Case Title: Knapp v. City of Jacksonville

Citation: 

Docket Number: S52624

State: oregon

Court: Oregon Supreme Court

Date: 2007-01-19T00:00:00Z

Document:
FILED: January 19, 2007
IN THE SUPREME COURT OF THE STATE OF OREGON
CAROL R. KNAPP,
DEE WEST, GARY WEST, FRANK CRUM,
GEORGEANN CRUM, FRED MILLER, MARIE MILLER,
DON PARKER, LINDA K. BUSH, CAROLYN ENDEMAN,
PAUL HAYES, and ALVIN K. REISS,
Appellants,
v.
THE CITY OF JACKSONVILLE, OREGON,
Respondent.
(Tax Court No. 4641; SC S52624)
Appeal from the Oregon Tax Court.*
Henry C. Breithaupt, Judge.
Argued and submitted November 2, 2006.
Karen M. Williams, Lane Powell PC, Portland, argued the
cause and filed the briefs for appellants. 
Kurt H. Knudsen, Ashland, argued the cause and filed the
brief for respondent.
Before De Muniz, Chief Justice, and Carson,** Gillette,
Durham, Balmer, Kistler, and Walters, Justices.*** 
WALTERS, J.
The decision of the Tax Court is affirmed.
*18 OTR 22 (2004).
** Carson, J., retired December 31, 2006, and did not
participate in the decision of this case.  
*** Linder, J., did not participate in the consideration or
decision of this case.
WALTERS, J.
In this tax case, we decide whether the City of
Jacksonville (city) imposed an unconstitutional tax on property,
either when it originally adopted an ordinance requiring persons
responsible for paying sewer and water bills to pay a public
safety surcharge of $15 per unit or when it adopted an amended
version of that ordinance.  More specifically, we decide whether
the original or amended surcharge constituted a tax on property
under Article XI, sections 11 ("Measure 50") and 11b ("Measure
5") of the Oregon Constitution (1) or violated either Article
I, sections 20 and 32, of the Oregon Constitution (2) or the
Equal Protection Clause of the Fourteenth Amendment of the United
States Constitution. (3)  
Appellants are 12 owners of developed real property who
were subject to the surcharges.  They brought the present
proceeding in the Oregon Tax Court seeking a refund of the taxes
collected and declaratory and injunctive relief.  The Tax Court
held that the initial city ordinance had imposed a tax on
property that was subject to Measure 5 limitations, but that the
city's later amendment rendered Measure 5 inapplicable.  Knapp v.
City of Jacksonville, 18 OTR 22 (2004) (Knapp I).  The court
further held that the city had not violated Measure 50 or other
state or federal constitutional provisions in enacting the
original or amended ordinances.  Knapp I, 18 OTR at 37-40. 
Finally, the court ordered the city to refund to plaintiffs the
amounts collected in excess of Measure 5 limitations and declined
to award costs to either party.  Knapp v. City of Jacksonville,
18 OTR 236 (2005) (Knapp II).  For the reasons that follow, we
affirm the decisions of the Tax Court.
In April 2003, the Jacksonville City Council passed an
ordinance imposing a surcharge on sewer and water users.  The
ordinance provided that its purpose was to generate revenue to
"help pay for the benefits conferred on [c]ity residents and
businesses by the provision of an adequate program of public
safety" by placing a $15 monthly surcharge on each residential or
nonresidential unit of developed property within the city limits. 
Jacksonville, Or., Public Safety Act, §§ 3.01.020(2),
3.01.040(2), (4) (2003).  The ordinance directed that the
surcharge be placed on all monthly water and sewer bills and made
the persons responsible for paying those bills normally
responsible for paying the surcharge.  Id. at §§ 3.01.040(2),
3.01.060(2).  However, the ordinance also made the property owner
"at all times primarily responsible for payment."  Id. at
§ 3.01.060(2).  The ordinance further provided that unpaid
surcharges could be "imposed as a lien on the owner's property." 
Id. at § 3.01.060(8).  After plaintiffs initiated this action,
the city amended the original ordinance, deleting the liability
and lien provisions and assigning ultimate responsibility for
surcharge payment to the persons having the right to occupy the
property.  Jacksonville, Or., Public Safety Act (Amended),
§ 3.01.060 (2)-(3), (8) (2003). 
On appeal, plaintiffs contend that not only did the
original ordinance impose a tax on property in excess of Measure
5 limitations, it also violated Measure 50 and the other state
and federal constitutional provisions cited above.  Plaintiffs
also argue that the Tax Court was required to void the original
ordinance and award them equitable attorney fees.  
This court's decision in Roseburg School Dist. v. City
of Roseburg, 316 Or 374, 851 P3d 595 (1993), establishes the
appropriate analytical framework for determining whether a fee or
charge constitutes a tax on property subject to Measure 5. 
Accordingly, a brief summary of that case is useful.  
Roseburg involved a storm drainage utility fee, which
that city had imposed on persons who paid water charges or who
had the right to occupy property.  Roseburg, 316 Or at 377.  As
with the present case, the issue was whether the fee constituted
a tax subject to the limitations of Measure 5.  Id. at 379.  In
making that determination, this court looked first to the
definition of "tax" that "shall apply" to the provisions of
Measure 5:
"A 'tax' is any charge imposed by a governmental
unit upon property or upon a property owner as a direct
consequence of ownership of that property except
incurred charges and assessments for local
improvements."
Roseburg, 316 Or at 378 (quoting Article XI, section 11b(2)(b)).
This court concluded that, although the Roseburg fee
related to property, the city had not imposed the fee upon
property or upon a property owner because (1) the city had no
lien provision that could burden the property, and (2) the city
had no mechanism for assessing default liability exclusively
against the "property owner as a direct consequence of
ownership."  Roseburg, 316 Or at 380-81 (emphasis in original). 
This court noted that the Roseburg fee had the following
characteristics:
(1)  The obligation to pay the fee arose when a
person used the storm drainage service.
(2)  The city presumed that storm drainage usage
occurred on all improved premises.
(3)  The city required the person paying water
utility charges to pay the storm drainage fee unless
another person had assumed that obligation in
writing.
(4)  If no water service to the property
existed, the city assessed the storm drainage fee
against the person having the right to occupy the
property.
(5)  The city had no provision for attaching a
lien against property for nonpayment of the fee.
Id. at 377, 380-81. 
In the present Jacksonville case, the Tax Court
determined that, because the original ordinance permitted the
city both to impose a lien on property and to hold a property
owner rather than an occupant liable for nonpayment, that
ordinance was significantly different from the Roseburg ordinance
and was subject to Measure 5 limitations.  Knapp I, 18 OTR at 28. 
However, according to the Tax Court, because the city
subsequently deleted those problematic provisions, the amended
ordinance was exempt from those limits.  Id. at 35.  
Plaintiffs do not consider the city's amendments
curative.  Instead, plaintiffs argue that the city obviously was
attempting to evade constitutional constraints, an effort that,
in plaintiffs' view, at most disguises but does not eliminate the
true nature of the surcharge.
Underlying plaintiffs' argument in that respect is the
belief that the voters intended Measure 5 and Measure 50 to be a
comprehensive limit on all property taxes and that all revenue-generating mechanisms imposed to fund general municipal
obligations are property taxes.  From that premise, plaintiffs
assert that, because the city sought to generate funds to pay for
police and fire services, the amended surcharge imposes a tax
subject to Measure 5 limitations.  
Plaintiffs' premise is not borne out by the text of
Measure 5.  As this court explained in Roseburg, Measure 5 is
only a limitation on a "tax" as therein defined:  
"By its terms, Article XI, section 11b, is a
limitation on only those certain forms of revenue
generation that fall within its definitions.  It is not
a limitation on other forms of revenue generation that
do not fall within its definitions.  It is clear that
the constitutional provision defines those charges that
it limits and, by its terms, excludes from its limits
other forms of revenue generation[.]"
316 Or at 381.  Thus, plaintiffs' broadside approach fails --
Measure 5 simply does not limit all charges that generate
revenue.  The question remains, however, whether the Measure
limits this revenue-generating charge. 
Respecting that issue, plaintiffs first appear to
argue that the amended surcharge is a tax upon property because,
even after deleting the original lien provisions, the city had
the ability to use other law to place liens on property for
nonpayment of the surcharge.  Plaintiffs posit that, should a
protesting home owner choose to pay sewer and water charges only,
the city would, by the terms of the ordinance, apply that payment
first to the surcharge and then to the remaining sewer and water
charges.  Jacksonville Public Safety Act § 3.01.090(1). 
Plaintiffs contend that an independent existing city regulation
then would allow the city to collect those unpaid sewer charges
by having the county impose a lien on the property. (4)  Even
assuming that that hypothetical action were possible, a question
that we do not decide, the existence of that sewer regulation is
not determinative.  It is always theoretically possible for a
governmental entity, pursuant to a valid source of authority, to
secure a lien when it must take action under other law to collect
an unpaid fee or tax, including an unpaid income tax.  See, e.g.,
In re Inman's Estate, 101 Or 182, 196, 199 P 615 (1921)
(nonpayment of death duty can result in lien on property without
transforming tax on right to inherit property into direct tax on
property); ORS 18.150 - 18.170 (governing liens on real property
to satisfy judgments); ORS 314.417 (establishing lien on property
for failure to pay income tax).  The existence of that other law
does not transform the fee or tax into a property tax.  
Next, plaintiffs argue that the amended surcharge is a
tax "upon a property owner" within the meaning of Measure 5. 
Plaintiffs recognize that the city's amended surcharge makes
property occupants, rather than owners, ultimately responsible
for the surcharge and that, in Roseburg, this court determined
that a charge on occupants is not one imposed on owners of
property.  Roseburg, 316 Or at 381.  Nonetheless, plaintiffs
contend that occupants are, themselves, "owners" of property
because, although they do not own the fee interest, they
necessarily own some lesser real property interest.  In so
arguing, plaintiffs overlook two things: (1) the term "occupant"
includes those who may hold no more than a privilege or license
to use property; and (2) even an occupant who holds a possessory
interest in land is not an owner of property for tax purposes.  
The term "occupant" includes both those with an
incorporeal privilege or license to use land and those who hold a
corporeal possessory interest in the land itself.  Sproul v.
Gilbert, 226 Or 392, 406-07, 359 P2d 543 (1961).  By making all
occupants liable for payment of the amended surcharge, the city
included those persons without a corporeal possessory interest in
land within the ambit of the ordinance.  Thus, the city made
clear its intent to impose the charge based on use of the
property and not based on ownership status.
Furthermore, property taxes in Oregon are assessed on
real property as a whole and in the name of the owner of the
whole.  ORS 308.215(1)(a); Shields v. Dept. of Rev., 266 Or 461,
470, 513 P2d 784 (1973) (so stating).  Real property includes all
lesser interests, such as "[a]ny estate, right, title or interest
whatever in the land or real property, less than the fee simple." 
ORS 307.010(1)(E); see also Swan Lake Mldg Co. v. Dept. of Rev.,
257 Or 622, 625, 478 P2d 363 (1971) (true cash value of land for
tax purposes includes all lesser interests and is assessed to one
having title to that land).  The limited instances in which
severable, separately owned interests may be separately taxed are
specifically prescribed.  See, e.g., ORS 308.115 (illustrating
proposition for mineral interests and buildings).  Except in
those instances, the term "owner" in the property tax context
connotes the owner of the fee and all included interests and
cannot simultaneously mean a different holder of a lesser-included interest.  Accordingly, occupants are not owners of
property for tax purposes, and the amended surcharge cannot be
characterized as a tax on a property owner.  
We now consider plaintiffs' claim that, as a tax on
property subject to Measure 5 limitations, the city's original
surcharge also was subject to the limitations of Measure 50.  The
Tax Court reasoned that, although the original ordinance imposed
a tax on property, it did not impose an ad valorem tax subject to
Measure 50 limitations.  Knapp I, 18 OTR at 35.  We agree.  The
text of Measure 50 is clear.  Article XI, section 11, by its
terms, places a limitation upon the rate of ad valorem property
taxes.  In this case, the city imposed a $15 flat fee on each
unit of developed property; it did not ratably impose assessments
based on the value of property.  Therefore, the surcharge was not
subject to Measure 50 limitations. 
Plaintiffs' remaining constitutional arguments, that
the surcharges violated the provisions of Article I, sections 20
and 32, of the Oregon Constitution and the Equal Protection
Clause of the United States Constitution, require plaintiffs to
establish that the city had no rational basis for creating the
class of persons subject to the charges.  See Crocker and
Crocker, 332 Or 42, 55, 22 P3d 759 (2001) (stating standard with
respect to equal privileges and immunities and equal protection
analysis); Jarvill v. City of Eugene, 289 Or 157, 613 P2d 1
(1980) (stating standard).  A classification is rationally based
"if it rests upon genuine differences" and those differences bear
a "reasonable relationship to the legislative purpose."  Jarvill,
289 Or at 180; Huckaba v. Johnson, 281 Or 23, 26, 573 P2d 305
(1978).  Applying those principles, the Tax Court correctly
determined that "[i]mposing a surcharge only upon developed
property * * * is based upon a genuine difference between such
property and undeveloped property [because the city] could have
correctly concluded that safety needs increase when property is
developed."  Knapp I, 18 OTR at 38. 
Plaintiffs ask us to take Article I, section 32,
farther and hold that its requirement that taxation "be uniform
on the same class of subjects" means that all taxes on property
must be assessed on an ad valorem basis.  The answer to that
argument as to the amended surcharge is that it is not a tax on
property, for the reasons that we have discussed previously.  As
to the original surcharge, Article I, section 32, does not
require ad valorem taxation.  The Oregon Constitution was amended
in 1917 to eliminate any such contention.  See Standard Lbr. Co.
v. Pierce, 112 Or 314, 228 P 812 (1924) (constitution originally
required uniform "rate" of taxation but was amended to eliminate
that requirement).  Plaintiffs rely on Mathias v. Dept. of Rev.,
312 Or 50, 817 P2d 272 (1991), but that case actually stands for
the proposition that, within an ad valorem taxation scheme, "tax
rates must be uniform within 'the same class of subjects'" to be
constitutional.  Mathias, 312 Or at 60.  Plaintiffs do not
explain how that case could serve as a platform to invalidate
property taxes assessed without regard to property value, and we
see no basis for doing so. 
In summary, we hold that the original surcharge was
not subject to Measure 50 and that the amended surcharge was
subject to neither Measure 5 nor Measure 50.  We uphold both
ordinances against other constitutional challenges.  It remains
for us to discuss plaintiffs' argument that the Tax Court did not
order an appropriate remedy for charges imposed by the original
ordinance in excess of those permitted by Measure 5 and that we
should declare that ordinance void, require the city to refund
all amounts thereby collected, and award plaintiffs their
attorney fees.
Plaintiffs brought this action under ORS 305.580 and
ORS 305.583 (5) to have the Tax Court declare that the city's
surcharges exceeded Measure 5 limits.  ORS 305.587 provides that
the appropriate remedy for such a violation is a refund of the
portion of the fee collected in excess of the limit:
"(1)  If, in a proceeding commenced under ORS
305.583, the regular division of the Oregon Tax Court
finds that a challenged tax, fee, charge or assessment
is subject to the limits of section 11 or 11b, Article
XI of the Oregon Constitution, the tax court may:
"(a) Order the government unit to make refunds to
petitioners of any part of the challenged tax, fee,
charge or assessment imposed on or after the date that
is 90 days before the date the petition was filed and
that was collected in excess of the limits of section
11 or 11b, Article XI of the Oregon Constitution. * * * 
"(b) Order such other relief as it considers
appropriate, including cancellation of taxes imposed
but not collected, but such relief shall have
prospective effect only. * * * "
See also Smith v. Multnomah County Board of Commissioners, 318 Or
302, 359, 865 P2d 356 (1994) (ORS 305.583 and 305.587 are
exclusive means to obtain refund of taxes collected in excess of
Measure 5 limits).  Accordingly, we hold that the Tax Court
correctly ordered the city to refund to plaintiffs the amounts
collected from them exceeding the constitutional limits of
Measure 5.  ORS 305.587(1)(a);  Knapp II, 18 OTR at 239.  We also
hold that the Tax Court correctly declined to offer prospective
relief because the city already had amended the offending
ordinance.  ORS 305.587(1)(b);  Knapp II, 18 OTR at 239.  
Finally, our review of the record does not indicate
that plaintiffs argued for an award of equitable attorney fees in
the remedy phase of the case before the Tax Court or by
submitting a petition for attorney fees.  See TCR 68(C) (setting
forth procedure for seeking award of attorney fees).  That
argument is unpreserved, and we will not consider it for the
first time here.  See Ailes v. Portland Meadows, Inc., 312 Or
376, 380, 823 P2d 956 (1991) (stating principle); ORAP 5.45(1)
("No matter claimed as error will be considered on appeal unless
the claimed error was preserved in the lower court and is
assigned as error in the opening brief in accordance with this
rule * * * ."). 
The decision of the Tax Court is affirmed.
1. We refer to those constitutional amendments by their
measure numbers in accordance with common parlance.  See Shilo
Inn v. Multnomah County, 333 Or 101, 105 n 2, 36 P3d 954 (2001)
(following that practice).  This court in Shilo provided the
following overview of those provisions:  
"In 1990, the voters approved Measure 5, which
added Article XI, section 11b, to the Oregon
Constitution.  Subsection (1) of that measure
provides[, in part]: '[T]axes imposed upon any property
shall be separated into two categories: One which
dedicates revenues raised specifically to fund the
public school system and one which dedicates revenues
raised to fund government operations other than the
public school system. * * * [The limits set forth]
shall apply whether the taxes imposed on property are
calculated on the basis of the value of that property
or on some other basis[.]'
"* * * * *   
"In 1997, the legislature proposed and the people
adopted Measure 50, which repealed, among other things,
the then-existing Article XI, section 11, and replaced
it with an entirely new section 11.  Measure 50
transformed the ad valorem property tax scheme from a
'levy-based' system to a 'rate-based' system.  Among
its other effects, the measure reduced the assessed
value of property to 10 percent below 1995 levels,
limited the amount of any increase in assessed value to
three percent per year, and required each 'local taxing
district' to certify a 'permanent limit on the rate of
ad valorem property taxes imposed by the district for
tax years beginning after July 1, 1997' (the 'permanent
rate'), to be applied to each property in that
district."
Id. at 106-07 (citations omitted). 
2. Article I, section 20, provides: "No law shall be passed
granting to any citizen or class of citizens privileges, or
immunities, which, upon the same terms, shall not equally belong
to all citizens." 
Article I, section 32, provides: "No tax or duty shall
be imposed without the consent of the people or their
representatives in the Legislative Assembly; and all taxation
shall be uniform on the same class of subjects within the
territorial limits of the authority levying the tax."
3. The Fourteenth Amendment to the United States Constitution
provides, in part:  "No State shall * * * deny to any person
within its jurisdiction the equal protection of the laws."
4. Plaintiffs cite the following regulation:
"If said sewer service charges are not paid when
due * * * the amounts so unpaid may be certified by the
City Recorder to the county assessor of Jackson County,
Oregon, and shall be by them assessed against the
premises served as provided by law, and shall be
collected and paid over to the city in the same manner
as other taxes are assessed, collected and paid.  Such
unpaid charges may also be recovered in an action at
law in the name of the city, with interest as
aforesaid."
Jacksonville, Or., Water Service Regulations, § 13.04.140 (2)(C)
(1993).
5. ORS 305.580 states that "ORS 305.583, 305.585, 305.587 and
305.589 shall provide the exclusive remedy for determination of
questions concerning * * * [t]he effect of the limits of section
11b, Article XI of the Oregon Constitution on taxes, fees,
charges and assessments of units of government."  ORS 305.583
then sets forth the applicable definitions and procedures when
"an interested taxpayer [files a petition in the] Oregon Tax
Court to determine a question described in ORS 305.580."  ORS
305.583(1).