- Associated Press - Friday, June 27, 2014

OKLAHOMA CITY (AP) - Legal challenges that threaten to nullify two tax laws that were among the 2014 Oklahoma Legislature’s major accomplishments will have little impact on the state budget that goes into effect Tuesday, state fiscal analysts said Friday.

But organizations that represent Oklahoma oil and natural gas producers said the industry that historically fuels the state economy could be harmed if a law adjusting Oklahoma’s tax on oil and gas production is ruled unconstitutional.

“It gave tax certainty to oil and gas producers while they plan their budget,” said Cody Bannister, vice president of communications for the 2,700-member Oklahoma Independent Petroleum Association. A prolonged legal battle or a court ruling that would force the Legislature to revisit the issue next year “has the potential to jeopardize some drilling budgets in Oklahoma,” Bannister said.

State budget writers have already made minor adjustments in the upcoming budget year following an Oklahoma Attorney General’s Office opinion that invalidated the legislative diversion of about $7.9 million from a program that provides free college tuition to thousands of students from low-income families.

A total of 66 state agencies will receive an 0.12 percent cut in their budgets to make up for the revenue, said John Estus, spokesman for the Office of Management and Enterprise Services.

“That’s not a budget buster. It is an inconvenience,” Estus said.

The tax law challenges were filed with the Oklahoma Supreme Court by Oklahoma City attorney Jerry Fent, who has successfully challenged a variety of legislation in the past. The state high court has not yet decided whether to consider the challenges.

One lawsuit filed on May 22, a day before the Legislature adjourned its regular session, challenges legislation that cuts the state top income tax rate from 5.25 percent to 5 percent in 2016 if revenue triggers are met. A second reduction from 5 percent to 4.85 percent will occur no sooner than two years after the 5 percent rate is enacted, providing there’s enough money to cover the cost of the reduction.

The lawsuit asks the Supreme Court to invalidate the legislation and prevent it from going into effect because it did not originate in the state House and was not approved by three-fourths of the members of the House and Senate, as required by the Oklahoma Constitution. The lawsuit alleges the income tax legislation must meet constitutional mandates regardless of whether revenue is increased or decreased.

But a ruling to invalidate the measure would have no impact on budget projections for the fiscal year beginning July 1, Estus said.

“From our perspective, nothing would change. There would be no budgetary impact,” Estus said. “There is not much of an impact at all to any of those bills being thrown out.”

A lawsuit filed Thursday challenges a new law that adjusts Oklahoma’s tax on oil and gas production. Under the measure, all oil and natural gas wells drilled after July 1, 2015, would be taxed at a standard 2 percent rate for the first three years of production. After that, the rate would return to the standard production tax rate of 7 percent.

The lawsuit alleges the measure is unconstitutional because it passed in the final days of the legislative session in spite of a constitutional prohibition and was not approved by three-fourths of the members of the House and Senate.



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