By a one-vote margin, members of the Oklahoma Senate have voted to sustain Gov. Kevin Stitt’s veto of a legislatively drafted state-tribal compact on tobacco taxes.

However, the Senate can bring up the bill for additional override efforts, and lawmakers voted to extend the ongoing special legislative session to July 31.

SB 26X would authorize one-year state-tribal tobacco compacts that duplicate language in expiring compacts, including references stating that compacts apply to sales in “Indian country.”

Gov. Kevin Stitt says that two-word phrase is now a problem because 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.

But in the U.S. Supreme Court’s 2020 ruling in McGirt v. Oklahoma, the court declared the Muscogee (Creek) Nation’s 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.

The governor’s office has said 42 percent of Oklahoma lies within the historic reservation areas impacted by McGirt, a figure that translates into more than 28,000 square miles that tribal officials may now claim is “Indian country” covered by the compacts.

Stitt has offered a one-year compact to tribes that duplicates all existing language—including providing a 50-50 split of tobacco taxes collected—aside from designating that the compacts apply only to sales made by entities operating on tribal trust land rather than “Indian country.”

So far, tribes have refused to agree to those terms, and have sought instead to have the Oklahoma Legislature approve new compacts that include “Indian country” language that could allow a dramatic expansion of the outlets covered by the compacts and generate the diversion of millions of dollars from state government to the control of the relatively small share of officials involved in tribal governments.

Stitt vetoed two bills authorizing new compacts, including SB 26X, but lawmakers are now attempting to override Stitt’s veto. State reports show that many Oklahoma legislators have received campaign funding from the tribal governments that will financially benefit from the new compacts.

When the Senate took up the override of Stitt’s veto of SB 26X, some legislators sided with the governor, saying the measure is illegal or violates the terms of the state’s existing tribal compacts.

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.”

State Sen. Nathan Dahm, R-Broken Arrow, noted that lawmakers may change state law to confer that power on the legislative branch, but have not done so.

“In order to change the statute, we have to change the statute,” Dahm said. “We have to amend the statute. We cannot just ignore the statute that grants the governor this authority.”

Without changing the law, Dahm said SB 26X is “illegal.”

State Sen. Warren Hamilton, R-McCurtain, noted that those promoting SB 26X are also undermining the existing state-tribal compacts, which require mediation when the state and tribal governments cannot reach an agreement.

“That hasn’t happened yet, and we’ve jumped in to referee on something,” Hamilton said. “And it’s for that reason that we’re not even following what the procedure is within the compacts themselves. And we’re jumping into something that I don’t feel like is our lane to jump into.”

Senate President Pro Tempore Greg Treat, R-Oklahoma City, urged lawmakers to override Stitt’s veto, indicating that if the new compact is not approved tribal governments will effectively shift to black-market activity from which the Oklahoma state government receives no tax collections from the sale of tobacco.

Without new compacts, Treat said tribal outlets will be “under no obligation to buy from these wholesalers that we already collect the tax at a wholesale level,” and he noted the “litigious nature of the relationship between the tribes and the state” prior to compacts, including “market upheaval.”

Tribal governments in Oklahoma have a history of engaging in black-market style activity when in disputes with state government.

In 2008, an investigation found that many Muscogee (Creek) Nation smoke shops were selling illegal cigarettes that were not taxed by the state. The Muscogee’s tobacco compact had expired, meaning the tribe was legally required to collect 77 cents in tax per pack of cigarettes at that time.

When tribes do not have an active compact, state law currently requires tribes to pay the state an amount equal to a share of the associated tobacco-sales tax, based on a calculation that includes things like tribal membership counts and the smoking and purchasing rates of the state of Oklahoma.

Under federal law, Oklahoma cannot require tribal shops to collect tobacco taxes on sales to tribal members (who represent between 10 percent and 15 percent of the total population) but can require tax payments on sales to the remainder of a tribal smoke shop’s customers.

In 2005, as the Muscogee (Creek) Nation was in its dispute with the state of Oklahoma, state Treasurer Scott Meacham, who served as Gov. Brad Henry’s chief negotiator on compacts, noted that state law required the tribe to pay 75 percent of the state rate on tobacco products.

The state-tribal conflicts that arose under Henry and Meacham, both Democrats, are similar to those today facing Stitt, a Republican who is also Cherokee.

But Treat told lawmakers they have little leverage if tribal officials begin illegally selling cigarettes without collecting state tobacco taxes because the tribes are protected from state lawsuits.

“We cannot take a tribe to court to get the taxation that we believe we are owed for non-tribal members,” Treat said.

Treat said $57 million in annual state tax revenue currently funnels through tribal smoke shops, which indicates that $114 million in tobacco tax collections are from tribal smoke shops given the 50-50 split under the compacts.

Should the tribes refuse to collect the legally required state tax on sales to non-Indians, Treat said the $57 million loss will impact funding for things like mental health services and cancer research.

Senate leaders also dismissed the governor’s concerns about the new compacts allowing a dramatic post-McGirt expansion of territory, saying Oklahoma tribes have not taken that step since the McGirt decision was handed down.

However, in court briefs several tribal governments have argued for expansion in other areas, including arguing that American Indians living on McGirt-impacted historic reservation lands are now exempt from paying state income taxes.

The override attempt failed on a 31-8 vote. To override a governor’s veto, two-thirds of lawmakers—32 members in the Senate—must support the override effort. Nine lawmakers were not present.

Members of the Oklahoma Senate did pass HCR 1002X, which extends the current special session to July 31. That resolution had already passed out of the Oklahoma House of Representatives earlier this month. Additional override attempts may be made at any point in time throughout the extended special session.

Even so, Stitt hailed news that senators sustained his veto.

“I am pleased by the Senate’s vote to sustain my veto of the Tobacco Compact extension and I believe that today’s outcome underscores the state’s commitment to negotiating compacts in good faith, that are beneficial to all parties involved,” Stitt said. “My original compact offer—to extend the compacts previously negotiated and entered by Oklahoma’s governor and tribal counterparts—is still on the table for each tribe that has reached out and remains available to those that have not yet. I look forward to continuing to work with them to reach an agreement.”