Last Friday, Governor John Kitzhaber called a special session of the Oregon Legislative Assembly to enact a single new law.

House Bill 4200 authorizes our Governor to enact a contract with an Oregon company that assures the company that its current single sales tax factor will not be changed for thirty years. The bill does not change current tax law. It only protects the chosen company against any future change in that taxing methodology.

In exchange, that company agrees to invest at least $150 million in Oregon business expansion that will create at least 500 new family wage jobs. The expansion is expected to add $2.5 million in Oregon property tax and at least $30 million in income tax to Oregon revenue each year.

What could be better for Oregon?

Unfortunately, like so many proposed new laws, the problems appear to be in the details of the bill. The plain language of HB 4200 appears to create at least two significant constitutional challenges. Further, it authorizes the Governor to pick and choose which companies may receive the preferential tax treatment and which companies will not.

One of the oldest established doctrines of legislative procedure is that “today’s legislative assembly” cannot limit, restrain or bind the action allowed to be taken by “future legislatures”. The authority to levy taxes is one of the core functions of legislative assemblies. In fact, the authority to levy state taxes is exclusive to legislative bodies.

HB 4200 authorizes the Governor to sign a contract on behalf of the Oregon Legislative Assembly that forbids future legislatures from amending the tax code as it applies to a single Oregon company selected by the Governor. That prohibition extends for thirty years, a time period that is equal to the next fifteen consecutive Legislative
Assemblies.

Section five, subsection four (b) of HB 4200 states that the obligations of the State of Oregon pursuant to that contract “May not be abridged, impaired, limited or modified by any subsequent law”. We know that one legislature cannot limit the sovereign decision making authority of a future legislative assembly. The question here appears to be “can the Oregon Legislature empower the Governor to negotiate a contract on behalf of the Legislative Assembly that limits the taxing authority of future legislatures”?

The question of legislative sovereignty has been asked of the Oregon Supreme Court in the past including in their 1988 Eccles v. State of Oregon contracts decision. In my opinion, enacting this bill will virtually insure that the Court will revisit that decision.

Another potential constitutional challenge relates to the Oregon constitutional requirements ensuring that taxation is uniform and equitable. Article I, Section 32 of the Oregon Constitution states in relevant part: .... “all taxation shall be uniform on the same class of subjects within the territorial limits of the authority levying the tax”. Article IX, Section 1 further states in relevant part: “All taxes shall be levied and collected under general laws operating uniformly throughout the State”.

I believe that HB 4200 has only one purpose related to taxation. That purpose is to carve out a unique tax assurance that the single sales factor methodology that currently applies to all Oregon C-corporations will not be altered for a single Oregon company for the next thirty years.

This question too has been previously asked of the Oregon Supreme Court including in their 1991 Mathias v. Department of Revenue decision. In that ruling the Court reiterated that valuation methods and tax rates must be uniform within the same class of subjects of ad valorem taxation throughout the taxing authority.

Another question here is food for thought. The Legislature appears to have provided preferential tax status to one Oregon company by enacting HB 4200. In the event that the constitutionality of this law is upheld, what prevents the Legislature from levying a tax on one Oregon company?

I am confident that these two constitutional challenges will be raised and ultimately will be decided by the Oregon Supreme Court.

Certainty in Oregon taxation and regulation is essential to a healthy and growing business environment. In fact, I strongly believe that uncertainty is a major reason why so many companies do not choose to invest their capital in Oregon.

However, the very first action required of every Oregon Legislator is to swear or affirm to uphold the Oregon Constitution. A number of Oregon’s top jurists and constitutional scholars have expressed deep concern over the constitutional challenges found in HB 4200. I cannot in good conscious vote to enact a law that I have strong reason to believe is unconstitutional.

Further, I cannot vote to enact a law that authorizes the Governor to choose which companies will receive preferential tax treatment and which will not. In my opinion, HB 4200 should have applied to all Oregon C-corporations that fit a specific set of criteria such as agreeing to expand and create jobs. The numbers should have been established to allow smaller C-corporations to qualify. Qualification should be limited to meeting the established criteria rather than by both meeting the criteria and being selected by the Governor. These changes would have both made the law uniform and limited the ability of the Governor to potentially choose only favored companies.

For those reasons I voted no on HB 4200. I look forward to working with both Democrats and Republicans during the upcoming legislative session to broaden the scope of HB 4200 and to establish language that will allow the bill to pass constitutional muster.

Please remember, if we do not stand up for rural Oregon no one will.

Best Regards,

Doug