Oregon: Supermajority Vote not Required for Bill Decoupling from IRC section 199A Deduction

OR Tax Court addressed whether legislation to decouple from the IRC section 199A deduction for qualified business income required a supermajority vote.

Podcast Transcript

The Oregon Tax Court recently addressed whether Senate Bill 1528, which decoupled from the IRC section 199A deduction for qualified business income, was needed a supermajority vote. Specifically, the bill requires Oregon taxpayers to add back the amount deducted under IRC section 199A. Per Oregon’s Constitution, bills for raising revenue must originate in the House of Representative (Origination Clause) and be approved by three-fifths of all members in each legislative chamber (Supermajority Clause).  Senate Bill 1528 did not originate in the House of Representative and it did not receive a three-fifths majority vote in each legislative chamber. The taxpayers, elected Oregon-state senators and owners of businesses that generated “qualified business income,” argued that Senate Bill 1528 lacked legal force because it was enacted in violation of Oregon’s Origination and Supermajority Clauses.

To address whether Senate Bill 1528 was a bill for raising revenue, the tax court applied a two-part test derived from earlier Oregon Supreme Court cases. Under the first part, the relevant question was “whether the bill collects or brings money into the treasury.” The second inquiry was “whether the bill possesses the essential features of a bill levying a tax.” The first part of the test was “readily” met because the bill increased “taxable income” for Oregon taxpayers.  The court next addressed whether Senate Bill 1528 had the “essential features of a bill levying a tax” and concluded that based on principles from earlier cases, Senate Bill 1528 did not levy a tax but changed the tax base of an already existing tax.  Moreover, the court noted that the bill “did not involve the repeal multiple deductions, exemptions or exclusions, or a wholesale redefinition of the tax base,” but instead involved the addback of a single deduction. In a lengthy discussion, the tax court also rejected the taxpayers’ arguments that the legislative history behind the supermajority requirement supported their position. Notably, the court concluded that after the most recent Oregon Supreme Court decision addressing the issue, the legislature itself appeared to believe that bills changing the base of a tax were not “bills for revenue raising” that needed a supermajority vote.  Please contact Rob Passmore at 503-820-6844 with questions on Senator Brian J. Boquist and Senator Herman Baertschiger v. Department Of Revenue. 

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