The Portland City Council and its Bureau of Planning and Sustainability are proposing an ordinance and amendments to the city code establishing a $25 per ton carbon tax. The tax would apply to entities emitting 2,500 metric tons or more of carbon dioxide equivalent in a calendar year. If adopted, the carbon tax would exist as a surcharge to the City’s existing business license tax (i.e., business income tax) and its proceeds would finance new investments in the City’s decarbonization initiatives. According to The Oregonian/OregonLive, Portland would become the only municipal government in the country to impose a carbon tax.
Putting aside the political challenges facing carbon pricing initiatives across the country, the City’s proposed carbon tax raises an equally provocative question about local taxing powers. Does the City Council have the authority to enact a carbon tax? Oregon grants broad constitutional and statutory home rule taxing authority to city and county governments. Still, it is not uncommon for a locality to assume an inherent authority to enact or amend a tax only to find out it overstepped its authority. In Portland’s case, however, it may be the central question for the proposed carbon tax.
In City of Portland v. Homeaway.com, Inc. (U.S. District Court for the District of Oregon, Portland Div. (2017)), the court invalidated a City Council ordinance expanding a transient lodging tax to include online booking agents without receiving authorization from the voters. In defense of its ordinance, the City asserted Oregon’s broad constitutional home rule taxing authority afforded it broad powers to broaden its tax to include online booking agents. In its order, the court said those constitutional provisions only provide the City Council with the inherent authority to tax if the voters confer such authority in the charter and found the charter did not provide such authority.
“The City misunderstands the law surrounding Oregon’s home rule provisions. Contrary to the City’s arguments, home rule provisions grant city residents—not city governments—the ability to define the scope of municipal powers without legislative authority… Thus, the City’s argument that home rule cities have ‘inherent authority to tax’ is incorrect.” 240 F. Supp. 3d 1099 (D. Or. 2017)
It is worth noting the ruling may or may not apply to the City’s proposed carbon tax, but the City Council’s proposed carbon tax seems to raise a similar issue as Homeaway.com. If the City Council has an inherent inability to create or expand a tax without its voters’ authorization, then the logical conclusion may be the City Council does not have the authority to enact an ordinance broadening the scope of its business license tax to include a carbon tax. Perhaps it is only a matter of time before we find out.