NAIFEH v. STATE ex rel. OKLAHOMA TAX COMMISSION
2017 OK 63
Okla.2017Background
- In 2017 the Oklahoma Legislature passed SB 845, the "Smoking Cessation and Prevention Act," which imposed a $1.50 per-pack assessment on cigarettes and created a Health Care Enhancement Fund to receive most proceeds.
- The assessment was collected by the Oklahoma Tax Commission from wholesalers via the cigarette stamp system; estimated revenue was ~ $225 million/year and was relied on to balance the FY‑2018 budget.
- Four House bills proposing the same $1.50-per-pack increase had earlier failed to obtain the three‑fourths legislative supermajority required by Art. V, § 33 (1992 amendment) and therefore did not become law.
- SB 845 originated in the Senate, passed on the last day of the session by bare majorities, and was challenged by cigarette purchasers, retailers, wholesalers, and manufacturers seeking declaratory relief that SB 845 violated Art. V, § 33.
- The Oklahoma Supreme Court assumed original jurisdiction and analyzed whether SB 845 is a "revenue bill" (i.e., primarily intended to raise revenue and levying a tax in the strict sense) subject to the constitutional origination/time/supermajority requirements.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether SB 845 is a "revenue bill" under Art. V, § 33 | Naifeh: SB 845's primary object is raising substantial new revenue (~$225M) to fund government; therefore it is a revenue bill | State: The bill's primary object is regulatory—reducing smoking—and any revenue is incidental; thus §33 doesn't apply | Held: SB 845's primary purpose is to raise revenue for state government; it is a revenue bill subject to §33 |
| Whether the $1.50 assessment is a tax or a fee | Naifeh: Functionally an excise tax (collected like existing cigarette tax, deposited to general-purpose fund); name "fee" is a label | State: The assessment is a "smoking cessation fee" enacted for regulatory/compensatory purposes, not a tax | Held: The assessment is a tax in substance (no nexus to a specific government benefit; collected like a tax); calling it a fee cannot avoid §33 |
| Whether regulatory language in SB 845 transforms the measure from revenue-raising to regulatory | Naifeh: Regulatory provisions are minimal, largely uncodified, or nominal; only Section 7 meaningfully changes law by extracting revenue | State: The regulatory statements and earmarks show intent to reduce smoking, making revenue incidental | Held: Regulatory provisions are either minor or uncoupled from revenue; revenue-raising is the operative effect and purpose |
| Remedy / Severability | Naifeh: Invalid provisions should be excised; remaining regulatory sections can stand | State: (argued enforcement/validity) | Held: Sections 2, 7, 8, and 9 (the revenue/collection/apportionment parts) are unconstitutional under Art. V, § 33 and severed; remaining non‑revenue sections survive |
Key Cases Cited
- Anderson v. Ritterbusch, 98 P. 1002 (Okla. 1908) (defines "bills for raising revenue" as those whose principal object is raising revenue and levying taxes in the strict sense)
- Fent v. Fallin, 345 P.3d 1113 (Okla. 2014) (interprets the 1992 amendment to Art. V, § 33 and holds bills that decrease revenue are not subject to §33)
- Olustee Co-op. Ass'n v. Oklahoma Wheat Util. Research & Mkt. Dev. Comm'n, 391 P.2d 216 (Okla. 1964) (assessment characterized as a tax where benefit is merged in general public benefit)
- In re Lee, 168 P. 53 (Okla. 1917) (distinguishes fees paid for particular government services from taxes)
- Ex parte Tindall, 229 P. 125 (Okla. 1924) (regulatory licensing fees held incidental to regulatory purpose and not "revenue bills")
- Pure Oil Co. v. Oklahoma Tax Comm'n, 66 P.2d 1097 (Okla. 1936) (upholds that fees incidental to regulation are not revenue bills)