S057933, Opinion — Livingston v. Kroger/Devlin

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On petitions to review ballot title and explanatory statement filed October 28;
considered and under advisement on November 5, ballot title referred to
Attorney General for modification; explanatory statement certified to
Secretary of State November 13, 2009

Sharon LIVINGSTON
and Pat McCormick,
Petitioners,
v.
John KROGER,
Attorney General of the State of Oregon,
Respondent.
(SC S057933 (Control))

Sharon LIVINGSTON
and Pat McCormick,
Petitioners,
v.

Senator Richard DEVLIN,
Senator Chris Telfer,
Senator Diane Rosenbaum,
Representative Arnie Roblan,
Representative Vicki Berger,
Representative Chris Garrett,
and Kate Brown,
Secretary of State of the State of Oregon,
Respondents.
(S057934)
(Cases Consolidated)

220 P3d 418

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CJS, Statutes § 131.

# En Banc

Gregory A. Chaimov and John A. DiLorenzo, Jr., Davis
Wright Tremaine LLP, Portland, filed the petitions and reply
memoranda for petitioners.

Paul S. Cosgrove, Lindsay, Hart, Neil & Weigler LLP,
Portland, filed the brief for respondents Senator Chris Telfer
and Representative Vicki Berger.

Erin C. Lagesen, Assistant Attorney General, Salem, filed
the answering memoranda for respondents John R.
Kroger, Kate Brown, Senator Richard Devlin, Senator Diane
Rosenbaum, Representative Arnie Roblan, and Representative
Chris Garrett. With her on the answering memoranda were
John R. Kroger, Attorney General, and Jerome Lidz, Solicitor
General.

Steven C. Berman, Portland, filed the memorandum for
amici curiae Steve Novick and Defend Oregon-Yes for Tax
Fairness.

DURHAM, J.

The ballot title is referred to the Attorney General for
modification.

The explanatory statement is certified to the Secretary of
State.

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## DURHAM, J.

Petitioners have filed separate petitions in this court
seeking review of the ballot title and of the explanatory state-
ment for Referendum 302 (2009), which the Secretary of
State has denominated as Ballot Measure 67. We consolidate
the petitions for purposes of this opinion.

Ballot Measure 67 results from a referendum of
House Bill (HB) 3405 (2009),1 which raised the minimum tax
for corporations and partnerships, the marginal tax rate for
corporate taxable income, and filing fees for certain business
documents. Or Laws 2009, ch 745. Because of the referen-
dum, as we explain below, HB 3405 (2009) did not take effect.
Ballot Measure 66, if approved by the voters, would enact the
increased corporate and partnership income taxes and filing
fees that the Legislative Assembly adopted in HB 3405
(2009).

# I. BALLOT TITLE REVIEW

We begin with petitioners' challenges to the ballot
title. We review the ballot title for "substantial compliance
with the requirements of ORS 250.035." Or Laws 2009,
ch 714, § 12(4). Ballot Measure 67 has four primary compo-
nents. First, the measure raises the minimum tax from $10
to $150 for C-corporations with revenues under $500,000;
C-corporations with revenues of $500,000 or more pay a min-
imum tax of approximately 0.1 percent of their revenues.
Section 1(2)(a). Second, the measure requires S-corporations
and partnerships to pay a $150 minimum tax, but it does not
require those entities to pay more tax than that.2 Section
1(2)(b) (S-Corporations); Section 3 (partnerships). Third, the

' Article IV, section 1(3)(a), of the Oregon Constitution, reserves to the people
the referendum power, "which is [the power] to approve or reject at any election
any Act, or part thereof, of the Legislative Assembly that does not become effective
earlier than 90 days after the end of the session at which the Act is passed."

2 S-corporations and partnerships pass through any taxable income or loss to
their shareholders and partners respectively. As for the business entities them-
selves, S-corporations currently pay a $10 corporate minimum tax while partner-
ships pay no tax on partnership income. See ORS 314.732(1) ("Except as otherwise
provided in ORS 314.740, 314.742 and 317.090 [the corporate minimum tax], an
S corporation shall not be subject to the taxes imposed by ORS chapter 316, 317 or
318."). The measure thus raises the minimum tax for S-corporations from $10 to
$150 and extends the $150 minimum tax to partnerships.

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measure raises the marginal rate that corporations pay on
taxable income in excess of $250,000 for the period from 2009
to 2013 and on taxable income in excess of $10 million after
2013. Sections 5-10.3 Finally, the measure raises the fees for
filing certain business documents and notary applications.
Sections 11, 15, 17.

In McCormick v. Kroger / Devlin, 347 Or 293, 220
P3d 412 (2009), we observed that the legislature had modi-
fied the statutory procedures relating to the ballot title and
explanatory statement for Referendum 301 (2009), which the
Secretary of State designated as Ballot Measure 66. Those
modifications also apply to the ballot title and explanatory
statement for Ballot Measure 67. See Or Laws 2009, ch 714,
§§ 9, 12. As we noted in McCormick, the modified procedures
(1) require preparation of the ballot title and explanatory
statement by a joint legislative committee, (2) render the
word limits in ORS 250.035(2) inapplicable, and (3) require
this court to refer an insufficient ballot title to the Attorney
General for modification. We follow those modified proce-
dures in reviewing petitioners' challenges in this case.

A ballot title consists of a caption that "reasonably
identifies the subject matter of the measure," "yes" and "no"
vote result statements that describe "the result if the * * *
measure" is approved or rejected, and a summary of the
"measure and its major effect." ORS 250.035(2)(a) - (d). The
purpose of those requirements is to ensure that voters have
accurate information about the subject and effect of a pro-
posed measure. Caruthers v. Myers, 344 Or 596, 600, 189 P3d
1 (2008). As noted above, we review the ballot title to deter-
mine if its component parts substantially comply with ORS
250.035. See Or Laws 2009, ch 714, § 12(4) (directing the

3 Currently, corporations pay a rate of 6.6 percent on their taxable income.
ORS 317.061. For tax years beginning on or after January 1, 2009, and before
January 1, 2011, the measure raises the rate for taxable income in excess of
$250,000 from 6.6 to 7.9 percent. Sections 5, 6. For tax years beginning on or after
January 1, 2011, and before January 1, 2013, the measure reduces the rate for tax-
able income in excess of $250,000 from 7.9 to 7.6 percent. Sections 7, 8. For tax
years beginning on or after January 1, 2013, the measure taxes the first $10 million
in taxable income at a rate of 6.6 percent and taxes any taxable income in excess of
$10 million at a rate of 7.6 percent. Sections 9, 10.

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court to review ballot title for substantial compliance with
ORS 250.035).

The ballot title for Ballot Measure 67 states:

"RAISES $10 CORPORATE MINIMUM TAX, BUSI-
NESS MINIMUM TAX, CORPORATE PROFITS TAX.
MAINTAINS FUNDS CURRENTLY BUDGETED FOR
EDUCATION, HEALTH CARE, PUBLIC SAFETY,
OTHER SERVICES.

"RESULT OF 'YES' VOTE: 'Yes' vote raises $10 corpo-
rate minimum tax, establishes $150 minimum tax for most
businesses or minimum tax of approximately 0.1% of total
Oregon revenues for some corporations with over $500,000
in Oregon revenues. Raises tax rate some corporations pay
on profits by 1.3 percentage points. Increases certain busi-
ness filing fees. Raises estimated $255 million to maintain
funds currently budgeted for education, health care, public
safety, other services.

"RESULT OF 'NO' VOTE: 'No' vote retains $10 corpo-
rate minimum tax, rejects $150 minimum tax, rejects rais-
ing corporate profits tax, other changes. Reduces funding
currently budgeted for education, health care, public safety,
other services by estimated $255 million.

"SUMMARY: Under current law, corporations conduct-
ing business in Oregon pay $10 minimum tax; tax has not
changed since 1931. Some corporations pay a profits tax of
6.6%. All other businesses pay no minimum or profits tax.
Beginning in tax year 2009, the Measure increases $10
minimum corporate tax to $150; some corporations with
over $500,000 in Oregon revenues will pay minimum tax of
approximately 0.1% of Oregon revenues. Limits tax to $150
for S corporations and partnerships. Sole proprietors are
not impacted by this measure. Raises tax rate some corpo-
rations pay on profits by 1.3 percentage points until 2011;
increase then drops to 1 percentage point and as of 2013,
applies only to profits over $10 million. Corporations pay
minimum tax or profits tax, not both. Increases filing fees
by $50 for Oregon businesses, by $225 for out of state busi-
nesses. Raises estimated $255 million to maintain funds
currently budgeted for education, health care, public safety,
other services. Because some state money brings in federal
matching funds, Oregon will likely receive more federal

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money if measure passes than if the Measure fails. Other
provisions."

Petitioners raise a variety of challenges to the cap-
tion, the "yes" vote result statement, the "no" vote result
statement, and the summary. Four of petitioners' challenges
arise out of two related phrases. Petitioners argue that the
phrase "[m]aintains funds currently budgeted for education,
health care, public safety, other services," which appears in
the caption, "yes" vote result statement ("maintain"), and the
summary ("maintain"), is not accurate. They reason that,
because HB 3405 did not become law as a result of the refer-
endum, the measure does not "maintain" any current funds.
They raise a similar challenge to the "no" vote result state-
ment, which states that a "no" vote "[r]educes funding cur-
rently budgeted for education, health care, public safety,
other services by estimated $255 million." They reason that,
because HB 3405 did not become law as a result of the refer-
endum, there are no funds to "reduce."

This court in McCormick sustained virtually identi-
cal challenges to the ballot title for Ballot Measure 66. Fol-
lowing the rationale adopted in McCormick, we sustain peti-
tioners' challenges, set out above, to the ballot title for Ballot
Measure 67 and conclude that, in the respects identified by
petitioners, the ballot title for Ballot Measure 67 does not
comply substantially with statutory requirements.

We conclude that the same ballot title modifications
required in McCormick also are required here. Specifically,
the term "maintains" in the caption must be replaced by the
term "provides," the word "maintain" in the "yes" vote result
statement and summary must be replaced by the term "pro-
vide," and the "no" vote result statement must be revised to
state:

"Leaves amount currently budgeted for education, health
care, public safety, other services underfunded by esti-
mated $255 million."

The Attorney General must effect those modifications on
referral.

Petitioners assert a number of additional challenges
to the ballot title. We have considered each challenge, but, in

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applying the substantial compliance standard of review, we
conclude that no further changes to the ballot title are nec-
essary. We will refer the ballot title to the Attorney General
for modification for the reasons discussed above.

# II. EXPLANATORY STATEMENT REVIEW

A joint legislative committee prepared and filed with
the Secretary of State the following explanatory statement
for Ballot Measure 67:

"EXPLANATORY STATEMENT: Measure 67 raises
the corporate minimum tax for the first time since 1931.
Beginning in tax year 2009, S corporations and part-
nerships will pay $150. The Measure increases the tax
C corporations will pay on profits. Some filing fees with the
Secretary of State also will be increased. Sole proprietors
are not subject to the minimum tax. The Measure will raise
an estimated $255 million to maintain funds currently
budgeted for education, health care, public safety and other
services. Approximately 90% of the state general fund
budget goes to education, health care and public safety.
Because some state money brings in federal matching
funds, Oregon will likely receive more federal money if the
measure passes than if the Measure fails.

"Beginning in tax year 2009, the Measure raises the corpo-
rate minimum tax from $10 to $150. C corporations with
over $500,000 in Oregon revenues will pay a minimum tax
of approximately 0.1% of Oregon revenues. The tax rate for
profits over $250,000 paid by C corporations will increase
by 1.3 percentage points for 2009 and 2010. The rate
increase is reduced to 1.0 percentage points for 2011 and
2012. For tax years after 2012, the profits tax rate returns
to 6.6% for all C corporation profits below $10 million, and
the marginal tax rate of 7.6% will apply to C corporations'
profits over $10 million. C corporations pay minimum tax or
profits tax, not both.

"For business entities other than C corporations, such as
S corporations and partnerships, the Measure sets the
taxes those businesses will pay at $150.

"The Measure also increases the filing fees that businesses
will pay to the Secretary of State. Filing fees will increase
from $50 to $100 for Oregon businesses, and from $50 to

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$275 for out of state businesses. Fees for filing uniform com-
mercial code financing statements will increase by $5 and
the application fee to be a notary public will increase from
$20 to $40."

We review the explanatory statement to determine if
it is "insufficient or unclear." See Or Laws 2009, ch 714, §
13(1) (providing that electors may challenge the explanatory
statement on those grounds). Petitioners raise essentially the
same challenges to the explanatory statement that they
raised to the ballot title. As with our review of the ballot title,
we conclude that none of their challenges requires modifica-
tion except for the challenge to the sentence, "The Measure
will raise an estimated $255 million to maintain funds cur-
rently budgeted for education, health care, public safety and
other services." In order to ensure that the explanatory state-
ment is a sufficient and clear description of the measure, we
modify that sentence by substituting the word "provide" for
"maintain." See Or Laws 2009, ch 714, § 13(2) (providing
that, if a timely petition is filed, the Supreme Court "shall
review the statement and certify an explanatory statement to
the Secretary of State"); McCormick, 347 Or at 304-05
(requiring same modification to explanatory statement for
Ballot Measure 66).

Pursuant to Oregon Laws 2009, chapter 714, section
13(2), we certify the following explanatory statement to the
Secretary of State:

"EXPLANATORY STATEMENT: Measure 67 raises
the corporate minimum tax for the first time since 1931.
Beginning in tax year 2009, S corporations and partner-
ships will pay $150. The Measure increases the tax
C corporations will pay on profits. Some filing fees with the
Secretary of State also will be increased. Sole proprietors
are not subject to the minimum tax. The Measure will raise
an estimated $255 million to provide funds currently budg-
eted for education, health care, public safety and other serv-
ices. Approximately 90% of the state general fund budget
goes to education, health care and public safety. Because
some state money brings in federal matching funds, Oregon
will likely receive more federal money if the measure passes
than if the Measure fails.

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"Beginning in tax year 2009, the Measure raises the corpo-
rate minimum tax from $10 to $150. C corporations with
over $500,000 in Oregon revenues will pay a minimum tax
of approximately 0.1% of Oregon revenues. The tax rate for
profits over $250,000 paid by C corporations will increase
by 1.3 percentage points for 2009 and 2010. The rate
increase is reduced to 1.0 percentage points for 2011 and
2012. For tax years after 2012, the profits tax rate returns
to 6.6% for all C corporation profits below $10 million, and
the marginal tax rate of 7.6% will apply to C corporations'
profits over $10 million. C corporations pay minimum tax or
profits tax, not both.

"For business entities other than C corporations, such as
S corporations and partnerships, the Measure sets the
taxes those businesses will pay at $150.

"The Measure also increases the filing fees that businesses
will pay to the Secretary of State. Filing fees will increase
from $50 to $100 for Oregon businesses, and from $50 to
$275 for out of state businesses. Fees for filing uniform com-
mercial code financing statements will increase by $5 and
the application fee to be a notary public will increase from
$20 to $40."

The ballot title is referred to the Attorney General
for modification.

The explanatory statement is certified to the
Secretary of State.4

4 Chief Justice Order No. 09-061 (Oct 29, 2009) provides as follows in regard to
these proceedings:

"Notwithstanding ORAP 11.30(12), any petitions for reconsideration
must be filed and physically received by the Office of the Appellate Court
Administrator no later than 12:00 noon on the day following issuance of the
Court's decision."