Oklahoma Lawsuit Muddles Tax Hikes, Tax Cuts

Oklahoma Lawsuit Muddles Tax Hikes, Tax Cuts
August 26, 2014

In July, the Oklahoma Supreme Court heard arguments in a case that threatens both the state’s economy, and its constitutional protection for taxpayers.

In 1992, Oklahoma voters approved State Question 640 to add a taxpayer-protection provision to the State Constitution. The constitutional amendment was a direct response from citizens following tax and spending increases enacted prior to SQ 640’s adoption by voters.

Everyone — supporters and opponents alike — understood the provision would make it harder to raise taxes. That was the point. That is what a plain reading of the law says. That is what voters approved at the ballot box 22 years ago.

Topsy-Turvy

In the lawsuit heard recently, however, attorney Jerry Fent — whom fiscal conservatives have sometimes agreed with in his lawsuits against the state — asked the Court to turn the law on its head. Fent argues the provision should protect government from taxpayers.

Specifically, he wants the Court to strike down House Bill 2562, the legislature’s compromise measure on taxes for oil and gas production, because it relates to taxes or revenue. He argues the constitutional protections against tax hikes should also apply to tax cuts or essentially any bill dealing with revenue.

Faced with an automatic expiration of a lower tax rate on particularly capital-intensive oil and gas mining efforts, HB 2562 was designed to keep Oklahoma’s oil and gas industry competitive. The legislature passed and Governor Mary Fallin signed HB 2562. Without that legislation, the tax rate would have automatically jumped from 1 percent to 7 percent on oil and gas produced from these capital-intensive oil and gas mining techniques.

The legislature instead determined to set a new rate of 2 percent on all wells for the first three years. This rate is effective upon expiration of the current 1 percent rate.

Just as SQ 640 itself is clear, it is clear the legislature with HB 2562 passed a tax cut. Fent is right that the constitutional amendment created by SQ 640 is about taxes or revenue, and HB 2562 is also about taxes or revenue. But the former is about tax rates or revenue going up; the latter about them going down.

Cheerleading for Failure

If the Supreme Court agrees with Fent’s argument, the consequences will be dire for Oklahomans. Not only would it damage a significant part of the private sector, but Fent’s argument that every bill related to taxes or revenue is subject to SQ 640 would bring the state budget process to a screeching halt. Appropriation bills, bills making minor corrections to the tax code — really any bill that could conceivably affect revenue — would need three-fourths approval in both houses, or a vote of the people.

This means that the legislature would be unable to reduce fees for services like driver’s licenses, hunting and fishing licenses, state park entrance fees, and a host of other fees charged by state agencies without three-fourths approval in both houses or a vote of the people.

No one who voted for — or against — SQ 640 intended it to have this effect, and only a tortured reading of the Constitution can support such a conclusion.

Interest groups and ideologues who want to increase Oklahomans’ tax burdens are cheering on Fent because they detest SQ 640. These opponents of taxpayer protection believe a Supreme Court ruling in Fent’s favor will force the repeal of Oklahoma’s constitutional protection for taxpayers and make it far easier to raise taxes on Oklahomans in the future.

Fent asks the Oklahoma Supreme Court to upend the plain meaning and public understanding of either the Constitution, HB 2562, or both. Striking down HB 2562 would also inject uncertainty into the industry responsible for much of Oklahoma’s recent economic growth and for nearly a quarter of state government revenues.

On the other hand, the case offers the Court an opportunity to uphold the plain meaning of the law and make clear once more that the State Constitution’s protection for taxpayers is exactly that.

Trent England (trent@ocpathink.org) is Vice President of Strategic Initiatives at the Oklahoma Council of Public Affairs. Jonathan Small, C.P.A. (jonathan@ocpathink.org) is Vice President for Policy at the Oklahoma Council of Public Affairs. Used with permission of InterAlia (http://www.ocpathink.org/articles/2783)