Filed: Filed March 15, 2012

IN THE SUPREME COURT OF THE STATE OF OREGON

PATRICK GREEN, Petitioner,

v.

JOHN KROGER, Attorney General, State of Oregon, Respondent.

(SC S060086) (Control)

_______________________________________________________________________ DAN HARMON,

an individual Oregon elector, Petitioner,

v.

JOHN KROGER,

in his official capacity as Oregon Attorney General

, Respondent.

(S060087)

En Banc

On petition s to review ballot title filed January 31 and February 1, 2012

, respectively; considered and under advisement February 29, 2012.

Steven C. Berman, Stoll Stoll Berne Lokting & Shlachter, PC, Portland, filed the petition and reply for petitioner Green.

Ji ll Odell, O'Donnell Clark & Crew LLP, and Gibson Law Firm, LLC, Portland, filed the petition and reply for petitioner Harmon

.

Judy C. Lucas , Assistant Attorney General, Salem, filed the answering memorandum for respondent. With her on the answering memo randum were John R. Kroger, Attorney General, and Anna M. Joyce, Solicitor General.

KISTLER, J.

Ballot title referred to the Attorney General for modification.1 KISTLER, J. 1

Two p etitioner s seek review of the Attorney General's certified ballot title 2

for Initiative Petition 28 (2012). See ORS 250.085(2) (specifying requirements for 3

seeking review of certified ballot titles). We review the ballot title to determine whether 4

it substantially complies with ORS 250.035(2). See ORS 250.085(5) (stating standard of 5

review). For the reasons explained below, we refer the ballot title to the Attorney 6

General for modification. 7

Before 2009, Oregon imposed a 6.6 percent tax rate on a corporation's 8

"taxable income." 1 See ORS 317.061 (2007 ). Taxable income is a defined term that 9

essentially refers to a corporation's profits

-- namely, its gross income less deductions for 10

certain expenses. See ORS 317.010(10) (defining "taxable income"). In 2009, the voters 11

approved Ballot Measure 67, which modified the marginal tax rate that corporations pay 12

on their taxable income. See Or Laws 2009, ch 745 , §§ 5

- 9

. For tax years 2009 and 13

2010, Measure 67 imposed a 6.6 percent tax rate on the first $250,000 of taxable income 14

and a 7.9 percent tax rat e on any taxable income over that amount. Id. §§ 5

- 6. For tax 15

years 2011 and 2012, Measure 67 retained the 6.6 percent tax rate on the first $250,000 16

of taxable income but lowered the tax rate from 7.9 to 7.6 percent on any taxable income 17

in excess of $2 50,000. Id. §§ 7

- 8. Finally, Measure 67 provided that, effective January 18

1, 2013, a 6.6 percent tax rate would apply to the first $10 million of corporate taxable 19

income and a 7.6 percent tax rate would apply to any taxable income over that amount. 20

1 Oregon imposed a five percent tax on certain corporate net long

- term capital gains. ORS 317.061(2) (2007).2

Id. §§ 9

- 10. 1

Initiative Petition 28 (IP 28), if adopted, would change one aspect of 2

Measure 67. 2 Beginning in 2013, it would increase the tax rate that applies to corporate 3

taxable income over $10 million from 7.6 percent to 10 percent. The tax rate for th e first 4

$10 million of corporate taxable income would remain at 6.6 percent. 3 5

The Attorney General certified the following ballot title for IP 28: 6

" Raises Tax Rate on Corporate Income Over $10 Million to 10%, Effective 2013 7

" Result of 'Yes' Vote: 'Yes ' vote increases income tax rate that will 8 apply to corporate income over $10 million from 7.6% to 10%, beginning 9 January 2013. 10

" Result of 'No' Vote: 'No' vote retains current law: beginning on 11

2 IP 28 would add the following text to the Oregon Revised Statutes:

"Section 1. ORS 317.061, as amended by section 7, chapter 745, Oregon Laws 2009, is amended to read:

"317.061. The rate of the tax imposed by and computed under this chapter is:

"(1) Six and six

- tenths percent of the first $10 million of ta xable income, or fraction thereof; and

"(2) Ten percent of any amount of taxable income in excess of $10

million

.

"Section 2. The amendments to ORS 317.061 by Section 1 of this 2012 Act apply to tax years beginning on or after January 1, 2013.

"Section 3. Sections 9 and 10, chapter 745, Oregon Laws 2009 are repealed."

3 Although IP 28 would repeal the $10 million threshold and the 6.6 percent tax rate on corporate taxable income up to $10 million, it would also reinstate those aspects of Measure 67. In effect, IP 28 changes only one aspect of corporate taxation

-- the tax rate on corporate taxable income over $10 million.3

January 1, 2013, corporate income over $10 million will be taxed at the rate 1
of 7.6%. 2

" Summary: Under current law, corporate income is taxed at two 3 different rates, based on whether the income is above or below a threshold 4 amount. Rates and the threshold amount vary for different tax years. 5 Starting in 2009, the corporate tax rate is 6.6% on the first $250,000 of 6 income and 7.9% on income over $250,000. In 2011, the higher rate 7 decreases from 7.9% to 7.6%. Beginning January 1, 2013, the threshold for 8 the higher rate of 7.6% increases to $10 million. Under t he measure, as of 9 January 1, 2013, the corporate tax rate remains 6.6% on the first $10 10 million; the tax rate on income over $10 million increases from 7.6% to 11

10%." 12

Petitioner Green raises a single challenge to the caption, the "yes" vote 13

result stateme nt, the "no" vote result statement, and the summary. He contends that each 14

part of the ballot title is defective because it refers to a tax on "corporate income" rather 15

than a tax on corporate "profits" or "taxable income." Green reasons that the use of the 16

phrase "corporate income" is misleading because it fails to communicate that the tax 17

would fall only on corporate profits. See Kain v. Myers , 336 Or 116, 120, 79 P3d 864 18

(2003) (discussing that standard). In support of his argument, Green notes that a 19

corporation could have more than $11 million in gross income but still operate at a loss. 20

Under IP 28, that corporation would have no "profit" or "taxable income" and thus would 21

owe no tax. Green reasons, however, that the term the certified ballot title uses

-- 22

" income "

-- can include gross income and thus could mislead a voter into thinking that 23

the corporation would owe $100,000 in taxes on its income in excess of $10 million, even 24

if it earned no profit s

. 25

Petitioner Harmon raises a similar challenge to the caption, "yes" vote 26

result statement, "no" vote result statement, and summary. He notes that the tax that IP 274

28 would modify is a corp orate excise tax and contends that the ballot title should have 1

either referred to an excise tax or used the phrase "taxable income

. " In his view, either 2

phrase would have been more accurate and less misleading than the use of the 3

unmodified term "income

. " 4 4

The Attorney General rai ses two arguments in response. The Attorney 5

General notes initially that Green did not object to using the phrase "corporate income" 6

when he filed comments with the Secretary of State regarding the draft ballot title. The 7

Att orney General reasons that, having failed to raise that objection before the Secretary of 8

State, Green cannot raise it here. See ORS 250.085(6) ("When reviewing a title certified 9

by the Attorney General, the Supreme Court shall not consider arguments conc erning the 10

ballot title not presented in writing to the Secretary of State unless the court determines 11

that the argument concerns language added to or removed from the draft title after 12

expiration of the comment period provided in ORS 250.067."). Although Green did not 13

raise that objection in his comments to the Secretary of State, the draft ballot title used 14

the phrase "taxable income." The Attorney General did not remove the word "taxable" 15

until he issued the certified ballot title. ORS 250.085 specifi cally provides that we can 16

consider arguments "concerning language * * * removed from the draft title after the 17

expiration of the comment period." Id. Green's objection is properly before us. 18

On the merits, the Attorney General argues that the sta te and federal tax 19

returns refer to "income tax," not "profits tax." As we understand the Attorney General's 20

4 Harmon also raises other challenges to the caption and the summary. We have considered those challenges and reject them witho ut discussion.5

argument, he reasons from that premise that the word "income" in the ballot title is 1

sufficient, standing alone, to communicate to the voters that the increased tax rate would 2

apply only to a corporation's profits or taxable income. We reach a different conclusion. 3

As an ordinary matter, " i ncome" includes, among other things, gross 4

income, net income, and capital gains, each of which may be treat ed differently for tax 5

purposes. For example, Measure 67 imposed a tax both on gross income and on taxable 6

income; specifically, it imposed a business minimum tax based on a corporation's gross 7

income, and it modified the tax rate that a corporation owes on its taxable income or 8

profits. See Livingston v. Kroger/Devlin , 347 Or 307, 31 0

- 11, 220 P3d 418 (2009) 9

(explaining that Measure 67 imposed a tax on both a corporation's gross income and on 10

its taxable income). Under Measure 67, a corporation that had more than $500,000 in 11

gross income in a tax year would owe a business minimum tax of 0.1 percent of its gro ss 12

income, but it would owe no excise tax if it earned no profit or taxable income that year. 13

The ballot title for Measure 67 distinguished those two concepts. It 14

referred to the tax on gross income as a "business minimum tax" and, alternatively, as a 15

t ax on "total Oregon revenues," while it referred to the increased tax rate on taxable 16

income as a "corporate profits tax." See id. at 31 2 ( setting out the ballot title) . IP 28 17

affects the corporate profits tax that was part of Measure 67. Yet, the ballo t title for IP 28 18

does not refer to the increased tax rate that IP 28 would enact as a tax on a corporation's 19

profits or taxable income. Rather, the caption refers to "rais[ing] the tax rate on corporate 20

income." (Capitalization and boldface omitted.) T he "yes" vote result statement 21

similarly refers to the "tax rate that will apply to corporate income." The "no" vote result 226

statement states that a "no" vote means that "corporate income over $10 million will be 1

taxed" at a lower rate. And the summary sa ys that currently "corporate income is taxed" 2

at a certain rate and that, if the measure passes, "the tax rate on income over $10 million" 3

will increase from 7.6 percent to 10 percent. 4

In each instance, the certified ballot title uses the term "income

, " even 5

though that term can refer to more than one type of income and even though those 6

differing types of income may have s ignificantly different tax consequences. The 7

Attorney General advances no legitimate reason for not using a more accurate term

, 8

which would reduce the potential for misleading the voters that the certified ballot title 9

currently presents. 5 We agree with petitioner s that referring to a tax on corporate 10

"income" is, without more, misleading. Accordingly, we refer the caption, the "yes" 11

result statement, the "no" result statement, and the summary to the Attorney General for 12

modification. 13

Ballot title referred to the Atto rney General for modification. 14

5 The Attorney General argues that, even though the phrase "taxable income" is accurate, it is a technical term and that most voters would not understand its meaning. Whatever the merits of that argument, another term, such as profits or net income, may

not present the concern that the Attorney General identifies.