Hitting a Pothole at the Beginning of Oregon’s Vehicle Sales & Use Tax Jurisprudence

When “Use” ≠ “Use”

The Oregon Supreme Court, sitting en banc, issued its opinion today in AAA Oregon/Idaho Auto Source, LLC v. State of Oregon. This is the first opinion from that Court to address the new tax that the 2017 legislature implemented to pay for the Zero-Emission Incentive Program and the Connect Oregon Fund. At issue in this case was whether the funds collected under Oregon’s new vehicle tax is a tax subject to Article IX, Section 3a of the Oregon Constitution. It held that it was not subject to this provision. Therefore, the money collected under both the sales and use tax components of the new law does not have to be used for the State Highway Fund (or other uses that the Constitutional provision specifically lists).

The new tax is alternately called a “Section 90” tax (from its origin in Oregon Laws 2017, Chapter 750, section 90), a “privilege tax” (imposed on vehicle dealers for the “privilege of engaging in the business of selling taxable motor vehicles at retail in this state.”), or a sales tax (because it is imposed at a 0.5% rate on the purchase price of vehicles at retail and has a corresponding use tax). We all know that Oregonians are allergic to sales taxes, so the Court elected to refer to the tax as a Section 90 tax throughout its opinion. The Court also refers to the corresponding use tax as a Section 91 tax, in reference to its position in Chapter 750.

In this opinion, the Court answered the narrow question of whether the Section 90 tax and its corresponding use tax are taxes on the “ownership, operation or use of motor vehicles.” It held that the Section 90 tax was a tax on the sale of a vehicle rather than the status of owning the vehicle. Through rather tortured language, and relying heavily on the fact that the use tax is reduced by the Section 90 tax already paid, the Court additionally held that the corresponding Section 91 “use” tax was not a tax on the “operation or use” of motor vehicles. Rather than relying on the plain language of the statute, the Court examined the legislative history of both Article IX, Section 3a of the Constitution and the Section 90 tax. The Court was persuaded by amicus curiae, counsel for the Oregon Legislature, that “the purpose of the Section 91 use tax is to protect Oregon vehicle dealers from losing business to non-Oregon vehicle dealers, who are not subject to the Section 90 tax.”

The Oregon sales tax on vehicle purchases and the Oregon use tax on vehicle usage (without previously paying the sales tax) are different, but complementary, taxes. The Court’s analysis today begs the question of why, when the legislature drafted the statute to include the word “use” we are not reading that word to mean “use”.

This is only one issue that our new tax has raised. There remain several unanswered questions about the application of Oregon’s new sales and use tax regime to businesses and individuals. We expect that those will lead to additional litigation. This, however, is not the most auspicious start to Oregon’s Sales and Use tax jurisprudence.

Valerie Sasaki specializes in jurisdictional tax consulting, working closely with Fortune 50 companies involved in audits before the Oregon or Washington Departments of Revenue. She also works with business owners on tax, business, and estate planning issues in Oregon or Southwest Washington.

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