Law & Principles

In move that could cost state millions, House overrides Stitt

July 31, 2023

Ray Carter

In a move that could threaten tens of millions of dollars in state funding for health care programs, members of the Oklahoma House of Representatives have voted to override Gov. Kevin Stitt’s veto of legislation authorizing, in effect, new one-year state-tribal compacts on tobacco.

The legislatively authorized compacts created through SB 26X include language that may allow tribal governments to claim a dramatically larger share of state tobacco tax collections as the result of recent court rulings that said Indian reservations covering 42 percent of Oklahoma were never formally disestablished.

Stitt has fought to update the compacts to address those concerns and warned that lawmakers have opened the door to effectively cede state control of nearly half of Oklahoma, including most of Tulsa, by approving the new compacts.

“I am not going to give the eastern part of my state away,” Stitt said. “As governor, I will not give an inch.”

The U.S. Supreme Court’s 2020 ruling in McGirt v. Oklahoma declared the Muscogee (Creek) Nation’s historic Oklahoma reservation was never formally disestablished for purposes of federal major-crimes law. That ruling has since been expanded to include other tribes whose historic reservations cover most of eastern Oklahoma and now impacts 42 percent of the state, a figure that translates into more than 28,000 square miles.

Existing state-tribal compacts on tobacco-tax collections, which currently allow tribes to receive 50 percent of all tobacco taxes collected through tribal smoke shops, are set to expire at the end of the year, and Stitt has been working to negotiate new compacts.

However, through SB 26X lawmakers instead voted to unilaterally approve compacts for another year. The legislatively authorized compacts in SB 26X duplicate language in expiring compacts, including references stating that compacts apply to sales in “Indian country.”

Stitt says that two-word phrase is now a problem because, under McGirt, the territory covered by “Indian country” is exponentially greater than it was 10 years ago when state-tribal tobacco compacts were last renegotiated. Previously, “Indian country” referred only to Oklahoma land held in trust for a tribe, an area Stitt said includes about 7 percent of the state.

But following McGirt, the phrase “Indian country” may be construed to sales at Indian-owned tobacco outlets across 42 percent of Oklahoma.

If tribes cite McGirt to expand the area covered by tobacco compacts, as they have in a separate case where tribes argue their members are now exempt from state income tax due to McGirt, it could lead to tens of millions in tobacco tax collections being diverted from the state to small tribal governments.

Supporters of the compacts authorized by SB 26X dismissed those concerns.

State Rep. Jon Echols, R-Oklahoma City, said tribes have claimed “zero” new shops on McGirt expansion land since the court decision was handed down three years ago.

“It is illogical to believe that somehow there will be a new interpretation that hasn’t been the way it’s been applied for the last three years as the result of a one-year extension,” Echols said.

However, in May Stitt offered compact language to 16 tribes that provides the same financial benefit to tribes as existing compacts. The only difference between Stitt’s proposal and the legislatively approved version is that Stitt’s proposal includes language that guarantees tribes will not claim new shops outside of trust land as a result of the McGirt decision. The governor’s proposed compact agreement otherwise remains the same as existing compacts.

“We offered them the exact same contract that they had last year,” Stitt said. “It was a 50-50 split. So, in other words, if they sell the same amount of cigarettes at the same stores, they would get the exact same wire from the state of Oklahoma.”

Tribal officials have refused to sign those agreements, which Stitt said makes clear their intent to expand the reach of the compacts beyond existing smoke shops.

“The question is why wouldn’t the tribes sign the compact that I offered?” Stitt said. “It’s only about this land.”

State Rep. Scott Fetgatter, an Okmulgee Republican and Choctaw citizen who supported overriding Stitt’s veto, complained that the governor had put his proposals in writing.

“Why, with a leader of a sovereign nation, are we sending them freaking emails?” Fetgatter said.

He complained that in-person meetings have not occurred. However, tribal officials have declined to engage in such meetings.

Tribal officials have refused to sign the governor’s proposed compacts even though Stitt’s offer would provide a multi-million-dollar windfall to the tribes.

Under U.S. Supreme Court rulings, the state is required to reimburse tribes only for tobacco taxes collected on sales to tribal members at tribal shops on tribal land.

The U.S. Supreme Court’s 1991 ruling in Oklahoma Tax Commission v. Potawatomi Tribe held that a state government “is free to collect taxes” on tribal tobacco “sales to nonmembers of the tribe.”

The U.S. Supreme Court ruled that “the Tribe’s sovereign immunity does not deprive Oklahoma of the authority to tax cigarette sales to nonmembers of the Tribe at the Tribe’s store, and the Tribe has an obligation to assist in the collection of validly imposed state taxes on such sales.”

Census data shows just 9.5 percent of Oklahomans are American Indian, meaning as little as $10.8 million in tobacco-tax collections may be owed the tribes. But under Stitt’s proposal, the tribes would continue to receive $57 million per year, or 427 percent more than what may truly be owed under existing court rulings.

Lawmakers have referred to SB 26X as “extending” existing compacts, but the practical effect is to approve new compacts with shorter terms without the involvement of the governor in the negotiation process.

Opponents questioned the legality of the legislatively created compacts and predicted legal challenges will ensue.

“We’re voting on a false compact with the tribes,” Gann said. “We don’t have the statutory authority, nor do we have the constitutional authority, to compact with tribes.”

Oklahoma law states, “The Governor is authorized to negotiate and enter into cooperative agreements on behalf of this state with federally recognized Indian tribal governments within this state to address issues of mutual interest.”

Article 6, Section 8 of the Oklahoma Constitution states that the governor “shall conduct in person or in such manner as may be prescribed by law, all intercourse and business of the State with other states and with the United States, and he shall be a conservator of the peace throughout the State.”

“We are not overriding a governor’s veto,” Gann said. “We’re overthrowing the governor’s authority here.”

Lawmakers who supported the override said the Oklahoma Supreme Court has found those provisions do not prevent the Legislature from passing new compact language without the governor’s involvement.

However, the two Oklahoma Supreme Court cases referenced did not state that lawmakers can enact compacts without a governor’s involvement. In one of the cases, the Oklahoma Supreme Court explicitly noted the governor “has the statutory authority to negotiate gaming compacts with Indian tribes to assure the State receives its share of revenue.”

The two Oklahoma Supreme Court decisions instead stated that the governor’s negotiations must comply with existing state law, including what forms of gambling may be authorized through a compact.

Following the House vote to override his veto, Stitt said his administration has filed a lawsuit with the Oklahoma Supreme Court challenging the legislatively created compacts.

“We need the Supreme Court to let us know who has the authority?” Stitt said. “We think that it clearly is with the governor.”

Oklahoma Ethics Commission records show that many lawmakers who voted to override Stitt’s veto have received either direct campaign contributions from tribal governments or have been supported by political action committees that are funded by tribal governments.

Tribal officials praised lawmakers for siding with them in the state-tribal dispute.

Chickasaw Nation Gov. Bill Anoatubby tweeted, “We embrace legislative participation and remain committed to upholding our cooperative approach, fostering open and honest dialogue.”

On Facebook, Choctaw Nation Chief Gary Batton posted, “I’m glad to work with the House of Representatives and other tribes in the state to override Governor Stitt’s veto.”

Cherokee Nation Principal Chief Chuck Hoskin, Jr., issued a statement saying, “Tribal compact agreements inject millions of dollars into Oklahoma’s economy and local businesses.”

However, the tobacco tax funds impacted by SB 26X do not represent new funds or investment. Instead, the compacts simply determine who controls tax funds generated by existing tobacco sales in Oklahoma.

The override succeeded due to the unified support of Democratic lawmakers.

The Oklahoma House of Representatives voted 72-16 to override Stitt’s veto of SB 26X. The override needed 67 votes to succeed and would have fallen short had it not been for the votes of 18 Democratic lawmakers. No Democrat opposed the override.

Democratic lawmakers quickly took credit for their key role in the override, issuing a press release titled, “House Democrats Override SB26X, Governor Stitt’s Veto of Tribal ‎Compacts.”

By drafting the new one-year compacts they way they did, Stitt said lawmakers may unleash major uncertainty for Oklahomans living throughout eastern Oklahoma, noting that small tribal governments may now point to the compacts when making arguments for even greater control of those areas.

“They want to have complete control over their reservation land—eastern Oklahoma,” Stitt said. “That’s 42 percent of the state. They don’t want the state to be able to tax. They don’t want the state to be able to regulate, to prosecute crimes. They don’t want the state to be able to enforce municipal laws. That’s, at least, what they’ve said in their (court) briefs.”