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Health Net, Inc. v. Department of Revenue

Supreme Court of Oregon

April 12, 2018

HEALTH NET, INC. and subsidiaries, Plaintiffs-Appellants,
v.
DEPARTMENT OF REVENUE, Defendant-Respondent.

          Argued and submitted September 19, 2016.

          On appeal from the Oregon Tax Court (TC 5127). [*] Henry C. Breithaupt, Judge.

          Amy L. Silverstein, San Francisco, California, argued the cause for appellants. James E. Mountain, Jr., Harrang Long Gary Rudnick P.C., Portland, fled the brief. Also on the brief were Edwin P. Antolin and Amy L. Silverstein, Silverstein & Pomerantz LLP, and C. Robert Steringer, Harrang Long Gary Rudnick P.C.

          Benjamin Gutman, Solicitor General, Salem, argued the cause for respondent. Darren Weirnick, Assistant Attorney General, fled the brief. Also on the brief was Ellen F. Rosenblum, Attorney General.

          Timothy R. Volpert, Portland, and Richard L. Masters, Louisville, Kentucky, fled the brief for amici curiae Interstate Commission for Juveniles and The Association of Compact Administrators of the Interstate Compact on the Placement of Children.

          Per A. Ramfjord, Stoel Rives LLP, Portland, fled the brief for amicus curiae Council on State Taxation. Also on the brief was Nikki E. Dobay, Council on State Taxation, Portland.

         [362 Or. 701] Thomas M. Christ, Cosgrave Vergeer Kester LLP, Portland, fled the brief for amicus curiae Multistate Tax Commission. Also on the brief were Helen Hecht, General Counsel, and Sheldon H. Laskin, Counsel, Multistate Tax Commission, Washington, D.C.

          Katherine Thomas, Assistant County Attorney, Offce of Multnomah County Attorney, Portland, fled the brief for amici curiae the States of Texas, Alaska, Arkansas, California, Hawaii, Idaho, Michigan, Minnesota, Missouri, Montana, North Dakota, Utah, and Washington, and the District of Columbia. Also on the brief were Jenny M. Madkour, County Attorney, and Jed Tomkins, Assistant County Attorney, Offce of Multnomah County Attorney, Portland; and Ken Paxton, Attorney General of Texas, Jeffrey C. Mateer, First Assistant Attorney General, Scott A. Keller, Solicitor General, and Rance Craft, Assistant Solicitor General, Offce of the Attorney General, Austin, Texas.

          Before Balmer, Chief Justice, and Kistler, Walters, Nakamoto, Flynn, and Duncan, Justices, and Armstrong, Judge of the Court of Appeals, Justice pro tempore. [**]

         [362 Or. 702] Case Summary: Taxpayer is a multistate business that sought refunds for various tax years. Taxpayer argued that, when the legislature enacted former ORS 305.655 (1967), better known as the Multistate Tax Compact (MTC), Oregon entered into a contract with other states that also enacted the MTC. Taxpayer contended that later changes to Oregon's tax laws that the 1993 legislature enacted resulted in a breach of the contract and violated the state and federal contract clauses. Taxpayer also argued that the 1993 legislation violated Article IV, section 22, of the state constitution, which imposes a publication requirement when the legislature amends existing statutes. Held: (1) Because the 1967 statute does not reflect a clear and unmistakable intent to bind the state contractually, the enactment of that statute gave rise to statutory rights only, which the 1993 legislature was free to modify. (2) The 1993 statute did not implicate Article IV, section 22, of the Oregon Constitution because it did not amend or revise the 1967 statute.

         [362 Or. 703] KISTLER, J.

         In 1967, Oregon enacted the Multistate Tax Compact (MTC) to promote the uniform apportionment of income earned by multistate businesses. Or Laws 1967, ch 242, § 1 (stating the purposes of the act). That statute, which was codified as ORS 305.655, set out formulas that multistate businesses could use to determine the portion of their income that was subject to taxation in Oregon.[1] In 1993, the Oregon legislature provided that businesses could not use the apportionment formulas set out in ORS 305.655 to the extent that those formulas differed from apportionment formulas set out in another set of Oregon statutes. Or Laws 1993, ch 726, § 20.

         In 2010 and 2011, Health Net, Inc., and its subsidiaries (collectively "taxpayer") sought a refund for tax years 2005 to 2007, claiming that ORS 305.655 had created contractual obligations, which the 1993 law impaired in violation of the state and federal contract clauses. The Tax Court rejected that claim, holding that ORS 305.655 created only statutory rights, which the legislature was free to modify. In doing so, the Tax Court aligned Oregon with all the state courts that have addressed this issue. We now affirm the Tax Court's judgment.

         This case presents primarily two issues. The first is whether, in enacting ORS 305.655, the 1967 legislature went beyond enacting a statute intended to promote the uniform taxation of multistate businesses and instead entered into a binding contract, which the 1993 law impaired in violation of the state and federal contract clauses. The second is whether the 1993 legislation impliedly repealing part of ORS 305.655 violated Article IV, section 22, of the Oregon Constitution by not setting out the text of that statute. Before addressing those issues, we first describe briefly the background that underlies taxpayer's claims.

         [362 Or. 704] I. BACKGROUND

         A. National developments

         In 1957, the National Conference of Commissioners on Uniform State Laws promulgated a uniform act-the Uniform Distribution of Income for Tax Purposes Act (UDITPA)-to provide a fair way to apportion income earned by multistate businesses among the various states. Arthur D. Lynn, Jr., The Uniform Division of Income for Tax Purposes Act, 19 Ohio St LJ 41 (1958). UDITPA divides income into two categories: business and nonbusiness income. Id. at 43. It provides different formulas for apportioning each category of income. Id. at 46. Of relevance here, UDITPA provides that all business income shall be apportioned using an equally weighted average of three ratios, which reflect a business's property, payroll, and sales within and without a state. See Atlantic Richfield Co. v. Dept. of Rev., 300 Or. 637, 639-40, 717 P.2d 613, adh'd to on recons, 301 Or. 242, 722 P.2d 727 (1986) (illustrating application of the three-factor formula). Additionally, UDITPA specifies how sales of tangible property and other types of sales should be allocated to states to determine the percentage of a multistate business's income that each state may tax. See Powerex Corp. v. Dept. of Rev., 357 Or. 40, 60, 346 P.3d 476 (2015) (discussing allocation principles for sales of tangible property).

         In 1959, two years after the National Conference of Commissioners on Uniform State Laws promulgated UDITPA, the United States Supreme Court confirmed that states constitutionally may tax income derived exclusively from interstate commerce. Northwestern Cement Co. v. Minnesota, 358 U.S. 450, 79 S.Ct. 357, 3 L.Ed.2d 421 (1959). Specifically, the Court held that the Commerce Clause did not prohibit Minnesota from taxing a foreign corporation's in-state sales, even though those sales were exclusively in furtherance of interstate commerce. Id. at 452, 464. Although the Court recognized that permitting Minnesota to tax those sales raised the possibility that two states could tax the same income, it observed that the petitioners had not challenged the formula Minnesota used to apportion the corporation's income among the states. Id. at 462-63. The Court accordingly found it unnecessary to decide whether [362 Or. 705] a different method of apportioning income from interstate sales would raise constitutional issues. Id.

         The decision in Northwestern Cement Co. led to two related but separate congressional responses. First, six months after Northwestern Cement Co. was decided, Congress enacted a statute that precluded a state from taxing an out-of-state corporation's income when the corporation's only activity within the state was either soliciting sales or using an independent contractor to solicit those sales. James E. Sabine, Constitutional and Statutory Limits on the Power to Tax, 12 Hast LJ 23, 24-27 (1960) (summarizing federal legislation). Second, Congress appointed a commission to study whether further federal measures were necessary to avoid unduly burdensome taxation of multi-state businesses. Id.

         Among other things, the resulting study noted that there was a "widespread adoption of the three-factor property-payroll-sales formula" for apportioning income. State Taxation of Interstate Commerce: Report of the Special Subcommittee on State Taxation of Interstate Commerce, HR Rep No 88-1480, at 119 (1964). The study also noted, however, that there were variations in the way that sales were allocated to states, and Congress considered legislation that would have limited the states' authority to tax multistate business income. Id.; see Frank M. Keesling and John S. Warren, California's Uniform Division of Income for Tax Purposes Act, 15 UCLA L Rev 156, 159-63 (1967) (discussing proposed federal legislation).

         By 1967, 19 of the 38 states that taxed income earned by multistate businesses had adopted "most or all of [UDITPAs] provisions." Keesling & Warren, 15 UCLA L Rev at 158. To further promote the uniform taxation of business income and to ward off further federal intervention in state taxation, the Council of State Governments drafted the MTC in 1966 and circulated it among the states in early 1967. The MTC consists of 12 articles. Article IV incorporates the apportionment formulas set out in UDITPA. Article III permits a multistate business to elect either the apportionment formulas set out in Article IV or apportionment formulas set out elsewhere in a state's tax code to determine the portion [362 Or. 706] of the business's income that is subject to taxation in that state.

         Article VI creates the Multistate Tax Commission, which is composed of representatives from member states and funded by donations and grants.[2] The commission may recommend rules to member states to advance the uniform application of state tax laws, but member states are free to accept or reject any rule the commission recommends. Art VII.

         Two other articles provide additional means for enhancing the uniform application of state tax laws. Article VIII permits a member state to ask the commission to audit a corporation's books, papers, and records, but "only in those party States that specifically provide therefor by statute." Art VIII, § 1. Article IX provides for arbitration of a state agency's determination regarding apportionment or allocation if the commission adopts a regulation "placing this Article in effect." Art IX, § 1. California enacted the MTC on the condition that Article IX not be placed in effect, and that article is not in effect. Gillette Co. v. Franchise Tax Bd., 62 Cal.4th 468, 482, 363 P.3d 94 (2015), cert den, 137 S.Ct. 204 (2016).

         Finally, Article X provides that "[t]his compact shall enter into force when enacted into law by any seven States" and shall "become effective as to any other State upon its enactment thereof." Art X, § 1. Article X also provides that "[a]ny party State may withdraw from this compact by enacting a statute repealing the same." Id. § 2.

         B. Oregon legislation

         In 1965, the Oregon legislature enacted UDITPA. Or Laws 1965, ch 152; see ORS 314.605 to 314.675 (codifying UDITPA). Two years later, Oregon enacted the MTC. Or Laws 1967, ch 242, § 1; see ORS 305.655 (codifying the [362 Or. 707] MTC). Because Article IV of the MTC incorporates UDITPA, those two Oregon statutes initially provided the same formulas for apportioning business income. Compare ORS 314.605 to 314.675 (1965) (Oregon's version of UDITPA), with Article IV of ORS 305.655 (incorporating the apportionment formulas from UDITPA).[3] Under Article III of ORS 305.655, a business could elect either set of apportionment formulas. However, because the formulas were the same, the ability to elect one or the other initially made no difference.

         Beginning in 1989, the legislature enacted a series of amendments to the apportionment formulas in Oregon's version of UDITPA, which progressively increased the weight given the sales factor. See Or Laws 1989, ch 1088, § 1 (increasing the weight given the sales factor from 33.33 percent to 50 percent); Or Laws 2001, ch 793, § 1 (increasing the weight given the sales factor to 80 percent); Or Laws 2003, ch 739, § 1 (increasing the weight given the sales factor to 90 percent). In 2005, the legislature completed that progression by providing that only the sales factor would be used to determine the percentage of a multistate business's income that is taxable in Oregon. Or Laws 2005, ch 832, §49.[4]

         Although the legislature modified the apportionment formulas set out in Oregon's version of UDITPA, the apportionment formulas set out in Article IV of ORS 305.655 remained unchanged. At first, that difference had no practical effect on multistate businesses. Under Article III of ORS 305.655, a multistate business could elect to have its taxable Oregon income determined using either the formulas set out in Article IV of ORS 305.655 or the modified formulas set out in Oregon's version of UDITPA.

         [362 Or. 708] In 1993, however, the legislature provided that, to the extent that Oregon's version of UDITPA conflicted with ORS 305.655, Oregon's version of UDITPA controlled. Or Laws 1993, ch 726, § 20; see Powerex, 357 Or at 72 (applying that rule). As a result of the 1993 act, Oregon eliminated a multistate business's ability to elect the statutory apportionment formulas set out in Article IV of ORS 305.655 and required instead that the business use the modified apportionment formulas set out in Oregon's version of UDITPA.

         C. Procedural background

         Taxpayer is a multistate corporation that has been doing business in Oregon since at least 1989. In 2010, taxpayer filed refund claims with the Oregon Department of Revenue (the department) for the 2005 and 2006 tax years. In 2011, taxpayer filed a refund claim for the 2007 tax year. Taxpayer's refund claims rest on the following propositions: In enacting ORS 305.655 in 1967, the Oregon legislature entered into a contract with other states that enact the MTC.[5] Under the terms of the MTC, the legislature could not eliminate taxpayer's right granted by Article III to elect the apportionment formulas set out in Article IV unless Oregon withdrew from the contract pursuant to Article X, which Oregon had not done at that point. It followed, taxpayer concluded, that the department had breached the contractual obligations created by Article III when it failed to honor taxpayer's election. Taxpayer recognized that the Oregon legislature had altered those obligations in 1993. However, it contended that the 1993 act impaired its contract rights in violation of the state and federal contract clauses.[6]

         [362 Or. 709] On cross-motions for summary judgment, the Tax Court granted the department's motion and denied taxpayer's. It did so for three reasons. The Tax Court concluded that: (1) even assuming that ORS 305.655 gave rise to contractual obligations, those contractual obligations were illusory because Oregon was free to withdraw from the MTC at any time; (2) the text and context of ORS 305.655 do not reflect an unambiguous intent to create contractual, as opposed to statutory, obligations; and (3) the course of conduct by other states that had enacted the MTC (subsequently overriding the election provisions of Article III) was further evidence that Article III of ORS 305.655 did not create contractual obligations. The Tax Court accordingly entered judgment in the department's favor.

         II. ISSUES

         This appeal presents essentially two issues. The first is whether the 1993 act eliminating a business's right under Article III of ORS 305.655 to elect the apportionment formulas in Article IV of that statute violates either the state or federal contract clauses. That issue turns initially on a subsidiary state-law question: whether, in enacting ORS 305.655, the 1967 legislature intended to impose contractual obligations on the state. See Hughes v. State of Oregon, 314 Or. 1, 14, 838 P.2d 1018 (1992) (in analyzing a contract clause claim, the initial question is whether a contract exists). While not dispositive of taxpayer's federal Contract Clause claim, the determination of that subsidiary state-law issue is a necessary predicate to its resolution. See General Motors Corp. v. Romein, 503 U.S. 181, 187, 112 S.Ct. 1105, 117 L.Ed.2d 328 (1992) (in deciding federal Contract Clause questions, the Court gives "respectful consideration and great weight" to the state court's conclusion regarding the existence and terms of any contract). The second issue is whether the bill enacting the 1993 act failed to comply with Article IV, section 22, of the Oregon Constitution because it did not set out the text of ORS 305.655. We begin by considering whether ORS 305.655 created contractual obligations or only statutory ones.

         III. ORS 305.655

         Taxpayer argues that, when the Oregon legislature enacted ORS 305.655 in 1967, it entered into a contract [362 Or. 710] with other states that also enacted the MTC. Taxpayer bases that argument primarily on the use of the word "compact" in ORS 305.655, the conditions that Article X places on ORS 305.655 going into effect and on withdrawing from the compact, and the history that preceded the drafting of the MTC. The department responds that, in determining whether ORS 305.655 created contractual obligations rather than statutory ones, we should begin with the standard that this court customarily applies: before a statute will give rise to contractual obligations, the legislature's intent to do so must be clear and unmistakable. Additionally, the department argues that we should focus on how ORS 305.655 functions, not on the label that the legislature used. Applying those principles, the department reasons that ORS 305.655 is functionally no different from a uniform law, the enactment of which does not create contractual obligations. At a minimum, the department contends, the legislature's intent to create contractual obligations was ambiguous-a conclusion that, under this court's cases, defeats taxpayer's attempt to convert statutory rights into contractual ones.

         Nationally, the proposition that underlies taxpayer's argument-that states that enact the MTC enter into a contract with each other-has given rise to two related but separate legal challenges. The first occurred five years after the MTC was drafted and circulated among the states. In 1972, corporations faced with an audit under Article VIII of the MTC argued that the MTC was an "Agreement or Compact" among the states within the meaning of the Compact Clause of the federal constitution and, as a result, was unenforceable because Congress had never approved it. See U.S. Steel Corp. v. Multistate Tax Comm'n, 434 U.S. 452, 458, 98 S.Ct. 799, 54 L.Ed.2d 682 (1978) (describing the plaintiffs' argument).[7] The Court disagreed. Looking at the MTC functionally rather than focusing on its use of the label "compact, " the Court explained that the MTC lacked the attributes of an "Agreement or Compact" within the meaning of the Compact Clause. Id. at 470-71, 473. The Court accordingly [362 Or. 711] held that the Compact Clause did not preclude states from enforcing the MTC.[8]

         A second wave of litigation occurred when states that had enacted the MTC began modifying its terms. Taxpayers adversely affected by those modifications have filed a series of cases in the state courts claiming, as taxpayer does here, that the states that enacted the MTC had entered into a contract with each other and that later statutes modifying Articles III and IV violated the state and federal contract clauses.

         No state court that has considered those claims has found that enacting the MTC gave rise to contractual obligations. See Graphic Packaging Corp. v. Hegar, 538 S.W.3d 89 (Tex 2017); Kimberly-Clark Corp. v. Commissioner of Revenue, 880 N.W.2d 844 (Minn), cert den, 137 S.Ct. 598 (2016); Gillette Co. v. Franchise Tax Bd., 62 Cal.4th at 483; Gillette Commercial Operations v. Dep't of Treasury, 878 N.W.2d 891 (Mich App 2015), appeal den, 880 N.W.2d 230, 521 (Mich 2016), cert den, 137 S.Ct. 2157 (2017); see also Goldberg v. State Tax Comm'n, 639 S.W.2d 796 (Mo 1982) (holding that enacting the MTC did not override statutory method for apportioning income). Rather, the state courts that have reached the issue uniformly have concluded, albeit for differing reasons, that enacting the MTC gave rise only to statutory rights.

         At first blush, it would appear that only the latter group of cases would bear on the state-law contract question that this case presents. Although the issue presented in the second group of cases is virtually indistinguishable from the issue presented here, the United States Supreme Court's reasoning in U.S. Steel Corp. also warrants consideration. That decision laid the groundwork for much of the analysis that followed in the later state cases, even though the two sets of issues are not identical. We accordingly begin by describing the reasoning in U.S. Steel Corp. We then discuss [362 Or. 712] the variations on that reasoning in the California Supreme Court's decision in Gillette and the Minnesota Supreme Court's decision in Kimberly-Clark Corporation, the leading state cases addressing whether enacting the MTC created contractual obligations. Finally, we turn to the question whether, as a matter of Oregon law, our legislature entered into a contract with other MTC states when it enacted ORS 305.655.[9]

         A. Decisions from other jurisdictions

         1. United States Supreme Court: U.S. Steel Corp.

         In U.S. Steel Corp., a group of multistate businesses sought to avoid application of the audit provisions in Article VIII of the MTC on the ground that the MTC was unenforceable under the Compact Clause. That clause provides: "No State shall, without the Consent of Congress, * * * enter into any Agreement or Compact with another State." U.S. Const, Art I, § 10, cl 3. Because Congress has not consented to the MTC, the question before the Court was whether the MTC was an "Agreement or Compact" within the meaning of the Compact Clause. In resolving that issue, the Court started from the proposition that the MTC's use of the label "compact" was not dispositive. U.S. Steel Corp., 434 U.S. at 470-71. What mattered was the way that the MTC functioned. Id. More specifically, the Court explained that the Compact Clause requires congressional approval only for those "'combination[s] tending to the increase of political power in the States, which may encroach upon or interfere with the just supremacy of the United States.'" Id. at 468 (quoting Virginia v. Tennessee, 148 U.S. 503, 519, 13 S.Ct. 728, 37 L.Ed. 537 (1893)).

         Applying that standard, the Court explained that the MTC was not an "Agreement or Compact" subject to [362 Or. 713] the Compact Clause because the MTC did not authorize the states that enacted it to do anything collectively that each state could not do unilaterally. The Court reasoned:

"This pact does not purport to authorize the member States to exercise any powers they could not exercise in its absence. Nor is there any delegation of sovereign power to the [Multistate Tax] Commission; each State retains complete freedom to adopt or reject the rules and regulations of the Commission. Moreover, as noted above, each State is free to withdraw at any time."

Id. at 473. Given that view of the rights and obligations created by the MTC, the Court concluded that the MTC did not encroach upon the sovereignty of the federal government and, as a result, did not require congressional approval to become effective.

         Although the Court's holding in U.S. Steel Corp. is limited to the Compact Clause, its reasoning reaches more broadly. As the Court described the rights and obligations created by the MTC, they resemble a uniform law rather than a contract among the states that enact it. As the Court recognized, the MTC does not create reciprocal obligations among the member states. Rather, each state that enacts the MTC can apply Articles III and IV of the MTC regardless of whether any other state adopts the MTC. Conversely, if any state that enacted the MTC later modified its terms or repealed it entirely, those actions would have no effect on the ability of another state to apply the apportionment formulas set out in Article IV to determine the portion of a multistate business's income that is subject to taxation in that state.

         Put differently, each state can apply Articles III and IV independently, as is true of a uniform law. That conclusion is hardly surprising since Articles III and IV merely implement a uniform law, UDITPA, which individual states are free to adopt, modify, or repeal independently. Moreover, as the Court explained, in enacting the MTC, states do not delegate their sovereign power to a regulatory agency in return for binding rules that apply to multiple jurisdictions. Rather, the commission created by the MTC can only recommend rules, which member states are free to adopt or reject. [362 Or. 714] In short, as the Court described the MTC, it resembles a uniform law, not a binding contract.

         To be sure, in U.S. Steel Corp., the Court did not reach the question whether states that enact the MTC enter into a binding contract with each other. However, the state courts that have decided that question have agreed, for reasons that parallel the reasoning in U.S. Steel Corp., that no contract was formed. We discuss two of those state supreme court decisions before turning to Oregon law.

         2. California Supreme Court: Gillette Co. v. Franchise Tax Bd.

         The question before the California Supreme Court in Gillette was virtually identical to the question presented here: whether, in enacting the MTC, California entered into a binding contract with other states that enacted the MTC. Relying on what the United States Supreme Court described as three "classic indicia" of a binding compact in Northeast Bancorp v. Board of Governors, 472 U.S. 159, 105 S.Ct. 2545, 86 L.Ed.2d 112 (1985), the California Supreme Court explained that the MTC lacked those indicia and, as a result, created only statutory rights. Gillette, 62 Cal.4th at 478-83.[10]

         The court reasoned that the "[m]ost important" indicia of a contractual obligation-reciprocal obligations among the member states-was absent:

"The Compact's provision of election between the UDITPA or any other state formula does not create an obligation of member states to each other. Even if maintenance of the election provision in one member state might benefit taxpayers in another state, that benefit to the taxpayer applies whether the taxpayer is from a member or nonmember state. This application is more akin to the adoption of a model law rather than the creation of mutual obligations among Compact members."

[362 Or. 715] Id. at 478-79 (emphasis in original). The court also observed that the effectiveness of the MTC did not depend on the conduct of other member states. Specifically, under the MTC, a member state is free to come or go without affecting the other member states' authority to enforce the MTC's terms. Id. at 480. Additionally, the court concluded that the presence of a withdrawal provision in Article X "says nothing about a member state's ability to unilaterally modify the Compact." Id. Finally, the court noted that the MTC lacked a commission or agency with regulatory authority; that is, the member states had not contracted away their regulatory authority to a multistate commission in return for binding multistate rules. Id. at 481-83. Given those considerations, the court was not persuaded that the MTC created contractual obligations.

3. Minnesota Supreme Court: Kimberly-Clark Corp.

         The Minnesota Supreme Court took a different tack. It started from the proposition that, under Minnesota law, a statute will give rise to contractual obligations only if it does so in "unmistakable terms." Kimberly-Clark Corp., 880 N.W.2d at 850-51. The court concluded that the MTC lacked the sort of unmistakable wording that would demonstrate an intent to make statutory obligations contractual ones. It reasoned:

"We find no unmistakable or express promise surrendering the State's legislative authority in section 290.171 as enacted in 1983. The statute did provide that the Compact is 'enacted into law, ' Minn. Stat. § 290.171 (1984), and that a member state may withdraw from the Compact 'by enacting a statute repealing the same.' Id., art. X. But nothing in the statute dictated the 'all or nothing' position advanced by Kimberly Clark. At best, the statute is silent, but it is well established that 'neither silence nor ambiguous terms in a contract will be construed as effecting a waiver of sovereign authority' [to modify a statute's terms]."

880 N.W.2d at 851. Because the MTC did not unambiguously create contractual rights, no contract was formed, and later modifications of the MTC did not impair the business's [362 Or. 716] contract rights in violation of the federal Contract Clause.[11]With that background in mind, we turn to Oregon law.

         B. Oregon law

         This court has long held that we "treat a statute as a contractual promise only if the legislature has clearly and unmistakably expressed its intent to create a contract." Moro v. State of Oregon, 357 Or. 167, 195, 351 P.3d 1 (2015) (internal quotation marks omitted). In applying that standard, we have not required a statute to use language referring directly to contracts, promises, or guarantees. Id. at 203. We can infer the intent to create a contract from the text, context, and legislative history, as long as those sources, considered together, demonstrate a clear and unmistakable intent to impose contractual obligations on the state. Id. at 203 & n 22, 207; see Hughes, 314 Or at 21 n 27, 25-26 (concluding that, because a tax exemption was part of a larger statutory package of contractual employment benefits, the tax exemption also was contractual). With that standard in mind, we turn to the text, context, and legislative history of ORS 305.655. See Moro, 357 Or at 205-07 (applying those sources to determine whether two statutory provisions were part of a larger statutory employment contract).

         1. Text

         Viewed functionally, the text of ORS 305.655 resembles a uniform law. As the other courts have held, Articles III and IV of ORS 305.655 do not create reciprocal rights and obligations. In enacting the MTC, Oregon did not grant a benefit to the residents of another state in return for that state granting a reciprocal benefit to residents of Oregon. See Northeast Bancorp, 472 U.S. at 164-65 (defining reciprocal legislation that way); Kane v. New Jersey, 242 U.S. 160');">242 U.S. 160, [362 Or. 717] 167-68, 37 S.Ct. 30, 61 L.Ed. 222 (1916) (same). Rather, each state that enacts the MTC is free to apply the apportionment formulas set out in Article IV of ORS 305.655 regardless of whether any other state enacts, repeals, or modifies the MTC. Indeed, as explained above, two years before Oregon enacted the MTC, Oregon enacted UDITPA, a uniform law that initially applied the same apportionment formulas set out in Article IV of the MTC. If Oregon's enactment of UDITPA did not result in its entering into a contract with every other state that enacted UDITPA, then it is difficult to see why Articles III and IV of the MTC, viewed functionally, should lead to a different conclusion.

         Not only are Articles III and IV functionally identical to a uniform law that each state may enact independently, but, as the United States Supreme Court explained, the MTC lacks a "delegation of sovereign power to the [Multistate Tax] Commission; each State retains complete freedom to adopt or reject [the Commission's proposed] rules." U.S. Steel Corp., 434 U.S. at 473. Thus, the creation of the Commission provides no basis for saying that Oregon (or any other member state) contracted away its sovereign authority to determine tax policy to a central agency in return for binding multistate rules. Textually and functionally, the structure of Articles III, IV, and VI of ORS 305.655 is far closer to a uniform law, which each state can adopt independently and which each state remains free to modify if it chooses.

         Taxpayer, however, points to other aspects of ORS 305.655, which it contends demonstrate that the legislature created contractual rights.[12] Taxpayer focuses primarily on the use of the word "compact" in ORS 305.655. Taxpayer reasons that, because a compact is a contract, the use of that term implies that the legislature intended that ORS 305.655 would create binding contractual obligations. In our view, the use of the word "compact" has less significance than taxpayer perceives.

         It is certainly true that many interstate compacts are contracts. See Green v. Biddle, 21 U.S. (8 Wheat) 1, 92-93, [362 Or. 718] 5 L.Ed. 547 (1823) (explaining that a compact between Virginia and Kentucky denning rights in land ceded to Kentucky was a contract). But it does not follow that all interstate compacts are agreements or compacts within the meaning of the Compact Clause, nor does it follow that every statute labeled a compact is a contract, as taxpayer asserts. As discussed above, the United States Supreme Court explained that labeling the MTC a compact did not mean that it was an "Agreement or Compact" within the meaning of the Compact Clause. U.S. Steel Corp., 434 U.S. at 470-71. What mattered, the Court reasoned, was how the resulting combination of states functioned, not the label used to describe the combination. We are persuaded, as other state courts have been, that that reasoning applies equally to the question presented here: The MTC's use of the label "compact" is not controlling; also significant is the way the resulting combination of states functions.

         The same conclusion follows from the contemporaneous use of the term "compact." At approximately the same time that the Council of State Governments was drafting the MTC in 1966, the term "compact" was being used to describe what were merely cooperative arrangements among states. Cf. David E. Engdahl, Characterization of Interstate Arrangements: When is a Compact Not a Compact?, 64 Mich. L Rev 63 (1965) (discussing then-current use of compacts). As Engdahl explained a year before the MTC was drafted, "[t]he most common type of 'compact' currently being concluded merely creates a study or advisory commission of representatives from each participating state, " who "are instructed to recommend to their respective individual states coordinated programs of legislation designed to deal with whatever problems of conservation, health, safety, or similar matters the 'compact' may contemplate." Id. at 63; cf. Felix Frankfurter and James M. Landis, The Compact Clause of the Constitution-A Study in Interstate Adjustments, 34 Yale LJ 685, 688-90 (1925) (discussing "new techniques and new machinery devised during recent years, " including the National Conference of Commissioners on Uniform State Laws and advisory groups of state officials to recommend answers for problems that transcend state lines). That contemporaneous use of the term "compact" cuts [362 Or. 719] against taxpayer's argument that the use of that term in ORS 305.655 necessarily establishes that the Oregon legislature intended to create binding contractual rights and obligations when it enacted ORS 305.655.

         Taxpayer argues additionally that ORS 305.655 contains procedural features that demonstrate that it creates contractual obligations. In our view, the strongest support for taxpayer's position is found in the prefatory language to ORS 305.655 and Article X. The prefatory language states that the MTC "is hereby enacted into law and entered into on behalf of this state." ORS 305.655. Article X provides that the compact goes into effect if six other states enact similar legislation. ORS 305.655, Art X. It also provides that "[a]ny party state may withdraw from this compact by enacting a statute repealing the same." Id. Those provisions assume that a compact exists (or can exist) separately from individual legislative acts enacting and repealing it. We agree with taxpayer that those parts of ORS 305.655 support an argument that the act creates obligations beyond those ordinarily flowing from legislation.[13]

         However, saying that parts of ORS 305.655 are consistent with taxpayer's claim that ORS 305.655 created contractual obligations does not mean that the text of ORS 305.655 expresses that intent clearly and unmistakably. Rather, as explained above, other parts of ORS 305.655 point in a different direction. Not only are Articles III and IV of ORS 305.655 functionally no different from a uniform law, but the absence of reciprocal legislation and a regulatory commission also cut against the conclusion that the statute imposes contractual obligations. Given those competing considerations, we cannot say that the text of Articles III and IV clearly and unmistakably creates contractual obligations, which is the standard that taxpayer must meet to convert a statute into a contract.

         [362 Or. 720] 2. Context

         Taxpayer argues, however, that the context of ORS 305.655 demonstrates that the 1967 Oregon legislature intended to create contractual obligations. The context on which taxpayer relies consists primarily of the legal backdrop against which ORS 305.655 was enacted. See Figueroa v. BNSF Railway Co., 361 Or. 142, 147, 390 P.3d 1019 (2017) (identifying existing law as context). As noted above, in 1959, the Court held that the Commerce Clause does not bar a state from taxing sales solicited by foreign companies even though those sales were exclusively in furtherance of interstate commerce. Northwestern Cement Co., 358 U.S. at 464. In response, Congress enacted a statute that required foreign corporations to have a physical presence within a state as a predicate to taxing the corporation's in-state sales.

         Congress also considered legislation that would have imposed additional restrictions on the states' ability to tax income earned by multistate businesses. As taxpayer notes, to avoid those proposed restrictions, states sought to increase uniformity in state taxation. Toward that goal, more states adopted UDITPA. By 1967, 19 of the 38 states that taxed income earned by multistate businesses had adopted all or virtually all of UDITPA. Keesling and Warren, 15 UCLA L Rev at 158. Additionally, by 1972, 21 of those 38 states had adopted the MTC, which incorporates UDITPA. U.S. Steel Corp., 434 U.S. at 454.

         Taxpayer infers from that context that, in adopting the MTC, states intended to enter into binding contractual obligations. However, that inference does not necessarily follow from the goal that taxpayer identifies. Rather, states could increase uniformity in taxation and thus attempt to ward off further federal legislation either by collectively adopting uniform legislation or by entering into an agreement adopting uniform legislation. Either form of legislation advances the goal of state tax uniformity, and it does not follow ...


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