Case Title: Sherman v. Dept. of Rev.

Citation: 

Docket Number: S49762

State: oregon

Court: Oregon Supreme Court

Date: 2003-06-12T00:00:00Z

Document:
Filed: June 12, 2003
IN THE SUPREME COURT OF THE STATE OF OREGON

PHILIP SHERMAN,
	Appellant,
	v.
DEPARTMENT OF REVENUE,
State of Oregon,
	Respondent.
VIVIAN SHERMAN,
	Appellant,
	v.
DEPARTMENT OF REVENUE,
State of Oregon,
	Respondent.
(OTC 4547, 4556; SC S49762)

	On appeal from the Oregon Tax Court.*
	Henry C. Breithaupt, Judge.
	Argued and submitted May 7, 2003.
	Philip Sherman, appellant pro se, argued the cause for
himself.  With him on the briefs was Vivian Sherman, appellant pro se.
	Janet A. Metcalf, Assistant Attorney General, Salem, argued
the cause for respondent.  With her on the brief were Hardy
Myers, Attorney General, and Mary H. Williams, Solicitor General.
	Before Carson, Chief Justice, and Gillette, Durham, Riggs,
De Muniz, and Balmer, Justices.
	GILLETTE, J.
	The judgment of the Tax Court is affirmed.
	*16 OTR 64 (2002).
	GILLETTE, J.
	In this direct appeal from a judgment of the Tax Court,
taxpayers challenge that court's denial of the claims for refunds
of taxes paid on pension benefits that they received from the New
York State and Local Retirement Systems.  Sherman v. Dept. of
Rev., 16 OTR 64 (2002).  For the reasons that follow, we affirm
the judgment of the Tax Court.	
	In 1992, taxpayers retired from public employment in
New York and began receiving pensions from the New York State and
Local Retirement Systems, which is the New York equivalent of
Oregon's Public Employees Retirement System (PERS).  In 1997,
taxpayers became full-time residents of Oregon.  Commencing with
that year, taxpayers reported the income from their New York
public pensions on their Oregon personal income tax returns and
paid Oregon taxes on that income.  Taxpayers also filed for
refunds of taxes paid on their New York public pensions for the
1997, 1998, 1999, and 2000 tax years.  The Oregon Department of
Revenue (department) denied those refund claims.  
	Taxpayers then filed a complaint in the Tax Court,
alleging that various provisions of the state and federal
constitutions required the department to extend to them a tax
benefit similar to the "rebates" that are granted to PERS
retirees under ORS 238.380.  The department moved for summary
judgment, a Tax Court magistrate granted the department's motion,
and the Regular Division of the Tax Court issued an opinion and
judgment that agreed with the magistrate's decision.  The present
appeal followed.
	Taxpayers, who appear before this court pro se, first
argue that Oregon's income tax laws treat persons who retire from
service to the state of Oregon more favorably than those who
retire from employment in other states.  Taxpayers assert that
that disparity in treatment violates Article I, section 20, of
the Oregon Constitution and the Equal Protection Clause of the
Fourteenth Amendment to the United States Constitution.  
The asserted disparity in treatment arises from ORS
238.380, which provides for an "increased benefit" payable to
retired PERS members. (1)  Although that statute deals with
increased pension benefits, not taxes as such, this court
explained the tax significance of such increased benefits in Vogl
v. Dept. of Rev., 327 Or 193, 960 P2d 373 (1998).  In Vogl, this
court held, inter alia, that, because the increased benefit
payments provided by ORS 238.380 are designed to roughly
approximate what PERS recipients would have received, had their
pensions been tax exempt, the payments are the functional
equivalent of a "rebate" of taxes paid on PERS retirement income. 
Id. at 206-08.  In fact, the legislature intended the increase to
compensate PERS members for the loss of a tax exemption that they
previously had enjoyed for such income. (2)  The court in Vogl
concluded that the federal principle of "intergovernmental tax
immunity" precluded the state from providing such a tax benefit
to Oregon PERS retirees without providing a similar benefit to
federal retirees for their federal retirement income. (3)  Id. at
208, 209-11.  After Vogl, the legislature did not repeal ORS
238.380, but instead provided certain "equivalent" tax benefits
to federal retirees.
	Reasoning from this court's holding in Vogl, taxpayers
begin with the unexceptional premise that ORS 238.380 confers a
tax break in the form of a "rebate."  Taxpayers next contend
that, because ORS 238.380 extends that tax break to Oregon
residents who retired from public employment in Oregon, but not
to Oregon residents who retired from public employment in other
states, the statute involves a "classification."  Finally,
taxpayers argue that that classification scheme violates Article
I, section 20, of the Oregon Constitution and the Equal
Protection Clause of the Fourteenth Amendment, because it is not
reasonably related to a legitimate government purpose. (4)      
	To the extent that taxpayers are arguing that it
categorically is impermissible for a state to give tax breaks to
the state's own government retirees that the state does not
extend to the retirees of other state governments, Simpson v.
Dept. of Rev., 318 Or 579, 870 P2d 824 (1994), suggests
otherwise.  Taxpayers have not raised any argument that was not
considered and rejected in Simpson.
	Taxpayers have another string to their bow, however.
They contend that Simpson is inapplicable to their claims because
that case dealt with a tax exemption for PERS pensions, as
opposed to a benefit increase that this court identified in Vogl
as a disguised tax rebate.  Taxpayers contend that, however
legitimate a straightforward tax exemption limited to PERS
pensions may have been, that legitimacy does not extend to the
rebate scheme that is at the heart of ORS 238.380 (and the
classification that is inherent in that scheme).  That is so, in
taxpayers' view, because the "purposes" behind ORS 238.380 were,
and are, illegitimate ones.  
	Taxpayers contend that the statutory purposes behind
ORS 238.380 are those identified in Vogl: (1) to avoid the effect
that Davis would have on Oregon's income tax base; and (2) to
settle the outstanding contractual dispute between Oregon and its
PERS retirees who had been promised tax-free retirement benefits. 
Taxpayers argue that those purposes are illegitimate because they
arose in connection with, or were motivated by, a desire by the
state to violate the rights of federal retirees and to breach its
contract with PERS employees.  Taxpayers also argue that the
statute is tainted in some fashion because the legislature was
"devious" and "deceptive" in enacting it.   
	The Tax Court rejected taxpayers' arguments on the
ground that taxpayers were neither federal nor Oregon PERS
retirees and, therefore, lacked standing to object, even in an
indirect fashion, to the state's violation of federal pensioners'
rights and its breach of its contract with Oregon public
retirees:
     "Taxpayers may not indirectly raise the issues of
compliance with federal law and breach of contract. 
They cannot overcome their standing deficiencies by
suggesting that a federal law violation, found to exist
in Vogl, causes a pervasive taint such that the state
legislation is void.  Nor may they complain of the
breach of contract found to exist, as to Oregon
retirees, in Hughes v. State of Oregon, 314 Or 1, 838
P2d 1018 (1992).
     "The courts do not sit as parental figures
punishing legislatures by voiding legislation that
complies with constitutional limitations but may have
been, in the minds of some, improperly 'motivated.' 
Legislatures are judged on what they do and not motive,
unless a constitutional limitation is stated or
interpreted to include a motive element."
Sherman, 16 OTR at 67-68.  Taxpayers respond that the Tax Court
is incorrect in denying the importance of the "legislative
history" of ORS 238.380 and in suggesting that they lacked
standing to challenge the statute on the basis of historical
purposes that did not affect them.
	Certainly, as the department acknowledges, taxpayers
have standing to advance any argument that, if well taken, would
reduce their tax liability.  However, even granting that
taxpayers have standing to raise this issue, the nature of the
particular legislative history of a statutory enactment is not
the point.  Rather, the point is whether that legislative
history, whatever it may be, somehow can "taint" the statute as
"illegitimate" for all purposes or, specifically, for purposes of
the federal equal protection and state equal privileges and
immunities provisions.
	As to that issue, taxpayers have cited no authority,
and we are aware of none, that would justify treating a statutory
scheme that a court has held to be invalid for one or more
discrete purposes as invalid for all purposes, based solely on
the motivation of the legislature in enacting it.  A
legislature's reach may exceed its grasp in some respects, but
that does not make the entire legislative choice impermissible.
	On the constitutional level, the classification in ORS
238.380 passes muster under Article I, section 20, if the
legislature had a rational basis for making the distinction. 
Crocker and Crocker, 332 Or 42, 55, 22 P3d 759 (2001). (5)  The
state argues, and we agree, that the purpose of ORS 238.380 was
and is to allow the state to meets its contractual obligation to
its own former employees, and that the classification inherent in
the statute is rational and fairly relates to that purpose.
	Certainly, federal equal protection cases support our
view.  Those cases make it clear that, in the equal protection
context, rational basis review is deferential, requiring the
challenging party to disprove any conceivable state of facts that
could provide a rational basis for the classification.  Board of
Trustees v. Garrett, 531 US 356, 367, 121 S Ct 955, 148 L Ed 2d
866 (2001).  A challenger cannot meet that burden merely by
showing that one historical motive relating to the statute's
enactment later proved to be unlawful or "illegitimate" with
respect to one application of the statute.
	Taxpayers separately contend that ORS 238.380
constitutes an unlawful delegation of legislative powers.  Their
theory arises out of the fact that the statute permits PERS
rebate recipients to designate beneficiaries who will receive
those same rebates.  Taxpayers contend that such designations
constitute legislative acts.  We fail to see how that is so.  The
legislative power is fully expressed by granting the authority to
make such designations to individual retirees.  A decision by a
particular retiree to make use of the authorization thereafter is
not a further legislative act.
	Finally, taxpayers argue to this court that ORS 238.380
violates Article IV, section 24, of the Oregon Constitution
because it is a special law, aimed at compensating individual
employees who have outstanding claims against the state based on
the state's breach of its contractual obligation not to tax PERS
retirement income. (6)  Petitioners did not raise that argument
before the Tax Court.  We therefore decline to address it.
	We have considered each of taxpayers' arguments
respecting the decision of the Tax Court.  None is well taken. 
Accordingly, we affirm the judgment of the Tax Court.
	The judgment of the Tax Court is affirmed.



1. 	The increased benefit is designed to affect Oregon
personal income taxes that retirees pay on their Oregon public
employment retirement benefits.  ORS 238.380 provides, in part:
		"(4)(a) The Public Employees Retirement Board
shall calculate a multiplier for the purposes of this
section [respecting the calculation of retirement
pensions] equal to the percentage produced by the
following formula:
"1