McGirt decision could cost state millions
Tax commission report says ruling will have ‘significant’ impact on state coffers
By Ken Childers
A U.S. Supreme Court ruling that altered the jurisdictional landscape of much of eastern Oklahoma, including Okfuskee County, will also have a major impact on state tax collections, the head of the Oklahoma Tax Commission (OTC) says.
According to a report released last week by the OTC, the decision in McGirt v. Oklahoma could result in a significant reduction in the amount of individual income tax and sales and use taxes collected by the state. The court ruled in June that Congress never disestablished the Creek Nation Reservation it created in 1866; therefore a large chunk of the state remains an Indian reservation.
“The Oklahoma Tax Commission anticipates a significant, immediate and ongoing fiscal impact resulting from the expanded boundaries of the Muscogee (Creek) Nation under McGirt,” OTC Executive Director Jay Doyle stated in a letter that accompanied the report.
The state is unable to tax income earned by tribal citizens living on their tribe’s land and businesses, both tribal and non-tribal, operating in Indian Country are not required to collect sales taxes on purchases made by tribal members. With the McGirt ruling, OTC estimates that the amount of income taxes and sales and use taxes collected in Creek Nation territory will be reduced by nearly $60 million per year.
The financial impact could be even greater if the Supreme Court ruling applies to the other members of the Five Civilized Tribes. A ruling that the Cherokee, Chickasaw, Choctaw and Seminole reservations were never disestablished could come as soon as this year. If that happens, the OTC estimates the state will lose $72.7 million in income taxes and $132.2 million in sales and use tax revenue annually. The OTC could also end up issuing over $200 million in state tax refunds, according to the report.
Senate Appropriations Chairman Roger Thompson (R-Okemah) said tribal and state officials need to collectively work toward a solution to avoid a negative impact on tax-funded services in Oklahoma, including education.
“The OTC’s potential impact of tax consequences following the McGirt ruling demonstrates how important it is for the tribes and state to work together for the good of all Oklahomans,” Thompson said. “The court system continues to dismiss cases from the district courts because of jurisdiction and therefore court costs are also dismissed. This has impacted the courts. If compacts on income tax, sales and use tax are not reached, many other services will be impacted in Oklahoma, including education funding.”
In a quarterly meeting of Okfuskee County elected officials held Tuesday morning within the Board of County Commissioners meeting, Court Clerk Sherri Foreman said she recently wrote off $50,000 in court costs due to cases being dismissed on the basis of McGirt. Sheriff Jim Rasmussen said he is seeing a decline in the amount of service fees collected for the county jail, but added an incarceration agreement with MCN should help offset the loss.
In the report, Doyle says that the predicted tax shortages could be mitigated by either federal legislation modifying the Creek Reservation boundaries or compacts between the state and the tribes.
“In the absence of federal legislation which may mitigate the impact of McGirt, the state could enter one or more compacts with the tribes for collection and apportionment of various tax types,” Doyle wrote. “Historically, the state and the tribes have engaged in compacts for cigarette and tobacco taxes, motor fuel taxes, and license tags.”
Doyle added that the “benefit of tribal compacts should not be discounted” and that during the last two fiscal years, the state received over $73 million in cigarette and tobacco tax collections as a result of compact sales.
“Although the Oklahoma Legislature defined the provisions of the tobacco and motor fuel compacts by statute, such legislation is not required for further compact negotiations. The state has entered multiple motor vehicle and license tag compacts with Indian tribes without a statutory guideline for the terms of the compact. The executive branch of the state is well positioned to evaluate its authority to enter into any new compacts, and to negotiate the terms of the compacts in the best interest of the state,” Doyle wrote.
According to the report, the ruling is not expected to affect property taxes or gross production taxes assessed on the oil and gas industry and the impact on motor vehicle tax collections will be minimal.
The OTC report was generated at the request of the Oklahoma Commission on Cooperative Sovereignty, which was formed by Gov. Kevin Stitt to examine the effects the McGirt ruling could have on the state budget. State agencies, boards and commissions anticipating a financial impact from the McGirt ruling were asked to submit a detailed report of how they could be potentially affected.