Tax hikes take effect with start of month

A number of state tax rate hikes went into effect Sunday to raise more than $400 million for teacher salaries and other priorities identified by lawmakers in a special session that adjourned in March.

An increase in motor fuel taxes will affect travelers in time for the July 4 holiday. Drivers have

begun paying an extra 3 cents on a gallon of gasoline and 6 cents on diesel fuel.

Overall, the new fuel tax rates are expected to bring in $105 million during the budget year that began July 1. It will be deposited into the state’s general revenue fund, which allowed lawmakers to make appropriations based on collections that are expected over the next 12 months.

The legislation adopted in special session, House Bill 1010xx, also increased gross production tax rates. Oklahoma’s previous rate on oil and gas production allowed new wells to operate at a 2-percent rate for the first three years of production. Now, those wells and new ones beginning production will be taxed at 5 percent.

After 36 months of production, they will

be taxed at 7 percent, according to state law.

The change is expected to raise an estimated $100 million from oil production and another $71 million in collections from natural gas.

Lawmakers tried for months to reach a deal on increasing tax rates to pay for a teacher salary increase. One of the most contentious issues centered on the tax levied against cigarettes. Democrats previously opposed raising the cigarette tax rate as a standalone measure, but only agreed to support legislation when it was bundled with the gross production tax increase approved in March.

As of Sunday, cigarettes are now taxed an additional $1 per pack. It could

raise $152 million over the next year. Lawmakers also raised the cost of “little cigars” to match the tax rate of cigarettes.

The tax hikes were the result of months of negotiation and political squabbling that triggered two special sessions. Legislators met in the spring under the specter of a teacher walkout, but adopted the tax increases and a teacher pay raise just days before thousands of educators descended on the Capitol.

With all the new revenue combined with an uptick in the state economy, Oklahoma’s budget swelled to a record-high $7.5 billion. Lawmakers will return to the Capitol in February to begin working on next fiscal year’s appropriation bill.