OKLAHOMA CITY — The Oklahoma Supreme Court on Thursday narrowly upheld the removal of a 1.25 percent sales tax exemption on vehicles sold in Oklahoma, one of several revenue-raising measures adopted by the Oklahoma Legislature earlier this year in an attempt to close an $878 million budget hole.
In a 5-4 decision, justices ruled that legislation adopted by lawmakers during the final week of the 2017 legislative session does not violate strict constitutional guidelines for raising revenue because it did not levy a new tax but merely removed an exemption from an existing tax. The measure is expected to raise about $124 million a year.
The court’s majority opinion — written by the court’s newest member, Justice Patrick Wyrick — rejects allegations by the Oklahoma Automobile Dealers Association, an auto dealership and an individual that the legislation is a “revenue bill” under the state constitution that violated requirements that revenue bills not be adopted in the final week of the legislative session and receive at least 75 percent of the votes in both the House and Senate.
“Our cases have always recognized the important constitutional distinction between measures levying new taxes and measures removing exemptions to already levied taxes,” the 20-page decision states. The Legislature levied a sales tax on all personal property, including vehicles, in 1933 but passed an exemption for vehicles in 1935, an exemption that has been in place ever since. Vehicles have remained subject to a 3.25 percent excise tax.
The ruling states that “we have never before in our history held that a measure revoking a tax exemption is a ‘revenue bill’ … to hold otherwise would require us to break new ground and overrule well-established precedents.”
The automobile association’s attorney, Clyde Muchmore, said the association will not ask the court to rehear the case and declined further comment. The group had until Sept. 6 to request a rehearing.
The decision was handed down three weeks after the court overturned a $1.50 per-pack fee on cigarettes also adopted this year, a measure that was expected to raise more than $250 million a year.
In that case, the court ruled that the fee was a revenue bill and violated constitutional guidelines against approving revenue-raising bills in the final five days of a legislative session and without a 75 percent majority vote.
Gov. Mary Fallin and legislative leaders lauded the court’s latest decision and said it helps clarify the steps they need to take to manage the state budget for the fiscal year that began July 1. Fallin said that including matching federal funds, the court’s rejection of the cigarette fee will cost state agencies nearly $500 million.
In a separate opinion, dissenting justices said the intent of the exemption-lifting measure was to raise revenue and it should be subject to the constitution’s strict revenue-raising guidelines.
“Calling it a sales tax but collecting it as an excise tax makes little difference to the consumer. It is a tax,” the dissenting opinion states.