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Legal challenge filed over Oklahoma oil tax law

An Oklahoma City attorney claims the state Legislature violated the Oklahoma Constitution by passing a new law that sets the state’s oil and natural gas production tax at 2 percent for the first 36 months of production.
by Rick Green Modified: June 26, 2014 at 9:38 pm •  Published: June 26, 2014

An Oklahoma City attorney who has successfully sued the state in the past filed a lawsuit Thursday with the state Supreme Court asking that it block as unconstitutional a new law setting the oil and natural gas production tax at 2 percent for the first 36 months of production.

Jerry Fent alleges in his lawsuit that the Legislature violated provisions in the Oklahoma Constitution that require that revenue bills not be enacted during the last five days of the legislative session, that they must have a three-fourths vote in the House and Senate and that they not take effect until 90 days after the Legislature adjourns its session.

A Supreme Court referee is to consider the lawsuit in a hearing on July 29 and issue a report to the full court.

Gov. Mary Fallin signed House Bill 2562 on May 28. The effective date for the law is Tuesday, but the new rate wouldn’t go into effect until July 1, 2015.

The state historically has assessed a 7 percent tax. In 1994, the Legislature created an incentive for horizontal drilling. The incentive initially 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 is set to expire July of next year, which would return the tax rate to 7 percent.

Fallin said her staff is reviewing Fent’s latest lawsuit.

“We’re confident the Supreme Court will uphold the legislation,” she said.

Preston L. Doerflinger, secretary of finance, administration and information technology, noted the legal challenge is on legislative procedure and not the policy itself.

“We believe the procedure was proper but welcome the court’s interpretation. It’s a good, fair policy for oil and gas producers and for state government, so we fully expect it to be the law going forward, whether through this bill or another,” he said.

The state’s oil and natural gas trade associations supported the legislation even though they initially wanted the lower rate to stay in place for four years instead of the three-year period established by the law. The groups said Thursday they think the legislation was completed properly.

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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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