Cigarette tax/fee ruled unconstitutional

The Oklahoma Supreme Court ruled last Thursday that a $1.50 “fee” on cigarette sales is really a “tax” and its passage by the Legislature was unconstitutional.

The court noted that lawmakers introduced four bills to hike the cigarette tax but those bills were abandoned because they lacked the required 75 percent votes for passage.

The decision also brings into question the constitutionality of other “fee” increases that are before the courts.

This court decision has prompted calls from Democrat and liberal Republicans for the governor to call a special session to raise taxes.

The Oklahoma Senate Democrat Caucus is calling for tax increases in light of the ruling.

“We need to approach a special session thoughtfully with real plans for revenue measures that can fill the $215 million budget hole which has been created at the Oklahoma Department of Mental Health and Substance Abuse Services, the Oklahoma Healthcare Authority and the Department of Human Services,” said Sen. John Sparks, D-Norman, leader of the caucus. “We need to set clear priorities, take hard votes and make tough choices with all revenue options on the table for open, transparent discussion and debate.”

“I will be discussing with legislative leaders from both parties the need to address the $215 million shortfall this will create for the Department of Human Services, the Department of Mental Health and Substance Abuse Services and the Oklahoma Health Care Authority, the three agencies that received the bulk of the money that was to be generated by the cessation fee,” Gov. Mary Fallin said in a statement. “These agencies and the people they serve cannot sustain the kind of cuts that will occur if we do not find a solution. My belief is we will have to come into special session to address this issue.”

Senate Bill 860, the General Appropriations bill, divides the projected cigarette tax revenue this way:

  • Oklahoma Health Care Authority would have received $70 million (about 7 percent of its total appropriation).
  • The Department of Mental Health and Substance Abuse Services would have received $75 million (about 23 percent of its total appropriation).
  • The Department of Human Services would have received $69 million (about 10 percent of its total appropriation).

Senate Bill 845 directed that revenue from the smoking tax this way:

  • The first $1 million deposited to the ABLE Commission Revolving Fund, then:
  • All amounts in excess of $1 million to the Health Care Enhancement Fund.

Fallin can ask for a rehearing and the decision is being reviewed by Oklahoma Attorney General Mike Hunter.

Tobacco companies had filed a suit opposing the new tax and so had Tulsa attorney Gary Richardson, who is running for governor.

“We are encouraged by the Supreme Court upholding the intent of SQ 640, which was passed by the voters in 1992 to require either a supermajority of the legislature to raise revenue or send the measure to a vote of the people,” said Richardson.  “We were fully supportive of this challenge as it violates Article 2, Section 33 of the Oklahoma Constitution just like the three bills I challenged in court.”

Lt. Gov. Todd Lamb, who is also running for governor, said the ruling didn’t surprise him.

“I am not surprised by the court’s ruling regarding the cigarette fee measure as I believe it contradicts the intent of SQ 640,” said Lamb. “With the ruling, the Legislature must now focus first and foremost on identifying existing state funds to allocate to the healthcare-related programs that were scheduled to receive appropriations from the cigarette fee measure. It is my belief this can be done without drastic cuts to agencies. State government can and must operate more efficiently, and this ruling provides an excellent opportunity to start that process.”

Former Attorney General Drew Edmondson, a Democrat running for governor, said he supports an increase in the tobacco tax.

“Whether you call it a tax or a fee,” Edmondson said, “an increase is a good public policy decision to help reduce smoking rates, especially as a deterrent to youth smoking. As I see it, raising revenue is the secondary benefit after public health.”

House Speaker Charles McCall supported the cigarette tax.

“It is important to remember that the reason our budget has been suffering is because Oklahoma families and businesses have been struggling,” McCall said. “State revenues are a reflection of the people of our state.  When our citizens have less money in their pockets to spend the state will realize less revenues.  I am a firm believer that government must live within its means.

“The tobacco fee for health care was passed in an effort to avoid significant budget cuts. After House Democrats refused time and again to support increased revenue measures, the fee was our only opportunity to balance the budget without deeper cuts. The minority party decided to play games with the budget, and now that opportunity has passed.”