Nutbrown v. Munn
| Decision Date | 20 June 1991 |
| Citation | 811 P.2d 131,311 Or. 328 |
| Parties | Edwin S. and Agnes D. NUTBROWN, husband and wife; Donald R. and Theresa Paape, husband and wife; Howard R. and Margaret E. Cleary, husband and wife; Norman L. and Gloria Minks' Successor-in-Interest, husband and wife; James M. and Margaret Jackson, husband and wife; Elenor Jean and Felix Erro, husband and wife; James F. Simpson and Terri D. Dill-Simpson, husband and wife; Louis Z. and Lorna K. Perkins, husband and wife; on behalf of themselves and all present and former residents of Oregon who were paid retirement benefits by the United States Government and were or are subject to Oregon state income taxation thereon in any year during the period 1979 forward; and all others similarly situated, Appellants, v. Richard A. MUNN, individually and as Director of the Department of Revenue of the State of Oregon; Robyn Godwin, individually and as prior Director of the Department of Revenue of the State of Oregon; John J. Lobdell, individually and as prior Director of the Department of Revenue of the State of Oregon; all the unknown agents, employees, successors in office, assistants and all others acting in concert or cooperation with the current and former Directors of the Department of Revenue of the State of Oregon, or at the direction of the current and former Directors of the Department of Revenue of the State of Oregon and the Department of Revenue, State of Oregon, Respondents. TC 2867; SC S36652. |
| Court | Oregon Supreme Court |
Eugene O. Duffy, Milwaukee, Wisc., argued the cause for appellants. With him on the briefs were Gary I. Grenley and Michael C. Zusman of Grenley, Rotenberg, Laskowkie, Evans & Bragg, P.C., Portland, O'Neil, Cannon & Hollman, S.C., Milwaukee, Wisc., and John B. Gould, Portland.
Robert M. Atkinson, Asst. Atty. Gen., Salem, argued the cause on behalf of the respondents. With him on the brief were Dave Frohnmayer, Atty. Gen., and Virginia L. Linder, Sol. Gen., Salem.
Before PETERSON, C.J., and CARSON, GILLETTE, VAN HOOMISSEN, FADELEY and UNIS, JJ.
In this original proceeding brought in the Oregon Tax Court, plaintiff taxpayers ("Taxpayers") sought declaratory and injunctive relief and damages against present and former state officers and the Department of Revenue ("Defendants") pursuant to the federal Civil Rights Act, 42 U.S.C.
§ 1983. 1 Taxpayers also alleged claims for refund, claims in quasi-contract, claims in constructive trust, and claims for an order setting aside certain tax payments already made. The complaint was dismissed on Defendants' motion pursuant to Tax Court Rule (TCR) 21, based on Taxpayers' failure to exhaust their administrative remedies. Taxpayers appeal, seeking reinstatement of their federal civil rights claim. We affirm the judgment of dismissal
Taxpayers are eight married couples who have filed joint Oregon tax returns. One member of each of the couples receives retirement benefits paid by one or another agency of the United States. The State of Oregon imposes an income tax on those benefits, although it does not tax analogous benefits paid to persons who have retired, under the Public Employees Retirement System, from service in Oregon government. Taxpayers purport to bring this action not only for themselves, but for all others similarly situated. Defendants are the current Director of the Oregon Department of Revenue, his two immediate predecessors in that position, other persons allegedly acting in "concert or cooperation" with the current and former directors, and the Oregon Department of Revenue.
This case is a successor to a substantially similar action brought in the Multnomah County Circuit Court on May 18, 1989, by many of the same taxpayers who are parties plaintiff here, against these same Defendants. Defendants in that case moved for dismissal pursuant to ORCP 21 on various grounds, including lack of subject matter jurisdiction, statutes of limitations, and sovereign immunity. Defendants specifically urged dismissal on the additional ground that the subject matter of the action arose under the tax laws of the State of Oregon and, therefore, exclusive jurisdiction over the action was vested in the Oregon Tax Court. The circuit court dismissed the case. So far as we are aware, no appeal was taken from that dismissal. Taxpayers then initiated the present proceeding in the Oregon Tax Court.
After Taxpayers had filed their first amended complaint in the Oregon Tax Court, Defendants moved to dismiss the complaint pursuant to TCR 21 on the ground, inter alia, that the Taxpayers lacked standing because they had not exhausted their administrative remedies in the Department of Revenue before invoking the Tax Court's jurisdiction. 2 The Tax Court granted Defendants' motion to dismiss on the ground that Taxpayers had failed to exhaust their administrative remedies. The present appeal followed.
Taxpayers allege, and Defendants acknowledge, that Oregon taxes income from government retirement benefits for former Oregon state workers differently than it taxes income from government retirement benefits of former federal workers. The taxation of income from federal retirement programs is governed by ORS 316.680(1)(c), which provides for deduction of certain of that income from the figure for "federal taxable income" on a taxpayer's Oregon income tax return:
Oregon public employee retirees are treated differently. The Oregon Public Employees' Retirement System was established by the Public Employees' Retirement Act of 1953, Or.Laws 1953, ch. 200, and is now codified as ORS 237.001 to 237.315. A part of that Act, ORS 237.201(1), provides:
"The right of a person to a pension, an annuity or a retirement allowance, to the return of contribution, the pension, annuity or retirement allowance itself, any optional benefit or death benefit, or any other right accrued or accruing to any person under the provisions of ORS 237.001 to 237.315, and the money in the various funds created by ORS 237.271 and 237.281, shall be exempt from garnishment and all state, county and municipal taxes heretofore or hereafter imposed, except as provided under ORS chapter 118, shall not be subject to execution, garnishment, attachment or any other process or to the operation of any bankruptcy or insolvency law heretofore or hereafter existing or enacted except for execution or other process upon a support obligation or an order or notice entered pursuant to [certain other statutes not pertinent to the present case], and shall be unassignable." 3
Taxpayers assert that this disparate treatment, for Oregon personal income tax purposes, of retirement income of state and federal workers is unconstitutional.
It has been unconstitutional, at least since McCulloch v. Maryland, 4 Wheat 316, 4 L.Ed. 579 (1819), for a state to tax an instrumentality of the federal government. This rule, which came to be known as the doctrine of intergovernmental tax immunity, was expanded over time to the point that it was presumed impermissible either for a state to tax the salary of a federal officer or for the federal government to tax the salary of a state official. See, e.g., The Collector v. Day, 78 U.S. (11 Wall.) 113, 124-28, 20 L.Ed. 122 (1871) (); Dobbins v. Erie County, 41 U.S. (16 Pet.) 435, 10 L.Ed. 1022 (1842) (). These cases later were substantially limited. See Helvering v. Gerhardt, 304 U.S. 405, 58 S.Ct. 969, 82 L.Ed. 1427 (1938) (); Graves v. N.Y. ex rel. O'Keefe, 306 U.S. 466, 486-87, 59 S.Ct. 595, 601-02, 83 "The United States consents to the taxation of pay or compensation for personal service as an officer or employee of the United States * * * by a duly constituted taxing authority having jurisdiction, if the taxation does not discriminate against the officer or employee because of the source of the pay or compensation."
L.Ed. 927 (1939) (). However, the requirement that any such intergovernmental tax be nondiscriminatory survives. Moreover, and at roughly the same time as the Gerhardt and O'Keefe cases were being decided, Congress enacted 4 U.S.C. § 111, which provides:
Thereafter, the State of Michigan created an income taxing system that substantially resembled the Oregon income tax system involved in this case. Certain Michigan residents...
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