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Capitol Insider: Is It A Tax? A Fee? Some Historical Perspective

Jul 7, 2017

Following the 2017 Oklahoma Legislative Session, several lawsuits have emerged challenging the constitutionality of revenue raising measures. Laws in question include the $1.50 cigarette fee, 1.25 percent sales tax increase on vehicles, among others.

 

An attorney who successfully argued against the constitutionality of a 2010 health care fee says the current lawsuits have similarities to the case he won seven years ago.

 

 

2010 Similarities

State Insurance Commissioner Kim Holland filed a lawsuit in 2010 challenging the constitutionality of a one percent fee on health plans.

Michael Ridgeway was the Insurance Commission’s general counsel and argued the case before the Oklahoma Supreme Court.

“My argument was that the court should look at it from the viewpoint of the taxpayer,” Ridgeway told KGOU. “If you are paying a fee, you are getting something in return for it. If you are paying a tax, you may or may not get a benefit from it.”

The case hinged on the definition of fees and taxes. Because legislators labeled the 2010 measure as a fee, they argued it did not need to receive three quarters majority to pass and could be considered in the last week of the legislative session. In Oklahoma, revenue-raising measures requires three-fourth of the vote in both chambers of the legislature, and are prohibited during the final five days of the session.

“The result is that it was stricken. The court issued a one sentence order that said the law shall not be enforced,” Ridgeway said.

The current cases before the state supreme court make similar arguments. They will be heard consecutively on August 8.

“I would expect that in the cases that you’ve cited, that the result would be that they are determined to be revenue.That they are determined to be taxes. That they are in violation of the constitution,” Ridgeway said.

Tobacco Fee

 

Two of the largest tobacco companies in the U.S. are suing Oklahoma over the state’s new cigarette fee.

R.J. Reynolds Tobacco Co. and Philip Morris USA Inc. filed a brief with the Oklahoma Supreme Court, along with several Oklahoma companies and individuals.

In the brief, plaintiffs argue the $1.50-per-pack cigarette fee, or the “Smoking Cessation Act,” “flagrantly violates” the Oklahoma constitution.

The fee is scheduled to take effect in August, and would generate about $215 million per year for the state.

Like Ridgeway in 2010, plaintiffs argue the cigarette fee should have been passed with a three-quarters supermajority, rather than the simple majority vote it received.

The suit asserts the cigarette fee is really a tax, and was relabeled only because lawmakers struggled to pass revenue-raising measures requiring three-quarters of lawmakers to vote in favor.

Vehicle Sales Tax

The Oklahoma Automobile Dealers Association is suing Oklahoma over the state’s new motor vehicle sales tax.

Legislators who supported the measure say the law rolls back a long-standing sales tax exemption for vehicles, and is not a new tax.

“Generally the excise tax was viewed as in lieu of the sales tax,” eCapitol News Director Shawn Ashley said. However, under the new law both a 3.25 percent excise tax and the 1.25 percent sales tax must be paid.

 

Like the cigarette fee, the vehicle sales tax was passed in the last few days of the session and failed to gain the three quarters vote needed to pass a tax.

Late last month the Oklahoma Supreme court denied a request to put a hold on the collection of the vehicle sales tax, which began July 1.

The bill is expected to generate more than $123 million.

Two other laws have been challenged. They are a fee on electric and hybrid vehicles, and a law which uncouples the state’s income tax standard deduction from the federal standard deduction. A standard deduction is a certain among a income that is not taxed.

 

Capitol Insider is a collaborative news project between KGOU and eCapitol. Music provided by Astral PlanesAs a community-supported news organization, KGOU relies on contributions from readers and listeners to fulfill its mission of public service to Oklahoma and beyond. Donate online, or by contacting our Membership department. eCapitol is legislative news and bill tracking service. Online content is available via subscription.