SALEM — A state senator filed suit Tuesday against the state, governor and legislative leaders claiming a controversial tax bill the Legislature passed earlier this year is unconstitutional.
Senate Bill 1528 was passed by the Legislature in an effort to temper the effects of federal tax reform on state coffers. It prevents taxpayers from taking a new federal deduction on the state level, to the tune of about $244 million in the current two-year state budget.
Sen. Brian Boquist, R-Dallas, argues that the bill qualified as one for "raising revenue," which the state's constitution requires to start in the House and receive a three-fifths majority — called a "supermajority" — vote. In the short session, the bill started in the Senate and was passed by a simple majority vote.
He also argues that the constitution requires the state to align with federal tax changes and that the passage of the bill by a simple majority violates a constitutional requirement — created by a 1998 ballot measure — that legislative changes to supermajority voting requirements need the same supermajority among voters to pass.
"If the Democrats, and other supporters of new revenue sources, want to change the voting requirement for passage, then they must amend the super-majority clauses of the constitution within the vote count requirements of Article II Section 23," Boquist contends.
He asks the Oregon Tax Court to strike down the law.
Supporters of the bill said during the session that disallowing a tax deduction did not qualify as raising new revenue.
They also maintained that the state's budget couldn't withstand a sudden large revenue loss.
"We needed to take action," said Speaker of the House Tina Kotek, D-Portland, at the end of the legislative session in March. "It would have had a significant impact on the budget."
The deduction at issue was created by the federal Tax Cuts and Jobs Act, signed into law by President Donald Trump late last year.
It's for certain owners of "pass-through" businesses — such as LLCs, partnerships and S-corporations — whose business income "passes through" to their individual income tax returns, rather than being subject to separate corporate income taxes.
The bill prompted an outcry from Republicans and some Democrats, who claimed it put pass-through business owners at a disadvantage in the wake of significant federal corporate tax cuts.
The legislation's supporters argued that state taxes wouldn't increase if they preemptively denied the new deduction on Oregon income taxes.
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