Budget & Tax, Law & Principles

Even without compacts, state will collect taxes

June 23, 2023

Jonathan Small, Curtis Shelton, Ryan Haynie

A common misunderstanding has arisen about what would happen if the current tobacco compacts expired. Some believe that all the revenue being collected through these compacts would disappear. That is not correct.

Federal law exempts tribal members from tobacco taxes when purchasing products on tribal land. However, non-tribal members who purchase products on tribal lands are still subject to these taxes. The current compacts are meant to simplify this process.

Under the compacts, instead of each tribe identifying purchases between tribal and non-tribal members, each seller collects 100 percent of the taxes from sales and remits it to the state. The state then rebates 50 percent of that back to the tribes. This creates a 50/50 split between the state and the tribes. Without the compact, tribes would then be required to operate under the current statute (68 O.S. § 349.1) when selling tobacco products. This statute creates a calculation that includes things like tribal membership counts and the smoking and purchasing rates of the state of Oklahoma. Any tribe that fails to operate under statute would face a lawsuit from the state.

Under this model, Oklahoma would still see tobacco sales tax revenue from tribal smoke shops. It’s possible this model would actually bring in more revenue than the current 50/50 split, as only 10 percent of the state’s population is exempt from the tobacco tax at tribal shops.