Gov. Kate Brown’s decision to disconnect Oregon from federal tax changes first led to an odd special session. Now, it’s spurred a lawsuit.
As promised, state Sen. Brian Boquist has sued the state Department of Revenue—along with Brown, Senate President Peter Courtney and House Speaker Tina Kotek—in state tax court over Senate Bill 1528, which authorized that decoupling. The impact for Oregon taxpayers could be huge.
“Whatever the outcome, my case will be the most important court case on ‘revenue’ decided by the court in the 21st Century,” Boquist, a Dallas Republican, writes in the suit.
Primarily at issue is how SB 1528 relates to a provision of the Oregon Constitution that requires a three-fifths supermajority vote in the House and Senate to “pass bills for raising revenue.”
Boquist believes the bill fit that definition because it ensured Oregon’s tax code wouldn’t automatically adopt a 20 percent tax exemption for “pass-through” businesses. That change was included in the federal Tax Cuts and Jobs Act passed at the end of 2017, and Oregon’s tax code is set up to change along with federal taxes.
SB 1528 didn’t technically increase state taxes for pass-through businesses, but it meant they wouldn’t get a tax break worth hundreds of millions of dollars in coming years. And it passed along party lines in both chambers without the three-fifths majority necessary for a revenue bill.
“I know for a fact the intent and purpose of [SB 1528] was to raise revenue,” Boquist writes in the lawsuit. He’s seeking a declaratory judgment striking the bill down “as unconstitutional, null and void.”
State lawyers disagree with Boquist. In February, Legislative Counsel Dexter Johnson issued a legal opinion that SB 1528 “is not a bill for raising revenue and therefore may pass with a simple majority.”
Courtney took news of the suit in stride Tuesday.
“Sen. Boquist had made it clear he was going to file a lawsuit,” he said. “It’s been done. Let’s now go forward.”
A spokesman for Brown said Tuesday the office wouldn’t comment on a pending lawsuit. Kotek’s office did not immediately respond to requests for comment.
The suit could have a big impact on what bills Oregon’s Democratic majority is able to push through in the years ahead — along with the state’s revenue picture.
If the court agrees that SB 1528 is unconstitutional, more than $1 billion the state is anticipating through 2023 could be wiped off the books. And under the current makeup of the House and Senate, Democrats would need to seek Republican buy in for similar bills.
Democrats, including Brown, have said that 1528 was not about revenue. In announcing her decision to sign the bill in early April, the governor said it amounted to basic fairness. Pass-through businesses already get favorable tax rates under the tax code. Brown didn’t think they should get another break.
As an olive branch, the governor called a special session May 21 to pass a tax break for a tiny subset of Oregon businesses. It’s expected to impact roughly 6,000 sole proprietorships in Oregon.
In his lawsuit, Boquist calls arguments about fairness “blather.” He writes that Democratic legislators repeatedly cited a need for more tax dollars to pay for schools and other services when debating the bill in committee.
Boquist makes other arguments about SB 1528. For instance, he said the Legislature needed to wait longer before disconnecting Oregon’s tax code from the federal changes. The senator, serving his third term, is not an attorney and filed the suit on his own.
He told OPB on Tuesday he’d consulted with attorneys before writing the lawsuit, attended a session of tax court and got sample cases from the court to serve as examples.
He also believes other people will sign onto the case — and he plans to circulate it among the lobbyists in Salem “with the blunt statement they or their clients will live by my actions so they better get engaged.”
“When the court rules it will impact every taxpayer in Oregon,” Boquist said in an email. “All of them.”