Oregon Laws on Tax Credit Eligibility Deemed Unconstitutional

The Oregon Department of Revenue improperly included a taxpayer’s Social Security benefits and federal debt interest in its calculation of his threshold income used to phase out his eligibility for Oregon income tax credits, the state tax court ruled.

Article IX of the Oregon Constitution says Social Security benefits “shall not be used in computing the tax liability of any person,” and the federal exempt interest statute (31 USC §3124) prohibits similar state use of a taxpayer’s federal debt obligations, such as bonds.

The revenue department argued that the state constitutional provision’s language only refers to the subtraction of Social ...