“The purpose and intent of State Question 640 is now eviscerated…” So declared Oklahoma Chief Justice Douglas Combs in a dissent to last month’s 5-4 Supreme Court decision upholding a new state law that partially removed a tax exemption on motor vehicle sales. For former House Speaker Steve Lewis, the Court’s ruling is “no less sweeping than the original passage of SQ 640 in 1992.”

Yet this ruling came just weeks after the Court unanimously struck down a law establishing a $1.50-per-package smoking cessation fee as a violation of State Question 640. In both cases, the Legislature had passed tax-related bills without heed to the constitutional requirement, set by passage of State Question 640, that revenue bills be approved by three-quarters votes in the Legislature or by a vote of the people.

Is there a contradiction between the Court’s rulings in the two cases? And has State Question 640 now been eviscerated?  I contend that the answer to both questions is no.  The two rulings — both authored by Justice Patrick Wyrick, the Court’s newest member and the sole appointee of Governor Fallin — together strike the balance that increases in tax rates are subject to the supermajority requirements of SQ 640 while measures that remove a tax exemption are not.

How the court decided

The decisions arose from two lawsuits. Naifeh vs. State of Oklahoma challenged the smoking cessation fee passed in SB 845, and Oklahoma Automobile Dealers Association v. State of Oklahoma challenged the partial repeal of the motor vehicle sales tax exemption in HB 2433. Backers of both lawsuits claimed the Legislature passed bills in violation of Article V, Section 33 of the Oklahoma Constitution. This is the provision that requires that all revenue bills must: 1) originate in the House of Representatives; 2) be approved prior to the final five days of session, and 3) receive approval by three-quarters of the members of both legislative chambers or be referred to a vote of the people. The first two requirements are part of the original state Constitution, while the third was added by State Question 640 in 1992.

In both cases, parties agreed that the requirements for a revenue bill were not met by the Legislature. The disputes hinged instead on whether the two bills, passed in the final week of the 2017 legislative session as part of the Republican majority’s efforts to fill a massive budget shortfall, met the definition of a revenue bill. In both cases, the Justices applied a longstanding two-pronged test, first established just one year after statehood in Anderson v. Ritterbusch (1908), that revenue bills are those”whose principal object is the raising of revenue” and which “levy taxes in the strict sense of the word.”

In striking down the smoking cessation fee in SB 845, the Court held that despite lawmakers’ creative effort to disguise the new $1.50-per-pack charge on cigarettes as designed primarily to curb smoking, the bill’s principal object was actually to raise revenue needed to balance the state budget.  It similarly ruled that the assessment met all the defining criteria of a tax in the strict sense, rather than a fee. It thus met the two-pronged definition of a revenue bill and was passed in violation of Article V, Section 33.

In the challenge to the motor vehicles sales tax in HB 2433, the justices also had no problem establishing that the bill’s primary purpose was to raise revenue. The decisive question was whether the bill, which partially removes a sales tax exemption on purchases of motor vehicles, levies a tax in the strict sense. Until now, motor vehicles were entirely exempt from the state’s 4.5 general sales tax and were instead subject to a 3.25 percent excise tax. Under HB 2433, part of the sales tax exemption is removed so that a 1.25 percent sales tax is now charged on auto sales. In combination with the excise tax, that brings the total tax to 4.5 percent of the purchase price.

The majority ruled that HB 2433 “does not ‘levy a tax in the strict sense’ because it removes a tax exemption from an already levied tax rather than levying any new tax.” Their decision relied on a number of precedents, especially a 1956 case, Leveridge v. Oklahoma Tax Commission, where the Court ruled that a bill modifying an exemption from an already levied tax — in that case, the automobile excise tax — did not constitute a revenue bill. While SQ 640 added new obstacles to approving revenue bills, the Court here upheld that it did not broaden the definition of a revenue bill.

The constitutional principle against special tax exemptions

The majority’s opinion in Oklahoma Automobile Dealers Association was based on more than applying the technical two-pronged test. The ruling also cites a deeply-rooted constitutional principle for rejecting the idea that removing a tax exemption should be subject to the supermajority requirements of State Question 640. They wrote:

On closer examination it is apparent that the distinction between (1) elimination of a special exemption from an existing tax and (2) a levy of a new tax, is one deeply rooted in our Constitution and in our founders’ notions of fair play when it comes to bearing the burdens of taxation.

They cite several provisions in Oklahoma’s Constitution which favor uniformity of taxation and strictly curtail the Legislature’s ability to grant exemptions from taxation. If exemptions could be approved with a simply majority but eliminated only with a supermajority, they write, it would create a “one-way ratchet rule” that would make it “exceedingly difficult to eliminate” the billions of dollars of special exemptions from taxation in the state tax code.

That is a result we think wholly inconsistent with the uniformity of taxation policy the people enshrined in our constitution, a policy designed to ensure that the burdens of supporting our state government were not disproportionately placed on those lacking the political clout to secure special dispensation from taxation.

More than simply upholding the Legislature’s authority to remove a tax exemption with a simple majority, this language seems to invite a challenge to any tax exemptions that are not explicitly spelled out in the state Constitution.

For now at least, the Court’s rulings in these two cases has provided guidance as to what can and cannot be approved with a simple majority. As lawmakers prepare to return to the Capitol in a special session to address the budget hole left by the Court’s decision striking down the cigarette fee, this guidance will be especially timely and welcome.