In 2010 and 2011, Health Net, Inc., and its subsidiaries (collectively "taxpayer") sought a refund for tax years 2005 to 2007, claiming that ORS 305.655 had created contractual obligations, which the 1993 law impaired in violation of the state and federal contract clauses. The Tax Court rejected that claim, holding that ORS 305.655 created only statutory rights, which the legislature was free to modify. In doing so, the Tax Court aligned Oregon with all the state courts that have addressed this issue. We now affirm the Tax Court's judgment.
A. National developments
In 1957, the National Conference of Commissioners on Uniform State Laws promulgated a uniform act-the Uniform Distribution of Income for Tax Purposes Act (UDITPA)-to provide a fair way to apportion income earned by multistate businesses among the various states. Arthur D. Lynn, Jr., The Uniform Division of Income for Tax Purposes Act ,
In 1959, two years after the National Conference of Commissioners on Uniform State Laws promulgated UDITPA, the United States Supreme Court confirmed that states constitutionally may tax income derived exclusively from interstate commerce. Northwestern Cement Co. v. Minnesota ,
The decision in Northwestern Cement Co. led to two related but separate congressional responses. First, six months after Northwestern Cement Co. was decided, Congress enacted a statute that precluded a state from taxing an out-of-state corporation's income when the corporation's only activity within the state was either soliciting sales or using an independent contractor to solicit those sales. James E. Sabine, Constitutional and Statutory Limits on the Power to Tax , 12 Hast. L.J. 23, 24-27 (1960) (summarizing federal legislation). Second, Congress appointed a commission to study whether further federal measures were necessary to avoid unduly burdensome taxation of multistate businesses.
Among other things, the resulting study noted that there was a "widespread adoption of the three-factor property-payroll-sales formula" for apportioning income. State Taxation of Interstate Commerce: Report of the Special Subcommittee on State Taxation of Interstate Commerce , H.R. Rep. No. 88-1480, at 119 (1964). The study also noted, however, that there were variations in the way that sales were allocated to states, and Congress considered legislation that would have limited the states' authority to tax multistate business income.
By 1967, 19 of the 38 states that taxed income earned by multistate businesses had adopted "most or all of [UDITPA's] provisions." Keesling & Warren,
Article VI creates the Multistate Tax Commission, which is composed of representatives from member states and funded by donations and grants.
Two other articles provide additional means for enhancing the uniform application of state tax laws. Article VIII permits a member state to ask the commission to audit a corporation's books, papers, and records, but "only in those party States that specifically provide therefor by statute." Art. VIII, § 1. Article IX provides for arbitration of a state agency's determination regarding apportionment or allocation if the commission adopts a regulation "placing this Article in effect." Art. IX, § 1. California enacted the MTC on the condition that Article IX not be placed in effect, and that article is not in effect. Gillette Co. v. Franchise Tax Bd. ,
Finally, Article X provides that "[t]his compact shall enter into force when enacted into law by any seven States" and shall "become effective as to any other State upon its enactment thereof." Art. X, § 1. Article X also provides that "[a]ny party State may withdraw from this compact by enacting a statute repealing the same."
B. Oregon legislation
In 1965, the Oregon legislature enacted UDITPA. Or. Laws 1965, ch. 152; see ORS 314.605 to 314.675 (codifying UDITPA). Two years later, Oregon enacted the MTC. Or. Laws 1967, ch. 242, § 1; see ORS 305.655 (codifying the
Beginning in 1989, the legislature enacted a series of amendments to the apportionment formulas in Oregon's version of UDITPA, which progressively increased the weight given the sales factor. See Or. Laws 1989, ch. 1088, § 1 (increasing the weight given the sales factor from 33.33 percent to 50 percent); Or. Laws 2001, ch. 793, § 1 (increasing the weight given the sales factor to 80 percent); Or. Laws 2003, ch. 739, § 1 (increasing the weight given the sales factor to 90 percent). In 2005, the legislature completed that progression by providing that only the sales factor would be used to determine the percentage
Although the legislature modified the apportionment formulas set out in Oregon's version of UDITPA, the apportionment formulas set out in Article IV of ORS 305.655 remained unchanged. At first, that difference had no practical effect on multistate businesses. Under Article III of ORS 305.655, a multistate business could elect to have its taxable Oregon income determined using either the formulas set out in Article IV of ORS 305.655 or the modified formulas set out in Oregon's version of UDITPA.
C. Procedural background
Taxpayer is a multistate corporation that has been doing business in Oregon since at least 1989. In 2010, taxpayer filed refund claims with the Oregon Department of Revenue (the department) for the 2005 and 2006 tax years. In 2011, taxpayer filed a refund claim for the 2007 tax year. Taxpayer's refund claims rest on the following propositions: In enacting ORS 305.655 in 1967, the Oregon legislature entered into a contract with other states that enact the MTC.
II. ISSUES
This appeal presents essentially two issues. The first is whether the 1993 act eliminating
III. ORS 305.655
Taxpayer argues that, when the Oregon legislature enacted ORS 305.655 in 1967, it entered into a contract
Nationally, the proposition that underlies taxpayer's argument-that states that enact the MTC enter into a contract with each other-has given rise to two related but separate legal challenges. The first occurred five years after the MTC was drafted and circulated among the states. In 1972, corporations faced with an audit under Article VIII of the MTC argued that the MTC was an "Agreement or Compact" among the states within the meaning of the Compact Clause of the federal constitution and, as a result, was unenforceable because Congress had never approved it. See U.S. Steel Corp. v. Multistate Tax Comm'n ,
A second wave of litigation occurred when states that had enacted the MTC began modifying its terms. Taxpayers adversely affected by those modifications have filed a series of cases in the state courts claiming, as taxpayer does here, that the states that enacted the MTC had entered into a contract with each other and that later statutes modifying
No state court that has considered those claims has found that enacting the MTC gave rise to contractual obligations. See Graphic Packaging Corp. v. Hegar ,
At first blush, it would appear that only the latter group of cases would bear on the state-law contract question that this case presents. Although the issue presented in the second group of cases is virtually indistinguishable from the issue presented here, the United States Supreme Court's reasoning in U.S. Steel Corp. also warrants consideration. That decision laid the groundwork for much of the analysis that followed in the later state cases, even though the two sets of issues are not identical. We accordingly begin by describing the reasoning in U.S. Steel Corp. We then discuss
A. Decisions from other jurisdictions
1. United States Supreme Court: U.S. Steel Corp.
In U.S. Steel Corp. , a group of multistate businesses sought to avoid application of the audit provisions in Article VIII of the MTC on the ground that the MTC was unenforceable under the Compact Clause. That clause provides: "No. State shall, without the Consent of Congress, * * * enter into any Agreement or Compact with another State." U.S. Const., Art. I, § 10, cl. 3. Because Congress has not consented to the MTC, the question before the Court was whether the MTC was an "Agreement or Compact" within the meaning of the Compact Clause. In resolving that issue, the Court started from the proposition that the MTC's use of the label "compact" was not dispositive. U.S. Steel Corp. ,
Applying that standard, the Court explained that the MTC was not an "Agreement or Compact" subject to
"This pact does not purport to authorize the member States to exercise any powers they could not exercise in its absence. Nor is there any delegation of sovereign power to the [Multistate Tax] Commission; eachState retains complete freedom to adopt or reject the rules and regulations of the Commission. Moreover, as noted above, each State is free to withdraw at any time."
Id. at 473,
Although the Court's holding in U.S. Steel Corp. is limited to the Compact Clause, its reasoning reaches more broadly. As the Court described the rights and obligations created by the MTC, they resemble a uniform law rather than a contract among the states that enact it. As the Court recognized, the MTC does not create reciprocal obligations among the member states. Rather, each state that enacts the MTC can apply Articles III and IV of the MTC regardless of whether any other state adopts the MTC. Conversely, if any state that enacted the MTC later modified its terms or repealed it entirely, those actions would have no effect on the ability of another state to apply the apportionment formulas set out in Article IV to determine the portion of a multistate business's income that is subject to taxation in that state.
Put differently, each state can apply Articles III and IV independently, as is true of a uniform law. That conclusion is hardly surprising since Articles III and IV merely implement a uniform law, UDITPA, which individual states are free to adopt, modify, or repeal independently. Moreover, as the Court explained, in enacting the MTC, states do not delegate their sovereign power to a regulatory agency in return for binding rules that apply to multiple jurisdictions. Rather, the commission created by the MTC can only recommend rules, which member states are free to adopt or reject.
To be sure, in U.S. Steel Corp. , the Court did not reach the question whether states that enact the MTC enter into a binding contract with each other. However, the state courts that have decided that question have agreed, for reasons that parallel the reasoning in U.S. Steel Corp. , that no contract was formed. We discuss two of those state supreme court decisions before turning to Oregon law.
2. California Supreme Court: Gillette Co. v. Franchise Tax Bd.
The question before the California Supreme Court in Gillette was virtually identical to the question presented here: whether, in enacting the MTC, California entered into a binding contract with other states that enacted the MTC. Relying on what the United States Supreme Court described as three "classic indicia" of a binding compact in Northeast Bancorp v. Board of Governors ,
The court reasoned that the "[m]ost important" indicia of a contractual obligation-reciprocal obligations among the member states-was absent:
"The Compact's provision of election between the UDITPA or any other state formula does not create an obligation of member states to each other . Even if maintenance of the election provision in one member state might benefit taxpayers in another state, that benefit to the taxpayer applies whether the taxpayer is from a member or nonmember state. This application is more akin to the adoption of a model law rather than the creation of mutual obligations among Compact members."
3. Minnesota Supreme Court: Kimberly-Clark Corp.
The Minnesota Supreme Court took a different tack. It started from the proposition that, under Minnesota law, a statute will give rise to contractual obligations only if it does so in "unmistakable terms." Kimberly-Clark Corp. ,
"We find no unmistakable or express promise surrendering the State's legislative authority in section 290.171 as enacted in 1983. The statute did provide that the Compact is 'enacted into law,'Minn. Stat. § 290.171 (1984), and that a member state may withdraw from the Compact 'by enacting a statute repealing the same.'Id. , art. X. But nothing in the statute dictated the 'all or nothing' position advanced by Kimberly Clark. At best, the statute is silent, but it is well established that 'neither silence nor ambiguous terms in a contract will be construed as effecting a waiver of sovereign authority' [to modify a statute's terms]."
B. Oregon law
This court has long held that we "treat a statute as a contractual promise only if the legislature has clearly and unmistakably expressed its intent to create a contract." Moro v. State of Oregon ,
1. Text
Viewed functionally, the text of ORS 305.655 resembles a uniform law. As the other courts have held, Articles III and IV of ORS 305.655 do not create reciprocal rights and obligations. In enacting the MTC, Oregon did not grant a benefit to the residents of another state in return for that state granting a reciprocal benefit to residents of Oregon. See Northeast Bancorp ,
Not only are Articles III and IV functionally identical to a uniform law that each state may enact independently, but, as the United States Supreme Court explained, the MTC lacks a "delegation of sovereign power to the [Multistate Tax] Commission; each State retains complete freedom to adopt or reject [the Commission's proposed] rules." U.S. Steel Corp. ,
Taxpayer, however, points to other aspects of ORS 305.655, which it contends demonstrate that the legislature created contractual rights.
It is certainly true that many interstate compacts are contracts. See
The same conclusion follows from the contemporaneous use of the term "compact." At approximately the same time that the Council of State Governments was drafting the MTC in 1966, the term "compact" was being used to describe what were merely cooperative arrangements among states. Cf. David E. Engdahl, Characterization of Interstate Arrangements: When is a Compact Not a Compact? ,
Taxpayer argues additionally that ORS 305.655 contains procedural features that demonstrate that it creates contractual obligations. In our view, the strongest support for taxpayer's position is found in the prefatory language to ORS 305.655 and Article X. The prefatory language states that the MTC "is hereby enacted into law and entered into on behalf of this state." ORS 305.655. Article X provides that the compact goes into effect if six other states enact similar legislation. ORS 305.655, Art. X. It also provides that "[a]ny party state may withdraw from this compact by enacting a statute repealing the same."
However, saying that parts of ORS 305.655 are consistent with taxpayer's claim that ORS 305.655 created contractual obligations does not mean that the text of ORS 305.655 expresses that intent clearly and unmistakably. Rather, as explained above, other parts of ORS 305.655 point in a different direction. Not only are Articles III and IV of ORS 305.655 functionally no different from a uniform law, but the absence of reciprocal legislation and a regulatory commission also cut against the conclusion that the statute imposes contractual obligations. Given those competing considerations, we cannot say that the text of Articles III and IV clearly and unmistakably creates contractual obligations, which is the standard that taxpayer must meet to convert a statute into a contract.
Taxpayer argues, however, that the context of ORS 305.655 demonstrates that the 1967 Oregon legislature intended to create contractual obligations. The context on which taxpayer relies consists primarily of the legal backdrop against which ORS 305.655 was enacted. See Figueroa v. BNSF Railway Co. ,
Congress also considered legislation that would have imposed additional restrictions on the states' ability to tax income earned by multistate businesses. As taxpayer notes, to avoid those proposed restrictions, states sought to increase uniformity in state taxation. Toward that goal, more states adopted UDITPA. By 1967, 19 of the 38 states that taxed income earned by multistate businesses had adopted all or virtually all of UDITPA. Keesling and Warren,
Taxpayer infers from that context that, in adopting the MTC, states intended to enter into binding contractual obligations. However, that inference does not necessarily follow from the goal that taxpayer identifies. Rather, states could increase uniformity in taxation and thus attempt to ward off further
To be sure, a binding contractual agreement among the states could provide a more durable guarantee than
3. Legislative history
For the most part, the legislative history of ORS 305.655 focused on the goal that the statute was intended to serve-to forestall further congressional intervention in state taxation by making state taxes on multistate businesses more uniform. See Minutes, Joint Ways and Means Committee, H.B. 1124, Mar. 10, 1967, 92-93 (remarks of Sen. Morgan); Minutes, House Taxation Committee, H.B. 1124, Feb. 15, 1967, 1-2 (remarks of Paul Liniger). As explained above, however, identifying that goal does not establish that, in enacting ORS 305.655, the Oregon legislature intended to enter into a binding agreement as opposed to collectively enacting a uniform law. Both forms of legislation advance the goal. At times, however, the legislative history touches on how the MTC, if enacted, would function, which sheds greater light on the issue presented here. We first set out the legislative history in greater detail and then explain why that history does not establish an unmistakable intent to enter into a binding contract.
House Bill (H.B.) 1124, which was codified as ORS 305.655, was proposed by the Oregon State Tax Commission and initially considered by the House Taxation Committee. Paul Liniger, the chair of the Oregon Tax Commission, described the process of drafting the MTC and provided information about other states' consideration of the MTC. Testimony, House Taxation Committee, H.B. 1124, Feb. 15, 1967 (Tape 24). He told the committee that enacting the
Liniger told the committee that the Governor's office had been apprised of the Tax Commission's efforts and was on board with the proposal.
Ted de Looze, an assistant attorney general for the Oregon Tax Commission and Oregon's representative on a working group on the MTC, also spoke in support of the bill.
"necessary to know something about [the two bills] in order to know what the choice you're making between congressional action and between state action and to knowthat the basic choice that you're making is between a restriction by Congress on the rights of the state to tax a corporation and the [authority] of the states to give corporations uniformity of treatment so that they're not subject to different types of enforcement laws and different rules and regulations under the laws and multiplicity of taxation."
Having framed the issue broadly, de Looze did not discuss the legal consequences if Oregon and six other
"if the states adopt the compact and Congress gives us an enabling act , then there's less likelihood that Congress will adopt [the pending federal legislation] because the states are showing that they will take care of the [uniformity] problems that Congress itself said exist."
The House Taxation Committee approved the bill, which then went to the Joint Ways and Means Committee. As in the House Taxation Committee, the members of the Joint Ways and Means Committee focused primarily on the reasons for enacting the bill-the threat of congressional intervention into state taxation and the possibility that more uniform state taxation would forestall federal intervention. Minutes, Joint Ways and Means Committee, H.B. 1124, Mar. 10, 1967, 92-93 (remarks of Sen. Morgan).
Beyond that, three exchanges before the Joint Ways and Means Committee arguably touch on the question presented here. The first involved a colloquy between Representative Bedingfield and de Looze:
"Representative Bedingfield asked whether anything that were done as to tax laws of Oregon would have to be ratified by the Legislature. Mr. Theodore W. de Looze, attorney for the Tax Commission, said basically the laws of the state would not be changed; that any substantive change would have to be ratified by the Legislature. Authority is delegated to the Compact to adopt uniform rules and regulations,[15 ] but the determination of who[m] Oregon would tax is a matter of substantive law determined by the Oregon Legislature. The basic purpose is to protect taxpayers from double taxation, and toprotect the states from having this done by the Federal Government."
That colloquy focused on the extent to which Oregon would retain authority to determine its own tax policy, and de Looze explained that "basically the laws of the state would not be changed." The colloquy could be read either broadly for the proposition that the Oregon Legislature would retain its customary authority to enact and modify its own tax laws or narrowly for the proposition that enacting the MTC would not change Oregon's tax laws because Article IV of the MTC would duplicate UDITPA, which Oregon had enacted two years earlier. The colloquy permits either interpretation.
The second interchange occurred when Representative Bedingfield asked "what the effect would be on agreements reached by the Compact, assuming the compact has been in existence [for a number of] years, and the state
The final interchange bears more directly on the issue presented here. The minutes state that, "[i]n response to Senator Newbry's question, Mr. de Looze said the Compact would have to be ratified by Congress, and a consent bill is being drafted." Id. at 93.
A similar discussion occurred before the Senate Taxation Committee. Liniger began by explaining the reasons for the act. He told the committee that the act would "facilitate determination of tax liability of multistate taxpayers, promote uniformity or compatibility, facilitate taxpayer convenience and compliance and avoid duplicate taxation." Minutes, Senate Taxation Committee, H.B. 1124, Mar. 21, 1967, 1. He said that three states had adopted the compact, that it "would become effective after seven state[s] adopt it. This is providing that Congress passes a consent act ." Id. (emphasis added). As we read Liniger's comments, he recognized, as de Looze had before the Joint Ways and
Similarly, de Looze told the Senate committee that the bill "would create uniformity in taxation" and that it was "hoped that the passage of this bill by the several states would persuade Congress to pass the consent legislation." Id. When Senator Cook asked "what binding effect this legislation would have on Congress," de Looze responded that "he would get this information from the Council of State Governments." Id. Two days later, de Looze wrote a letter to the Senate committee answering Senator Cook's question. The letter stated:
"The *** question was whether, if Congress enacted a consent Act and the Multistate Tax Compact were adopted by seven or more states and were thus in operation, Congress could subsequently enact federal legislation which would be in conflict with the Compact. I have checked with the attorney for the Council of State Governments and have talked to Assistant Attorney General Timothy Malone of the Washington State Tax Commissionand both agree that Congress could enact legislation at a subsequent date in conflict with the provisions of the Compact. This obtains because Congress is not party to the Compact in giving its consent, and also because the Contracts Clause in the United States Constitution is binding only on the states and not on the federal government."
Exhibit, Senate Taxation Committee, H.B. 1124, Mar. 21, 1967 (Mar. 23, 1967, letter from Theodore W. de Looze to Sen. Harry D. Boivin). In his letter, de Looze recognized that two conditions were necessary for the compact to go "in [to] operation": (1) the adoption of the MTC by seven states and (2) a "Consent Act" passed by Congress.
As noted above, for the most part, the legislative history focused primarily on the reasons for enacting the MTC, without specifying whether doing so would result in binding contractual obligations or merely uniform collective action by the states. However, a minor theme also runs through the legislative history. de Looze's testimony before the House Taxation Committee, Liniger and de Looze's testimony before the Senate Taxation Committee, and de Looze's
That understanding poses a difficulty for taxpayer's argument that the Oregon legislature intended to enter in a binding contract. If the MTC was the type of interstate compact that required congressional consent and Congress consented, then the compact's operative force would derive from federal law. See Cuyler v. Adams ,
To be sure, in 1978, 11 years after Oregon enacted the MTC, the Court held that the MTC was not the sort of interstate compact that required congressional approval to become effective. U.S. Steel Corp. ,
Considering the text, context, and legislative history of ORS 305.655, we cannot say that those sources clearly and unmistakably establish that the Oregon legislature intended to enter into a binding contract. Textually, the terms of the statute point in two directions. As discussed, the preface to
The concurrence would reach a different conclusion, although it ultimately agrees that taxpayer has no contractual right to enforce Article III. In our view, the concurrence's conclusion that, in enacting ORS 305.655, the 1967 legislature clearly and unmistakably intended to enter into a binding contract, misses the mark because it looks at only part of the picture. Textually, the concurrence focuses on the aspects of the MTC that favor its conclusion the legislature intended to enter into an agreement and concludes,
Similarly, the concurrence infers from the legislative history that the Oregon legislature intended to enter into an interstate compact, and it concludes from the context that the legislature would have been familiar with the workings of interstate compacts. However, the legislative history demonstrates that the Oregon legislature understood that the MTC was the type of interstate compact that required congressional consent to be effective. Nothing in the legislative history or the context of ORS 305.655 suggests that the Oregon legislature understood that the MTC was the sort of interstate compact that would be effective in the absence of congressional consent. If we assume, as the concurrence does, that the legislature would have been familiar with the workings of interstate compacts, then it follows that it also would have understood that, with congressional consent, the MTC would have the force of federal law. Without it, the MTC would violate the Compact Clause, leaving ORS 305.655 with at most only statutory force. We accordingly do not infer from the enactment of ORS 305.655, as the concurrence would, a clear and unmistakable intent to enter into a binding contract.
IV. STATE AND FEDERAL CONTRACT CLAUSES
Our conclusion that no contractual rights and obligations exist as a matter of state law is not necessarily the
V. ARTICLE IV, SECTION 22
Article IV, section 22, of the Oregon Constitution provides, in part:
"No. act shall ever be revised, or amended by mere reference to its title, but the act revised, or section amended shall be set forth, and published at full length."
Taxpayer contends that, when the 1993 legislature eliminated the right set out in Article III of ORS 305.655 to elect the apportionment formulas set out in Article IV of that statute, the 1993 act "revise[d] or amended" ORS 305.655 without setting out the full text of that statute, as the Oregon Constitution requires. The department responds that Article IV, section 22, applies only to acts that alter the text of an existing statute. Because the 1993 act did not alter the text of ORS 305.655 but impliedly repealed part of that statute, the department concludes that Article IV, section 22, does not apply.
Textually, Article IV, section 22, applies to acts that "revis[e] or amen[d]" an existing act. Or. Const., Art. IV, § 22. However, as this court has held for almost 125 years, Article IV, section 22, does not apply to acts that either expressly or impliedly repeal an act. Warren v. Crosby ,
Despite the 1893 act, the City of Astoria continued to assess and collect property taxes. When a taxpayer challenged the city's authority to do that, the city responded that the 1893 act was invalid because it had failed to comply with Article IV, section 22. In the city's view, the 1893 act violated Article IV, section 22, because the act did not set out the statutes that it repealed or superseded, including the statute incorporating the City of Astoria and authorizing it to assess and collect property taxes.
This court was not persuaded by the city's argument. It began by identifying the evil that Article IV, section 22, was intended to remedy: acts that amended or revised an existing law by setting out only the text that was being added to or omitted from the law.
"This evil, as is well known, was the practice of amending or revising laws by additions or other alterations, which, without the presence of the original law, were usually unintelligible. Acts were passed, amending existing statutes by substituting one phrase for another, or by inserting a sentence, or by repealing a sentence, or a part of a sentence, in some portion or section thereof, which, as they stood, often conveyed no meaning, and, without examination and comparison with the original statute, failed to give notice of the changes effected. By such means an opportunity was afforded for incautions and fraudulent legislation, and endless confusion was introduced into the law. Legislators were often deceived and the public imposed upon by such modes of legislation. To prevent these consequences, and to secure a fair and intelligent exercise of the law-making power, was the object of the constitutional provision in question."
Applying those criteria, the court explained that the 1893 act did not implicate Article IV, section 22. The act did not consist solely of a textual fragment that was being added to or omitted from an existing statute. Rather, the 1893 act was "complete" in that it expressed the legislature's policy choice to
The 1993 act at issue in this case is difficult to distinguish from the 1893 act at issue in Warren . In both instances, the challenged acts did not consist solely of textual fragments that were being added to or omitted from an existing statute. Rather, in both instances, the legislature either expressly or impliedly repealed part of one statute and replaced it with another. Taxpayer argues, however, that to comply with Article IV, section 22, as this court interpreted it in Warren , the 1993 act had to be "complete and perfect." In taxpayer's view, the 1993 act failed to meet that principle.
We reach a different conclusion. Before 1993, Article III of ORS 305.655 provided that a multistate business could elect to have its income apportioned using either the formulas set out in Article IV of ORS 305.655 or the apportionment formulas set out in Oregon's version of UDITPA. In 1993, the legislature provided:
"In any case in which the provisions of ORS 314.605 to 314.670 [Oregon's version of UDITPA] are inconsistentwith the provisions of ORS 305.655, the provisions of ORS 314.605 to 314.670 shall control."
Or. Laws 1993, ch. 726, § 20, codified as ORS 314.606 (1993).
The legislative policy choice embodied in the 1993 act to apply the apportionment formulas in Oregon's version of UDITPA rather than the apportionment formulas in Article IV of ORS 305.655 is no different from the policy choice embodied in the 1893 act to permit counties to assess taxes that school districts, towns, and cities previously had assessed. The 1993 act reflects a "complete and perfect" legislative choice to replace one set of apportionment formulas with another in much the same way that the 1893 act reflected a "complete and perfect" legislative choice to replace one taxing entity with another. The 1893 act did not run afoul of Article IV, section 22, and neither does the 1993 act.
For the foregoing reasons, we are not persuaded that the 1993 act violated Article IV, section 22, nor are we persuaded that applying that act to determine the portion of taxpayer's income subject to tax in this state violated the state or federal contract clauses.
The judgment of the Tax Court is affirmed.
Nakamoto, J., concurred in part and concurred in the judgment in part and filed an opinion in which Flynn and Duncan, JJ., joined.
NAKAMOTO, J., concurring in part and concurring in the judgment in part.
In 1967, Oregon entered into the Multistate Tax Compact of 1966 through legislation that was codified at former ORS 305.655 (1967), repealed by Or. Laws 2013, ch. 407, § 4. Taxpayer-Health Net, Inc., and its subsidiaries-conducts interstate business in Oregon and other states. In the Tax Court, taxpayer sought a refund from the Oregon
The majority explains that, "[v]iewed functionally," the MTC's text resembles a uniform law. Id. at 716,
As noted, I concur in the disposition-but on different grounds. Taxpayer is not a party to the Multistate Tax Compact of 1966. On appeal, taxpayer presses its refund claims based on (1) the express premise that the state was barred from enacting ORS 314.606 in 1993 because it contradicted and impaired a statutory contract provision in the MTC and (2) the implicit premise that taxpayer is a third-party beneficiary entitled to enforce the MTC's apportionment formula in Article IV, despite ORS 314.606. Taxpayer's position hinges on its contention that, as part of an interstate compact, the apportionment formula was necessarily binding on Oregon and prohibited later legislatures from effectively disabling it through adoption of ORS 314.606. Although the MTC was, and indeed remains, an interstate compact, I concur in the disposition because I conclude that taxpayer did not establish that the apportionment formula was unmistakably immutable absent complete withdrawal from the Multistate Tax Compact and that taxpayer was not an intended third-party beneficiary of the apportionment formula in former ORS 305.655 (1967). Therefore, I would affirm the Tax Court's judgment.
A. Background
During the tax years in question, Article III of the MTC provided that the taxpayer could apportion its multistate business income under the standard provided in Article IV of the MTC or another standard provided by Oregon law, at the taxpayer's election. In the tax years in question, the apportionment formula in Article IV was more advantageous to taxpayer than the formula in Oregon's uniform law concerning division of multistate business
However, according to the terms of another statute, ORS 314.606, taxpayer was prevented
Thus, ORS 314.606 rendered the election option in Article III of the MTC valueless because, under the terms of the statute, the apportionment formula in Article IV cannot be used when it conflicts with UDITPA's apportionment formula. In the Tax Court, taxpayer argued that ORS 314.606 violated provisions of the state and federal constitutions by impairing a statutory contract-the MTC-and that it was entitled to use the apportionment formula in the MTC. On cross-motions for summary judgment by taxpayer and the department, the Tax Court agreed with the department that the legislature's enactment of ORS 314.606 did not violate provisions of the state and federal constitutions. Health Net, Inc. v. Dept. of Rev. ,
1. The text of former ORS 305.655 (1967) establishes an interstate compact.
The text of the preamble in the MTC is itself compelling evidence that the legislature intended to enter into an interstate compact. Former ORS 305.655 introduces the Multistate Tax Compact by stating, "The Multistate Tax Compact is hereby enacted into law and entered into on behalf of this state with all other jurisdictions legally joining therein in a form substantially as follows[.]" Through that statement, the legislature unmistakably introduced what follows as an interstate compact-an agreement among states.
Beyond the fact that the legislature named the compact as such, the preamble's text further underscores that it is a compact by stating that the legislature has "entered into" the compact "on behalf of this state." Id. It is beyond dispute that a statute enacted by the Oregon Legislative Assembly is not "entered into." Rather, and commonly, a contract is "entered into." Moreover, the legislature's intention in entering into an agreement with other states that similarly enter into the compact could hardly be clearer: it declares that the compact is "entered into" "with all other jurisdictions legally joining therein in a form substantially as follows." Id. (emphasis added).
Other parts of the text of the MTC beyond the preamble unmistakably point to the legislative intention that the state enter into an interstate compact. For instance, as the majority acknowledges, Article X provides that "[t]his compact shall enter into force when enacted into law by any seven states" and shall "become effective as to any other state upon its enactment thereof." Former ORS 305.655 (1967), Art. X, § 1. Again, a model statute would not include a provision for its prospective effectiveness only if a required number of states also joined in its enactment. Nor would a model statute provide for later "withdrawal from this compact"-and specify the mode of withdrawal by repeal. But that is what Article X of the MTC further provides: a party state "may withdraw from this compact by enacting a statute repealing
And former ORS 305.655 (1967), Article XII, provides, among other things: "If this compact shall be held contrary to the constitution of any state participating therein, the compact shall remain in full force and effect as to the remaining party states and in full force and effect as to the state affected as to all severable matters." Like the text of other provisions noted, Article XII directly refers to other states that enter into the compact. There would be no need for a model statute to have to anticipate the effect of the invalidity of some aspect of one party state's enactment of the model statute and to declare the ongoing validity of the statute for all other "party states," because model statutes are just that: models. The states independently decide to what extent they will borrow from model statutes, such as those proposed by the Uniform Law Commission, perhaps best known for its Uniform Commercial Code, or by another body advocating adoption by the states. See, e.g. , Community Bank v. U.S. Bank ,
In sum, it is evident from a review of the text of former ORS 305.655 (1967) that, in 1967, the legislature would have understood and intended that it was entering
2. Context points to an interstate compact.
The context for interpreting a statute includes "the statutory framework within which the law was enacted," Denton and Denton ,
First, the Oregon Legislative Assembly does not preface its independent statutes by declaring that they are "entered into" or adopted or enacted "on behalf of this state," even when they are based on a uniform law. For example, the same 1967 Legislative Assembly that enacted former ORS 305.655 (1967) also enacted the Uniform Federal Lien Registration Act. See Or. Laws 1967, ch. 445, §§ 1-7 (codified as ORS 87.806, ORS 87.811, ORS 87.816, ORS 87.821, and ORS 87.826, which have since been amended). There was no introduction or other part of that uniform law as enacted that stated that the law was "entered into" or enacted "on behalf of" Oregon.
Second, the preamble's wording in the MTC echoes the wording of other compacts that the legislature had entered into before 1967. For example, the legislature enacted the Western Interstate Corrections Compact in 1959, Or. Laws 1959, ch. 290, §§ 2 to 8, and provided: "The Western Interstate Corrections
3. Legislative history confirms the plain meaning of the text.
If the text and context of former ORS 305.655 (1967) were alone insufficient, its legislative history supplies further, and in my view compelling, evidence for the case that the Legislative Assembly in 1967 intended to and did enter into, on behalf of Oregon, an interstate compact and not a model law.
The Legislative Assembly enacted former ORS 305.655 in 1967 as House Bill 1124. Or. Laws 1967, ch. 242, § 1. H.B. 1124 was first introduced in the House Taxation Committee on February 15, 1967. The Chairman of the State Tax Commission, Paul Liniger, introduced the bill by reading a statement expressing the tax commission's support of H.B. 1124 and describing the commission's activities preceding the bill's introduction. Minutes, House Taxation Committee, H.B. 1124, Feb. 15, 1967; Exhibit 1, House Taxation Committee, H.B. 1124, Feb. 15, 1967 (Remarks by Commissioner Liniger). Liniger's prepared remarks included informing the members of the House Taxation Committee that the tax commission had kept the Governor's office apprised of federal legislation concerning state taxation of multistate companies and the commission's efforts. He announced that "Governor McCall has recently expressed concurrence of his administration in the Commission's proposal of and support of the Tax Compact to this Legislature."
An Assistant Attorney General for the tax commission, Theodore de Looze, then testified in favor of the bill and gave a detailed explanation of the MTC and its introduction in other western states as part of an effort to limit federal government action in the area of interstate commerce regulation. Minutes, House Taxation Committee, H.B. 1124, Feb. 15, 1967.
Both Liniger's testimony and de Looze's testimony established that, under the auspices of the Council of State Governments, de Looze had actively participated in
The bill was approved by the House Taxation Committee during its meeting on February 20, 1967. Minutes, House Taxation Committee, H.B. 1124, Feb. 20, 1967. The bill next passed to the Joint Ways and Means Committee for discussion on Mar. 10, 1967, where it was introduced by Representative Lang. Minutes, Joint Ways and Means Committee, H.B. 1124, Mar. 10, 1967.
The Joint Ways and Means Committee discussed the purpose, cost, and effect of H.B. 1124, including potential ratification of the compact by Congress through a consent bill. Id. Representative Lang explained that
The committee also had the tax commission's written explanation of the bill. Exhibit 4, Joint Ways and Means Full Committee, H.B. 1124, Mar. 10, 1967 (Tax Commission's Explanation). The tax commission's explanation stated that the states had responded to the threat of federal legislation with a call for states to adopt existing uniform legislation, specifically the UDITPA, and with a call for preparation of a multistate compact:
"In January 1966, in response to the threat posed by the drafting of H.R. 11798, the states, as members of the National Association of Tax Administrators met at Chicago, Illinois, in executive session. The N.A.T.A adopted a resolution calling for state action in several areas. One was the adoption of legislation which would create better uniformity and equality of treatment between multistate taxpayers, such as the adoption of the Uniform Division of Income for Tax Purposes Act. This Act, which was adopted by Oregon in its 1965 legislative session, provides for the use of the so-called 'Massachusetts' or three-factor formula for the apportionment of net income through the use of property, payroll and sales. It was drafted by the National Conference of Commissioners on Uniform State Laws in 1957 and has received the approval of the American Bar Association and many other national organizations. Thirteen states have adopted this Act.
"In addition, the resolution called for the preparation [of] a multistate tax compact through which the states could effectively provide to the taxpayer uniformity of apportionment and avoidance of duplication of taxation, and ease of compliance through a simplified return for the small volume taxpayer.
"The Council of State Governments, which has had vast experience in the drafting of state compacts, volunteered its services for the task of drafting such a compact."
Finally H.B. 1124 arrived at the Senate Taxation Committee, where Liniger and de Looze again testified in support of the bill. Minutes, Senate Taxation Committee, H.B. 1124, Mar. 21, 1967. The Chairman of the Washington Tax Commission, George Kinnear, also presented testimony in support of H.B. 1124. He stated that Washington had already passed legislation to enact the compact and that it was extremely important for other states to adopt it to avoid federal intervention. Minutes, Senate Taxation Committee, H.B. 1124, Apr. 4, 1967.
At the hearing on March 21, 1967, de Looze was asked to answer two questions that came up concerning H.B. 1124. Exhibit 2, Senate Taxation Committee, H.B. 1124, Mar. 21, 1967 (Mar. 23, 1967, letter from Theodore W. de Looze to Sen. Harry D. Boivin). He answered those questions two days later in a letter to the chairman of the Senate Taxation Committee, Senator Harry Boivin. See id. Both the first question and de Looze's response reflect that the senators at the hearing well understood that H.B. 1124 would be entering into an interstate compact on behalf of Oregon.
As de Looze recounts, the first question he was asked was "whether, if Congress enacted a consent Act and the Multistate Tax Compact were adopted by seven or more states and were thus in operation, Congress could subsequently enact federal legislation which
"I have checked with the attorney for the Council of State Governments and have talked to Assistant Attorney General Timothy Malone of the Washington State Tax Commission and both agree that Congress could enact legislation at a subsequent date in conflict with the provisions of the Compact. This obtains because Congress is not party to the Compact in giving its consent, and also because the Contracts Clause in the United States Constitution is binding only on the states and not on the federal government.
"I am advised by the Council of State Governments, however, that at no time in the history of compacts has this occurred."
Id . (emphasis added). The emphasized portion of de Looze's answer makes it clear to the senators on the Senate Taxation Committee that the Contracts Clause in the federal constitution is "binding" on the states, and both the question and answer reflect the committee's sophistication regarding the contractual nature of a compact.
He ended his letter by urging the committee to act favorably on the bill, specifically noting the benefit of the audits of businesses that Oregon could obtain:
"Four states, Washington, New Mexico, Idaho and Arkansas, have enacted the Compact. One house has passed it in Kansas, Texas and Oregon. There appears to be good reason that it will become operative. I hope your committee will act favorably, as I believe it is beneficial to Oregon audits of taxpayers."
Id .
The Senate Taxation Committee approved H.B. 1124 on April 28, 1967. Minutes, Senate Taxation Committee, Apr. 28, 1967. After approval by the legislature, H.B. 1124 was signed into law by the Governor on May 5, 1967.
The bottom line of the majority opinion is that the 1967 Legislative Assembly did not know the contractual nature of an interstate compact and the import of its enactment of the MTC. I disagree with that remarkable conclusion. I note that the department does not go as far as the majority does, even as it defends against taxpayer's refund claims: The department does not dispute that the
In sum, the 1967 Legislative Assembly was not confused about intending to adopt a model statute rather than its actual entry on behalf of Oregon into an interstate compact-an agreement among Oregon and the other states that entered into it. Thus, I would hold that the legislature "has clearly and unmistakably expressed its intent to create a contract." Moro v. State of Oregon ,
Taxpayer asserts, and the majority seems to agree, that the answer to the question whether the MTC is an interstate compact is determinative as to whether taxpayer is entitled to use the apportionment formula in Article IV of the MTC. I disagree. In my view, the key issue is not whether the MTC is an interstate compact, but rather is more specific: whether taxpayer, a third party, was entitled to have its taxes determined by applying Article IV's apportionment formula in the face of the legislature's enactment of ORS 314.606 directing use of the UDITPA formula.
Taxpayer contends that it is entitled, under Article III of the MTC, to choose to use the apportionment formula in Article IV of the MTC because the state Contract Clause in Article I, section 21, of the Oregon Constitution renders ORS 314.606 unenforceable.
One of the holdings in Moro teaches that the individual terms of the MTC must be examined to determine whether the legislature unmistakably intended any particular
1. Compacts in general
As one of the few works on interstate compacts succinctly explains, an interstate compact is "a formal binding contract, authorized by or enacted as legislation, between two or more states in their capacity as states." Michael L. Buenger, Jeffrey B. Litwak, Richard L. Masters, and Michael H. McCabe, The Evolving Law and Use of Interstate Compacts , xxi (American Bar Association ed., 2d ed. 2016) (hereafter Interstate Compacts ). That treatise further explains that compacts "have the status of both contract and statutory law." Id. at 3; see also Green v. Biddle ,
"without a judicial or quasi-judicial determination of existing rights had been practiced in the Colonies, was practiced by the States before the adoption of the Constitution, and had been extensively practiced in the United States for nearly half a century before this Court first applied the judicial means in settling the boundary dispute in Rhode Island v. Massachusetts, [, 37 U.S. 657 (1838) ]." 9 L.Ed. 1233
(Footnotes omitted.) See also Interstate Compacts §§ 1.1 & 1.2 at 4-16 (describing the historical use of compacts and their place in the American federal system).
Compacts allow states to work together to address and to shape solutions to shared policy issues. States enact compacts to "address interests and problems that do not coincide nicely either with the national boundaries or with State
As the majority notes, some interstate compacts require approval from Congress, but some do not. The concept that not all interstate compacts require congressional consent is one of long standing. See, e.g. , Virginia v. Tennessee ,
Some compacts may have effects not just on the party states but also on "the population, the economy, and the physical environment in the whole of the compact area." Entergy Arkansas, Inc. v. Nebraska ,
"1. Facilitate proper determination of state and local tax liability of multistate taxpayers, including the equitable apportionment of tax bases and settlement of apportionment disputes.
"2. Promote uniformity or compatibility in significant components of tax systems.
"3. Facilitate taxpayer convenience and compliance in the filing of tax returns and in other phases of tax administration.
"4. Avoid duplicative taxation."
The MTC's stated purposes reflect, as taxpayer argues, that the MTC was designed to have some effect on taxpayers through "uniformity or compatibility in significant components of tax systems," but Article I does not express an intention to provide taxpayers with an immutable apportionment formula.
3. Moro v. State of Oregon
In Moro , this court held that a statute cannot be considered "as a contractual promise" unless "the legislature
Although the court in Moro was evaluating statutes that affected PERS members who claimed to be contractual parties with contract rights binding the state, the holding in Moro described above should apply equally as well to taxpayer in this case. Like the PERS members in Moro , taxpayer contends that an Oregon statute created its enforceable contractual right (in this case, it asserts, to elect and to apply the MTC's apportionment formula for purposes of its taxes), despite a later legislative enactment requiring that the UDITPA apportionment formula apply in case of any conflict between the two. Whether the 1967 Legislative Assembly did create such an enforceable contractual right should be a question of legislative intent, and taxpayer should have to meet the same "clearly and unmistakably expressed its intent" standard of legislative intent to bind future legislatures. That is due, in part, to the "canon of construction that disfavors interpreting statutes as contractual promises," Moro ,
Taxpayer's apparent answer is that by its very nature, a compact is a contract and so all the provisions of former ORS 305.655 (1967) are binding contractual terms that it may enforce. But that does not answer the precise inquiry required by Moro , namely, a review of the nature of
4. Articles III and IV
The department squarely addresses that precise question. First, the department correctly notes that the MTC does not expressly state one way or the other whether Oregon or other parties to the compact may unilaterally modify the apportionment formula available to multistate taxpayers through Articles III and IV. And, the department adds, the express withdrawal provision in Article X does not settle the matter by providing that a state "may withdraw from this compact by enacting a statute repealing the same." Thus, in the department's view, the 1967 Legislative Assembly did not evince an unmistakable intention to prevent future legislatures from limiting use of the apportionment formula in Article IV. In light of the overall weakness of the compact as drafted, I agree.
The Multistate Tax Compact was drafted so that, from the start, party states could enact a variety of tax bases, tax rates, and apportionment schemes, but through Article III, the compact gave taxpayers the choice of the UDITPA formula or other state apportionment formulas.
Under Oregon law, a lengthy course of performance under a contract can be used to discern the intention of the parties. In Tarlow v. Arntson ,
In accordance with their view of Articles III and IV, the department and various amici aligned with the department describe a course of performance by member states over a period of close to half a century that indicates that the party states did not consider the apportionment formula in Article IV to be immutable. Starting with Florida in 1971, see 1971 Fla. Laws, 51-52 (Special Session) (deleting Articles III and IV and adopting a two-factored apportionment formula), the member states have allowed each other to eliminate or override Articles III and IV while continuing as full
In view of the silence of the compact concerning amendment or overriding of Articles
5. Taxpayer is not an intended third-party beneficiary entitled to use the apportionment formula.
In addition to the problem taxpayer has with showing unmistakable legislative intent to create a binding obligation to provide taxpayer with the apportionment formula in Article IV, taxpayer's position does not account for its status as a nonparty to the MTC. I would hold that whether the apportionment formula in Article IV creates a contractual right enforceable by taxpayer, as opposed to a party state, remains a question of legislative intent. See Multistate Tax Comm'n v. Merck & Co., Inc. ,
According to the department, taxpayer, a member of the public, is only an incidental beneficiary of the MTC and is not entitled to enforce Articles III and IV after the enactment of ORS 314.606. The department and amici offer a variety of arguments supporting that position. In its reply brief, taxpayer asserts that it is an intended third-party beneficiary of Articles III and IV.
This court has relied on Restatement (Second) of Contracts , section 302 (1981), for the rule concerning who qualifies as an intended beneficiary of a promise. See Hale v. Groce ,
"Intended and Incidental Beneficiaries
"(1) Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either
"(a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or
"(b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.
"(2) An incidental beneficiary is a beneficiary who is not an intended beneficiary."
As used in section 302, a "promisee" is the person to whom a promise is addressed. Restatement (Second) of Contracts § 2(3). In the context of the MTC, the promisee and the promisor are member states of the compact. To establish that taxpayer is an intended beneficiary, taxpayer must establish that "recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties," i.e. , the member states, and that either of the two circumstances delineated in subsections (1)(a) and (1)(b) exist. Restatement (Second) of Contracts § 302(1).
Accordingly, taxpayer is an incidental beneficiary. See Restatement § 302(2). As comment
6. Decisions by other state supreme courts
Only three other state supreme courts have addressed the issue of the apportionment formula in Article IV, and two of them have decided the issue employing a similar analysis. The most recent decision by a high court of a member state concerning the apportionment formula in the Multistate Tax Compact is Graphic Packaging Corp. v. Hegar ,
The Texas Supreme Court did not conclude that Texas had not entered into an interstate compact. Rather, the court reviewed the terms of the compact, which it concluded were not like terms of a "binding regulatory compact."
Nor does Kimberly-Clark Corp. v. Comm'r of Revenue ,
Flynn and Duncan, JJ., join in this concurring opinion.
Notes
The legislature repealed ORS 305.655 in 2013. Or. Laws 2013, ch. 407, § 4. It replaced that statute with ORS 305.653, which omits two articles found in ORS 305.655. See Or. Laws 2013, ch. 407, § 2 (omitting Articles III and IV). ORS 305.655 was in effect at all times material to this case, and we refer to it throughout the rest of the opinion without designating it each time as former ORS 305.655 (1967).
Under the terms of the MTC, the commission may make "specific recommendations of the amounts to be appropriated" by each of the member states. Art. VI, § 4(b). However, the MTC does not expressly require member states to pay those recommended amounts. Rather, it provides only that the commission "may accept any and all donations and grants of money, equipment, supplies, materials and services, conditional or otherwise, from any governmental entity." Id. § 1(i) (emphasis added).
We refer to the ORS 314.605 to 314.675, the statutes adopting UDITPA, as Oregon's version of UDITPA. We refer to Article IV of ORS 305.655, which incorporated part of UDITPA, as Article IV of ORS 305.655 or Article IV of the MTC.
As discussed above, initially Oregon's version of UDITPA and Article IV of ORS 305.655 provided that a business's multistate income would be apportioned using three equally weighted factors: the sales factor, the property factor, and the payroll factor. Increasing the weight given the sales factor permitted Oregon to tax a greater share of a multistate business's income to the extent that the business's sales in Oregon were proportionately greater than its payroll and property here.
For the purposes of this opinion, we assume, without deciding, that taxpayer is a third-party beneficiary of any contract formed among the states.
Timing potentially is an issue. If the 1993 act is viewed as an anticipatory breach, then taxpayer's 2010 and 2011 refund claims, which are at their heart breach-of-contract claims, could be subject to a laches defense. Taxpayer's claims, however, appear to rest on the proposition that the breach occurred in 2010 and 2011 when the department disregarded taxpayer's election under Article III to have the apportionment formulas in Article IV used to determine its taxable income. Because the department does not contend otherwise, we assume, for the purposes of this case, that any breach occurred when taxpayer filed refund claims in 2010 and 2011 and, in doing so, sought to elect the apportionment formulas in Article IV.
The Compact Clause provides: "No. State shall, without the Consent of Congress, *** enter into any Agreement or Compact with another State." U.S. Const., Art. I, § 10, cl. 3.
The question in U.S. Steel Corp. was whether the Compact Clause precluded states from enforcing the MTC. Having concluded that it did not, the Court did not decide (and presumably would not have decided) the subsidiary state-law question whether the obligations created by enacting the MTC were contractual or merely statutory.
Taxpayer's argument that states that enact the MTC enter into a contract with each other could present an interesting choice-of-law issue to the extent that the potentially applicable state laws regarding contract formation differ. The Tax Court applied Oregon law to decide whether enacting ORS 305.655 gave rise to contractual obligations, and the department urges us to do so too. Taxpayer has not argued that Oregon law does not apply, nor has it contended that principles of contract formation employed by other states that have enacted the MTC differ from Oregon's. In the absence of an argument to the contrary, we apply Oregon law to decide whether ORS 305.655 gave rise to contractual obligations.
The three indicia of a binding compact that the Court identified in Northeast Bancorp parallel the aspects of the MTC that persuaded the Court in U.S. Steel Corp. that the MTC was not an agreement or compact within the meaning of the Compact Clause.
The Michigan Court of Appeals employed both lines of analysis. Gillette Commercial Operations ,
In arguing that ORS 305.655 created contractual rights, taxpayer does not rely on Article IX, which is not in effect. Accordingly, we do not consider that article.
Taxpayer also argues that, under Article X, once states enact the MTC, they are bound by its terms unless and until they repeal it. Taxpayer's argument assumes its conclusion. That is, taxpayer's argument assumes that, because the MTC is a contract, states are required to abide by it until they repeal it in accordance with its terms. However, taxpayer's conclusion is true only if its premise is. In our view, the most that can be said about that part of Article X is that it is ambiguous, a conclusion that does not cut in taxpayer's favor. See Kimberly-Clark Corp. ,
Because no tape recordings of the hearings before the Joint Ways and Means Committee or the Senate Taxation Committee are available, the minutes are the only available record of those hearings.
Under the MTC, the Commission, not the Compact, has authority to adopt uniform rules and regulations, which member states are free to accept or reject. We assume that de Looze referred generically to the "Compact" rather than referring more specifically (and correctly) to the Commission.
The minutes do not disclose what Senator Newbry asked.
As noted, Congress never consented. See U.S. Steel Corp. ,
The amici debate whether the MTC differs from other interstate compacts. The Multistate Tax Commission has filed an amicus brief in this court in support of the department in which it explains that the MTC lacks features that characterize other interstate compacts. It notes that other compacts grant reciprocal rights to citizens of member states, condition a state's ability to repeal the enacting statute, or cede regulatory authority to a regulatory commission. We agree that the terms and circumstances of the MTC are unique, with the result that our holding in this case is limited to what can only be described as an atypical law.
In 2013, the legislature amended ORS 314.606 to change the reference to ORS 305.655 to ORS 305.653. Or. Laws 2013, ch. 407, § 3.
I also would disapprove the Tax Court's reasoning based on a failure of consideration for the compact, which in my view is factually and legally incorrect. In brief, the court did not consider Oregon's obligation to fund the Multistate Tax Commission and the mutual promises of the states entering into the compact before concluding that there was no consideration. The Tax Court's ruling appears to be the only time a court has concluded that a compact was without consideration. Michael L. Buenger, Jeffrey B. Litwak, Richard L. Masters, and Michael H. McCabe, The Evolving Law and Use of Interstate Compacts , xxi (American Bar Association ed., 2d ed. 2016).
In fact, as the majority notes, the legislature had already adopted UDITPA in 1965, the biennium immediately before the legislature entered into the MTC. Health Net ,
The second question was "whether or not under Article VIII of the Compact, titled 'Interstate Audits,' the State of Washington, for example, could request the Compact Commission to make an audit of the books and records of Oregon businessmen to ascertain whether Washington residents had purchased goods in Oregon and were subject to Washington sales taxes." Exhibit 2, Senate Taxation Committee, H.B. 1124, Mar. 21, 1967 (Mar. 23, 1967, letter from Theodore W. de Looze to Sen. Harry D. Boivin).
Taxpayer similarly argues that the Contract Clause in the United States Constitution barring impairment of contracts, Article I, section 10, clause 1, rendered ORS 314.606 unenforceable: the federal Contract Clause protection against impairment extends to a state's promissory obligations within any interstate compact. But whether a state statute creates contractual rights depends, in general, on whether it evinces "a legislative intent to create private rights of a contractual nature enforceable against the State." United States Trust Co. of New York v. New Jersey ,
The majority gives U.S. Steel significance in its analysis of whether the party states entered into an interstate compact and, more particularly, whether Oregon, as a party state, entered into an interstate compact through the MTC. I submit that the Supreme Court's discussion of the Multistate Tax Compact of 1966 in U.S. Steel on the different issue of the compact's effect on federal powers is not helpful to the analysis this court must conduct to determine whether the Oregon Legislative Assembly of 1967 knew what it was doing when it enacted former ORS 305.655 (1967) and intended to enter into an interstate compact. Rather, the Court's discussion could have relevance to the nature of the provisions that the compact contains.
See
The California Supreme Court has also ruled on this issue, but took a different tack, like the one the majority follows in this case. See Gillette Co. v. Franchise Tax Bd. ,