Background
Oregon participates in the tobacco Master Settlement Agreement, under which participating manufacturers make annual payments to compensate states for smoking-related health care expenses. Oregon previously required nonparticipating manufacturers, including Xcaliber International LTD, LLC, to place comparable amounts into escrow. The manufacturers retained ownership of those funds, which generally had to be returned after 25 years if they were not used to satisfy a state judgment or settlement.
In 2023, Oregon enacted House Bill 2128, replacing prospective escrow payments with direct annual “equity assessments.” The assessments belong to the state, are deposited in the Oregon Health Authority Fund for Oregon Health Plan expenses, and do not revert to manufacturers. Because HB 2128 passed each legislative chamber by less than a three-fifths majority, Xcaliber sued for a declaration that it violated Article IV, section 25(2), of the Oregon Constitution. The circuit court granted summary judgment to Xcaliber and declared the law unconstitutional, void, and unenforceable.
The Court’s Holding
The Oregon Court of Appeals held that HB 2128 is not a “bill for raising revenue” subject to the Oregon Constitution’s Supermajority Clause. Although the equity assessments bring money into the state treasury, the court concluded that the law does not possess the essential features of a bill levying a tax.
The court reasoned that HB 2128 principally serves a regulatory and public-health purpose within Oregon’s broader tobacco-control scheme. Its direct object is to neutralize the market advantage enjoyed by nonparticipating manufacturers, require them to internalize smoking-related health costs, discourage smoking through higher cigarette prices, and prevent manufacturers from taking short-term profits before becoming judgment-proof. Any revenue generated is incidental to those regulatory purposes. The legislature therefore could enact HB 2128 without three-fifths approval in each chamber, and the circuit court erred in granting Xcaliber summary judgment and denying the state’s cross-motion.
Key Takeaways
- A measure is not a bill for raising revenue merely because it directs money into Oregon’s treasury.
- The Supermajority Clause applies narrowly to bills whose direct and principal object is levying taxes to raise revenue.
- HB 2128’s equity assessments were regulatory charges within Oregon’s tobacco-control system, so passage by less than three-fifths of each legislative chamber was constitutional.
Why It Matters
The decision preserves Oregon’s direct-payment system for tobacco manufacturers that did not join the Master Settlement Agreement and clarifies that courts must examine whether revenue generation is a measure’s principal object or merely incidental to regulation.
The court reversed and remanded, leaving Xcaliber’s other claims outside the scope of this appeal.