These three cases, consolidated for trial and appeal, involve a comprehensive challenge to the validity of a charter amendment and various ordinances enacted by the City of Eugene ("City") to revitalize its downtown core area. Eugene, like many other cities, became concerned that its downtown business area was not economically competitive with outlying shopping areas for various reasons, including the lack of adequate parking facilities.
In July, 1973, the voters approved an amendment to the charter conferring on the city council the power
Pursuant to the charter amendment, the council enacted ordinances which provided free parking within the Downtown Development District ("District"), but which restricted parking by employers and employees of District businesses, by District residents, and by District hotel or motel guests. In order to finance and administer its economic development and its free parking programs, the City enacted ordinances for the levying of certain taxes. An ordinance allowed for an ad valorem real property tax by the City on real property in the District;
In 1974 Jarvill and Lichty filed complaints for declaratory judgments in the Circuit Court of Lane County alleging that the City ordinances are unconstitutional. In 1975 the City sued Great Western Schism, owner of a retail store located within the District, to recover unpaid gross sales and receipts taxes levied in the District. Because Great Western Schism raised defenses identical to the complaints of Jarvill and Lichty, the circuit court consolidated the three cases.
In the trial court and in the Court of Appeals the plaintiffs have raised numerous contentions challenging the validity of the charter amendment and the City ordinances relating to the District taxes. Generally, plaintiffs contend that the taxes are unlawful or beyond the City's power. Plaintiffs also contend that the ad valorem property tax and the professional and nonprofessional business taxes violate the separate guarantees of equality found in Article I, sections 20 and 32, of the Oregon Constitution and in the fourteenth amendment to the United States Constitution in two general ways: (1) in that property and businesses within the District are taxed while similar property and businesses in other parts of the city are not subject to similar taxation; and (2) in that not all real property and not all businesses within the District are taxed equally. For these same reasons, and particularly because the taxes apply only to District property, plaintiffs contend that the District taxes violate the Uniformity of Taxation Clause of article I, section 32, of our state constitution. Finally, among a myriad of other less substantial challenges, plaintiffs contend that the restrictions on parking in the District violate art. I, § 20, of the Oregon Constitution and the fourteenth
The trial court upheld the charter amendment and the taxing ordinances in all respects. The Court of Appeals affirmed the trial court except that the Court of Appeals sua sponte held that the tax court and not the circuit court had jurisdiction over plaintiffs' challenges to the validity of the ad valorem property taxes. 40 Or.App. 185, 594 P.2d 1261 (1979).
We will first discuss the issue of whether the circuit court or the tax court had jurisdiction over the challenges to the ad valorem real property tax levied by the City on property within the District.
I. CIRCUIT COURT JURISDICTION
The exclusive jurisdiction of the tax court extends to "all questions of law and fact arising under the tax laws of this state." ORS 305.410(1).
The Court of Appeals reasoned that, because ad valorem property taxation in Oregon is comprehensively governed by state law, the City's property tax was levied under the tax laws of this state, and the challenges to the City's property tax presented questions of state tax law that are within the exclusive jurisdiction of the Oregon Tax Court.
Unfortunately the tax court jurisdiction statute has never been a picture of statutory clarity. Originally, ORS 305.410 provided that the tax court would be the "sole, exclusive and final authority for the hearing and determination of all questions of
The first tax court jurisdictional problem encountered by this court involved the question whether the tax court had authority to issue a writ of mandamus to require a county assessor to extend a particular levy upon the county tax rolls. In Woodburn v. Domogalla, 238 Or. 401, 395 P.2d 150 (1964), we stated:
We held that the tax court's original jurisdiction to hear tax questions was limited and that mandamus cases were not "cases within its jurisdiction" under ORS 305.410.
The legislature responded to the Woodburn decision by amending the tax court statutes to provide the tax court with general (not limited) jurisdiction and the same powers as a circuit court to exercise all ordinary and extraordinary legal, equitable and provisional remedies. See, e.g., ORS 305.405, 305.435, 34.120; Or. Laws 1965, ch. 6, §§ 1, 6, 10. The legislature also amended the language of tax court jurisdiction to include jurisdiction over "proceedings" to set aside an order of the State Tax Commission, not just "appeals" from the State Tax Commission. See, e.g., ORS 305.425, 305.515, 321.470, 321.660, 321.765; Or. Laws 1965, ch. 6, §§ 3, 8, 13-15.
Presumably to further clarify its expansion of tax court powers,
The City contends that tax laws enacted by a city government are "tax laws of this state," because a city's authority ultimately comes from the state. We do not agree. ORS 305.410(1) says "tax laws of this state." The plain and natural meaning of this phrase is that the tax law must be enacted by the state governmental authority. Cf. Girt et al v. Tri-Met et al, 4 OTR 92, 96-98 (1970).
This conclusion is supported by the legislature's use of the term "tax laws of this state" in ORS 305.410(1) when it listed the several tax laws that "are not tax laws of this state." ORS 305.410(1)(a) to (o). These
On the other hand, we find no evidence that the legislature intended that tax laws enacted by a city government are "tax laws of this state" subject to the exclusive jurisdiction of the tax court by virtue of ORS 305.410(1). On the contrary, when the legislature did intend to grant the tax court jurisdiction over a tax law enacted by a city government, it did so by separately providing for tax court jurisdiction over specific state-related aspects of the local taxation. For example, when a state agency enters into an agreement with a political subdivision to collect, administer and distribute local taxes imposed upon or measured by gross or net income or wages and local general sales and use taxes, then the Oregon Tax Court has exclusive jurisdiction to review the state agency's orders relating to its administration of the local taxes. See ORS 305.620. Also, when a local tax levy is made contrary to the state local budget law (ORS 294.305 to 294.520) or any other state law relating to tax levies, the local tax shall be voidable in the Oregon Tax Court by following a specific procedure. ORS 294.485. See Girt et al v. Tri-Met et al, supra. These statutes are separate jurisdictional provisions for tax court review when a local tax conflicts with state law or is administered by a state agency.
We therefore hold that, by the phrase "tax laws of this state," the legislature intended that the tax court have exclusive jurisdiction to decide questions that arise under tax laws enacted by the state government. Plaintiffs challenge the City charter amendment and City ordinances that impose the City property and business taxes. Because these tax laws were enacted by the City, they are not "tax laws of this state." The questions presented by these challenges were properly litigated in the circuit court.
But the City contends that, because plaintiffs challenge the City property and business taxes as violative of article I, section 32, of the Oregon Constitution, and because that constitutional provision is a tax law of this state, plaintiffs' challenge based on article I, section 32, is a "question * * * arising under the tax laws of this state" which must be litigated in the tax court. Assuming but not deciding that article I, section 32, is a tax law of this state, the City's interpretation of ORS 305.410(1) reveals another problem with that statutory provision which we must now resolve. According to the City, the tax court has jurisdiction whenever a party, who may be challenging a tax levied by a city, raises a challenge based on, or a question relating to, a tax law of this state. If the same party in the same proceeding, however, raises a challenge not related to a tax law of this state, then presumably that challenge would be litigated in the circuit court. This result — split jurisdiction — is patently unreasonable because it would require a city taxpayer challenging a city tax to institute
We do not believe that the legislature intended the application of ORS 305.410(1) to result in split jurisdiction or that the tax court have jurisdiction over a challenge to a city tax, which is not a tax law of the state, merely because the challenge includes a question regarding a tax law enacted by the state. In construing the application of ORS 305.410(1), we must seek to avoid absurd or unreasonable results. Hollinger v. Blair/Dickson, 270 Or. 46, 53-54, 526 P.2d 1015 (1974). In order to avoid split jurisdiction, and in order to litigate all of the challenges to a tax in only one court, jurisdiction under ORS 305.410(1) must be determined by whether the tax being challenged is itself a tax law of this state. In other words, when the legislature declared that the tax court has jurisdiction over "all questions * * * arising under" the state tax laws, the legislature intended that, under ORS 305.410(1), the tax court have jurisdiction only when the complaint challenges a state tax, that is, a tax imposed by the state government.
In the instant case, plaintiffs challenge taxes imposed by the City pursuant to its home rule authority. All questions presented by their challenge are within the jurisdiction of the circuit court and were properly litigated therein. We therefore hold that the circuit court had jurisdiction over plaintiffs' challenges to the ad valorem property tax
II. MUNICIPAL AUTHORITY
Before we discuss plaintiffs' constitutional challenges to the City's property and business taxes, we should answer plaintiffs' contentions that the City was without authority to establish the District and to impose taxes within the District. Plaintiffs argue that no state statute or case exists which will support the City's charter amendment and the City's creation of the District. They also argue that no state statute authorizes a city to select a portion of its citizens for unique and special tax treatment.
We agree with the Court of Appeals and the circuit court that the District was validly established. The Oregon Constitution, in article XI, section 2, provides that "[t]he legal voters of every city and town are hereby granted power to enact and amend their municipal charter, subject to the Constitution and criminal laws of the State of Oregon, * * *." Also, article IV, section 1(5), of the Oregon Constitution provides that the initiative and referendum powers are reserved "to the qualified voters of each municipality and district as to all local, special and municipal legislation of every character in or for their municipality or district. * * *" These "home rule" provisions permit the people of a city or town to decide upon the organization of
The courts below also correctly held that the City had authority to impose taxes within the District. A municipal corporation may assume powers to impose taxes and to select the kinds of taxes most appropriate in order to provide governmental services. See, e.g., Horner's Market v. Tri-County Trans., 256 Or. 124, 131, 471 P.2d 798 (1970); Davidson Banking Co. v. Jenkins et al, 216 Or. 51, 55-59, 337 P.2d 352 (1959). The power to impose taxes in the District is expressly provided in the following language of the charter amendment: "for the purposes of public parking * * *, of public transportation * * *, and of economic promotion and development for the district, to tax persons, property and economic enterprise in the District; * *." (Emphasis supplied.) We interpret the charter amendment to provide express, implicit and essential authority for the property tax, the professional business tax, and the nonprofessional gross sales and receipts tax levied by the City. Robertson v. Portland, 77 Or. 121, 126-28, 149 P. 545 (1915).
The plaintiffs also contend that the City acted beyond its authority because the revenues from the District taxes — which the Downtown Development Board budgets for a free parking program and for an advertising program partially administered by the Eugene Downtown Association — are not used for a public purpose and are used to invest public funds in private enterprise, in violation of article XI, section 9, of the Oregon Constitution.
The City of Eugene established the District to finance and administer "a program of economic promotion and development" within the City's central business district. Eugene Code, §§ 2.380, 2.381 (1971). The City's objective is to revitalize the central business district by promoting business in the area, by increasing downtown property values, by encouraging downtown shopping, and by improving services within the downtown area.
III. UNIFORMITY OF TAXATION
We shall now discuss plaintiffs' contentions that the City's ad valorem property tax, professional business tax and gross sales and receipts tax on nonprofessionals
Article I, section 32, of the Oregon Constitution is the constitutional provision that most specifically addresses the issue of uniform taxation. That section provides:
Plaintiffs argue that this constitutional provision requires that a city tax be uniform throughout the boundaries of the city levying the tax and that a city is prohibited from imposing a tax on an area within its boundaries smaller than the whole of its city limits.
The Court of Appeals held that article I, section 32, which permits a municipality to classify for tax purposes, merely requires uniform tax treatment within each class throughout the territory, and that all the businesses subject to the District taxes are members of a constitutionally valid class.
Plaintiffs contend, however, that the properties and businesses in the District cannot be considered a separate class from all other properties and businesses in the City because the only common characteristic shared by the properties and businesses in the District is their location.
The instant case therefore presents us with the question whether article I, section 32, prohibits a governmental authority from territorially defining a class of subjects for the purpose of separate tax treatment. And, if a territorial classification is not absolutely prohibited, under what criteria is a territorial classification constitutionally valid?
Resolution of these problems requires us to review the history of article I, section 32, as originally drafted, interpreted and applied. Then we will examine the intentions of the drafters of the 1917 amendment that changed article I, section 32 to its present form.
Territorial Uniformity Prior to 1917
Originally, in the Oregon Constitution of 1859, article I, section 32, provided: "* * * [A]ll taxation shall be equal and uniform." In addition, article IX, section 1, originally provided:
The simple language of these provisions was intended to prevent anyone from escaping his just share of the tax burden, and these requirements of "equal and uniform" taxation can be traced to a public distrust of state legislatures who were likely and willing to aid railroads and other private economic enterprises by levying state and local taxes to assist private construction and by granting privileges and tax exemptions to vested interests. See Report of Board of State Tax Commissioners 15-16
Territorial uniformity was a judicial concept that appears to have developed from a strict interpretation of the requirements of uniformity and equality in taxation. Simply stated, the territorial uniformity concept required that the tax operate uniformly throughout the territorial limits of the government authority within and for which the tax was raised. In other words, it required that a tax levied by the state (for a state purpose) be uniform throughout the state, a tax levied by a county (for a county purpose) be uniform throughout the county, and so on. See, e.g., Yamhill County v. Foster, 53 Or. 124, 99 P. 286 (1909); Cook v. The Port of Portland, 20 Or. 580, 27 P. 263 (1891); City of East Portland v. County of Multnomah, 6 Or. 62 (1876); Board of Comm'rs of Jackson County v. State ex rel. Shields, 155 Ind. 604, 58 N.E. 1037 (1900); Watkins v. Barrow, 121 Va. 236, 92 S.E. 908 (1917); Day v. Roberts, 101 Va. 248, 249, 43 S.E. 362 (1903); The People v. Salem, 20 Mich. 452, 474, 4 Am.Rep. 400 (1870); Knowlton v. Supervisors of Rock County, 9 Wis. 410 (1859); Exchange Bank of Columbus v. Hines, 3 Ohio St. 1 (1853); Gray, Limitations of Taxing Power and Indebtedness 670, § 1351b (1906); Cooley, Constitutional Limitations 711, 726 (7th ed. Lane 1903). See also Township of Pine Grove v. Talcott, supra; Gilman v. City of Sheboygan, 67 U.S. (2 Black) 510, 17 L.Ed. 305 (1862). The concept was so widely accepted that, as one legal scholar observed, "[i]n some of the constitutions this rule is expressly stated, but where it is not thus expressly stated the constitutions are interpreted in conformity with it." Gray, supra at 670.
The requirement of territorial uniformity was altered when the Oregon Constitution was amended in 1917 to provide for classification in taxation. Dissatisfaction with the "uniform and equal" provisions of the Oregon Constitution had previously led to the appointment in 1905 of a commission for the purposes of examining and reporting upon matters of state assessment and taxation of property. The following portions of the commission's report are enlightening:
The Commission then recommended that article I, section 32, be amended to read:
And the Commission recommended that article IX, section 1, be amended to read:
These recommendations appear to have been the first proposals in Oregon for amending article I, section 32, by using the phrase "upon the same class of subjects within the territorial limits of the authority levying the tax." Although different language was used in the amendments submitted to the Oregon voters in 1910,
Although the primary purpose of the 1917 amendments was to permit classification, the use of the phrase "within the territorial limits of the authority levying the tax" raised the principle of territorial uniformity to that of an express constitutional requirement. But the drafters intended a requirement of territorial uniformity within each class of subjects taxed. Thus Standard Lumber Co. v. Pierce et al., supra, in discussing the 1917 amendments to article I, section 32, and article IX, section 1, stated that "among the members or objects included in a class selected by the [l]egislature, inherent uniformity as well as territorial uniformity is required." 112 Or. at 335-36, 228 P. at 819. (Emphasis supplied.) Indeed, the intentions of the drafters of the amendments can be traced back to the 1905 commission which, as quoted above, sought to draft constitutional provisions
Thus, once a taxing authority selects a class for taxation, the tax must apply uniformly among all objects in the class that are within the territorial limits of the authority levying the tax.
Territorial Classification
Plaintiffs contend that article I, section 32, prohibits a taxing authority from classifying the subjects of taxation according to a geographical location. They further contend that the only common characteristic shared among those taxed in the District is their location.
In previous decisions we have upheld the legislature's classification of income for taxation (McPherson v. Fisher, 143 Or. 615, 622, 23 P.2d 913 (1933)); the legislature's classification of occupations for taxation (State v. Winegar, 157 Or. 220, 225, 69 P.2d 1057 (1937)); a municipal corporation's classifications of various kinds of businesses, trades and professions for a license tax (Garbade and Boynton v. City of Portland, supra, 188 Or. at 192, 214 P.2d 1000); the legislature's separate tax treatment of non-residents for income tax (Berry v. Tax Commission, 241 Or. 580, 397 P.2d 780, 399 P.2d 164 (1964)); and the legislature's classification for inheritance tax purposes of property on the basis of its location either inside or outside the state (Tharalson v. State Dept. of Rev., supra, 281 Or. at 15-17, 573 P.2d 298). See generally Etter, Municipal Tax Differentials, 37 Or.L.Rev. 1 (1957).
As noted above, in the present case the City is levying its business and property taxes on all businesses and property within a geographical area. Therefore, the City is not singling out any fixed group of persons; anyone might change or move his business or his property investments in and out of the District. Cf. Tharalson v. State Dept. of Rev., supra at 17, 573 P.2d 298. The persons subject to the City taxes are subject thereto because they own property or operate a business within the District. Therefore, the tax classification would be constitutional as long as the geographical area defined as the District is a valid class.
In his article on municipal tax differentials, Etter notes that location is not a proper basis for classifying property. Etter, supra at 41. But he goes on to explain:
We agree. Recognizing the broad freedom a taxing authority has to classify subjects for taxation, we conclude that a classification based on or defined by geographical location is nevertheless constitutionally permissible if it is also based upon qualitative differences that distinguish the geographical area from other areas within the territorial limits of the authority levying the tax. In other words, a taxing authority may not single out a subterritory for exclusive tax treatment (either taxation or exemption) if that subterritory is indistinguishable from the rest of the territory. But if the subterritory is different in quality compared to the rest of the territory, then article I, section 32, does not prohibit a taxing authority from defining the subterritory as a separate class. This requirement is based upon the principle established in our previous decisions that a tax classification is constitutionally valid if it rests upon genuine differences. See Huckaba v. Johnson, supra, 281 Or. at 25-26, 573 P.2d 305 (citing cases). In addition, if the taxing authority selects a subterritory for taxation and that subterritory is the only area so taxed, then the subterritory must not only be qualitatively different but must also be unique.
There may be two types of qualitative differences that might justify singling out a geographical area for tax treatment. One type might be described as natural qualities. These would be qualities that exist in the land by reason of nature, for example, swamp land, or land with less than 20
The Court of Appeals reasoned that the businesses within the District are a distinct and valid class because they all share the same conditions unique to a downtown urban core area. As the court explained,
Although this analysis alone might adequately validate the territorial classification, we find an additional compelling reason why the District is uniquely and qualitatively different from the remainder of the city.
In addition to the fact that the businesses and property within the District presently share, and in the past have shared, the conditions unique to being in a downtown urban area, the City is taxing the District for the purpose of creating a unique area in the future. The City has committed itself to provide a package of special services not provided elsewhere in the city, including free motor vehicle parking, an economic promotion and development program, and a public transportation program. In this regard, the qualities that distinguish the District from the rest of the City are politically imposed. The District is unique not only because it contains the only downtown area in the city, but also because the City has committed itself to providing services and programs that patently and physically distinguish the District from any other area of the city.
We therefore hold that the City validly classified the District, and the property and businesses therein, for the purpose of separate tax treatment. This classification does not violate article I, section 32, of the Oregon Constitution. For the same reasons, this classification does not grant any citizen or class of citizens a privilege or immunity that is not equally available to all on the same terms (Or.Const. art. I, § 20), nor does it deny anyone the equal protection of the laws guaranteed by the fourteenth amendment to the United States Constitution.
Equality and Uniformity Within the District
Plaintiffs also contend that the property and business taxes are not being levied uniformly and equally within the District itself. In addition to arguing that the taxes violate article I, section 32, in this regard, plaintiffs argue that the taxes violate the Privileges and Immunities Clause of the Oregon Constitution (art. I, § 20)
Plaintiffs argue that the property tax is discriminatorily imposed within the District because certain properties receive tax credits while similar properties do not. They argue that the business taxes are also discriminatorily imposed because professional businesses are taxed at a flat rate, while nonprofessional businesses are taxed on their gross receipts and sales.
As noted above, this court recognizes the broad freedom of a taxing authority to classify subjects for taxation. This power to classify includes the authority to subclassify persons included in the general class. See Huckaba v. Johnson, supra, 281 Or. at 26, 573 P.2d 305 (citing cases).
Properties within the District have been subclassified according to whether the property is within the Tenth and Oak Overpark Assessment District (which is located within the Downtown Development District), or according to whether the property is devoted partly or entirely to automobile parking facilities open to the general public on a first-come-first-served basis, free of charge and under control of the Downtown Development District. Properties that provide District-controlled free parking receive a credit that reduces their District property taxes in an amount that reflects the proportion of the property devoted to such public parking. The sum of all the deductions for these properties is then apportioned to all other properties in the District in accordance with their respective assessed valuations. Next, the properties that contributed to the Overpark Assessment District receive a credit equal to their assessment, and that amount is deducted from their District property taxes. The sum of all the deductions for the Overpark assessment is apportioned finally to all the properties in the District in accordance with their respective assessed valuations, except the properties whose adjusted property tax does not exceed their Overpark assessment.
Plaintiffs contend that the classification for tax credit of properties located within the Overpark Assessment District is an unconstitutional territorial classification. These property owners, however, do not receive credits because they are located in the Overpark Assessment District. They receive credits because they are assessed by the Overpark Assessment District and thus, like the property owners who provide District-controlled parking, they are already financing public parking within the District. We therefore conclude that the classification of properties within the Overpark Assessment District is valid and that the property tax is uniform as applied to the classes of property within the District.
Finally, plaintiffs contend that taxing professional businesses in the District at a flat rate while taxing nonprofessional businesses in the District according to their gross sales and receipts violates the constitutional requirements of equal protection and uniform taxation. We disagree. Article I, section 32, does not demand that a taxing authority treat professional businesses and nonprofessional businesses as the same class of subjects. We therefore conclude that the business taxes do not violate article I, section 32.
For the same reasons, the City's tax scheme does not grant any citizen or class of citizens a privilege or immunity that is not equally available to all on the same terms (Or.Const., art. I, § 20), nor does it deny anyone the equal protection of the laws guaranteed by the Fourteenth Amendment.
IV. DISTRICT PARKING RESTRICTIONS
Plaintiffs contend that the city ordinances that restrict parking by those persons employed, resident or lodged within
Plaintiffs contend that article I, section 20, is violated because District employers, employees, residents and hotel and motel guests are prohibited from enjoying the free parking privileges available to all other members of the public. Article I, section 20, however, prohibits only the grant of a privilege which does not belong to all citizens "upon the same terms." In the instant case, those persons in the District subject to the parking restrictions nevertheless may enjoy the privilege of free parking upon the same terms as all members of the general public: when they are not working or residing in the District. And no member of the public may park for free while he is employed, resident or lodged in the District. We note that the trial court found that these parking restrictions are intended to prohibit those who would regularly be downtown anyway and who would use downtown facilities for longer periods of time from occupying free parking spaces to the exclusion of consumers and clients, thereby defeating the purpose of the free parking program.
We therefore conclude that the terms of the parking ordinance do not violate article I, section 20, of the Oregon Constitution and, for the same reasons, do not violate the fourteenth amendment to the United States Constitution.
CONCLUSION
Plaintiffs raise many other challenges to the City's ordinances; for example, that the ordinances prohibiting parking are void for vagueness, and that the parking program violates the Motor Vehicle Parking Facilities Act (ORS 223.805 to 223.845). Plaintiffs' other challenges are, however, insubstantial and do not merit discussion.
We conclude that the circuit court had jurisdiction over the challenges to the ad valorem property tax. We also conclude that the City's charter amendment and ordinances are lawful and constitutional.
Affirmed as modified.
PETERSON, Justice, dissenting.
The majority reaches a result which many would agree is socially, politically and economically desirable. But the decision in this case turns not on social desirability, political wisdom or economic need. This case is determined by Article I, section 32, of the Oregon Constitution. I cannot agree with the conclusion of the majority and therefore dissent. My reasons are:
1. Article I, section 32, by its clear terms, prohibits a taxing authority from creating a class of subjects determined by geographical lines.
2. A policy underlying the "territorial limits" clause of Article I, section 32, is to prevent a majority from imposing tax burdens that should be uniformly distributed upon all, upon a minority within the territorial limits of the taxing authority. The imposition of a tax burden only upon those owning property or operating businesses within a geographical area, when similar property exists outside the geographical area but within the taxing district, is improper and violates the uniformity clause.
1. Article I, section 32, by its terms, prohibits a taxing authority from creating a class of subjects determined by geographical lines
Article I, section 32, provides:
The phrase "all taxation shall be uniform on the same class of subjects" was contained in a 1917 amendment to Article I,
The inclusion in 1917 of the words "all taxation shall be uniform on the same class of subjects" permitted "the classification of property in respect to its nature, condition or class, and the imposition thereon of different rates of taxation upon different classes of property."
In this case, the "authority levying the tax" is the City of Eugene, not the Downtown Development District. For the purposes of this case, the constitutional provision should be read as follows:
Applying the plain language of the constitution, this requires that all property of the same class within the city be taxed uniformly. There is no claim in this case that properties of the type found in the district are not found elsewhere in Eugene.
The majority upholds the creation of a class determined by geographical location because
The majority concludes that a tax classification based upon geographical location is valid if the territory is "qualitatively different," either because of (1) natural characteristics such as "swamp land, or land with less than 20 inches rainfall, or a flood plain," or (2) politically imposed qualitative factors such as those resulting from human conditions or the economy of the area. The majority states:
The majority's conclusions do not withstand critical analysis. The "natural characteristics" approach, under which a class of subjects may be determined by the "qualities
The City's creation of the District as a separate class must, if at all, be validated under the majority's second theory, based upon a qualitative difference as (a) an area in which "the businesses and property within the District presently share, and in the past have shared the conditions unique to being in a downtown urban area" or (b) as an area upon which the city is imposing additional taxes "for the purpose of creating a unique area in the future." (Emphasis added.)
As to (b), clearly this is a bootstrap approach under which any taxing body could impose additional taxes upon any area because of planned improvement in order to create "a unique area in the future." Under this concept, a slum area consisting of modest homes, owned by their occupants, could be slated for urban renewal "in order to create a unique area in the future." Taxes to renew the area could be imposed solely upon the homeowners. The property owners' inability to pay the increased taxes might well compel them to sell their homes to investors who could afford to pay the higher taxes in anticipation of increased land values after the qualitative improvements had been made. Such a tax, under the majority's reasoning, would be valid. It would also, in a real sense, be confiscatory.
The city's classification of the District, if valid at all, can only be valid because the property within the District shares unique qualities — qualities which are unique to it, and to it only. But there is no evidence in this case that properties of similar type, similar construction and similar use do not exist outside the geographical area.
The only truly unique feature of the District is its location.
As to the possibility of regarding the Downtown Development District area as a separate class of property and hence separately taxable under the classification power of Article I, section 32, of the Oregon Constitution, there are obvious difficulties. The only common characteristic the Downtown Development District must inevitably share is its location. There are many classifications of property within the area that are common to property immediately outside of the area. Property inside the area is composed of real property, personal property, rental property, inventories, parking lots, perhaps some unimproved property and partially developed property. Whatever its nature, it is clear that similar property exists within the remainder of the city limits of Eugene. Therefore, it cannot be said that any uniform classification was being made within the city on the basis of the property's use or development. Although as stated in Standard Lbr. Co. v. Pierce, 112 Or. 314, 335-336, 228 P. 812 (1924), the classification of property for property tax purposes along functional lines is constitutional under Article I, section 32, such a classification has not in fact been made under the charter and ordinances of the City of Eugene.
Orval Etter, one of the attorneys for the City of Eugene in this case, is well known as an authority on Oregon municipal law. The lead article in the 1957 Oregon Law Review was written by Mr. Etter on the subject "Municipal Tax Differentials."
Mr. Etter hastens to add that, by creating a special taxing district, with authority to levy taxes, taxes can be validly imposed within a subdistrict. He writes:
Another way of achieving the goal sought would be to amend the constitution to permit a city to tax some districts differently than others. Oak Park Federal Savings & Loan Association v. Village of Oak Park, 54 Ill.2d 200, 296 N.E.2d 344 (1973), illustrates this point well. There, Article IX, section 10, of the Illinois Constitution of 1870 required that property located within a municipal corporation be taxed uniformly. In 1970, the Illinois constitution was amended to give home rule units the power to make local improvements by special assessment and also "to levy or impose additional taxes upon areas within their boundaries in the manner provided by law for the provision of special services to those areas and for the payment of debt incurred in order to provide those special services." Ill.Const. Art.
The governing body of Oak Park, Illinois, enacted a series of ordinances "for establishing areas for the providing of special services and provided that the president and board of trustees of the Village of Oak Park shall be the governing body of the special service area. It authorized the levying of taxes by the village board on the property in the special service area. * *" 296 N.E.2d at 346. The ordinances also provided for the creation of a shopping mall, landscaping, lighting, and for the imposition of a real estate tax against the property of the special service area for the purpose of purchasing parking lots.
For reasons not relevant to this opinion, the action of the village board was held to be invalid. The case illustrates, however, the point that in order to achieve a subdistricting scheme similar to the one involved in this case, a constitutional amendment was required.
The constitutions of other states contain provisions similar to Article I, section 32, and the courts of those states have construed such provisions to prohibit taxing districts based upon geographical lines.
Monagham v. Lewis, 21 Del. (5 Penne.) 218, 59 A. 948 (1905), is a case involving a law passed by the Delaware legislature which recited:
The law imposed taxes on the described area at a rate "not exceeding one-fourth of the regular rate levied on persons and estates in the remaining parts of the said city." Article 8, section 1, of the Delaware Constitution provided that "All taxes shall be uniform upon the same class of subjects within the territorial limits of the authority levying the tax, and shall be levied and collected under general laws." The plaintiff contended that the act was unconstitutional and void under Article 8, section 1, because the tax was not uniform upon the same class of subjects within the territorial limits of the authority levying the tax. The Delaware court held that the law was in direct conflict with the constitutional provision and was void.
Essex County Park Commission v. Town of West Orange, 77 N.J.L. 575, 73 A. 511 (1909) involved an act which exempted selected public lands from taxation. The New Jersey constitution directed that "property shall be assessed under general laws by uniform rules." This language had been construed to permit the exemption from taxation of property of various classifications. The challenged act provided that all lands which were the property of a taxing district, and located within the boundaries of the taxing district, were exempted from taxation. If the property owned by the taxing district was located outside the taxing district, it was taxable. The court reasoned that "[i]t is thus sought to form a class for taxation marked by the characteristic of location merely." 73 A. at 513.
The New Jersey court struck down the law, saying:
Accord, Baldwin Construction Co. v. Essex County Board of Taxation, 16 N.J. 329, 108 A.2d 598
If the class is to be fixed with reference to unique characteristics, the classification should be described in those terms, not on geographical terms. Otherwise, any city could create a special taxing subdistrict on a geographical basis and later seek to justify the district on the basis of some "unique characteristics" which had no relevance to its creation. Requiring that the classifications be defined in terms of the unique characteristics of the property at least insures that the authority creating the special district considers those characteristics in determining the necessity for the district.
The record in this case also reflects arbitrary decisions made without reference to any objective criteria. A group of "business people" whose properties were within one block of the northern district boundary requested to have their properties included in the district. According to one of the city planners, these properties did not meet the "distance from the mall criteria [sic]," but the properties were included in the district, nonetheless. Other property owners whose properties met the criterion were excluded from the district because they did not want to be within the district.
I will concede that these variations may be minor. But a classification, the applicability of which depends upon such whims, cannot be valid.
I believe that the majority strains to reach a desired result because it is persuaded that the Eugene City Council has taken a dynamic step toward the solution of a problem chronic to our cities — core area decay — in order to achieve a socially desirable result. I am sympathetic with the goal sought to be attained. Unfortunately, Article I, section 32, expressly prohibits this action. Beyond that, however, the approach of the majority may create the foundation for ills which are more destructive than the ills sought to be cured.
The primary reason justifying the action taken by the city is that a general benefit to the city will result. The majority, at 289 Or. 170, 613 P.2d 8 states:
In a very real sense, only the property owners, merchants and business people in the District are being taxed and deprived of their parking in order to create a "benefit to the economy of the City as a result of the economic improvement of the City's central business district."
Some contend that the burden of taxes should be imposed according to the benefit which each taxpayer receives from the protection afforded by the government. But almost universally, the public policy of uniformity prevails over the public policy of taxation according to the benefit received.
The district in this case was created by a vote of the voters of the entire city, and the tax was imposed by a vote of the elected representatives of the voters of the entire city. Beyond question, and in every sense, the majority is imposing a tax upon the minority which (to use the language of the majority opinion) will "benefit * * * the economy of the [entire] City."
Unquestionably, the essence of the democratic process is the sovereignty of the majority. The interests of the many are preferred to those of few.
But it is equally well settled that the majority cannot, without restriction, impose economic, social, or political burdens upon the minority that are not common to all. The majority's holding permits the imposition of excessive tax burdens upon the minority.
John Stuart Mill wrote:
The restraint placed upon the legislature is normally found in the state's constitution. Alexander Hamilton referred to restriction of popular government under a constitution so as to secure the protection of the individual's rights from the majority.
The majority's recognition that the language of Article I, section 32, "was intended to prevent anyone from escaping his just share of the tax burden" necessarily includes a recognition that no one should bear more than his or her "just share" of the tax burden. 289 Or. at 172, 613 P.2d at 9.
The evils which Article I, section 32, seeks to avoid (one being discriminatory taxation) are too easily attained by permitting a "classification" defined only by geographical area. Requiring the class to be defined other than by geographical area (as by zone, or type or nature of property) is not onerous and insures that the generality of the law which the constitution intends to insure, is maintained. Differential classifications should be determined by the use of property or by characteristics of the property, not by location. If a tax is imposed by reason of the location of property, some basis for the classification, apart from location, should be apparent from the law itself, rather than by reference to extrinsic matters. If the tax subdistrict is described geographically, some justifiable basis for the classification, apart from location, should be apparent from the law itself.
If a qualitative class is to exist, the class must be determined by qualitative factors. And if the classification is to have validity, those qualitative factors must be set forth in the law itself.
Justice Jackson, concurring in Railway Express v. New York, 336 U.S. 106, 112-113,
Strict adherence to Article I, section 32, guarantees that taxation not be the means to unfairly oppress a minority.
LENT, J., joins in this dissent.
FootNotes
"(1) Subject only to the provisions of ORS 305.445 relating to judicial review by the Supreme Court and to subsection (2) of this section, the tax court shall be the sole, exclusive and final judicial authority for the hearing and determination of all questions of law and fact arising under the tax laws of this state. For the purposes of this section, and except to the extent that they preclude the imposition of other taxes, the following are not tax laws of this state:
"(2) The tax court, the circuit courts and district courts shall have concurrent jurisdiction to try actions or suits to determine the priority of property tax liens in relation to other liens.
"(3) Except as permitted under section 2, amended Article VII, Oregon Constitution, this section and ORS 305.445, no person shall contest, in any action, suit or proceeding in the circuit court or any other court, any matter within the jurisdiction of the tax court."
Plaintiffs do not distinguish between article IX, section 1, and article 1, section 32. We have held that these two constitutional provisions requiring tax uniformity are to be read together. State ex rel. v. Malheur County Court, 185 Or. 392, 411, 203 P.2d 305 (1949).
The two provisions, however, are not identical. Although article IX, section 1 requires uniform taxation, the specific requirement of territorial uniformity is expressed in article I, section 32. If the City taxes do not violate the territorial requirement of article 1, section 32, then the taxes do not violate article IX, section 1, in that respect.
Furthermore, article 1, section 32, applies to all taxation, state and local, while article IX, section 1 appears to apply only to those taxes that operate throughout the state. Taxes levied by a city, such as those in the instant case, do not operate throughout the state.
"The rule only requires that taxation shall be uniform within the limits of the authority levying the tax, that is, that a tax levied for state purposes shall be uniform throughout the state, a tax levied for county purposes shall be uniform throughout the county, and so on. In some of the constitutions this rule is expressly stated, but where it is not thus expressly stated the constitutions are interpreted in conformity with it.
"There is uniformity and equality of assessment and taxation where the same basis of assessment is fixed for all property, and the same rate of taxation is fixed within the district subject to taxation. If it be a tax for state purposes, there is equality and uniformity where the rate is the same throughout the state; if for county or township purposes there is equality and uniformity where the rate is the same throughout the county or township. So long as this result is reached, it makes little or no difference by how many or by what agencies it is accomplished." Gray, Limitations of Taxing Power and Indebtedness § 1351b at 670 (1906). (Footnotes omitted.)
See also, Cooley, Constitutional Limitations 726 (7th ed. Lane 1903):
It is interesting to note, however, that decisions of this court prior to 1917, that recognized and applied the rule of territorial uniformity of taxation, nevertheless permitted some territorially defined differentials in taxation. See, e.g., Johnson v. Jackson County, 68 Or. 432, 136 P. 874 (1914); City of East Portland v. County of Multnomah, 6 Or. 62 (1876). Other state courts also permitted some exception to the requirement of territorial uniformity. See e.g., Watkins v. Barrow, 121 Va. 236, 92 S.E. 908 (1917); Daly v. Morgan, 69 Md. 460, 16 A. 287 (1888).
In one comprehensive study of constitutional provisions requiring uniformity of taxation, the author dismissed the importance of a territorial uniformity requirement in the following words:
Thus, we did not hold that all taxation must be uniform throughout the taxing district; we merely held that a tax that is uniform throughout the taxing district is constitutional. Our statements in Malheur County, that a tax must be uniform within the territorial limits of the authority levying the tax and that the rate of taxation must be uniform throughout the taxing district, were only dicta. We note in particular that Yamhill County, was decided prior to the 1917 amendments to article I, section 32, and article IX, section 1.
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