Taxation and State Taxation -- 2017

Naifeh v. Oklahoma   (Oklahoma Supreme Court)

Whether a regulatory fee is actually a new tax

On July 7, the MCLA filed an application and was granted permission to file a brief in the Oklahoma Supreme Court in support of a challenge to new law that imposes a $1.50 fee on each pack of cigarettes sold in the state. In our brief, which was submitted on July 21, 2017, we argued that the fee is actually a tax that was enacted in violation of a constitutional guarantee that new taxes will originate in the state House of Representatives, be passed before the last five days of the legislative session and be approved by a 3/4 supermajority of the legislature. We are seeing more states use purported regulatory programs as a way of raising revenues for nonregulatory purposes -- in this case, raising $257 million in annual revenues, the largest revenue bill in 2017.

On August 10, the Court ruled that the primary purpose of the fee is to raise revenue, and that it must be enacted following the tax-enactment procedures mandated by the Oklahoma Constitution. The court agreed with much of the reasoning in our brief.

We are concerned that taxes like this are being disguised by state legislatures as regulatory fees, in an attempt to avoid the strict legal requirements of a constitutional amendment that protect citizens from excessive taxation. Serious budget shortfalls are forcing states to find innovative ways to collect money, and it is important that they use fair procedures both to ensure public support and to prevent rash decisions with bare majorities at the end of a legislative session.

This is an important decision that will help prevent the adoption of taxes without the necessary three-fourths majority of the legislature. There are many ways in which a state might want to impose “user fees” that are in fact taxes, and this ruling will help ensure that the legislature stays within the bounds set by the Constitution.

Related Documents:
NAM amicus brief  (July 21, 2017)


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