Oklahoma Supreme Court Upholds Car Sales Tax

September 5, 2017

The Oklahoma Supreme Court by a 5-4 vote held 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.”  Therefore, it is “not a revenue bill” subject to Article 5, Section 33 of the Oklahoma Constitution.  See Oklahoma Automobile Dealers Association v. State ex rel. Oklahoma Tax Commission, 2017 OK 64.

The state sales tax was levied in 1933 on all tangible personal property – including automobiles – and that sales tax has remained a part of the tax code ever since.  In 1935 the Legislature added an exemption for auto sales, in the sales tax provisions, so automobiles were subject to only an automobile excise tax.  In 2017 the Legislature revoked part of the exemption, so automobiles are subject once again to the sales tax, but only a 1.25% sales tax.  

It is important to note that the posture of this case is different from the recently decided case involving the new $1.50 per pack assessment on cigarettes which was unanimously held to be a “revenue bill” subject to Article 5, Section 33.  The reason given by the Court is the $1.50 per pack was ruled unconstitutional because it “fits squarely within our century-old test for revenue bills, in that it both had a primary purpose of raising revenue for the support of state government and it levied a new tax in the strict sense of the word”.  Naifeh v. State ex rel. Oklahoma Tax Commission, 2017 OK 63.

The unique question in the new 1.25% state sales tax on automobiles is whether a measure revoking an exemption from an already levied tax is a “revenue bill” subject to Article 5, Section 33.  There are three primary reasons for the Court’s decision.  These are:

• Our cases have long held that measures making “certain property . . . theretofore exempt from taxation . . . subject to taxation” are not a “revenue bill” because removal of an exemption from an already levied tax  is different from levying a tax in the first instance.  Leveridge v. Oklahoma Tax Commission, 1956 OK 77, Cornelius v. State ex rel. Cruce, 1914 OK 222.

• While that rule may seem superficially inconsistent with Article 5, Section 33’s taxpayer protections, it is actually deeply rooted in our Constitution’s related polices that disfavor special exemptions from taxation and promote uniformity of taxation policies that are also designed to protect the taxpayers.

• Because we have never before in our history held that a measure revoking a tax exemption is a “revenue bill,” and because we have explicitly held that such measures are not “revenue bills”, to hold otherwise would require us to break new ground and overrule well established precedents.  To do so would be to deprive the Legislature and the people of the legal predictability, uniformity, and clarity that is our obligation to provide.

Those Justices voting in the majority are Gurich, Kauger, Winchester, Reif and Wyrick.  Two dissents were written, one by Justice Combs and the second by Justice Watt.