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CONFIDENTIAL MEMORANDUM

TO: Chair Ted Wheeler

FROM: Agnes Sowle, County Attorney

DATE: July 23, 2008

RE: Multnomah County Motor Vehicle Tax

Query: You asked whether Multnomah County’s Motor Vehicle Rental Tax violates Article IX
Section 3(a) of the Oregon Constitution by designating the revenue from the tax to the general
fund and for other than highway purposes.

Short Answer: No. In 1977, a trial court found that that Multnomah County’s Motor Vehicle
Rental Tax is constitutional on its face and as applied and that it is in all respects valid and
legally enforceable by the County.

Discussion: The Multnomah County Board of Commissioners enacted the Motor Vehicle Rental
Tax as by Ordinance No. 122, on April 15, 1976, effective July 1, 1976. The tax is now codified
at Multnomah County Code § 11.301. It provides, in part, “[a] A tax is imposed on every person
renting a motor vehicle from a commercial establishment doing business in the county, if the
rental is for a period of 30 days or less.”

The base rate of the tax is 10% of the rental fee charged by the vehicle rental company for the
rental. These base taxes are general fund revenues.1 In addition the ordinance imposes a
surcharge rate of 2.5% of the rental fee. The revenues from the surcharge are allocated to
specific obligations. The vehicle rental companies must collect the tax at the time they collect
their rental fees and must remit such taxes to the County.

1
The ordinance provides that the portion of the revenue that represents tax on fuel is allocated to
into the County’s road fund and expended for highway purposes.
Confidential Memorandum
Page 2

After Ordinance 122 was passed by the Board of Commissioners, Budget Rent-A-Car filed a
lawsuit against the County. A court trial was held on April 6, 1977. At trial, Budget made
several challenges to the tax, one of which was its assertion that the County’s use of the revenues
of the tax violated Article IX, Section 3 of the Oregon Constitution.2 Budget’s Trial
Memorandum specifically devoted a section to this argument.

The County countered with argument that Ordinance No. 122 did not tax “ownership, operation
or use of vehicles,” and that instead it taxed rental transactions. The County argued that the tax
was like a sales tax, levied on and measured by the dollar value of the transactions involving
rental of motor vehicles. Because the tax falls upon transactions, the County argued, Article IX,
Section 3 does not apply. (Defendant’s Opening Memorandum and Reply Memorandum).

The trial court agreed with the County. Although he did not write findings and conclusions,
Judge Pat Dooley found that Ordinance 122 was constitutional in all respects:

“ORDERED, ADJUDGED AND DECREED that Multnomah County Ordinance


No. 122 is constitutional on its face and as applied, that said ordinance and its
enforcement violate no rights of the plaintiff or the intervenors as alleged by
them, and that said ordinance is in all respects valid and legally enforceable by
[the County]…”

Budget appealed the trial court decision. Neither the Court of Appeals nor the Oregon
Supreme Court ruled on the constitutionality of the ordinance as they both ruled for the
County on other grounds.

Multnomah County has relied on Judge Dooley’s ruling to continue its tax unchanged for
more than 30 years. No subsequent ruling in any other trial court nor in any court of
appeals has called that ruling into question.

2
In 1977 at the time of trial, Article IX, Section 3 required, in part, that revenues from any tax or
excise levied on the ownership, operation or use of motor vehicles be expended exclusively for
“the construction, reconstruction, improvement, repair, maintenance, operation use and policing
of public highways, roads and streets within the State of Oregon * * * .” In 1980, the section
was amended to remove policing from the permissible uses of such funds.