Opinion ID: 3207078
Heading Depth: 2
Heading Rank: 3

Heading: “Privilege Tax”

Text: The term “privilege tax” has long been used in various legal contexts, including the context of municipal utility franchises. The parties offer a number of definitions, focusing on how that term was used when the statute was originally enacted. A “privilege tax” generally is a “tax on the privilege of carrying on a business for which a license or franchise is required.” Black’s Law Dictionary, 1422 (3d ed 1933). That broad of a definition is not particularly helpful, because whether something is considered a “privilege tax” depends largely on the context in which the term is used. For example, that dictionary definition would not fit well in the present circumstance, as one thing is clear about ORS 221.450—the “privilege tax” at issue there may be levied only against utilities operating “without a franchise,” not against utilities operating with a franchise. The term 8 Although ORS 221.450 has undergone several changes since the 1930s, those changes did not directly affect how the terms “privilege tax” and “without a franchise” were used in the statute. A 1987 change in ORS 221.420 and ORS 221.450 which added people’s utility districts to the utilities covered, see Oregon Laws 1987, chapter 245, sections 2 and 3, is discussed below. 359 Or at 331-333, 339-342. Cite as 359 Or 309 (2016) 325 “privilege tax” is generic enough that it often must be evaluated specifically in light of its context. See, e.g., Pacific First Federal v. Dept. of Rev., 308 Or 332, 779 P2d 1033 (1989) (corporate excise tax considered a privilege tax); Multnomah Kennel Club v. Dept. of Rev., 295 Or 279, 286-87, 666 P2d 1327 (1983) (statute imposing license fee in lieu of “all other licenses and privilege taxes” did not preclude county from imposing business income tax, because it was not a license fee or privilege tax); Houck & Sons v. Ellis, 229 Or 21, 29, 336 P2d 166 (1961) (license fee considered a “privilege tax”). The utilities cite Northwest Auto Co. v. Hurlburt, 104 Or 398, 408, 207 P 161 (1922) for the proposition that “privilege tax” under Oregon law includes license fees: “The courts in speaking of financial exactions of the character herein discussed have sometimes called them ‘licenses,’ and sometimes ‘privilege taxes.’ Again, they are sometimes spoken of as ‘license fees’ or ‘license taxes’; but, by whatever name they may be called, they partake of the nature of a tax in many respects, and the designation given in the statute is immaterial, the courts being interested in the substance rather than in the name. In Briedwell v. Henderson, [99 Or 506, 195 P 575 (1921)], we held it to be properly called a privilege tax, the result of this tax being substantially a license, a certificate that the person paying the sum required was permitted to use a particular car upon the highway for the whole or what time might remain of the current year.” Northwest Auto Co. stands for the unremarkable proposition that, regardless of how something is labeled, it may function as a “privilege tax,” and that the labeling of something as a license fee does not preclude it from being considered a privilege tax.9 It does not follow, however, that everything 9 In Northwest Auto Co., an auto dealer argued that it should be exempt from paying personal property tax on autos in its inventory, on the ground that when they sold, their new owners would need to pay license fees that, under state statute, were “in lieu of all other taxes and licenses, except municipal license fees.” 104 Or at 404. After examining the pertinent statutes (which did not actually contain the term “privilege tax”) the court concluded that the licensing fee scheme did not preclude taxation of the automobiles in the dealer’s inventory. Id. at 413. We think Northwest Auto Co. supports the general conclusion that the determination of the nature of a challenged tax or fee depends largely on context—it provides no definitive answer as to what is or is not a “privilege tax” or a “license fee.” 326 Northwest Natural Gas Co. v. City of Gresham designated as a license fee is a “privilege tax,” regardless of the context in which those terms are used. See, e.g., US West Communications v. City of Eugene, 336 Or 181, 187, 81 P3d 702 (2003) (“ORS 221.515 limits only the city’s ability to recover a privilege tax for the use of public rights-of-way” but does not limit a city’s ability to impose other license and registration fees or taxes on telecommunications carrier).10 The legislature’s use of the term “privilege tax” in the present context is unremarkable, as that term often is used in the context of a “tax on the privilege of carrying on a business for which a license or franchise is required,” Black’s Law Dictionary at 1422, and ORS 221.450 specifically concerns a utility’s use of the “streets, alleys or highways” of a city—a use for which a license or franchise generally is required. See, e.g., ORS 221.420(2); GRC 6.30.070(1). “Privilege tax” could, therefore, encompass both franchise fees and license fees for the use of city streets within its meaning—except that we know from the inclusion of the words “without a franchise” in the statute that the legislature did not intend to encompass franchise fees, because it authorized the privilege tax only with respect to utilities operating without a franchise.11 However, nothing in the text, context, and history of the statute, or in the treatises or case law described above, indicates that the legislature 10 Although the issue presented in US West Communications bears some general similarity to the issue raised here, ORS 221.515—at issue in that case—differs significantly from ORS 221.450 in both origin and wording. For example, ORS 221.515 specifies that an entity that pays the “privilege tax” authorized by that statute for use of a city’s public rights-of-way “shall not be required to pay any additional tax or fee on the gross revenues that are the measure of the privilege tax.” We held that ORS 221.515 did not preempt the challenged fee at issue in that case, because the fee was not imposed for the use of the city’s public rights-of-way. 336 Or at 187. 11 We note that in Rogue Valley Sewer Services, 357 Or at 447, we held that a five percent franchise fee imposed on a sanitary authority was not, in fact, an “intergovernmental tax,” and that a city had home-rule authority to impose such a fee. We based our conclusion that it was not a tax on the nature of the charge— it was to be used to cover the costs associated with the sewer service’s use of the rights-of-way and maintenance and repair of city-owned facilities within the rights-of-way, rather than “for general public purposes or to raise revenue for such purposes.” That aspect of the Rogue Valley Sewer Services opinion is discussed in more detail below. See 359 Or at 347-348. For purposes of our present discussion, we simply note that whether or not something is an “intergovernmental tax” does not answer the question of what the legislature meant by “privilege tax” in ORS 221.450. Cite as 359 Or 309 (2016) 327 would have intended a city’s imposition of the type of fee at issue here on a utility for use of the city’s public rights-ofway to be considered anything other than a “privilege tax” as that term is used in ORS 221.450. That is, it appears to fall within the standard legal definition of “privilege tax”—a tax on “the privilege of carrying on a business for which a license or franchise is required.” Black’s Law Dictionary at 1422. We therefore conclude that the fee at issue here is the type of charge the legislature intended to be considered a “privilege tax” for purposes of ORS 221.450, if it is imposed on a utility that is operating “without a franchise.”