NAIFEH v. STATE ex rel. OKLAHOMA TAX COMMISSION, 400 P.3d 759

Background

The Legislature enacted SB 845 (Smoking Cessation and Prevention Act of 2017), imposing a $1.50 per-pack assessment on cigarettes, collected from wholesalers and remitted to the State Treasurer.
The bill originated in the Senate, was passed on the last day of the session, and received only a bare majority in each chamber; Article V, §33 requires revenue measures to originate in the House, not pass in the final five days, and be approved by the people or by three-fourths of each house.
The Legislature and Governor stated a need for new revenue to balance the 2018 budget; the General Appropriations Act was enacted assuming roughly $225 million from SB 845.
SB 845 included several nominally regulatory provisions (no-smoking signage, prohibitions on smoking on state property, agency directives) but the primary operative provision imposed the $1.50 “smoking cessation fee,” with most receipts deposited into a broadly discretionary Health Care Enhancement Fund; only about $1 million was earmarked for cessation programs.
Petitioners (cigarette purchasers and tobacco industry entities) sought declaratory relief arguing SB 845 violated Article V, §33; the Oklahoma Supreme Court assumed original jurisdiction and reviewed whether SB 845 was a “revenue-raising” measure and therefore unconstitutional as enacted.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether SB 845 is a “revenue-raising” measure under Art. V, §33	SB 845’s primary object is raising substantial revenue (~$225M) to balance the budget	The bill’s primary purpose is regulatory (reduce smoking); any revenue is incidental	Held: SB 845’s primary purpose and effect is raising revenue; §33 applies
Whether characterization as a “fee” avoids §33 (fee vs tax)	The $1.50 assessment is effectively a tax — not tied to a specific benefit — and functions like an excise tax	The assessment is a regulatory fee to discourage smoking and offset costs of smoking	Held: The assessment is a tax in substance (excise/sin tax), not a regulatory fee; naming it a fee does not control
Whether regulatory provisions make the measure non-revenue or render revenue incidental	The few regulatory provisions are minimal, uncodified, or codify existing policy; the revenue provision is the bill’s operative change	Respondents argue regulatory text and stated purpose show the bill is primarily regulatory	Held: The regulatory provisions are minor and largely severable; the revenue-raising provision is primary and inseparable in purpose from the budget need
Remedy: severability and relief requested	Petitioners asked to invalidate the unconstitutional measure and prevent enforcement	State sought upholding or narrower relief	Held: Court severed Sections 2, 7, 8, and 9 (revenue parts) as unconstitutional under Art. V, §33 and granted declaratory relief; remaining regulatory sections left in place

Key Cases Cited

Anderson v. Ritterbusch, 98 P. 1002 (Okla. 1908) (defined bills "for raising revenue" as those whose principal object is revenue-raising)
Fent v. Fallin, 345 P.3d 1113 (Okla. 2014) (interpreting the 1992 amendment to Art. V, §33 and adopting an objective public-understanding test)
In re Lee, 168 P. 53 (Okla. 1917) (distinguished fees that compensate for services from taxes intended to raise general revenue)
Ex parte Tindall, 229 P. 125 (Okla. 1924) (upheld licensing fees as regulatory where revenue was incidental)
Olustee Co-op. Ass'n v. Oklahoma Wheat Utilization Research & Mkt. Dev. Comm'n, 391 P.2d 216 (Okla. 1964) (characterized charges as taxes when they function as general revenue rather than tied to a specific regulatory benefit)
Pure Oil Co. v. Oklahoma Tax Commission, 66 P.2d 1097 (Okla. 1936) (discussed distinctions between taxes and fees and the proper inquiry into a law's purpose)