
Filed:  July 6, 2001
IN THE SUPREME COURT OF THE STATE OF OREGON
HYUNDAI SEMICONDUCTOR AMERICA,
Respondent,
	v.
CITY OF EUGENE,
COUNTY OF LANE,
Appellants.
(OTC 4167; SC S46528)
	On appeal from the Oregon Tax Court.*
	Carl N. Byers, Judge.
	Argued and submitted September 11, 2000.
	William F. Gary, of Harrang Long Gary Rudnick P.C., Eugene,
argued the cause and filed the briefs for appellants.  With him
on the briefs were Glenn Klein and Judith Giers, of Harrang Long
Gary Rudnick P.C., and Teresa J. Wilson and David B. Williams, of
the Lane County Office of Legal Counsel.
	Robert T. Manicke, of Stoel Rives LLP, Portland, argued the
cause and filed the brief for respondent.  With him on the brief
were Henry C. Breithaupt and Richard S. Gleason.
	Before Carson, Chief Justice, and Gillette, Durham, Leeson,
and Riggs, Justices.**
	RIGGS, J.
	The decision of the Tax Court is vacated.  The case is
remanded to the Tax Court with instructions to dismiss the
complaint. 

*14 OTR 557 (1999).
	**Van Hoomissen, J., retired December 31, 2000, and did not
participate in the decision of this case; Kulongoski, J.,
resigned June 14, 2001, and did not participate in the decision
of this case; De Muniz, J., did not participate in the
consideration or decision of this case.
	RIGGS, J.
	In this tax case, plaintiff challenges a condition
imposed by defendants on applicants for a property tax exemption
in an enterprise zone.  On summary judgment motions, the Oregon
Tax Court ruled that the condition violated ORS 285.577(4) (1995)
(set out below). (1) Hyundai Semiconductor America v. City of
Eugene, 14 OTR 557, 565 (1999).  For the reasons that follow, we
conclude that plaintiff failed to exhaust its administrative
remedies.  We therefore vacate the decision of the Tax Court and
remand the case to that court with instructions to dismiss the
complaint.  
	The following undisputed facts are taken from the Tax
Court's opinion:
"By statutes first enacted in 1985, the state
authorizes the establishment of enterprise zones.  The
basic purpose of an enterprise zone is to attract
industries that will create new jobs for the area.  The
primary incentive for new industries to locate in an
enterprise zone is a property tax exemption for three
years.

"Defendants co-sponsored the establishment of the
West Eugene Enterprise Zone in 1986.  In 1995,
Plaintiff applied for precertification,[ (2)] proposing to
construct a plant to manufacture semiconductors.  The
application estimated the total cost of the plant at
$1,294,500,000, to be constructed in three phases. 
Defendants approved the application on September 8,
1995, precertifying Plaintiff for Phase I.  Plaintiff
began construction of Phase I and anticipates
construction of Phases II and III in the next ten
years.
"At this point, two features of the rather lengthy
Enterprise Zone Act become prominent.  First, ORS
285.577(4) delegates authority to the sponsor of an
enterprise zone to impose additional conditions for
precertification.  Second, if an enterprise zone
terminates, then businesses already in the zone may
qualify for additional tax exemptions for new
construction within the boundaries of the expired zone. 
ORS 285.587.
"The West Eugene Enterprise Zone was scheduled to
terminate by operation of law at midnight on June 30,
1997.  As co-sponsors, Defendants decided not to seek
renewal of the zone.  In addition, Defendants decided
to impose an additional condition hours before the
enterprise zone terminated.  Each of the Defendants
adopted a new resolution [(the June resolutions)]
requiring qualified businesses to make a 'public
benefit contribution' of up to 15 percent of the tax
exemption in order to qualify for the tax exemption."

Hyundai, 14 OTR at 559.  
	The June resolutions also authorized the formation of a
committee that, in any given case, would consider seven factors
and recommend to defendants the appropriate amount of a
qualifying business's public benefit contribution. (3)  Under the
June resolutions, however, defendants' governing bodies could
select an amount different from the committee's recommendation. 
If defendants disagree on an amount, then the amount would be the
lesser of the committee's recommendation or 10 percent of the tax
exemption.  The June resolutions provided that 40 percent of the
funds raised from public benefit contributions would be allocated
to defendant county, 40 percent to defendant city, and the
remaining 20 percent would be allocated "among the City, County
and local education services, including Section 501(c)(3) tax
exempt education foundations."
	Through identical resolutions passed in July and
December 1997, defendants each adopted a point system for the
seven factors.  That point system, which accords different weight
to the various factors, exempts a business from the public
benefit contribution if it scores 80 points or higher.  For
example, a business receives 25 points if its average wage for
all new jobs is between 100 percent to 110 percent of the average
county wage; 35 points if its average is between 110 percent to
115 percent; and 40 points if its average is greater than 115
percent.  By contrast, the most a business can receive under the
factor regarding assessed value is one point.  The July and
December resolutions also clarified several of the seven factors
(e.g., explaining that a "small business" means 50 or fewer
people).
	On August 1, 1997, plaintiff filed its complaint in the
Tax Court.  In its first claim, plaintiff sought a declaration
that the public benefit contribution requirement in the June
resolutions violated ORS 285.577(4). (4)  In its second claim,
plaintiff sought a determination that the public benefit
contribution was a tax within the meaning of Article XI, section
11b(2)(b), of the Oregon Constitution, and thus, was subject to
the limits of Article XI, sections 11 and 11b, of the Oregon
Constitution (Measure 5 claim). (5)  Third, plaintiff sought a
declaration that, if the public benefit contribution is valid
under ORS 285.577(4), then that statute violates Article I,
section 32, and Article IX, section 1, of the Oregon Constitution
(the Uniformity Clauses); Article I, section 20, of the Oregon
Constitution (the Equal Privileges and Immunities Clause); and
the Equal Protection Clause of the Fourteenth Amendment to the
United States Constitution. (6)
	Defendants moved to dismiss, arguing, inter alia, that
plaintiff's claims are not ripe and that plaintiff had failed to
exhaust its administrative remedies.  Plaintiff responded by
moving to stay proceedings in the Tax Court so that plaintiff
could bring its first and third claims before the Department of
Revenue (department).  The Tax Court ruled that plaintiff's
claims were ripe.  The court denied plaintiff's motion for a
stay, reasoning that, under ORS 305.580, (7) plaintiff's Measure 5
claim was entitled to immediate review and, although plaintiff
normally should have exhausted its administrative remedies as to
its first and third claims, the court would consider all the
claims together to foster judicial economy.  In a separate order
entered that same day, the court dismissed plaintiff's Measure 5
claim.
  	On the parties' subsequent motions for summary
judgment, the Tax Court held that the public benefit contribution
requirement was invalid under ORS 285.577(4) because the June
resolutions had failed to establish standards for the imposition
of the contribution and because the contribution is not
reasonably related to providing job opportunities.  Accordingly,
the court declared all defendants' resolutions pertaining to the
public benefit contribution void and further declared that
plaintiff is not required to pay any public benefit contribution. 
Defendants appealed.  At issue in this court is whether the Tax
Court erred in ruling that the public benefit contribution
requirement violated ORS 285.577(4).  Neither plaintiff's Measure
5 claim nor its claim that ORS 285.577(4) is unconstitutional is
before us on appeal.
	The parties first dispute whether plaintiff's claim is
ripe for judicial determination.  We have reviewed the record and
the arguments of counsel, and we conclude that the case is ripe. 
Plaintiff is a business in the West Eugene Enterprise Zone and is
qualified to apply for an additional enterprise zone tax
exemption in connection with new construction.  Defendants assert
the right to impose the public benefit contribution on businesses
in the position of plaintiff.  Plaintiff's interest in obtaining
a favorable declaration is manifested not only by the threat of
being required in the future to make a public benefit
contribution, but also by a present incentive to minimize any
payment by adjusting its conduct before applying for
precertification.  This case is ripe.
	We turn to defendants' argument that plaintiff has
failed to exhaust its administrative remedies.  ORS 305.275(4)
(1995) precludes a party from appealing to the Tax Court unless
it has exhausted its administrative remedies:
"Except as provided in ORS * * * 305.580 to
305.591 [relating to Measure 5 claims], no person shall
appeal to the Oregon Tax Court or other court on any
matter arising under the revenue and tax laws
administered by the department unless the person first
exhausts the administrative remedies provided before
the department and the director." (8)

There is no dispute that plaintiff did not present its claims to
the department before filing in the Tax Court.  
	Plaintiff argues that it had no adequate administrative
remedy to exhaust and, alternatively, that judicial economy would
not be served by requiring exhaustion here.  Defendants disagree,
relying on this court's decision in Nutbrown v. Munn, 311 Or 328,
811 P2d 131 (1991).  Plaintiff responds that Nutbrown is
distinguishable.  Because Nutbrown is pivotal to our disposition
of this case, we discuss it in detail below.
	In Nutbrown, the plaintiffs had filed a complaint in
the Tax Court alleging claims for refund, claims in quasi-contract, claims in constructive trust, claims for an order
setting aside certain tax payments already made, and claims for
violation of their civil rights under 42 USC § 1983.  On the
latter claim, they sought declaratory and injunctive relief and
damages.  Id. at 331.  The gravamen of their complaint was a
constitutional challenge under the doctrine of intergovernmental
tax immunity to a statutory scheme under which the state taxed
federal retirees' pension benefits while exempting state
retirees' pension benefits.  The United States Supreme Court
recently had held that a similar state taxing system was
unconstitutional, Davis v. Michigan Dept. of Treasury, 489 US
803, 817, 109 S Ct 1500, 103 L Ed 2d 891 (1989), and the
taxpayers relied heavily on Davis in pressing their claims. 
Nutbrown, 311 Or at 335.
	On appeal, the only issue in Nutbrown was the section
1983 claim, which "may [have been] due to the fact that all of
[the] Taxpayers' other claims involve state law theories and
clearly are subject to the exhaustion requirements of ORS
305.275(4)."  Id. at 337 n 5.  After holding that requiring
taxpayers to exhaust their administrative remedies with respect
to their section 1983 claim was consistent with the federal
constitution, (9) this court gave examples of the kinds of remedies
of which the taxpayers could have availed themselves:
"Administrative remedies available to the
Taxpayers include a request for declaratory and
injunctive relief, as well as for refunds.  We do not
read ORS 305.275(4) so narrowly as to limit the scope
of the exhaustion requirement to those cases where the
revenue system has generated a ruling that can be
appealed.  If the law provides an adequate
administrative remedy, then ORS 305.275(4) requires
that it be exhausted before a court challenge may be
prosecuted."

Id. at 342-43 (footnote omitted).  The court then quoted in full
ORS 305.105, which provides:
"The Department of Revenue in its discretion may,
on petition by any interested person, issue a
declaratory ruling with respect to the applicability to
any person, property or state of facts of any rule or
statute enforceable by it.  The department shall
prescribe by rule the form, content and procedure for
submission, consideration and disposition of such
petitions.  Full opportunity for hearing shall be
afforded to interested parties.  A declaratory ruling
shall bind the department and all parties to the
proceedings on the state of facts alleged, unless it is
altered or set aside by a court.  A ruling shall be
subject to review in the Oregon Tax Court and Supreme
Court in the manner provided by ORS 305.445."

Id. at 343.
	The Nutbrown court next considered the taxpayers'
arguments that the administrative remedy was inadequate.  The
court first rejected the argument that, because the department
could not afford them all the relief that they sought -- the
department had no authority to award either damages under 42 USC
§ 1983 or punitive damages -- the taxpayers nonetheless were
required to exhaust administrative remedies because the
department did have the authority to declare the current tax
system unconstitutional.  If the taxpayers had obtained that
relief, then they would not have had a claim under section 1983,
id. at 345; until the taxpayers obtained that relief, punitive
damages were not relevant, id. at 346.  The Nutbrown court also
rejected the taxpayers' argument that exhaustion would have been
futile in light of the department's summary denial of their
claims for refunds and the department's arguments that Davis was
decided incorrectly.  The court stated that those allegations did
not demonstrate the kind of "implacable hostility" that might
have allowed the taxpayers to bypass their administrative
remedies.  Id. at 347.  Finally, the court dismissed the
taxpayers' contention that they should be excused from the
exhaustion requirement because the objectives underlying the
requirement could not be served:  "If Taxpayers exhaust their
administrative remedies and, in the process, obtain the relief
under the Oregon personal income tax laws that they seek, the
need for this § 1983 litigation vanishes.  That is a sufficient
reason to require exhaustion."  Id. at 348 (footnote omitted).  
 Nutbrown stands for the proposition that the
declaratory ruling procedure in ORS 305.105 is an administrative
remedy under ORS 305.275(4) that a party must exhaust before
filing a declaratory judgment action in the Tax Court.
	Plaintiff attempts to distinguish Nutbrown in three
ways.  First, plaintiff argues that the defendants in Nutbrown
were associated with the department and were precluded from
appealing an adverse declaratory ruling, whereas here, defendants
can appeal an adverse declaratory ruling and order.  Thus,
plaintiff reasons, no judicial resources would be spared by
applying the exhaustion requirement, because both parties can
seek further review.  We reject plaintiff's argument:  The
possibility of judicial review does not excuse the failure to
exhaust administrative remedies.  
	Second, plaintiff argues that judicial economy, which
is one of the objectives of the exhaustion requirement, was
served best by the Tax Court's retention of plaintiff's first and
third claims (which the Tax Court recognized were subject to
exhaustion), along with its Measure 5 claim (which was exempt
from the statutory requirement of exhaustion).  Plaintiff cites
no authority for the Tax Court's exercise of that sort of
supplemental jurisdiction, be it for judicial economy or for any
other reason, and we have found none.  Cf. 28 USC § 1367(a)
(providing federal district courts with supplemental jurisdiction
over claims that form part of same case or controversy as claims
within court's original jurisdiction).  The presence of a Measure
5 claim in a complaint does not excuse noncompliance with ORS
305.275(4) with respect to non-Measure 5 claims in the same
complaint, and the Tax Court had no discretion under that statute
to rule otherwise.
	Finally, plaintiff argues that, because the 1995
Legislature amended ORS 305.275 to eliminate the exhaustion
requirement, plaintiff's failure to exhaust should be excused
because it is "unlikely that the Court will again face an
exhaustion issue arising under that statute."  That argument is
not well taken.  The likelihood of an issue arising again has no
bearing on whether plaintiff should be excused from complying
with applicable law and exhausting its remedies in this case.  At
the time that plaintiff filed its complaint, ORS 305.275(4) was
the law, and plaintiff failed to comply with it.
	In sum: (1) this case is ripe, and (2) ORS 305.275(4)
required plaintiff to exhaust its administrative remedies before
filing its complaint in the Tax Court, but plaintiff failed to do
so.  The Tax Court had no discretion to reach the merits of
plaintiff's claim.  That court should have dismissed the case. 
See Morris v. Dept. of Rev., 320 Or 579, 586, 889 P2d 1294 (1995)
(vacating Tax Court's decision that reached merits of taxpayer's
claim, because taxpayer failed to exhaust administrative
remedies).
	The decision of the Tax Court is vacated.  The case is
remanded to the Tax Court with instructions to dismiss the
complaint.



1. 	Unless otherwise noted, all Oregon statutory citations
in this opinion are to the 1995 statutes.

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2. 	To receive the enterprise zone tax exemption, a
business must apply to the zone sponsor or sponsors -- here,
defendants -- for precertification before the business starts
construction or hires employees.  ORS 285.613(1).  After
completing construction, a precertified business may apply for
the exemption.  ORS 285.615(1).

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3. 	Those seven factors are:  (1) the extent to which the
business hires from local training or referral agencies; (2) the
extent to which the business hires persons with barriers to
employment; (3) the extent to which wages for new jobs are
greater than the average county wage; (4) the extent to which the
business dedicates funds to nonmandatory training and benefits;
(5) whether the business is using a previously developed site or 
a brownfield site; (6) the extent to which the assessed value of
the new investment exceeds $500,000 per acre; and (7) whether the
business is a small business or a local business.

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4. 	ORS 285.577(4) provides:
"Notwithstanding ORS 285.613(3), the sponsor of an
urban enterprise zone may require an eligible business
firm seeking precertification under ORS 285.613 within
that zone to satisfy other conditions for
precertification that the zone sponsor may impose that
are reasonably related to the public purpose of
providing opportunities for groups of persons, as
defined by the zone sponsor, to obtain employment,
including but not limited to provisions for training
and procedures for monitoring and verifying compliance
with the conditions.  Such conditions may be imposed
only pursuant to a policy adopted by the zone sponsor
that establishes standards for the imposition of the
conditions.  Conditions imposed by a zone sponsor under
this subsection shall be in addition to, and not in
lieu of, conditions and requirements imposed under ORS
285.560 to 285.617 and shall not affect the duties of
the Department of Revenue under ORS 285.593 or of the
county assessor under ORS 285.595."
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5. 	In 1990, the voters adopted an initiative measure
(Ballot Measure 5) that amended the Oregon Constitution by adding
Article XI, section 11b.  See City of Portland v. Smith, 314 Or
178, 182, 838 P2d 568 (1992) (so stating).  Measure 5 limited
property taxes as follows:
"[T]axes imposed upon any property shall be separated
into two categories:  One which dedicates revenues
raised specifically to fund the public school system
and one which dedicates revenues raised to fund
government operations other than the public school
system.  The taxes in each category shall be limited as
set forth in the table which follows and these limits
shall apply whether the taxes imposed on property are
calculated on the basis of the value of that property
or on some other basis:


	    	  	   "MAXIMUM ALLOWABLE TAXES


               	"For Each $1000.00 of
Property's Real Market Value
"Fiscal Year
School System
Other than Schools
"* * * * *


"1995-1996and thereafter
$5.00
$10.00"

Or Const, Art XI, § 11b(1).  Article XI, section 11(11)(b), of
the Oregon Constitution, modifies Article XI, section 11b, in the
following respect:
"The $5 (public school system) and $10 (other
government) limits on property taxes per $1,000 of real
market value described in subsection (1) of section 11b
of this Article shall be determined on the basis of
property taxes imposed in each geographic area taxed by
the same local taxing districts."
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6. 	Article I, section 32, of the Oregon Constitution,
provides, in part:  
"[A]ll taxation shall be uniform on the same class
of subjects within the territorial limits of the
authority levying the tax."

Article IX, section 1, of the Oregon Constitution, provides:
"The Legislative Assembly shall, and the people
through the initiative may, provide by law uniform
rules of assessment and taxation.  All taxes shall be
levied and collected under general laws operating
uniformly throughout the State."

Article I, section 20, of the Oregon Constitution, provides:
"No law shall be passed granting to any citizen or
class of citizens privileges, or immunities, which,
upon the same terms, shall not equally belong to all
citizens."

The Fourteenth Amendment to the United States Constitution,
provides, in part:
"[N]or shall any State deprive any person of life,
liberty, or property, without due process of law; nor
deny to any person within its jurisdiction the equal
protection of the laws."
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7. 	ORS 305.580 provides:
		"(1) The provisions of ORS 305.583, 305.585,
305.587 and 305.589 shall provide the exclusive remedy
for determination of questions concerning the effect of
the limits of section 11b, Article XI of the Oregon
Constitution on taxes, fees, charges and assessments of
units of government.


		"(2) A petition filed with the Oregon Tax Court
pursuant to ORS 305.583, 305.585, 305.587 or 305.589
shall have priority over all other cases pending before
the Oregon Tax Court and shall be heard and decided as
soon after coming to issue as is reasonably possible."

		Moreover, the statute requiring exhaustion of
administrative remedies, ORS 305.275(4), expressly exempts
Measure 5 claims.

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8. 	The 1995 Legislature amended ORS 305.275 and eliminated
the exhaustion requirement.  Or Laws 1995, ch 650, § 7.  The
amendment to ORS 305.275 was part of the 1995 Legislature's 
reorganization of the tax appeals process.  See Delta Air Lines,
Inc. v. Dept. of Rev., 328 Or 596, 602, 984 P2d 836 (1999)
(stating that legislative amendments in Oregon Laws 1995, chapter
650, were part of reorganization of tax appeals process). 
Specifically, the legislature replaced the departmental hearings
process with a new process established in the magistrate division
of the Tax Court.  Id.;  see Or Laws 1995, ch 650, § 2
(establishing magistrate division).
		The operative date of the changes to the tax laws set
out in chapter 650 was September 1, 1997.  Or Laws 1995, ch 650,
§ 116.  Plaintiff filed this case in the Tax Court before that
date.  We have found nothing in the text or context of Oregon
Laws 1995, chapter 650, that indicates that the legislature
intended to excuse parties who filed complaints in the Tax Court
before the operative date of the 1995 amendments from complying
with the pre-amendment exhaustion requirement.  The parties do
not argue otherwise.  

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9. 	The taxpayers in Nutbrown had argued that, with regard
to cases brought under 42 USC § 1983, states may not erect
procedural barriers to vindication of rights under that statute. 
See Felder v. Casey, 487 US 131, 141, 108 S Ct 2302, 101 L Ed 2d
123 (1988) (prohibiting states from applying notice-of-claim
requirement to section 1983 actions in its courts); Patsy v.
Florida Board of Regents, 457 US 496, 516, 102 S Ct 2557, 73 L Ed
2d 172 (1982) (rejecting argument that section 1983 claimant
should have exhausted administrative remedies before filing in
federal district court).  Relying on Fair Assessment in Real
Estate Ass'n v. McNary, 454 US 100, 102 S Ct 177, 70 L Ed 2d 271
(1981), this court ruled that the holdings in Felder and Patsy
did not extend to a section 1983 action that challenged a state
tax system.  Nutbrown, 311 Or at 340.  In McNary, the Court had
held that a federal district court could not entertain a section
1983 action that involved the validity of a state tax system.  A
majority of the Court based that decision on principles of
comity.  McNary, 454 US at 116.  Four justices concurred on the
ground that the Tax Injunction Act, 28 USC § 1341, indicated a
congressional intent to limit the availability of section 1983
actions respecting questions of state tax administration to those
in which administrative remedies had been exhausted.  McNary, 454
US at 137 (Brennan, J., concurring).
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