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Law & Principles

Jonathan Small | June 5, 2023

Renewing tobacco, car-tag compacts bad for Oklahoma

Jonathan Small

Special-interest attempts to force automatic renewal of existing tobacco and license-tag compacts will create enormous challenges for the state.

The legal reality that undergirded current compacts is under attack by special interests who are inaccurately wielding the U.S. Supreme Court’s 2020 ruling in McGirt v. Oklahoma, which declared the Muscogee (Creek) Nation’s Oklahoma reservation was never formally disestablished for purposes of federal major-crimes law, in an effort to exploit that decision.

That ruling has been expanded to include other tribes whose historic reservations cover most of eastern Oklahoma. A case now before the Oklahoma Supreme Court addresses whether any tribal citizen who lives in eastern Oklahoma must pay state income taxes. Prior to McGirt, only tribal members working for tribal entities and living on land owned by a tribe (or land held in trust by the federal government for a tribe) were exempt. Now, even individuals who live on land purchased from non-Indians claim they are “reservation” Indians exempts from taxation.

Without specific language clarifying that new compacts and their affected areas adhere to civil law as understood before McGirt (and aligned with the 2022 U.S. Supreme Court’s Castro decision clarifying the narrow application of McGirt and upholding state sovereignty), similar jurisdictional issues could arise with tobacco compacts.

For example, do existing state-tribal tobacco compacts apply only to sales at smoke shops operating on trust land, or do they apply to any business selling tobacco in eastern Oklahoma so long as the owner is a tribal citizen?

Under the compacts, tobacco-tax collections are split between the state and tribal governments. If the share of tobacco sales covered by compacts explodes because of McGirt, millions of dollars will be diverted away from state government health care programs to tribal entities—and other taxpayers will be stuck covering the costs of this unfair diversion.

As for car tags, those compacts are also flawed, creating unequal and unfair tax burdens by giving significant tax breaks to cars tagged with tribal tags compared to those with an Oklahoma tag. As a lawmaker rightly once observed about tax consumers who think public education revenue is perpetually insufficient, one can’t argue that public education doesn’t have sufficient revenue when they have a tribal tag that significantly reduces dedicated revenue for public education. Another lawmaker rightly asked, if an area or Oklahoman is exempt from state taxes, is there still an obligation to provide the same level of state government?

Further, changes to the revenue split to reflect that more than 80 percent of the population is non-tribal, implementation of transparency, and auditing should be incorporated into state-tribal compacts.

The current legislation pushed by special interests to circumvent the normal compact process renewed the compacts for one year, but supporters said that process could continue indefinitely.

Proper negotiations of the current problems in the current compacts requires negotiation based on the current on-the-ground reality in Oklahoma.

Jonathan Small President

Jonathan Small

President

Jonathan Small, C.P.A., serves as President and joined the staff in December of 2010. Previously, Jonathan served as a budget analyst for the Oklahoma Office of State Finance, as a fiscal policy analyst and research analyst for the Oklahoma House of Representatives, and as director of government affairs for the Oklahoma Insurance Department. Small’s work includes co-authoring “Economics 101” with Dr. Arthur Laffer and Dr. Wayne Winegarden, and his policy expertise has been referenced by The Oklahoman, the Tulsa World, National Review, the L.A. Times, The Hill, the Wall Street Journal and the Huffington Post. His weekly column “Free Market Friday” is published by the Journal Record and syndicated in 27 markets. A recipient of the American Legislative Exchange Council’s prestigious Private Sector Member of the Year award, Small is nationally recognized for his work to promote free markets, limited government and innovative public policy reforms. Jonathan holds a B.A. in Accounting from the University of Central Oklahoma and is a Certified Public Accountant.

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