Oklahoma Supreme Court rules that increased sales tax on vehicles is constitutional

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OKLAHOMA CITY – Several Oklahoma lawmakers are celebrating a victory following a recent ruling by the Oklahoma Supreme Court.

The  Oklahoma Automobile Dealers Association filed a lawsuit after lawmakers decided to remove an exemption related to a 1.25 percent tax on motor vehicles.

Now, Oklahomans purchasing a vehicle will have to pay a 1.25 percent tax on top of the 3.25 percent excise tax.

Removing that exemption is expected to generate $123 million within the next fiscal year.

The association challenged the bill, saying the measure signified a tax increase which needs a super majority to pass.

On Thursday, the Court ruled that the bill is constitutional since lawmakers only removed an exemption, and did not implement a new tax.

“Applying a test we have utilized since 1908, we conclude 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 a new tax,” the court ruled.

“I appreciate the Supreme Court ruling on this matter in an expeditious manner. This ruling provides us with clarity in dealing with this fiscal year’s budget. 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. The $215 million represents just state funds, but with the loss of matching federal funds state agencies estimate the total is nearly $500 million,” Gov. Fallin said in a statement.

“While I disagree with the majority opinion, in that the new car tax was clearly passed exclusively for the purposes of raising revenue, it’s important to note that we still have a $215 million gap for this fiscal year created by the unconstitutional cigarette tax and an even bigger hole to fill when we begin the Legislative session next year,” House Minority Leader Scott Inman said. “A potential silver lining in today’s ruling, it appears the Court has now opened the door to increasing, with only a majority vote in the Legislature, the gross production tax exemption that has served as a road block to the Oklahoma standard rate of 7 percent. The time is right to remove the artificially low gross production tax rate of 2 percent.”

Now, justices have to rule on one more lawsuit involving legislation from last year.

Gary Richardson filed a lawsuit, challenging the constitutionality of three different bills: the motor vehicle excise tax; the motor fuel tax fee, which charges a fee to owners of electric and compressed natural gas vehicles; and a bill over the state deduction rate.

“The legislators know what the purpose was. Every citizen of this state knows what the purpose was. It was to raise money, to raise fees, to raise taxes,” Richardson said.

Earlier this month, the Oklahoma Supreme Court ruled that a $1.50-per-pack ‘cigarette fee’ was unconstitutional after lawmakers passed the revenue raising measure in the final five days of a legislative session without a 75 percent majority vote.

The fee was expected to generate $215 million for several state agencies.

Although the legislative session is not supposed to begin until next year, Gov. Fallin says lawmakers need to get to the Capitol to fill the budget hole left by the ‘cigarette fee’ ruling.

“A special session is the best option,” Gov. Fallin said. “Failure to meet in special session would mean $215 million would be cut mostly from these three state agencies. These agencies and the people they serve cannot sustain the kind of cuts that will occur if we do not find a solution.”