When a political entity like a city or county charges a property management firm more for a business license because they manage a lot of properties, does that constitute an illegal tax? A circuit court judge in Portland said no. But the State Court of Appeals Friday overruled the lower court by declaring that such a tax escalator based on “income levels” of a real estate firm is not legal and ordered the city of Portland to refund the illegal “overage.”
How this latest ruling might affect Newport’s business license ordinance as applied to local property management firms like Dolphin Realty, Yaquina Bay Properties and Mishey Real Estate remains unclear. The city’s attorney and others will be studying the ruling with an eye to seeing if the city of Portland appeals the case to the State Supreme Court.
But in the meantime, the ruling caught the eye of Newport Finance Director David Marshall who immediately conferred with city officials and announced that the city will drop it’s “business license surcharge” on the property management firms while it revamps its entire business license ordinance. Marshall also said the ruling will certainly add to the discussions with the firms and the city attorney when they meet for a workshop on the issue at city hall September 19th. Dolphin Realty, Yaquina Bay Properties, and Mishey Real Estate have protested the graduated business license fee based on the number of housing or commercial properties they manage, which they view as constituting a graduated tax based on income.
The Newport property management firms contend that they should be subject to no more than the same flat rate business license fee as any other business, with a slight surcharge indexed for the number of employees. They have protested vehemently an additional escalator that was imposed by the city for the number of residential and commercial units they manage on behalf of their client property owners which they claim is at the heart of Friday’s State Court of Appeals ruling. One school of thought suggests that any property that is income property is, in fact, a business, and so should be subject to a business license fee (or tax as some call it), and that it should be paid by the property owner not the property manager.
We’ll see what they all come up with at their September 19th workshop at city hall.
For a summary of this Court of Appeals decision issued Thursday, the Willamette Law School online news service provides the following, along with a link to the actual decision:
Proctor v. City of Portland
Decided 9/8/2011
Case No.: A144782
Haselton, P.J., for the Court; Armstrong, J.; & Duncan, J.
http://www.publications.ojd.state.or.us/A144782.pdf
TAX LAW – Despite the 2008 revisions to Portland’s Business License Law, real estate brokers working under principal real estate brokers are not required to pay a portion of their income as a licensing fee.
Plaintiffs were working as licensed real estate brokers under principal real estate brokers. Under ORS 696.365 and ORS 701.015(6)(a), a business license tax may not be imposed on brokers who work under principal real estate brokers. In 2008, the City of Portland revised its Business License Law and required plaintiffs to pay tax on their income. The city claimed that the plaintiffs were subject to the new law because it has become a “pure business income tax,” instead of a prohibited “business license tax.” The trial court granted the city’s motion for summary judgment. On appeal, the Court of Appeals examined the meaning of “business license tax” in ORS 701.015(6)(a), relying on the text, context, and legislative history. The legislative record made it clear that the Business License Law was intended to raise revenue, unlike most other licensing laws. As such, the court found that the 2008 revisions were “immaterial” to the application of ORS 696.365. Thus, the Business License Law does not apply to the plaintiffs in this case. Reversed and remanded.