheriffs, county clerks and others. The sheriff of Multnomah County refused to serve a summonsin a civil suit, demanding additional fees from the plaintiff as allowed by prior law. The sheriff claimed that the 1893 and 1895 laws were invalid because they were enacted as bills for raising revenue that had been introduced in the Senate. The Court considered federal cases involving three types of bills. First, the Court looked to a case involving a postal rate increase bill, which the federal district court concluded was not a bill for raising revenue because a postal transaction involves a "'fixed service for the fixed rate * * *.'" Id. at 402 (quoting United States v. James, 13 Blatch 207, 26 F Cas 577 (SDNY 1875)).

Second, the Court in Northern Counties analyzed The Nashville, 4 Biss 188, 17 F Cas 1176, 1178-79 (1868), in which the federal district court for Indiana held that a federal...