STATE OF OREGON LEGISLATIVE COUNSEL COMMITTEE May 15, 2008 Senator Rick Metsger 900 Court Street NE ‘Salem OR 97301 Re: Multnomah County Motor Vehicle Rental Tax Dear Senator Metsger: You asked whether the Multnomah County Motor Vehicle Rental Tax violates the Oregon Constitution, in particular section 3a (1)(b), Article IX, which requires that revenues from “falny tax or excise levied on the ownership, operation or use of motor vehicles” be “used exclusively” for highway or road purposes. For the reasons that follow, we conclude that the answer is yes. The Multnomah County Motor Vehicle Rental Tax is “imposed on every person renting a tnotor vehicle from a commercial establishment ... for a period of 30 days or less.” Section 11-301, Multnomah County Code. It has two components, a base tax of 10 percent of the cost of the rental fee and an additional two and one-half percent surcharge above that. The ordinance Provides that the use of the tax revenue is to pay “any debt service on the RCC Bonds and Parity Obligations.” Section 11.304, Multnomah County Code. We look first at the role of counties in enacting taxing legislation. Counties have authority to impose taxes, but their power to do so is limited by the Oregon Constitution. Under section 10, Article VI of the Oregon Constitution, home rule counties may exercise powers “over mattors of county concern.” This includes the authority to impose taxes. Multnomah County does not Reed express legislative authority to enact taxes; it is an implicit power of a constitutional home rule county. US West Communications, Inc, v, City of Eugene, 336 Or. 181, 186 (2003); Jarvil ¥.Gity of Eugene, 289 Or. 157, 168-169 (1980). However, this taxing authority extends only to the extent allowed by the Constitution; a local government's authority to enact tax legislation does not exceed the authority of the state legislature. Multnomah Kennel Club v. Department of Revenue, 295 Or. 279, 284 (1983); Multnomah County v. Mittleman, 275 Or. 845, 552-553 (1976). We then analyze the constitutional provision and the relevant case law. Section 3a (1)(b), Article IX, consists of two elements: (1) It applies to revenues from any tax or excise levied on the ownership, operation or use of motor vehicles and (2) it requires that these "The text of the ordinance restricts use of the potion “atbutable to gasoline sales" to the “imitations on use Prescribed by the constitution and laws of the state." This language is an acknowledgment of the provision in section Sa (1}(a), Aricle 1X, that limits use of revenues from taxes levied on motor vehicle fuel to highway purposes. This use gf revenues appears to be constitutional and we do not address i inthis opinion, EAC refers to the Regional Childron's Campus at Edgefield, a facilty operated by the Multnomah County Educational Service District. The revenue has been used to provide Basic Living Needs programs for youth Ktopenoaeo168 emt doeSenator Rick Metoger ao May 16, 2008, Page2 revenues be used exclusively for highway or road purposes.” While it has not addressed the meaning of the “ownership, operation or use of motor vehicles,” the Oregon Supreme Court has examined the second element and has interpreted it narrowly. The cour'’s prior decisions on this element of the provision have looked closely at the precise manner in which revenues are used. The court has pointed to the voters’ intention to place tight limitations on the use of motor vehicle tax revenues by enacting this provision. Rogers v. Lane County, 307 Or. 534, 545 (1989). These decisions support the argument that if this tax is indeed a tax on use of a motor vehicle, the purposes for which these revenues are used (funding the Regional Children’s Campus, among others) are invalid. These decisions also suggest that, were a court to examine the tax in the context of the first element of this provision, that court would similarly scrutinize it closely. See Oregon Telecommunications Association v. Oregon Department of Transportation, 341 Or. 418 (2006); Automobile Club of Oregon v. State of Oregon, 314 Or. 479 (1992). We next examine the text of the constitutional provision and the text of the ordinance. Under Stranahan v. Fred Meyer, Inc., 331 Or. 38, 58 (2000), an examination of the text is the starting point for analysis of a constitutional provision. Where a constitutional provision has been adopted by referendum, as here, this examination is accompanied by discussion of the intent of the voters at the time of passage. The meaning of section 3a (1)(b), Article IX, is clear: It restricts the use of revenues from taxes on ownership, operation or use of motor vehicles. The inclusion of all three of these terms suggests that the prohibition was not intended to apply only to taxes levied, for example, on the registration of motor vehicles by their owners, but to taxes on a broader group of users. The ordinance states that the tax is “imposed on every person renting a motor vehicle from a commercial establishment doing business in the county, if the rental is for a period of 30 days or less.” A plain reading of the ordinance suggests that itis a tax on the use of a motor vehicle. Clearly, someone who rents a car and drives it is using a motor vehicle. 'tis dificult to envision how someone who is renting a motor vehicle is not engaging in its use. The only possible justification for excluding this tax from the requirements of section 3a (1)(b), Article 1X, is that this tax is one on the privilege of renting the motor vehicle and not a tax on its use. This issue was apparently raised, but not fully tigated, in a case that questioned the legality of a predecessor to this county tax. See Budget Rent-A-Car, Inc. v. Multnomah County, 287 Or. 93, 99 (1979). In Budget Rent-A-Car, the plaintiff rental car company’s grounds for Challenging the tax included a challenge under the predecessor to section 3a, Article IX. At the trial level, the county defended successfully by arguing that the tax was imposed solely on the privilege of engaging in the rental transaction and not on the use of a motor vehicle. On appeal, however, both the Oregon Court of Appeals and the Oregon Supreme Court denied relief to the Plaintiff on the basis of lack of standing. The Court of Appeals ruled that the plaintiff did not allege an injury to a substantial interest and was therefore not entitled to declaratory relief." Budaet Rent-A-Car, Inc. v. Multnomah County, 36 Or. App. 347 (1978). The Supreme Court affirmed and said that there was no need to address the question of constitutionality in that forum, as it ruled on other grounds. Budget Rent-A-Car, Inc. v. Multnomah County, 287 Or. 93, 99 (1979). ® Section da (2)(b), Article IX, states that the revenues “Imlay also be used for the retirement of bonds for which such revenues have been pledged.” Given the scrutiny with which courts have examined section 3a (1), Article IX, it seems Unlikely that taxing authorities would be allowed to get around the constitutional requirement by pledging revenues to Purposes that fall outside of those specified in section 2a (1), Article IX, since doing so would result in the exception ‘wallowing the rule. "The plaintif could only point to complaints from customers about the tax. 36 Or. App. at 852. Appropriate plaints Were likely customers ofthe rental ear company. Ktopeioa\co168 emt doe‘Senator Rick Metsger uo May 15, 2008, Page Thus, although there was apparently previous litigation on this topic, there is no reported decision and no controlling precedent. The history that does exist suggests that the rationale that a court would use to uphold this tax would be that it is indeed a tax on a privilege. In the context of the motor vehicle rental tax, we believe that this is not a useful distinction. Taxes described as “privilege taxes” are usually those associated with business purposes. We see this term applied to business excise taxes, and typically it serves to differentiate these from other types of taxes such as income or property taxes. See, e.4., Pacific First Federal Savings Bank v. Department of Revenue, 308 Or. 332, 338 (1989). (Of course, a privilege tax may be levied on the basis of income.) Merely terming the motor vehicle rental tax as one imposed on a “privilege” should be insufficient basis for exempting the tax from the requirements of section 3a (1)(b), Article IX. In the context of deciding taxation issues, the Oregon Supreme Court has held that the actual labels employed are not dispositive. See Sproul v. State Tax Commission, 234 Or. §79, 581 (1963). In conclusion, no Oregon appellate court has directly addressed the constitutionality of this ordinance or another one like it, but we believe resolution of this question should turn solely ‘on whether the court finds that the tax is on the use of a motor vehicle as opposed to on the Biivilege of renting a motor vehicle. If the Multnomah County Motor Vehicle Rental Tax is indeed a tax on use, at least one purpose for which the revenues are used is unconstitutional, In our view, it is likely that a court would consider the tax to be one on the use of a motor vehicle, based on prior court decisions limiting the use of motor vehicle-related tax revenues. The opinions written by the Legislative Counsel and the staff of the Legislative Counsel's office are prepared solely for the purpose of assisting members of the Legislative Assembly in the development and consideration of legislative matters. In performing their duties, the Legislative Counsel and the members of the staff of the Legislative Counse'’s office have no authority to provide legal advice to any other person, group or entity. For this reason, this opinion should not be considered or used as legal advice by any person other than legislators in the conduct of legislative business. Public bodies and their officers and employees should seek and rely upon the advice and opinion of the Attorney General, district attorney, county counsel, city attomey or other retained counsel. Constituents and other private persons and entities should seek and rely upon the advice and opinion of private counsel. Very truly yours, DEXTER A. JOHNSON ~ Legislative Counsel NDtd Catherine M, Tosswill Deputy Legislative Counsel ‘coprioatcot68 ent.doo