With auto tax secure, state’s financial picture gets clearer
A divided Oklahoma Supreme Court ruled that the automobile sales tax implemented this year is constitutional, giving state leaders a more complete picture of state finances before calling a special session.
Lawmakers adopted the 1.25 percent tax in a push to create more revenue. It is expected to bring in more than $100 million in the first year.
The 5-4 ruling Thursday preserves the tax and more importantly for lawmakers pondering a special session this fall, the revenue that it’s expected to generate. The court previously struck down a cigarette fee that would have raised $215 million for several state agencies.
Senate Pro Tem Mike Schulz, R-Altus, said he is ready to work with other Capitol leadership on finalizing a plan to make up the $215 million shortfall.
“As the Senate has maintained, this measure
is constitutional and it’s gratifying to know that the Oklahoma Supreme Court agrees,” Schulz wrote in a prepared statement. “With the decision finalized, we now know the full extent of the revenue picture that needs to be addressed during a potential special session.”
Vehicle purchases have historically been completely exempt from sales tax, and the Legislature modified that exemption in May. Two lawsuits filed after session ended challenged the law on the grounds it was a revenue-raising measure that didn’t meet the requirements for raising taxes.
A majority of the court said that because the tax already existed but was just exempted in state law, the Legislature was within its rights to remove some of the exemption without following stringent guidelines that make it nearly impossible to raise taxes.
Justice Patrick Wyrick wrote that the case presents a much different question than the cigarette fee challenge. Instead of invoking a new “tax,” he said, lawmakers revoked part of an existing tax exemption.
The lawsuit was filed on behalf of the Oklahoma Automobile Dealers Association, Battison Honda and Caitlin Cannon. They argued that the tax violates State Question 640, a constitutional amendment where voters in 1992 put heavy restrictions on how the state government can raise revenue.
A similar lawsuit against the tax and other sources of revenue that lawmakers found this year
has not yet been decided. That challenge, filed by Republican gubernatorial candidate Gary Richardson, also targets an electric and hybrid vehicle fee and a freeze in the standard income tax deduction rate.
Yet another pending lawsuit filed by the Sierra Club asked the court to toss the electric and hybrid vehicle fee.
The automobile sales tax is the last major revenue source that was challenged. The standard deduction freeze is estimated to raise $4.4 million and the electric vehicle fee will bring in about $1 million each year once fully implemented.
Lawmakers and the governor have met in recent weeks to discuss how to respond. The $215 million culled from four agency budgets after the cigarette fee was struck down remains a priority at the Capitol, and a likely scenario involves a special session this fall to spread that cut among all or most areas of state government.
However, officials have not announced any plans.
Gov. Mary Fallin said the ruling gives clarity to the budget problems faced at the Capitol.
“While pleased with today’s ruling, it’s important to keep in mind we must still deal with the immediate problem of the loss of $215 million from the earlier high court ruling that struck down the proposed smoking cessation fee,” she said. “The $215 million represents just state funds, but with the loss of matching federal funds state agencies estimate the total is nearly $500 million.”
State Rep. Scott Inman, gubernatorial candidate and leader of the House Democrats, said he disagrees
with the ruling.
“Today’s court ruling presents a mixed bag for Oklahoma voters,” said Inman, D-Del City. “While avoiding another loss of $100 million to the current year’s budget, the ruling has empowered this Republican majority to raise the taxes of middle class families without honoring the will of the Oklahoma citizens who passed State Question 640 in 1992.”