Must Oregon dedicate corporate minimum tax revenue from gas-station companies to the highway fund under Article IX, section 3a?

Plain-English summary

Oregon's Constitution dedicates revenue from any tax "levied on, with respect to, or measured by" motor vehicle fuel sales exclusively to highway purposes (Article IX, section 3a). The Department of Revenue asked the AG whether Oregon's corporate minimum tax (ORS 317.090) qualifies as one of those dedicated taxes for corporations whose Oregon sales include motor vehicle fuel.

Attorney General Ellen F. Rosenblum's office said no. ORS 317.090 imposes a flat-tier minimum tax based on a corporation's total Oregon sales, not on its fuel sales specifically. A corporation with $50 million in Oregon sales pays $50,000 whether those sales are fuel, hardware, or insurance. The fact that a particular corporation happens to sell motor vehicle fuel does not transform a general business-privilege tax into a fuel tax.

The opinion drew on Northwest Natural Gas v. Frank, where the Oregon Supreme Court interpreted parallel "levied on, with respect to, or measured by" language for oil and natural gas (Article IX, section 3b) and rejected a similar dedication theory.

Currency note

This opinion was issued in 2017. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Historical summary

What was at stake

In 2010 Oregon voters approved Measure 67, which sharply increased the corporate minimum tax. Where the prior minimum was $10, the post-Measure 67 minimum tier ranged from $150 (under $500K Oregon sales) up to $100,000 (over $100 million Oregon sales). With aggregate corporate minimum tax revenue running into the tens of millions of dollars annually, even a partial constitutional carve-out for the fuel-selling subset of corporations would have shifted real money into the Highway Fund and out of the General Fund.

How the AG reasoned through it

The AG applied the constitutional-interpretation framework from State v. Harrell (voter intent, looking at text, context, and history). The constitutional text, "any tax levied on, with respect to, or measured by" the sale of motor vehicle fuel, demands a connection between the tax and fuel sales. The corporate minimum tax has no such connection: it does not refer to fuel, does not measure tax due by fuel quantity, and does not exempt non-fuel corporations.

The opinion turned to Northwest Natural Gas v. Frank, where the Oregon Supreme Court read parallel language in section 3b (oil and natural gas) and rejected the argument that a generally applicable corporate tax becomes a "tax measured by" oil sales merely because some taxpayers happen to sell oil. The same logic applied here.

What this meant at the time

The opinion settled a recurring revenue-allocation question: corporate minimum tax receipts continued to flow to the General Fund and were available for general government purposes. Highway-funding advocates seeking to expand dedicated transportation revenue had to look to other vehicles, like the regular motor vehicle fuel tax in ORS 319 or transportation-package legislation, rather than carving out a piece of corporate excise.

Common questions

Q: What is the Oregon corporate minimum tax?
A: A flat tax that all corporations with Oregon sales pay for the privilege of doing business, regardless of whether they show taxable income. Tier-based, ranging from $150 to $100,000 depending on Oregon sales volume. Codified at ORS 317.090.

Q: What is Article IX, section 3a's dedication?
A: The Oregon Constitution requires that revenue from any tax "levied on, with respect to, or measured by" the sale of motor vehicle fuel be used solely for highway purposes. It is one of the strongest dedications in the constitution.

Q: Could a corporation that sells gas argue its minimum-tax bill is partly fuel-tax?
A: Not under the AG's reading. The minimum tax is calculated on total Oregon sales, not on fuel sales. The AG concluded the connection isn't there.

Q: Did this opinion bind the Department of Revenue?
A: AG opinions are persuasive, not binding. But for the Department of Revenue, this functioned as the AG's official guidance for allocating corporate minimum tax receipts.

Background and statutory framework

ORS 317.070 imposes the regular corporate excise tax measured by Oregon taxable income. ORS 317.090 imposes a minimum tax for corporations whose calculated 317.070 liability would be less than the minimum tier amount. ORS 317.850 routes corporate excise revenue (including the minimum tax) to the General Fund.

Article IX, section 3a's text was added in 1942 to lock in highway dedication of fuel taxes. The Oregon Supreme Court's reading in Northwest Natural Gas established that the language requires a real nexus, not just an incidental overlap of payor and product.

Citations and references

Statutes:
- ORS 317.090 (corporate minimum tax, post-Measure 67)
- Or. Const. art. IX, § 3a (highway dedication)

Cases:
- Northwest Natural Gas v. Frank, 293 Or 374 (1982)
- Pacific First Federal Savings Bank v. Department of Revenue, 308 Or 332 (1989)
- State v. Harrell, 353 Or 247 (2013)

Source

• Index page: https://www.doj.state.or.us/oregon-department-of-justice/office-of-the-attorney-general/attorney-general-opinions/
• Original PDF: https://www.doj.state.or.us/wp-content/uploads/2017/04/op2017-1.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain — the linked PDF is authoritative.

FREDERICK M. BOSS
Deputy Attorney General

ELLEN F. ROSENBLUM

Attorney General

DEPARTMENT OF JUSTICE
GENERAL COUNSEL DIVISION

April 14, 2017
SENT VIA EMAIL ONLY: Jason. [email protected]

Jason Larimer

Corporation and Estate Section
Oregon Department of Revenue
955 Center Street NE

Salem, OR 97301

Re: | Opinion Request OP-2017-1
Dear Mr. Larimer:

The Department of Revenue (department) asked a question relating to the use of corporate
minimum tax revenues. The department’s question is set out below, followed by our short
answer and a discussion.

QUESTION

Is the corporate minimum tax imposed under ORS 317.090 a “tax levied on, with respect
to, or measured by” the sale of motor vehicle fuel for purposes of Article IX, section 3a, of the
Oregon Constitution as to receipts by corporations that sell motor vehicle fuel?

SHORT ANSWER

No. We conclude that receipts from the minimum tax under ORS 317.090 are not the type
of “highway user taxes” that are dedicated to highway purposes under Article IX, section 3a.

DISCUSSION

1. Opinion Summary

Corporations are subject to an excise tax for the privilege of doing business in Oregon.
ORS chapter 317 (Corporate Excise Tax Law). The tax generally is calculated as a percentage of
Oregon taxable income. ORS 317.070. Sometimes corporations — even those with sizable
Oregon sales - have little or no “taxable” income. Those corporations still must pay a
“minimum” tax for the privilege of doing business in Oregon. ORS 317.090.

Jason Larimer
April 11, 2017
Page 2

The minimum tax is a flat $150 for all S corporations. ORS 317.090(2)(b). The amount
a C corporation owes depends on which dollar range the corporation’s Oregon sales fall into.”
C corporations having less than $500,000 in Oregon sales, for example, must pay $150, while a
corporation having sales between $10 million and $25 million must pay $15,000.
ORS 317.090(a)(A),(H). The minimum tax peaks at $100,000 for corporations having $100
million or more in Oregon sales. ORS 317.090(a)(L).

Revenue from corporate excise taxes, including the minimum tax, primarily goes into the
General Fund and is available to be used for any government purposes. ORS 317.850. No part
of the receipts are directed by statute to the Highway Fund. An Oregon constitutional provision,
Article [X, section 3a, on the other hand, requires that revenue from “[a]ny tax levied on, with
respect to, or measured by” the sale of motor vehicle fuel be used solely for highway purposes.
The department asks whether Article [X, section 3a, requires that proceeds from the minimum
tax imposed on corporations whose revenues include sales of motor vehicle fuel be used for
highway purposes.”

The answer depends on whether the minimum corporate excise tax is a “‘tax levied on,
with respect to, or measured by” the sale of motor vehicle fuel. We conclude that it is not. The
corporate minimum tax statute does not directly levy a tax on the sale of motor vehicle fuel, refer
to the sale of motor vehicle fuel at all, or measure the tax due by the amount of motor vehicle
fuel sold. Rather, ORS 317.090 establishes a minimum corporate excise tax for the privilege of
doing business in Oregon that applies to any corporation that owes more under its method of
calculation than it would owe using the calculation in ORS 317.070. Although the amount owed
depends on which dollar range a corporation’s Oregon sales fall into, the fact that some corporate
taxpayers sell motor vehicle fuel does not thereby transform ORS 317.090 into a motor vehicle
fuel tax.

This interpretation accords with the Oregon Supreme Court’s interpretation of
substantially the same “tax levied on, with respect to, or measured by” language pertaining to
sales of oil and natural gas in Article IX, section 3b of the Oregon Constitution.

Northwest Natural Gas v. Frank, 293 Or 374, 648 P2d 1284 (1982).

2. Method for Interpreting Constitutional Provisions Adopted by Voters

The Oregon Supreme Court has a well-established method for interpreting constitutional
provisions adopted by the voters. The goal is to discern the intent of voters who adopted the
constitutional provision. State v. Harrell, 353 Or 247, 254-55, 297 P3d 461(2013). Generally,
the best evidence of the voters' intent is the text and context of the constitutional provision itself.
Id. The context of a constitutional provision includes its historical context, including related
statutes and regulations that existed at the time it was adopted. State v. Sagdal, 356 Or 639, 642,
343 P3d 226 (2015). Context also includes related ballot measures submitted to the people at the
same election. Ecumenical Ministries vy. Oregon State Lottery Commission, 318 Or 551, 559,
871 P2d 106 (1994). Ifthe intent of the voters is not clear from the text and context of an
initiated provision, the court examines the history of the provision. Jd. In addition:

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April 11, 2017
Page 3

“[C]aution must be used before ending the analysis * * * without
considering the history of the constitutional provision at issue.” * * *. The history
of a referred constitutional provision includes “sources of information that were
available to the voters at the time the measure was adopted and that disclose the
public's understanding of the measure,” such as the ballot title, arguments
included in the voters' pamphlet, and contemporaneous news reports and
editorials.

State v. Sagdal, 356 Or at 642-643 (internal citations omitted).
3. Corporate Excise Statutes

ORS chapter 317 is the Corporation Excise Tax Law. ORS 317.005. ORS 317.070
imposes an excise tax measured by a corporation’s Oregon taxable income.”

But some corporations doing business in Oregon — even a sizable business - do not have
any taxable net income. This does not excuse such a corporation from excise tax liability.” “A
corporation that carries on business within Oregon must pay a minimum Excise Tax even though
it does not generate a net income.” Pacific First Federal Savings Bank v. Department of
Revenue 308 Or 332, 338, 779 P2d 1033 (1989). That requirement is currently codified in
ORS 317.090.

From 1931 to 2009, that minimum tax was $10. Or Laws 1931, ch 372, § 4. In 2010, the
voters approved Ballot Measure 67, which amended ORS 317.090 to provide, in part:

• OK OK OK OK

(2) Each corporation or affiliated group of corporations filing a return under
ORS 317.710 shall pay annually to the state, for the privilege of carrying on or
doing business by it within this state, a minimum tax as follows:

(a) If Oregon sales properly reported on a return are:

(A) Less than $500,000, the minimum tax is $150.

(B) $500,000 or more, but less than $1 million, the minimum tax is $500.

(C) $1 million or more, but less than $2 million, the minimum tax is $1,000.
(D) $2 million or more, but less than $3 million, the minimum tax is $1,500.
(E) $3 million or more, but less than $5 million, the minimum tax is $2,000.

(F) $5 million or more, but less than $7 million, the minimum tax is $4,000.

(G) $7 million or more, but less than $10 million, the minimum tax is $7,500.
(H) $10 million or more, but less than $25 million, the minimum tax is $15,000.
(1) $25 million or more, but less than $50 million, the minimum tax is $30,000.
(J) $50 million or more, but less than $75 million, the minimum tax is $50,000.
(K) $75 million or more, but less than $100 million, the minimum tax is $75,000.
(L) $100 million or more, the minimum tax is $100,000.

Jason Larimer
April 11, 2017
Page 4

(b) If a corporation is an S corporation, the minimum tax is $150.

(3) The minimum tax is not apportionable (except in the case of a change of
accounting periods), and is payable in full for any part of the year during which a
corporation is subject to tax.

(Emphasis added.)

“Oregon sales” for purposes of ORS 317.090 is defined as the taxpayer’s total Oregon
sales as determined for apportionment purposes in the Oregon sales factor, either under
ORS 314.665 or as defined by department rule. ORS 317.090(1). “Sales” means “all gross
receipts of the taxpayer that are apportionable and not allocated to a particular state.”
~ ORS 314.610(7). “Sales” include sales of both tangible and other than tangible property. ORS
314.665. Hence, Oregon sales for purposes of ORS 317.090 are apportionable gross receipts and
include sales of tangible and other than tangible property.

We must therefore examine the interplay between the corporate minimum tax statute and
Article IX, section 3a.

4, Article IX, Section 3a, of the Oregon Constitution and the Corporate Minimum Tax
a. Text

Article [X, section 3a, of the Oregon Constitution, among other things, dedicates
revenues from taxes on motor vehicle fuel sales to highway and road purposes:

(1) Except as provided in subsection (2) of this section, revenue from the
following shall be used exclusively for the construction, reconstruction,
improvement, repair, maintenance, operation and use of public highways, roads,
streets, and roadside rest areas in this state:

(a) Any tax levied on, with respect to, or measured by the storage,
withdrawal, use, sale, distribution, importation or receipt of motor vehicle fuel or
any other product used for the propulsion of motor vehicles|.]

(Emphasis added).

ORS 317.090 does not, on its face, levy a tax on the sale of motor vehicle fuel — it
expressly levies a tax on corporations “for the privilege of carrying on or doing business [in
Oregon].” Nor is the tax measured by the sale of motor vehicle fuel. The tax is measured by the
range into which any corporation’s apportionable sales or gross receipts fall. Gross receipts
include, but are not limited to, sales of the taxpayer’s product. And even if a particular taxpayer
sells motor vehicle fuel, the tax is not measured by the amount of fuel the taxpayer sells, nor
even directly by the dollars it collects. Because taxpayers may charge different amounts for
motor vehicle fuel, two taxpayers selling the same amount of fuel might generate different sales

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April 11, 2017
Page 5

dollars and owe different minimum tax amounts. Nor does ORS 317.090 expressly require or
necessarily imply that taxpayers must account for the amount of motor vehicle fuel they sell to
compute the tax — the Oregon sales as defined above are all that is required to compute the tax.

In addition, ORS 317.090 does not impose the minimum tax as an incremental direct tax
on or measured by every dollar of gross income from a corporation’s Oregon sales. Instead, the
corporation either pays the flat $150 or a different set amount that increases with the dollar range
into which the corporation’s Oregon sales fall.

It is not as clear based on text alone whether ORS 317.090 imposes a tax “with respect
to” the sale of motor vehicle fuel. “With respect to” means “‘as regards: insofar as concerns: with
reference to.” WEBSTER’S THIRD NEW INT’L DICTIONARY at 1934 (unabridged 2002).’

ORS 317.090 does not “refer to” sales of motor vehicle fuels at all. It does not single out those
sales for taxation, but applies generically to the sales of all corporations without regard to what
they sell. By its express terms, ORS 317.090 is imposed on and concerns the privilege of doing
business in Oregon, not the sale of motor vehicle fuel. It thus does not appear to concern the sale
of motor vehicle fuel but, rather, how much business a corporation does in Oregon. |

On the other hand, ORS 317.090 would be a tax “with respect to” sales of motor vehicle
fuel if that language was intended in the broadest possible sense to mean a tax that has any
connection to the sale of motor vehicle fuel. The precise question for purposes of this opinion is
whether a tax “with respect to” the sale of motor vehicle fuels means a minimum tax imposed
generically on all corporations for the privilege of doing business in Oregon, that does not refer
to motor vehicle fuel sales or single out those sellers, if the amount which a taxpayer owes is
determined by the category into which the dollar amount of its Oregon apportionable gross
receipts fall, to the extent that the corporation’s gross receipts can be attributed to sales of motor
vehicle fuel. We turn to the context and history surrounding Article IX, section 3a for guidance
to answer that question.

b. Historical Context and History
(1) Gasoline tax statutes 1919-1942

In 1919, with the emergence of the automobile, Oregon became the first state in the
nation to impose a gasoline tax on motor vehicle fuel sales and distribution. City Club of
Portland, Bulletin, Report on Constitutional Amendment Limits Users of Gasoline and Highway
User Taxes, April 11, 1980, at 195-196. The gasoline tax was a true user tax, with road users
paying in direct proportion to how much they used the roads. /d. at 195. The construction and
maintenance of roads and highways was deemed to be “of an immense benefit to the persons
operating” motor vehicles. Or Laws 1919, c 159, preamble. Gasoline taxes were imposed as a
“license tax” of one cent per gallon on motor vehicle fuel. See Or Laws 1919, c 159 (imposing a
one-cent per gallon license tax on motor vehicle fuel). By 1941, the tax had risen to five cents
per gallon. Oregon Compiled Laws Annotated (1941), title 100, c 17. The gasoline tax statutes
dedicated revenues from taxes “levied from gasoline” to highway uses. Or Laws 1919, c 159,
OCLA (1941), title 100, ch 1.

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April 11, 2017
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(2) Enactment history of Article [X, section 3

Because gasoline taxes were originally dedicated to highway purposes only by statute,
people feared the legislature could too easily divert revenues from highway uses into the General
Fund. This prompted the people to enshrine in the constitution the requirement to use gasoline
taxes only for highway purposes. State ex rel Sprague v. Straub, 240 Or 272, 279, 400 P2d 29
(1965). The people added this requirement to the Oregon Constitution by adopting Article [X,
section 3 in 1942.

The ballot title for the amendment stated its purpose to be to ensure that “proceeds from
any taxes levied on storage, withdrawal, use, sale, distribution, importation or receipt of motor
vehicle fuel” be used exclusively for the public highways. Voters’ Pamphlet for the Regular
General Election, November 3, 1942, at 10. (Emphasis added).

A legislative committee prepared the question, an explanation of the measure, and an
argument in favor for the Voters’ Pamphlet, all of which emphasized that the taxes to be
dedicated solely to highway purposes were those imposed only on highway users. Its Argument
In Favor explained the purpose of the amendment to be:

[T]o reassert and to write into the constitution of this state, the principle
underlying the gasoline tax and the other taxes on motor vehicle users which is,
that the revenues received from these taxes and imposed ONLY on such users
should be devoted solely to highway purposes as broadly conceived and defined
in our present laws.

Id., Argument in Favor by the Legislative Committee on SJR 11 at 11 (emphasis in
original). The argument cautioned that directing these funds to other purposes was unfair
because motor vehicle users “paid real and personal property taxes, income taxes, gift taxes,
school taxes, water taxes, sales taxes and all the rest, and IN ADDITION these special highway
user taxes, which [they] fully expected would be used on the highways.” (Emphasis in original).

The legislative committee stated the question to be ‘Shall the Constitution be amended
to guarantee that the gasoline, diesel fuel, ton mile and other taxes paid only by motor vehicle
users be used for highways, roads and streets * * *?’” Jd. (Emphasis added). The statement
explained that the amendment made “certain that the present policy of this state to use highway
user funds for highway purposes will be continued.” Jd. (Emphasis added). The Voters’
Pamphlet also explained that the amendment made no change to the existing law and involved
“no new or increased taxes.” Jd.

That historical context and history demonstrates that the voters understood Article IX,
section 3 to apply to “special highway user taxes” that the taxpayers would expect to fund the
construction and maintenance of the highways. It also shows that such taxes were considered to
be distinct from other income or sales taxes that taxpayers might also have to pay. Taxpayers
paid the highway user taxes roughly in proportion to their highway use. It further demonstrates
that the provision was intended to apply to taxes like the existing “gasoline tax,” which was

Jason Larimer
April 11, 2017
Page 7

imposed as a license tax of five cents per gallon on motor vehicle fuel. That tax expressly taxed
gasoline and was calculated as an amount per gallon sold. In sum, the historical context and
history strongly suggest that the provision was intended to apply only to taxes that distinctly and
explicitly tax motor vehicle fuel sales and users. The history does not suggest that the voters
intended the provision to apply expansively to taxes imposed generally on all corporations based
on their sales with no reference or attempt to single out motor vehicle fuel sales.

(3) 1980 Amendment — Article IX, section 3a

Article IX, section 3 was repealed in 1980 and replaced with Article IX, section 3a, but
the language pertinent to this opinion was unchanged. The history of the enactment reveals that
the purpose of the 1980 amendment was to remove some of the “highway related” uses of
highway funds, such as funding police and parks, not to change the nature of the taxes subject to
the limitation.

The amendment began as a joint legislative resolution (SJR 7), which was referred to and
adopted by the people. Rogers v. Lane County, 307 Or at 541-542. The Joint Legislative
Committee was appointed to craft the legislative argument in support of the referred measure and
the Oregon Supreme Court has relied on the argument as pertinent to construing the voters’ intent.
Id. at 542 n 6, 544. The voters’ pamphlet materials for the 1980 amendment characterized the
taxes subject to the constitutional provision as highway user taxes. The ballot title, explanatory
statement and argument in favor prepared by the Joint Legislative Committee referred to the
subject taxes as “gasoline taxes,” “taxes on motor vehicle fuels,” and “road user taxes.” See,
Voters’ Pamphlet, Measure 1 (SJR 7), Primary Election May 20, 1980, Ballot Title at 4 (referring
in the question to “gasoline, vehicle taxes”); Jd., Explanatory Statement at 4 (referring to “monies
derived from taxes on motor vehicles and motor vehicle fuels[.]”); Jd. Argument in Favor at 5
(referring to “gasoline taxes, weight mile taxes, and vehicle registration fees”).

The only other argument in favor of the measure in the Voters’ Pamphlet also referred to
the taxes dedicated to the Highway Fund as “road user” taxes, specifically “the gasoline tax,
vehicle registration fees and the truckers’ weight-mile taxes.” Id., Argument in Favor by the
Committee for Good Roads Again at 5. Other publications discussing the 1980 proposed
constitutional amendment similarly referred only to the gasoline tax, weight-mile tax and vehicle
registration fees as those “highway user taxes” dedicated to highway uses under the constitution.
See City Club of Portland Bulletin, Report on Constitutional Amendment Limits Uses of Gasoline
and Highway User Taxes, at 195-199.

The history surrounding the adoption of Article IX, section 3a, demonstrates the same
voter understanding of the motor vehicle fuel sales taxes to which the provision applied as the
history surrounding the adoption of the same language in Article IX, section 3. That intention
does not appear to have been to dedicate to the Highway Fund revenues raised from a tax statute
that neither directly and expressly targets the sale of motor vehicle fuel nor is measured directly
or specifically by the amount of fuel sold.

Jason Larimer
April 11, 2017
Page 8

We next examine pertinent case law and Attorney General Opinions, which corroborate
this view.

5. Pertinent Oregon Cases
   a. Northwest Natural Gas v. Frank

The Oregon Supreme Court has interpreted language used in Article IX, section 3b that is
substantially identical to the language in section 3a, and concluded that it did not apply to a tax
based on gross receipts. Section 3b is closely related to Section 3a and was adopted by Oregon
voters in the 1980 general election. (Ballot Measure 3, created through HJR 6 (1979), and
adopted by the people November 4, 1980). Article [X, section 3b, dedicates to the Common
School Fund the proceeds from taxes “levied on, with respect to or measured by” the sale of oil
and natural gas (excluding taxes that would be subject to Article LX, section 3a).

In Northwest Natural Gas v. Frank, 293 Or 374, 648 P2d 1284 (1982), the court
considered whether a statute that imposed an assessment on energy resource suppliers to fund
the Department of Energy violated Article IX, section 3b. The statute imposed the assessment
based on the number of units of energy sold by the supplier as a share of the total number of
units of energy sold by energy resource suppliers in Oregon. The legislation contained an
alternative mechanism to fund the Department of Energy if the court found the first assessment
to violate Article IX, section 3b. The alternative assessed energy resource suppliers based on the
ratio that the supplier’s “annual gross operating revenue” bore to the total Oregon gross
operating revenue of all energy suppliers.

The court held that the tax based on “units of energy sold” was measured by the sale of
oil and natural gas, which must go to the Common School Fund under Article [X, section 3b. Jd.
at 376. But the court held that the alternative tax “based on gross revenues was not subject to the
constitutional amendment.” Jd. at 379. In other words, the court construed a tax imposed only
on the suppliers of energy resources, the amount of which was determined by the supplier’s
gross operating revenues, vot to be a tax “levied on, with respect to, or measured by” the sale of
oil and natural gas. But a tax imposed on those same entities and measured by the “units of
energy sold” was such a tax.

The court’s interpretation of the language in section 3b is consistent with our
interpretation of substantially the same language in section 3a. That is, a tax “levied on, with
respect to, or measured by” the sale of motor vehicle fuel (or oil and natural gas) does not mean a
tax measured by gross receipts, rather than specifically by the sale of such fuels, even if gross
receipts for some taxpayers include the sale of those fuels. The corporate minimum tax has even
less connection to the sale of motor vehicle fuel than the tax at issue in Northwest Natural had to
the sale of oil or natural gas, because the latter was imposed only on energy producers.

Jason Larimer
April 11, 2017
Page 9

b. Automobile Club of Oregon v. State

Another case addressed whether an assessment measured by the receipt of motor vehicle
fuel into underground storage tanks was a tax measured by the storage of motor vehicle fuel under
Article LX, section 3a. Automobile Club of Oregon v. State, 314 Or 479, 488-489, 840 P2d 674
(1992). The underground storage tank assessment imposed the tax at a rate per gallon of motor
vehicle fuel intended for resale and stored in a storage tank. Or Laws 1991, ch 863, § 18. The
court held that tax to be a tax measured by the storage of motor vehicle fuel. The corporate
minimum tax is distinguishable from the underground storage tank assessment as it is a generally
applicable corporate tax imposed on the privilege of doing business in Oregon and not a tax
explicitly on the sale of motor vehicle fuel nor measured by the amount of gallons of motor
vehicle fuel sold.”

6. Attorney General Opinion

Last, we consider a pertinent opinion issued by this office. In that opinion, DEQ asked us
to evaluate for compliance with Article [X, section 3a, potential statutory mechanisms to assess _
businesses that contribute most to hazardous material spills, primarily dealers in motor vehicle
fuel, to be used to fund the leaking underground storage tank program. The first assessment
considered was measured by the “gross operating revenue” of the business. Citing Northwest
Natural Gas y. Frank, the opinion concluded that a tax on gross operating revenue (meaning
gross receipts from sales or services in the state) would not be subject to Article IX, section 3a.
Letter of Advice dated February 6, 1987, to Mr. Richard P. Reiter, Department of Environmental
Quality (OP-6066) at 3.

The opinion also concluded that an underground storage tank permit requirement “that was
not limited to tanks storing oil or motor vehicle fuel” would not be subject to Article IX, section 3a.
Id. On the other hand, if the fees were assessed “merely because of the storage of these products, or
if the size of the fee depended on the amount of fuel stored or passing into or out of the facilities,
then the funds must be dedicated to highway purposes.” Jd. (Emphasis added).”’ The opinion
further concluded that moneys derived from the corporate excise tax measured by net income were
not subject to Article IX, section 3a, because, although net income may be influenced by motor
vehicle fuel sales, it did not directly fall on the sale of those products. Jd. at 2.

That opinion construes Article IX, section 3a to apply only to taxes that specifically and
directly tax the storage of motor vehicle fuel and not to generally applicable taxes even as
imposed on those who store motor vehicle fuel. A tax on gross proceeds or net income, even as
applied to companies who store motor vehicle fuel in underground storage tanks is not a tax on
the storage of motor vehicle fuel.

Jason Larimer
April 11, 2017
Page 10

CONCLUSION
For the reasons discussed above, based on the text, context, legislative history, and
pertinent case law and attorney general opinions, we conclude that the corporate minimum tax is
not a tax levied on, with respect to, or measured by the sale of motor-vehicle fuel for purposes of

Article IX, section 3a of the Oregon Constitution.

Sincerely,
“>

General Counsel Division

MSC:saw:nog/pjn/DM8025094

“© corporation” means, with respect to any taxable year, a corporation which is not an S
corporation for such year. ORS 314.730(1). “S corporation” means, “with respect to any taxable year, a
corporation for which an election under section 1362(a) of the Internal Revenue Code is in effect for such
year.” ORS 314.730(2). Such an election by an eligible corporation means that the corporation itself
ordinarily does not pay federal income tax. Instead, the corporation's income, losses, deductions, and
credits are passed through to its shareholders.

/ Because Article IX, section 3a, governs the use of proceeds from the taxes to which it refers and
not the collection of taxes, any challenge would not be to the corporate minimum tax itself, but to
ORS 317.850, the statute dedicating its proceeds to the General Fund. See Budget Rent-A-Car of
Washington-Oregon Inc. v. Multnomah Cty, 287 Or 93, 99, 597 P2d 1232 (1979) (‘Article IX, section 3,
by its express terms governs the use of the proceeds from the taxes to which it refers, not the collection of
the taxes.”)

ORS 317.070 provides:

Every centrally assessed corporation, the property of which is assessed by the Department of
Revenue under ORS 308.505 to 308.681, and every mercantile, manufacturing and business
corporation and every financial institution doing business within this state, except as provided in
ORS 317.080 and 317.090, shall annually pay to this state, for the privilege of carrying on or
doing business by it within this state, an excise tax according to or measured by its Oregon
taxable income, to be computed in the manner provided by this chapter, at the rate provided in
ORS 317.061.

(Emphasis added). Under ORS 317.061, the tax is imposed as a percentage of taxable or “net” income.
The “Excise Tax is a tax on corporations that do business within the state * * * measured by net income
as statutorily defined.” Pacific First Federal Sav. Bank v. Department of Revenue, 308 Or 332, 337,
779 P2d 1033 (1989) (emphasis in original). “[T]he Excise Tax ‘is not a tax on net income, but rather is a
tax on the privilege of doing business.’” Jd.

Jason Larimer
April 11, 2017
Page 11

“’ The predecessors to both ORS 317.070 and ORS 317.090 were originally enacted as part of the
same section of the Corporate Excise Tax Law, which provided in relevant part:

(a) Every mercantile, manufacturing and business corporation doing or authorized to do
business within this state, except as hereinafter provided, shall annually pay to this state,
for the privilege of carrying on or doing business by it within this state, an excise tax
according to or measured by its net income, as herein defined, to be computed in the
manner hereinafter provided * * * Jn any event, each such corporation shall pay annually
to the state, for the said privilege, a minimum tax of $25.

Or Laws 1929, c 427, § 6. Thus, the corporate excise tax measured by net income and the minimum
corporate excise tax have always been closely tied and have been imposed on corporations for the
privilege of carrying on or doing business in the state since they were enacted.

• This definition of “sales” applies for purposes of both the minimum tax and the corporate excise
  tax measured by net income.

• For the sake of simplicity, we refer to motor vehicle fuel as including any other product used
  for the propulsion of motor vehicles.

” We use the modern dictionary even though the language was first adopted in 1942 and later re-
adopted in 1980, because the dictionary definitions have not changed appreciably.

• The Ohio Supreme Court has held a “Commercial Activity Tax” on corporations measured by
  gross income to be subject to Ohio’s analogue to Article IX, section 3a. Beaver Excavating Company et
  al. vy. Testa, 983 NE 2d 1317, 1326 (2012). For four reasons we conclude that this decision does not
  provide helpful guidance for construing the pertinent Oregon laws. First, the Ohio decision is
  inconsistent with the Oregon Supreme Court’s holding in Northwest Natural Gas that a tax based on
  gross revenues is not subject to Article IX, section 3b. See also, Sprague v. Straub, 240 Or at 279
  (holding that “[t]he highway money involved [under Article [X, section 3a] is derived from gasoline taxes
  and other vehicle fees and licenses.”). Second, we construe Oregon’s language in the light of its historical
  context and history, which demonstrates a narrower understanding of the taxes to which the Oregon
  provision applies than the Ohio court determined applied to the Ohio provision. Third, the Ohio statute
  was largely a direct tax imposed as a percentage of a company’s gross revenues. As discussed,

ORS 317.090 does not impose a direct tax measured by sales. And, lastly, the language of the Ohio
provision is different from the language of Oregon’s provision as the Ohio provision applies to “moneys
derived” from taxes “relating to” motor vehicle fuel sales. Beaver Excavating, 983 NE 2d at 1326.

*” The legislature subsequently imposed an underground storage tank assessment assessing a fee
of a penny per gallon of motor vehicle fuel deposited into an underground storage tank. The Attorney
General opined that the assessment was not a “tax,” a conclusion subsequently rejected by the Oregon
Supreme Court in Automobile Club of Oregon v. State, 314 Or at 485 (holding the “assessment” to bea
“tax” measured by the receipt of motor vehicle fuel into storage tanks” subject to Article IX, section 3a).