Opinion ID: 1144890
Heading Depth: 1
Heading Rank: 6

Heading: Territorial Classification

Text: Plaintiffs contend that article I, section 32, prohibits a taxing authority from classifying the subjects of taxation according to a geographical location. They further contend that the only common characteristic shared among those taxed in the District is their location. Past decisions of this court have recognized the role of the judiciary in reviewing the constitutionality of tax classifications, but we have also recognized and expressly held that a taxing authority has a wide range of discretion to classify subjects of taxation. See, e.g., Huckaba v. Johnson, 281 Or. 23, 25-26, 573 P.2d 305 (1978); Tharalson v. State Dept. of Rev., 281 Or. 9, 16, 573 P.2d 298 (1978); Dutton Lbr. Corp. v. Tax Com., 228 Or. 525, 539, 365 P.2d 867 (1961); Smith et al. v. Columbia County et al., 216 Or. 662, 341 P.2d 540 (1959); Wittenberg et al. v. Mutton et al., 203 Or. 438, 280 P.2d 359 (1955); Garbade and Boynton v. City of Portland, 188 Or. 158, 191-92, 214 P.2d 1000 (1950). In previous decisions we have upheld the legislature's classification of income for taxation ( McPherson v. Fisher, 143 Or. 615, 622, 23 P.2d 913 (1933)); the legislature's classification of occupations for taxation ( State v. Winegar, 157 Or. 220, 225, 69 P.2d 1057 (1937)); a municipal corporation's classifications of various kinds of businesses, trades and professions for a license tax ( Garbade and Boynton v. City of Portland, supra, 188 Or. at 192, 214 P.2d 1000); the legislature's separate tax treatment of non-residents for income tax ( Berry v. Tax Commission, 241 Or. 580, 397 P.2d 780, 399 P.2d 164 (1964)); and the legislature's classification for inheritance tax purposes of property on the basis of its location either inside or outside the state ( Tharalson v. State Dept. of Rev., supra, 281 Or. at 15-17, 573 P.2d 298). See generally Etter, Municipal Tax Differentials, 37 Or.L.Rev. 1 (1957). As noted above, in the present case the City is levying its business and property taxes on all businesses and property within a geographical area. Therefore, the City is not singling out any fixed group of persons ; anyone might change or move his business or his property investments in and out of the District. Cf. Tharalson v. State Dept. of Rev., supra at 17, 573 P.2d 298. The persons subject to the City taxes are subject thereto because they own property or operate a business within the District. Therefore, the tax classification would be constitutional as long as the geographical area defined as the District is a valid class. In his article on municipal tax differentials, Etter notes that location is not a proper basis for classifying property. Etter, supra at 41. But he goes on to explain: This does not mean    that classification which is based on valid factors but which happens to apply the property of a given locality only is thereby rendered invalid.    37 Or.L.Rev. at 41. We agree. Recognizing the broad freedom a taxing authority has to classify subjects for taxation, we conclude that a classification based on or defined by geographical location is nevertheless constitutionally permissible if it is also based upon qualitative differences that distinguish the geographical area from other areas within the territorial limits of the authority levying the tax. In other words, a taxing authority may not single out a subterritory for exclusive tax treatment (either taxation or exemption) if that subterritory is indistinguishable from the rest of the territory. But if the subterritory is different in quality compared to the rest of the territory, then article I, section 32, does not prohibit a taxing authority from defining the subterritory as a separate class. This requirement is based upon the principle established in our previous decisions that a tax classification is constitutionally valid if it rests upon genuine differences. See Huckaba v. Johnson, supra, 281 Or. at 25-26, 573 P.2d 305 (citing cases). In addition, if the taxing authority selects a subterritory for taxation and that subterritory is the only area so taxed, then the subterritory must not only be qualitatively different but must also be unique. There may be two types of qualitative differences that might justify singling out a geographical area for tax treatment. One type might be described as natural qualities. These would be qualities that exist in the land by reason of nature, for example, swamp land, or land with less than 20 inches rainfall, or a flood plain. The second type might be described as politically imposed qualities. These would be qualities that exist in the subterritory by political decision, commitment and action, and they may well result because of economic factors or human conditions. Thus the wider significance of the present analysis is that article I, section 32, does not prevent tax classifications from reflecting qualitative differences that result from land use planning decisions. Such planning decisions are almost inevitably stated in territorial terms; but this does not mean that a tax classification which reflects a land use classification is based only on location and therefore invalid, rather than being validly based on the qualitative difference in land use characteristics. The Court of Appeals reasoned that the businesses within the District are a distinct and valid class because they all share the same conditions unique to a downtown urban core area. As the court explained,    the persons subject to the District taxes share more than a common geographical boundary. They are also likely to share common conditions of transportation, difficulty of access, scarcity of parking, density, degeneration of physical plant, loss of consumer patronage, esthetic depreciation, concentration of polluting agents, declining value and other conditions of modern life which characterize the downtown core area of many cities in Oregon and elsewhere. It is the economic and physical factors of contemporary urban life, not a boundary, which provide the rational basis for the taxes at issue.    40 Or. App. at 196, 594 P.2d at 1268. Although this analysis alone might adequately validate the territorial classification, we find an additional compelling reason why the District is uniquely and qualitatively different from the remainder of the city. In addition to the fact that the businesses and property within the District presently share, and in the past have shared, the conditions unique to being in a downtown urban area, the City is taxing the District for the purpose of creating a unique area in the future. The City has committed itself to provide a package of special services not provided elsewhere in the city, including free motor vehicle parking, an economic promotion and development program, and a public transportation program. In this regard, the qualities that distinguish the District from the rest of the City are politically imposed. The District is unique not only because it contains the only downtown area in the city, but also because the City has committed itself to providing services and programs that patently and physically distinguish the District from any other area of the city. We therefore hold that the City validly classified the District, and the property and businesses therein, for the purpose of separate tax treatment. This classification does not violate article I, section 32, of the Oregon Constitution. For the same reasons, this classification does not grant any citizen or class of citizens a privilege or immunity that is not equally available to all on the same terms (Or.Const. art. I, § 20), nor does it deny anyone the equal protection of the laws guaranteed by the fourteenth amendment to the United States Constitution.