Title: McCann v. Rosenblum

State: oregon

Issuer: Oregon Supreme Court

Document:

Filed:  April 24, 2014 
 
IN THE SUPREME COURT OF THE STATE OF OREGON 
 
ELSPETH MCCANN, 
Petitioner, 
 
v. 
 
ELLEN ROSENBLUM, Attorney General, 
State of Oregon, 
Respondent. 
_________________________________________________________________ 
 
PAUL ROMAIN and RONALD R. DODGE, 
Petitioners, 
 
v. 
 
ELLEN ROSENBLUM, Attorney General, 
State of Oregon, 
Respondent. 
_________________________________________________________________ 
 
LAUREN G. R. JOHNSON and LYNN T. GUST, 
Petitioners, 
 
v. 
 
ELLEN ROSENBLUM, Attorney General, 
State of Oregon, 
Respondent. 
 
(SC S062082 (Control)) 
 
 
En Banc 
 
 
On petitions to review ballot title filed March 3, 2014; considered and under 
advisement on April 8, 2014. 
 
 
Steven C. Berman, Stoll Stoll Berne Lokting & Shlachter, PC, Portland, filed the 
petition for review on behalf of petitioner McCann. 
 
 
Paul R. Romain, The Romain Group, LLC, Portland, filed the petition for review 
on behalf of petitioners Romain and Dodge.  With him on the petition was Margaret E. 
Schroeder, Black Helterline, LLP, Portland. 
 
 
John A. DiLorenzo, Jr., Davis Wright Tremaine LLP, Portland, filed the petition 
for review on behalf of petitioners Johnson and Gust. 
 
 
Matthew J. Lysne, Senior Assistant Attorney General, Salem, filed the answering 
memorandum.  With him on the memorandum were Ellen F. Rosenblum, Attorney 
General, and Anna M. Joyce, Solicitor General. 
 
 
KISTLER, J. 
 
 
Ballot title referred to the Attorney General for modification. 
 
 
1 
 
 
KISTLER, J. 
1 
 
 
In this consolidated ballot title case, three sets of petitioners have asked us 
2 
to review the ballot title for Initiative Petition 47 (2014).  See ORS 250.085(2) 
3 
(specifying who may petition for review of certified ballot titles).1  We review ballot 
4 
titles for substantial compliance with ORS 250.035(2).  See ORS 250.085(5) (stating 
5 
standard of review).  For the reasons explained below, we refer the ballot title to the 
6 
Attorney General for modification. 
7 
 
 
Initiative Petition 47 (IP 47), if enacted, would change the way that liquor 
8 
is sold in Oregon.  Currently, the Oregon Liquor Control Commission (OLCC) governs 
9 
the retail sale of liquor for off-premises consumption.  ORS 471.730; ORS 471.750.  The 
10 
OLCC appoints private business owners as agents to operate state-licensed retail liquor 
11 
stores.  ORS 471.750.  The OLCC essentially acts as a middleman between wholesale 
12 
liquor distributors and retail OLCC liquor stores; specifically, the OLCC purchases liquor 
13 
from wholesale distributors, marks up the wholesale price, and then sells the liquor at the 
14 
marked-up price to the OLCC retail stores.  ORS 471.730; ORS 471.745; ORS 471.750.  
15 
The revenue that the OLCC collects as a result of that markup, less administrative costs, 
16 
is distributed to the state general fund and also to counties and cities.  ORS 471.805; ORS 
17 
471.810.   
18 
                                              
 
1  
McCann filed the petition in S062082; Romain and Dodge, the petition in 
S062083; and Johnson and Gust, the petition in S062084.  We refer to each set of 
petitioners respectively as McCann, Romain, and Johnson. 
2 
 
 
IP 47 would eliminate the current system of state-licensed liquor stores and 
1 
allow "holders of distilled liquor self-distribution permits" (essentially wholesalers) to 
2 
distribute liquor to "qualified retailers," who would, in turn, sell the liquor to the public.  
3 
Those retailers would include private stores with at least 10,000 square feet of store space 
4 
as well as smaller private stores that meet certain other requirements.  Among other 
5 
changes, IP 47 would create a new administrative agency, the Oregon Distilled Liquor 
6 
Board (ODLB), establish regulatory requirements for wholesalers and qualified retailers, 
7 
dispose of OLCC property, and wind down contracts and agreements between OLCC-
8 
licensed liquor stores and the OLCC. 
9 
 
 
IP 47 also would replace the current markup system with a "revenue 
10 
replacement fee" on wholesalers.  IP 47, § 16.  As noted, the OLCC sells liquor it 
11 
purchases from wholesalers to state-licensed liquor stores at a marked-up price.  See ORS 
12 
471.745; ORS 471.750(2).  Currently, the marked-up price is roughly 180 percent of the 
13 
wholesale cost plus certain administrative costs.  See ORS 471.730; OAR 845-015-0138.2  
14 
If IP 47 became law, wholesalers would sell directly to retailers, eliminating the OLCC 
15 
markup.  To replace the revenue from the markup, wholesalers would pay the OLCC a 
16 
"revenue replacement fee" equal to 71.7% of the wholesale price of the liquor, plus a 
17 
                                              
 
2  
According to OLCC documentation that McCann attached to her petition, 
the marked-up price for a bottle of liquor is calculated as follows:  If a case of liquor 
costs more than $78, the OLCC adds $14.45 to the wholesale cost of the case, multiplies 
the sum by 1.798, adds an outbound freight cost of $1.40 to that product, and divides the 
total by the number of bottles in the container, rounding up to the nearest nickel. 
3 
small fee per container.  IP 47, § 16(1).  Those fees would not be imposed directly on the 
1 
retailer or the consumer, although the wholesaler could pass some or all of those fees on 
2 
to the retailer who, in turn, could pass them on to the consumer. 
3 
 
 
The goal of IP 47's "revenue replacement fee" is to maintain roughly the 
4 
same level of revenue for the state's general fund, counties, and cities that the current 
5 
markup system provides.3  IP 47 implicitly recognizes, however, that it may be difficult 
6 
to predict whether the revenue generated by the new "revenue replacement fee" will 
7 
match the revenue generated by the current markup system.  Specifically, IP 47 provides 
8 
for a one-time adjustment to the 71.7% fee.  See IP 47, §§ 73, 80.  IP 47 provides that, if 
9 
the proposed measure becomes law, a "Legislative Revenue Officer" will determine in 
10 
2016 whether the amount of revenue generated by the revenue replacement fee between 
11 
July 1, 2015 and June 30, 2016 (the "2015 tax year") falls within an acceptable range.  
12 
Id. § 73.  If the amount of revenue generated by the revenue replacement fee during the 
13 
2015 tax year is less than $190,791,582 or more than $194,645,958, then IP 47 directs the 
14 
legislative revenue officer to determine in 2016 the rate that, if applied to wholesale sales 
15 
in the 2015 tax year, would have generated a revenue replacement fee of $192,718,770.  
16 
Id.  That adjusted rate will apply to all future wholesale sales; the section of IP 47 that 
17 
                                              
 
3  
Most of the revenue generated by the revenue replacement fee would be 
available for the same general government uses that revenue from the current markup is; 
IP 47, however, dedicates small amounts of revenue from the sale of each container to a 
few specified funds, such as funds to pay the costs of the ODLB and to support law 
enforcement.  See IP 47, §§ 26-28. 
4 
authorizes a rate adjustment in 2016 will be automatically repealed on January 1, 2017.  
1 
Id. § 80. 
2 
 
 
The Attorney General certified the following ballot title:  
3 
"Allows qualified retail stores to sell liquor; imposes taxes similar to 
4 
current state price markup 
5 
"Result of 'Yes' Vote:  'Yes' vote expands retail sales of liquor by qualified 
6 
retailers; imposes taxes roughly comparable to current state markup; 
7 
establishes regulatory requirements for sales and distribution. 
8 
"Result of 'No' Vote:  'No' vote retains the current system of retail sales of 
9 
liquor exclusively through Oregon Liquor Control Commission agents, 
10 
retains state markup for costs and taxes. 
11 
"Summary:  Under current law, retail sales of liquor by the bottle are made 
12 
exclusively by retail sale agents of the Oregon Liquor Control Commission 
13 
(OLCC).  Price determined by multiplying cost/case by 1.798, adding 
14 
operation and other costs.  Measure would expand the number of retailers; 
15 
current agreements with retail sales agents would be terminated, subject to 
16 
a right to continue to operate.  Current beer/wine retailers over 10,000 
17 
square feet would qualify as liquor retailers, provided they are in 
18 
compliance with all liquor laws and have successfully completed the 
19 
responsible vendor program.  Current markup of prices replaced by 71.7% 
20 
tax, plus per bottle tax; taxes adjusted in 2017; establishes minimum price. 
21 
Creates Oregon Distilled Liquor Board to encourage industry; OLCC 
22 
retains regulatory functions. Other provisions." 
23 
 
 
Petitioners McCann, Romain, and Johnson have raised various challenges 
24 
to the caption, results statements, and summary.  We write to address two of those 
25 
challenges, both of which concern the ballot title's description of the "revenue 
26 
replacement fee."  The first challenge concerns the use of the word "tax" rather than "fee" 
27 
throughout the ballot title to describe the revenue replacement fee.  The second challenge 
28 
concerns the use of the phrases "similar to" and "roughly comparable to" in, respectively, 
29 
the caption and the "yes" vote result statement. 
30 
5 
 
 
We begin with the Attorney General's decision to use the word "tax" rather 
1 
than the word "fee" to describe the "revenue replacement fee" that IP 47 would impose on 
2 
wholesalers.  Relying on Bernard v. Keisling, 317 Or 591, 858 P2d 1309 (1993), 
3 
petitioner Johnson argues that the ballot title should use the same term that the ballot 
4 
measure does, unless compelling reasons exist to use a different term.  In Bernard, the 
5 
court upheld the Attorney General's use of the term "fee" rather than "tax" because the 
6 
ballot measure had used that term and because the Attorney General's use of that term 
7 
"substantially complied" with his obligation to describe the subject matter and major 
8 
effect of the proposed measure.  Id. at 596-97.  The court explained, however, that the 
9 
Attorney General could use a different term than the measure did if doing so were 
10 
necessary to describe the measure accurately.  Id. at 597.  Since Bernard, we have 
11 
considered on more than one occasion when the Attorney General may or must go 
12 
beyond the words of a measure to describe either its subject matter or its effects.  See, 
13 
e.g., Caruthers v. Myers, 344 Or 596, 602-03, 189 P3d 1 (2008) (considering the 
14 
appropriate ballot title when federal law clearly preempted part of the measure but did not 
15 
clearly preempt the remainder); Wolf v. Myers, 343 Or 494, 500-01, 173 P3d 812 (2007) 
16 
(recognizing that drafting a ballot title can require some level of interpretation of the 
17 
measure). 
18 
 
 
In this case, if the Attorney General had used the word "fee" to describe the 
19 
"revenue replacement fee," her use of that word would have raised substantial questions.  
20 
The money that wholesalers must remit to the OLCC has more attributes of a tax than a 
21 
fee.  A tax is "any contribution imposed by government upon individuals, for the use and 
22 
6 
service of the state."  Automobile Club v. State of Oregon, 314 Or 479, 485-86, 840 P2d 
1 
674 (1992).  A fee, by contrast, is imposed on persons who apply for or receive a 
2 
government service that directly benefits them.  Id.; see Qwest Corp. v. City of Surprise, 
3 
434 F3d 1176, 1182 (9th Cir 2006) (explaining that the distinction between a tax and a 
4 
fee is whether the "charge is expended for general public purposes, or used for the 
5 
regulation or benefit of the parties upon whom the assessment is imposed").   
6 
 
 
It does not appear that much, if any, of the "revenue replacement fee" that 
7 
wholesalers would pay under IP 47 would be used to provide services that directly benefit 
8 
wholesalers.  See id.  Rather, under IP 47, much of the money that wholesalers would pay 
9 
the state would be distributed, as it currently is, to the state's general fund, cities, and 
10 
counties and would be available for general government use.  That distribution scheme 
11 
has more attributes of a tax than a fee.  See Automobile Club, 314 Or at 485-86 (defining 
12 
the attributes of a tax).  Indeed, describing the money paid to the state by wholesalers as a 
13 
"fee" would imply inaccurately that the uses to which that money could be put are far 
14 
more limited than IP 47 contemplates. 
15 
 
 
We recognize that a ballot title challenge ordinarily is not the appropriate 
16 
forum for deciding legal issues that require interpretation of a proposed measure.  See 
17 
Bernard, 317 Or at 595 (stating rule).  For that reason, we need not determine 
18 
conclusively the character of the revenue at issue here.  Rather, the question is whether 
19 
the Attorney General's use of the word "taxes" to describe the charge that wholesalers 
20 
would pay under IP 47 "substantially complies" with her obligation to describe the 
21 
measure accurately.  It does.  Indeed, the use of the word "taxes" is more defensible than 
22 
7 
the use of the word "fees" to describe that aspect of IP 47. 
1 
 
 
Johnson raises a related but separate concern.  She reasons that the use of 
2 
the word "taxes" in the caption is confusing because it may cause voters to think that 
3 
consumers will have to pay a sales tax on liquor when, in fact, the tax will fall on 
4 
wholesalers.  Johnson's point is an interesting one.  We agree with Johnson that the tax 
5 
(or fee) that IP 47 imposes is not a "sales tax," as that term is ordinarily understood.  It is 
6 
not a tax that consumers are responsible for paying.  We recognize, however, that a tax 
7 
on wholesalers may be passed on, in whole or in part, to retailers who, in turn, may pass 
8 
it on to consumers.  In that respect, although responsibility for paying the tax falls on 
9 
wholesalers, the tax burden ultimately may fall on consumers. 
10 
 
 
Although one might question, as an economic matter, who will ultimately 
11 
bear the tax burden, we agree with Johnson that the word "taxes," without more, is 
12 
misleading because it does not identify who is responsible initially for paying the tax.  
13 
See McCann/Harmon v. Rosenblum, 354 Or 701, 706-07, 320 P3d 548 (2014) (holding 
14 
that a caption may be misleading where its description of a tax is unnecessarily 
15 
generalized).  Because wholesalers are required to pay IP 47's "revenue replacement" tax 
16 
initially, the word "taxes" should be modified to indicate that fact.  One way of doing so 
17 
would be to describe it as a "wholesale tax."4 
18 
                                              
 
4  
We note that a pending ballot title for Initiative Petition 58 (2014) uses 
similar wording to indicate that wholesalers will pay the tax.  Care should be taken, 
however, to avoid suggesting that the wholesale tax is a sales tax that would fall initially 
on consumers. 
8 
 
 
We turn now to the second objection, which petitioners McCann and 
1 
Romain raise to the caption and the "yes" vote result statement.  They argue that the taxes 
2 
that IP 47 would impose are not "similar to" or "roughly comparable to" the current state 
3 
price markup.  We begin with the caption, which states:  "Allows qualified retail stores to 
4 
sell liquor; imposes taxes similar to current state price markup." 
5 
 
 
Petitioner McCann argues that the phrase "similar to" promises too much.  
6 
She reasons that, even if the drafters of IP 47 sought to generate an amount of revenue 
7 
similar to the amount the current markup system generates, the proposed tax will not 
8 
necessarily accomplish that goal.  She reasons that whether a tax (or fee) on wholesale 
9 
sales will generate equivalent revenue will depend on the volume of wholesale sales and 
10 
the wholesale sale prices in a particular year.  Although the measure provides for a one-
11 
time adjustment to the wholesale tax rate, and thus seeks to achieve equivalent revenue 
12 
that way, she contends that a one-time rate adjustment based on wholesale sales in the 
13 
2015 tax year does not ensure that the revenue generated in later years will be the same.  
14 
McCann reasons that, if wholesale liquor sales and prices in later tax years vary 
15 
substantially from those in the 2015 tax year, then the adjusted rate will produce 
16 
substantially more or substantially less revenue than the adjusted rate would have 
17 
produced in the 2015 tax year (and than the markup system currently produces). 
18 
 
 
Petitioner Romain argues that "similar to" is inaccurate for a different 
19 
reason.  He contends that the sections of IP 47 permitting a "legislative revenue officer" 
20 
to adjust the tax rate and exempting in-state liquor distillers from taxes imposed on out-
21 
of-state distillers are unconstitutional and not severable.  It follows, he argues, that the 
22 
9 
"revenue replacement fee" will generate no revenue for the state.  For that reason, he 
1 
contends, the revenue generated by the new system will not be "similar to" the revenue 
2 
generated by the current markup system. 
3 
 
 
The Attorney General responds that the caption does not state that IP 47 
4 
will be revenue neutral, as the proponents of the measure have argued.  Rather, the 
5 
caption states only that IP 47 "imposes taxes similar to current state price markup."  The 
6 
Attorney General reasons that "similar to" is close enough, given the rate adjustment 
7 
mechanism that IP 47 provides.  She also argues that a ballot title should not speculate on 
8 
whether a proposed measure will be held unconstitutional, if the measure passes. 
9 
 
 
We agree with the Attorney General that it would not be appropriate for her 
10 
to opine, at this stage of the process, whether the two sections of the ballot measure that 
11 
Romain identifies are unconstitutional and, if so, whether they are severable.  To be sure, 
12 
a tax exemption for in-state distillers might be difficult to defend against a Commerce 
13 
Clause challenge.  See Bacchus Imports, LTD. v. Dias, 468 US 263, 104 S Ct 3049, 82 L 
14 
Ed 2d 200 (1984).  However, the other constitutional issue that Romain raises is less 
15 
certain, and Romain's argument ultimately depends not only on whether the two 
16 
provisions would be held unconstitutional but also on whether they would be severable.  
17 
In this posture, we cannot fault the Attorney General for declining to factor those 
18 
complex legal determinations into her description of the measure's effects.  Compare 
19 
Sizemore v. Myers,  326 Or 220, 231, 953 P2d 360 (1997) (declining to engage in 
20 
"extensive legal interpretation" of the relationship between the proposed ballot measure 
21 
and other constitutional provisions), with Caruthers, 344 Or at 601 (referring the ballot 
22 
10 
title for modification when the legal effect of the measure was undisputed). 
1 
 
 
The issue that McCann raises is more problematic.  The phrase "imposes 
2 
taxes similar to current state price markup" implies that the revenue generated by IP 47 
3 
will be "similar to" the revenue generated by the current system.  We assume that the 
4 
revenue identified in section 73 of IP 47 reflects the annual revenue produced under the 
5 
current system; that is, we assume that the current system generates revenue ranging from 
6 
$190,791,582 to $194,645,958 per year.  See IP 47, § 73 (stating that range as the "target" 
7 
that the revenue generated by IP 47 should meet).5  The difficulty, however, lies in 
8 
predicting whether the new system will generate similar amounts of revenue annually.  
9 
As McCann notes, the prediction that it will do so rests on an assumption about the 
10 
volume of wholesale sales that will occur under the new system as well as the wholesale 
11 
prices that will be charged under that system.  However, unless and until IP 47 goes into 
12 
effect, those assumptions are just that. 
13 
 
 
It is true, as the Attorney General notes, that IP 47 provides for a one-time 
14 
adjustment to the wholesale tax rate.  If the voters approve IP 47 and if the revenue 
15 
produced by the measure during the 2015 tax year falls below $190,791,582 or exceeds 
16 
$194,645,958, IP 47 provides that the legislative revenue officer will determine in 2016 
17 
the wholesale tax rate that would have generated $192,718,770 in revenue for the 2015 
18 
                                              
 
5  
Petitioner Johnson represents that those figures reflect the "approximate 
total current revenues raised by the Oregon Liquor Control Commission from the sale of 
alcohol under the status quo."  No party disputes that representation. 
11 
tax year.  That adjusted tax rate will then apply to all future tax years.  However, whether 
1 
that adjusted tax rate will generate similar revenue in future years turns on whether 
2 
wholesale sales and wholesale prices remain constant.  If wholesale sales or wholesale 
3 
prices for the 2015 tax year are atypical, then the one-time adjustment that IP 47 provides 
4 
could result in greater discrepancies between the revenue generated by the "revenue 
5 
replacement fee" and the current markup system. 
6 
 
 
A hypothetical will illustrate the problem.  Suppose that IP 47 passes and 
7 
that wholesale liquor sales increase exponentially during the 2015 tax year as new retail 
8 
sales outlets stock their shelves for the first time.  Suppose also that wholesale prices 
9 
remain constant, even though experience teaches that prices often rise as demand 
10 
increases.  Substantially increased wholesale sales could lead to revenue for the 2015 tax 
11 
year that greatly exceeds $194,645,958 and thus could lead to a corresponding reduction 
12 
in the wholesale tax rate.  Even though wholesale sales for the 2015 tax year might be 
13 
atypically high, the reduced tax rate would continue to apply to wholesale sales in all 
14 
future tax years, thereby reducing the revenue the state receives below that generated by 
15 
the current markup system.  Instead of correcting any discrepancy in the revenue 
16 
generated by the two systems, the one-time adjustment that IP 47 provides could instead 
17 
exacerbate it. 
18 
 
 
For that reason, we agree with McCann that the phrase "similar to" in the 
19 
caption is not accurate.  The phrase "similar to" promises more than IP 47 may be able to 
20 
deliver.  For the same reason, we agree with McCann that the phrase "roughly 
21 
comparable to" in the "yes" vote result statement is not accurate.  We accordingly refer 
22 
12 
the caption and the "yes" vote result statement to the Attorney General for modification.  
1 
We have considered the other challenges that McCann, Romain, and Johnson raise to the 
2 
certified ballot title.  In light of the difficulties that the Attorney General faced in trying 
3 
to describe accurately and succinctly the extensive changes that IP 47 would effect, we 
4 
cannot say that the remainder of the ballot title does not substantially comply with her 
5 
statutory obligations. 
6 
 
 
Ballot title referred to Attorney General for modification. 
7