Plaintiff, a Washington corporation engaged in the car rental business in Multnomah County, sued to have a county tax on motor vehicle rentals declared invalid under state and federal law. The Circuit Court for Multnomah County sustained the validity of the tax. On appeal, the Court of Appeals held that plaintiff had not alleged or proved facts sufficient to show its standing to attack the tax.
I. Plaintiff's Standing.
The tax was enacted in April, 1976, by Multnomah County Ordinance No. 122, effective
A plaintiff suing under ORS chapter 28 must show that he is a person "whose rights, status or other legal relations are affected by" the challenged instrument, in this case Ordinance No. 122. ORS 28.020. Under that chapter, as the Court of Appeals stated, plaintiff must show some injury or other impact on a legally recognized interest beyond an abstract interest in the correct application or the validity of a law. See Gruber v. Lincoln Hospital District, 285 Or. 3, 588 P.2d 1281 (1979), Gortmaker v. Seaton, 252 Or. 440, 450 P.2d 547 (1969). Plaintiff in this case relies on the text of Ordinance No. 122, which it incorporated in its complaint, to show on its face how it affects the plaintiff. Beyond this, the amended complaint alleged only the nature of plaintiff's business and the county's intention to enforce the ordinance according to its terms.
We find that the terms of the ordinance sufficiently show that plaintiff's "rights, status or other legal relations are affected" by its enforcement to permit plaintiff to challenge their validity in a declaratory judgment proceeding. The ordinance obliges plaintiff to collect the tax from its customers. Plaintiff must maintain records of the taxes collected, and the amount "required to be collected", whether or not it is collected, is "a debt owed by the commercial establishment to the county." Failure to collect and remit the taxes results in a penalty of 50 percent of the deficiency and potentially leads to criminal penalties. Even if the tax itself is borne by plaintiff's customers, if the tax is not valid plaintiff is spared the burdens of collecting it and the risk of potential controversies over plaintiff's compliance with the ordinance. That is a sufficient effect on plaintiff to satisfy ORS 28.020. Unlike the Court of Appeals, we therefore reach the merits.
II. Adoption of the Ordinance.
Plaintiff contends that the enactment of Ordinance No. 122 did not follow statutory procedures. It cites a provision of the state's local budget law, ORS 294.435(1), that requires public notice and hearing on the proposed budget and tax levy and limits the magnitude of changes that may be made without a further publication and public hearing. The tax levied by Ordinance No. 122 was originally proposed at five percent and was doubled before enactment without a further notice or hearing. ORS 294.435(1) provides:
The county responds that the motor vehicle rental tax is not an "ad valorem tax levy" within the meaning of this section. We agree.
Plaintiff complains that defendants voted to double the tax to ten percent after all the testimony at the public hearing had opposed even the original five percent tax proposal. But the purpose of legislative hearings is not to bind those responsible for the decision to follow the views expressed at the hearing. If raising public revenue depended upon the appearance of witnesses urging a new tax, not much would be raised.
Plaintiff also contends that Ordinance No. 122 had to be submitted to the county's voters for approval under ORS 203.055, which provides:
The county responds that the section by its own terms applies only to taxes imposed under ORS 203.035. That section is the source of taxing authority for counties that do not have home rule charters, as Multnomah County does, and expressly supplement other grants of power.
III. Uses of Tax Funds.
Another attack is leveled against Ordinance No. 122 because it directs the proceeds of the motor vehicle rental tax into the county's general fund. Article IX, section 3 of the constitution limits the use of taxes on the "ownership, operation or use of motor vehicles" to expenditures related to streets and highways and to public parks and other comparable places.
IV. Impact on Interstate Commerce.
The tax is challenged as an impermissible interference with the "Commerce with foreign Nations, and among the several States" whose care the United States Constitution entrusts to Congress and by implication protects against the states to some extent. U.S.Const. art. I, sec. 8(3). Plaintiff phrases its commerce clause attack in three forms: by characterizing the tax as discriminatory against interstate commerce, as an impermissible burden upon it, and as unapportioned. The factual predicate for this attack is that an estimated 75 percent of automobile rentals in Multnomah County take place at the Portland International Airport, mostly by nonresidents engaged in an interstate journey, and that this incidence of the tax primarily on nonresidents was openly stated as one of the reasons for enacting it.
On this issue our task is to follow in the footsteps of the United States Supreme Court, whether their track is straight or winding. During the early decades of this century, there would have been a substantial likelihood that a state tax imposed on the rental of vehicles used in the course of interstate travel or transportation would have been deemed an impermissible burden on commerce, at least when the measure of the tax reflected this use of the vehicle and entered directly into the rental cost. It might have been necessary to decide whether the tax should properly be characterized as a tax on gross receipts of the lessor, because it is the lessor who must pay the tax to the county in quarterly aggregates, or as a special sales tax formally imposed upon the lessee and only collected and remitted by the lessor. For taxes on interstate transportation or the gross receipts therefrom were repeatedly held to be beyond the authority of the states after the Case of the State Freight Tax, 82 U.S. (15 Wall.) 232, 21 L.Ed. 146 (1873), and Philadelphia & Southern Steamship Co. v. Pennsylvania, 122 U.S. 326, 7 S.Ct. 1118, 30 L.Ed. 1200 (1887). This included taxes on the receipts from the rental of railroad cars. Fargo v. Michigan, 121 U.S. 230, 7 S.Ct. 857, 30 L.Ed. 888 (1887). State taxes so measured escaped invalidation only if they could be said to be "on" some intrastate aspect of the enterprise or transaction, or levied in lieu of property taxes. See Lockhart, Gross Receipts Taxes on Interstate Transportation and Communication, 57 Harv.L.Rev. 40 (1943).
When the Supreme Court in 1938 began a radical reexamination of this area of constitutional law, as of most others, the emphasis shifted from the formal to the economic incidence of the state's tax on interstate commerce, to the possibility that the same tax might be duplicated by another state, and to the use of apportionment formulas to avoid such duplication by allocating to the taxing state an appropriate fraction of the income earned or of the property used in interstate commerce. Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 58 S.Ct. 546, 82 L.Ed. 823 (1938); J.P. Adams Mfg. Co. v. Storen, 304 U.S. 307, 58 S.Ct. 913, 82 L.Ed. 1365 (1938); Gwin, White & Prince, Inc. v. Henneford, 305 U.S. 434, 59 S.Ct. 325, 83 L.Ed. 272 (1939); Braniff Airways v. Nebraska Bd. of Equalization, 347 U.S. 590, 74 S.Ct. 757, 98 L.Ed. 967 (1954). However,
Nevertheless, the economic incidence of a tax measured by the price of the individual sale and a tax measured by the gross receipts of many sales is practically identical, and the Supreme Court precedents left a question whether the decisions sustaining unapportioned taxes on sales of goods would extend to taxes measured by receipts from interstate transportation or communication. See Lockhart, supra, at 70. Certainly decisions such as those holding stevedoring immune from state business taxes, Puget Sound Stevedoring Co. v. State Tax Comm'n, 302 U.S. 90, 58 S.Ct. 72, 82 L.Ed. 68 (1937); Joseph v. Carter & Weekes Stevedoring Co., 330 U.S. 422, 67 S.Ct. 815, 91 L.Ed. 993 (1947), continued to point the other way. On the other hand, Central Greyhound Lines, Inc. v. Mealey, 334 U.S. 653, 68 S.Ct. 1260, 92 L.Ed. 1633 (1948), held that although New York could not tax the whole receipts from bus transportation that began and ended in New York but used routes in other states, it could tax a properly apportioned part of those receipts. Thus, if the present plaintiff's rental vehicles were used in the course of interstate transportation either like stevedoring equipment and services at the beginning or end of a voyage or like a seat rented from a bus company, these decisions would at least raise doubt whether the county and the taxpayer must make some attempt to segregate a protected interstate portion of its vehicle rentals from the taxable portion, unless the price collected for each rental could be called a local sale as defendants contend.
So far as plaintiff relies simply on the substantial use of its vehicles by interstate airline passengers, it might be said that in traditional terms their interstate travel has ended and that the passenger renting a car has made a new choice of intrastate transportation. There are other means of going from or to the Portland airport which could equally claim tax immunity on such an errand if plaintiff's customers can. However, Supreme Court doctrine on the subject has not stood still.
In 1977, the Court sustained a tax levied by Mississippi on a motor carrier employed in picking up General Motor automobiles shipped to Jackson, Mississippi, by rail and delivering them to dealers in Mississippi. Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977). It will be noted that the taxpayer's role in interstate transportation was analogous to that claimed for the automobiles rented at the Portland airport in this case. Mississippi's tax was confusingly labeled as a "`privilege [tax] for the privilege of engaging or continuing in business or doing business within this state'," to be measured by "`gross proceeds of sales or gross income'," at a rate of five percent in the case of transportation services, although the taxpayer was also required to add the tax to the sales price and collect it along with that price. The Supreme Court referred to the tax first as a "privilege tax" and then as a "sales tax". 430 U.S. at 274-275, 97 S.Ct. at 1077. The bulk of Justice Blackmun's opinion for the Court was devoted to overruling the doctrine of Spector Motor Service v. O'Connor, 340 U.S. 602, 71 S.Ct. 508, 95 L.Ed. 573 (1951) that a "privilege tax" on
A year later, the Court held that Complete Auto Transit, Inc., also "required" overruling the decisions that had immunized stevedoring from state business taxes. Washington Rev. Dept. v. Stevedoring Assn., 435 U.S. 734, 98 S.Ct. 1388, 55 L.Ed.2d 682 (1978). The opinion, again by Justice Blackmun, once more emphatically rejected the premise that a business activity is immune from state taxation because it is an integral part of interstate transportation. Both Complete Auto Transit and the Washington stevedoring companies were assumed to be engaged in interstate commerce. The latter's argument that the commerce clause cases had shown a greater solicitude for protecting interstate movement than "nonmovement" objects of taxation also was rejected by citation of Complete Auto Transit, Inc. Instead of categorical distinctions between types of businesses, types of taxes and tax bases, and exact relations to the course of interstate or foreign commerce, the following repeated phrases appear to constitute the Court's present formula for the validity of state taxes under the commerce clause: "It was not the purpose of the commerce clause to relieve those engaged in interstate commerce from their just share of state tax burden even though it increases the cost of doing the business." Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 254, 58 S.Ct. 546, 548, quoted in Colonial Pipeline Co. v. Traigle, 421 U.S. 100 at 108, 95 S.Ct. 1538, 44 L.Ed.2d 1 (1975), Complete Auto Transit, Inc., supra, at 430 U.S. 288, 97 S.Ct. 1076 and Washington Rev. Dept., supra, 435 U.S. at 745, 98 S.Ct. 1388. Decisions following Western Live Stock "have considered not the formal language of the tax statute but rather its practical effect, and have sustained a tax against Commerce Clause challenge when the tax is applied to an activity with a substantial nexus with the taxing State, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided by the State." Complete Auto Transit, Inc., supra 430 U.S. at 279, 97 S.Ct. at 1079. The state's financial needs are somehow to be "balanced" against the burden they impose on interstate commerce, and the "Commerce Clause balance tips against the tax only when it unfairly burdens commerce by exacting more than a just share from the interstate activity." Washington Rev. Dept., supra, 435 U.S. at 748, 98 S.Ct. at 1398.
We may respectfully assume that the "fairness" of the burden and the "just share" exacted from the taxpayer describe the ultimate judgment of the "balance" rather than instructions for scrutinizing a tax under the commerce clause. Insofar as constitutional rules are in the first instance directives to state and local lawmakers, a rule to be "fair" or "just" makes a limited
The Court then proceeded to hold that the Washington stevedores had "proved no facts" contradicting their obvious nexus with the state in which they functioned, nor requiring apportionment of the tax, which was "levied solely on the value of the loading and unloading that occurred in Washington." Although Washington's tax rates differed by type of business, the one percent rate applied to them along with other service businesses was not shown to discriminate against interstate commerce. And "[f]inally, nothing in the record suggests that the tax is not fairly related to services and protection provided by the State." 435 U.S. at 750-751, 98 S.Ct. at 1399.
Of these four criteria, only two are apt to pose questions of genuine cutting force in cases like the present: "Apportionment" and "discrimination."
As stated earlier, in the era when the Supreme Court developed apportionment as a way to allocate the taxable income and movable or intangible assets of multistate enterprises among several taxing states, it also sustained sales and use taxes without an effort to apportion these taxes.
However, if the purpose of apportionment is not to segregate "intrastate" from "interstate" commerce in order to immunize the latter but only to avoid taxation of the same commercial transaction by more than one state, plaintiff must show that such multiple taxation is either an actuality or a substantial likelihood. Cf. Central Railroad Co. v. Pennsylvania, 370 U.S. 607, 82 S.Ct. 1297, 8 L.Ed.2d 720 (1962) (requiring proof of tax situs of moving cars for apportionment of property taxes). Plaintiff does not tell us that any part of its vehicle rentals in Multnomah County are subject to taxation in another state, and it seems unlikely.
Among the four quoted criteria, the oldest and most durable is that a state tax may not discriminate against interstate or foreign commerce. To hold that a tax is "discriminatory" against such commerce has long been more certainly fatal than that the tax is doubtfully "fair" or "just" toward it, for the latter adjectives involve questions of degree. The problem is to distinguish when a tax "discriminates" against interstate commerce and when it is merely designed to assure that "`[e]ven interstate business must pay its way'," as approved in Western Live Stock, 303 U.S. at 254, 58 S.Ct. at 548 and the succeeding cases cited in Complete Auto Transit, Inc., supra.
If interstate commerce is to bear its "just share of the state's tax burden," a tax is not unconstitutional merely because it is designed to reach persons in the course of such commerce who do not otherwise share in that tax burden. If that is a legitimate purpose, it does not become illegitimate because it is candidly expressed. A tax designed to obtain some revenue from transient visitors or activities in interstate or foreign commerce might for that reason alone have been vulnerable under the line of Supreme Court precedents, now disapproved in Complete Auto Transit, Inc. and Washington Rev. Dept., which gave such commerce a degree of "free trade" immunity from state taxes, see 430 U.S. at 278-279, 97 S.Ct. 1076; but it is not necessarily discriminatory.
True, we are reminded that such a "tailored tax" requires careful scrutiny for discrimination or other "forbidden effect" on interstate commerce. 430 U.S. at 288, n. 15, 97 S.Ct. 1076. But "discrimination" implies a comparison, an objection not to some burdensome imposition as such but to differential treatment where the differentiation is constitutionally forbidden. Here the county stresses that the vehicle rental tax makes no such differentiation; it applies to all short term rentals anywhere in the county, not only at the airport, and to residents
Accordingly, the circuit court correctly declared that plaintiff had not established a reason to invalidate Ordinance No. 122.
Court of Appeals' dismissal vacated; circuit court judgment affirmed.
"Ordinance No. 122
"Multnomah County ordains as follows:
"Section 1. Definitions.
"Section 2. Imposition of Tax.
"Section 4. Use of Tax by County.
"Section 8. Penalties.
Oregon counties have had power to enact their own charters since the adoption of Or. Const. art. IV, § 10, in 1958. Multnomah County did so effective 1967. ORS 203.035 to 203.065 were enacted in 1973 to give legislative power to counties without "home rule." See 37 Op.Atty.Gen. 319 (1974).
It is not clear whether or how the "fair relation to state services" can serve as a test independent from nexus. There are occasional perfunctory references to police and fire protection, see, e.g. Washington Rev. Dept., supra, 435 U.S. at 704, 98 S.Ct. 1388. (Powell, J., concurring). But surely no such mechanical quid pro quo to the taxpayer itself is required, for instance in the case of taxes levied for specific functions; we doubt that the Court means to immunize a nonresident investor in unimproved real estate from a school tax. In practical economic terms, when a state provides the organized legal system and other social machinery for conducting purchases, sales, or other economic activities in its market, it surely protects and serves whatever interest of the taxpayer suffices to constitute his required "nexus" for tax purposes. Perhaps the Court means to reserve the "fair relation" test as a potential tool for extending judicial review to the magnitude of a tax. In any event, there is no doubt about this element with respect to plaintiff's rental vehicles.