Lawsuit challenges bill changing Oklahoma's production tax

Oklahoma Supreme Court referee takes oral arguments on lawsuit challenging oil and gas production measure
by Rick Green Published: July 30, 2014
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Both sides in a hearing before a state Supreme Court referee agreed Tuesday that the Oklahoma Constitution sets a certain procedure for how the Legislature must handle revenue bills. They also agreed that this procedure wasn’t followed when lawmakers approved a bill setting a production tax for oil and natural gas.

The major disagreement is whether the measure should be defined as a revenue bill requiring this special treatment.

Oklahoma City Attorney Jerry Fent says it absolutely is. Oklahoma Solicitor General Patrick Wyrick says it most certainly is not.

Fent is asking the court to rule House Bill 2562 unconstitutional. It was signed into law by Gov. Mary Fallin on May 28, setting the oil and natural gas production tax at 2 percent for the first 36 months of production. It then increases to 7 percent.

He told Daniel Karim, the referee, that the Legislature violated provisions in the Oklahoma Constitution requiring that revenue bills not be enacted during the last five days of the legislative session, that they must be supported by a three-fourths vote of the House and Senate and that they must not go into effect until 90 days after the session.

“We must enforce the constitution on every bill regardless whether it hurts us or helps us,” Fent said. “If you don’t attack any violation of the constitution, you agree that any violation is OK.”

He said even if the measure is revenue neutral, that’s not important. He said the constitution references revenue bills but makes no distinction on whether these bills increase or decrease revenue.

The state historically has assessed a 7 percent tax on production. In 1994, the Legislature created an incentive for horizontal drilling which lowered the tax rate to 1 percent for the first two years. In 2002, the incentive was extended to up to four years. The incentive program was set to expire July of next year, which would return the tax rate to 7 percent.

Wyrick said the measure provides a continued incentive for drilling by setting the tax at 2 percent for the first 36 months of production. He compared it to a law that provides Oklahomans a sales tax-free weekend, which begins this Friday and ends Sunday.

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by Rick Green
Capitol Bureau Chief
Rick Green is the Capitol Bureau Chief of The Oklahoman. A graduate of Humboldt State University in Arcata, Calif., he worked as news editor for The Associated Press in Oklahoma City before joining The Oklahoman.
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When the clocks strikes midnight on Sunday, your honor, and that exemption expires, nobody is going to stand up and claim their sales tax was just raised.”

Patrick Wyrick,
Oklahoma

Solicitor General

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