THIS OPINION HAS NOT BEEN RELEASED FOR PUBLICATION. UNTIL RELEASED, IT IS SUBJECT TO REVISION OR WITHDRAWAL.
¶1 Article V, Section 33 of our Constitution restricts the Legislature's ability to enact "revenue raising" measures. It does so by requiring that such measures (1) originate in the House of Representatives, (2) be enacted prior to the last five days of the legislative session, and (3) be approved either by the people or by a three-fourths majority in each legislative chamber.
¶2 Senate Bill 845, the "Smoking Cessation and Prevention Act of 2017,"
¶3 All parties agree that if Article V, Section 33's requirements apply to SB 845, the measure must be invalidated for failure to comply with those requirements. The question presented by this case is thus whether SB 845 is a "revenue raising" measure. We conclude that it is and was thus enacted in violation of Article V, Section 33.
¶4 After years of declining revenues forced the Legislature to repeatedly make use of non-recurring revenue sources to balance the budget, both the Legislature and the Governor recognized that balancing the budget in 2018 would be impossible without either significant reductions in government spending, the creation of new revenue streams, or perhaps both.
¶5 In her 2017 State of the State address, Governor Mary Fallin pleaded with the Legislature to "focus on the REALITY of our state budget deficit," arguing that the Legislature could not "afford to pass another budget using a large amount of non-recurring revenue" because "[i]t is important to provide sufficient revenues to meet the basic responsibilities that our government owes to its citizens."
¶6 The Legislature heard the Governor's call. Four proposals originated in the House of Representatives,
¶7 On May 24th, however, SB 845, a shell appropriation bill relating to funding for the State Department of Health, was rewritten in the Senate as a measure to impose a new $1.50-per-pack assessment on cigarettes. Like the House proposals, SB 845 proposed that the $1.50-per-pack assessment would be imposed upon the cigarette wholesaler, collected by the Oklahoma Tax Commission, and enforced by the Tax Commission through its Cigarette Excise Tax Stamps regime. Likewise, the revenues collected would be transmitted to the State Treasurer to fund state health agencies,
¶8 The failed House measures did not indicate that the purpose of the $1.50 assessment was to reduce the incidence of smoking, nor did they mention any non-revenue-raising regulatory purpose. Three of the four explicitly stated that their purpose was to "provid[e] revenue for the support of the functions of state government,"
¶9 What is apparent is that by May 26th, with the end of the legislative session looming, the Legislature had not yet fulfilled its constitutionally-mandated duty to enact a balanced budget.
¶10 This original action was commenced shortly thereafter by individuals who purchase cigarettes and retailers, wholesalers, and manufacturers of cigarettes, each claiming they will suffer economic harm if SB 845 becomes effective. These Petitioners seek a declaration that SB 845 was enacted in violation of Article V, Section 33, and a writ prohibiting the various State Respondents from enforcing the measure. Petitioners also sought a stay of the enforcement of SB 845 should we not render our decision prior to the measure's effective date. We now assume original jurisdiction, and grant Petitioners declaratory relief,
¶11 Our Constitution grants to the Legislature the power to legislate on any "rightful subject."
¶12 One such constitutional provision limiting the Legislature's ability to make fiscal policy is Article V, Section 33, which places several restrictions on the Legislature's power to enact "revenue bills." Included in Oklahoma's original Constitution, Section 33 required that "[a]ll bills for raising revenue shall originate in the House of Representatives. The Senate may propose amendments to revenue bills. No revenue bill shall be passed during the five last days of the session."
¶13 Section 33 remained in that original form until 1992, when State Question 640 was placed on the ballot through initiative petition, with a ballot title asking the people the following:.
Opposed by many then serving in the Legislature,
¶14 Article V, Section 33 is but one of several fiscal policies placed in our Constitution by the people, and to properly understand Section 33, one must understand it within the context of those other policies. First, the people have directed that Oklahoma be a "pay as we go" State by limiting state and local governments' abilities to incur debt,
¶15 Second, the Constitution directs that there is a "revenue failure" when the State collects less revenue than anticipated and that all appropriations in excess of actual collections are voided by the failure.
¶16 Read together with Article V, Section 33, these constitutional provisions mandate fiscally responsible government that operates on a strictly pay-as-it-goes basis, and they indicate-by strictly limiting the Legislature's ability to enact laws that generate additional revenue-the people's preference that when revenues shrink, so too does their government. Easy to dismiss as mere procedural or technical requirements, these various constitutional provisions in fact create the substantive framework for how our state government extracts and spends the people's money.
¶17 "Revenue bill" is a capacious term; so very shortly after ratification of the original Constitution, we were asked to define it. In Anderson v. Ritterbusch, we held that "bills for raising revenue" are those "whose principal object is the raising of revenue, and not those under which revenue may incidentally arise," and which "levy taxes in the strict sense of the word."
¶18 In that most recent case, Fent v. Fallin, we also explained the effect of the 1992 amendment to Article V, Section 33, recognizing that the meaning and effect of the as-amended section is controlled by the plain meaning of the amendment's text.
¶19 In Fent we were faced with a previously unanswered question: can a bill that decreases revenue be a "revenue bill"? Thus, we asked, "[W]hat would the ordinary person who voted on the 1992 amendment, as explained by its ballot title, understand they were approving regarding the generation of State revenue[?]"
¶20 It is against this backdrop that we must evaluate SB 845 to determine whether it is the type of measure "intended to raise revenue" that the people have mandated be enacted only through legislative super-majority or popular vote.
¶21 Whether SB 845 is subject to Article V, Section 33's requirements depends on whether its "principal object is the raising of revenue" and whether it "lev[ies] taxes in the strict sense of the word."
¶22 As a threshold matter, Petitioners present compelling contextual evidence in support of their claim that the Legislature's primary purpose in enacting SB 845 was to raise new revenues. The State Respondents urge us to ignore that evidence, and understandably so; it strongly indicates SB 845's passage was motivated by the Legislature's need to raise revenue so that it could satisfy its constitutional obligation to enact a balanced budget. We agree that a measure's purpose must be measured by its actual operation and effect,
¶23 Nominally "[a]n Act relating to public health," SB 845 contains nine sections, one of which is amendatory, and eight of which create new law. The State Respondents insist that SB 845 is a regulatory measure designed to decrease the incidence of smoking, and a statement of that purpose is indeed found in Section 1 of the bill. This statement of purpose, however, is not to be codified. So it cannot be said to impose any new regulatory requirement; it is simply an expression of the Legislature's desire that fewer Oklahomans smoke cigarettes.
¶24 Section 2 is also an uncodified section, stating the Legislature's intent that "the revenues derived pursuant to the fee imposed in Section 7 of this act be used . . . for the purposes of preventing Oklahomans from smoking cigarettes and encouraging Oklahomans who already do so to cease cigarette smoking."
¶25 Section 3 makes minor amendments to an existing section of law, 63 O.S.2011, § 1-1525. Previously a section of law requiring state and local governments to post no-smoking signs in public places where smoking is prohibited, the amendment now requires that those signs be "conspicuous" and placed "in prominent locations." While this section is regulatory in nature, it cannot be fairly characterized as imposing any meaningful, new regulatory obligation; it merely (slightly) amplifies an existing obligation.
¶26 Section 4 creates a new section of law at 63 O.S. § 1-1528, directing that "[t]he State Department of Health and the Tobacco Settlement Endowment Trust shall work together to inform the public about the dangers of smoking in motor vehicles where children are present." Other than that general declaration to the agencies, SB 845 does not provide more specific direction nor does it send any money to those agencies as funding for the directive.
¶27 Section 5 creates a new section of law at 63 O.S. § 1-1529, prohibiting the use of tobacco on all properties owned, leased, or contracted for use by the State, excluding veterans centers. While this section is new, it is partially duplicative of the Smoking in Public Places and Indoor Workplaces Act
¶28 Section 6 creates a new section of law at 63 O.S. § 1-1530 and directs that "[t]he Oklahoma State Department of Health and the Department of Mental Health and Substance Abuse Services shall work together to develop new and innovative strategies to prevent tobacco use by minors." But, like Section 4, it does not provide any specific mandates to those departments nor are funds earmarked to support the directive.
¶29 Section 7 creates a new section of law at 63 O.S. § 1-1531, imposing a new $1.50-per-pack "smoking cessation fee" on cigarettes and stating the Legislature's rationale in imposing this fee. Describing the various health risks posed by smoking, Section 7 provides as the legislative justification for the new assessment that "[i]ncreasing the price point of cigarettes is the single most effective strategy to reduce cigarette consumption." Section 7 directs the Oklahoma Tax Commission to collect the new "fee" and transmit the proceeds to the State Treasurer, who is directed to deposit $1,000,000 per year in the ABLE Commission Revolving Fund, and all other amounts—which the Legislature anticipated would be $256,841,000
¶30 Section 8 creates a new section of law at 63 O.S. § 1-1532, which creates the new "Health Care Enhancement Fund" described in Section 7 as the destination for the bulk of the revenue collected from the new assessment. Section 8 gives the Legislature full discretion to appropriate the revenue deposited in the new fund "for the purpose of enhancing the health of Oklahomans." Despite Section 2's uncodified statement that the revenue derived from the new fee be used for efforts to reduce smoking, Section 8 does not earmark any of the revenue in the new fund for that purpose.
¶31 Section 9 is an uncodified section directing the Oklahoma Tax Commission to enforce remittance of the fee in a manner similar to how it enforces collection of the cigarette excise tax-by limiting the amount of cigarette excise tax stamps that can be sold to each wholesaler. The effect of this provision is to enforce remittance of the new revenues generated by SB 845 by leaving wholesalers who fail to remit the new fee to the State without the excise tax stamps they need to lawfully sell cigarettes.
¶32 In evaluating a measure's purpose, we are careful not to elevate form over function. Thus, we look to "what the legislation actually accomplishes . . . and not [to] what a legislature states it is accomplishing."
¶33 And because the revenue to be collected is so substantial (the single largest source of new revenue for the State, according to the State Board of Equalization),
¶34 Thus, while SB 845 contains certain provisions that can be characterized as regulatory, those provisions either impose no new obligations, merely amplify existing regulatory language, or codify already-in-effect state policies. The only provision in SB 845 that can be fairly characterized as effectuating a meaningful change in the law is the revenue-generating provision in Section 7. But while that provision may have a regulatory purpose, that purpose is achieved through revenue raising. And because the nexus between the smoking-reducing purpose and the actual use of the revenues is so attenuated, the raising of revenue for the general support of state government is the primary effect of SB 845, and thus its primary purpose, regardless of its concomitant smoking reduction purpose.
¶35 The State Respondents correctly point out that we have previously upheld new regulatory schemes that generate "incidental" revenue, but a quarter-of-a-billion dollars per year is hardly "incidental" when the imposition of a new financial burden on the people is the avowed aim of the measure (albeit an aim designed to reduce smoking). If the Legislature had chosen to reduce smoking by making it illegal, for example, with civil penalties for those who violate the ban, the revenue generated by the penalty might well be incidental to the regulation because the regulation is the prohibition of smoking; the extraction of revenue in the form of penalties is merely the mechanism that coerces compliance with the underlying regulation.
¶36 None of this is to say that the Legislature cannot choose this particular sort of regulatory tool—a "sin tax"
¶37 In sum, the enormity of the revenue generated by SB 845, when contrasted with the de minimis sums earmarked for smoking reduction programs and the scant inclusion of any other regulatory function in the bill, compels the conclusion that the generation of revenue for the support of state government was the measure's primary purpose. SB 845 is by far the single largest source of new revenue for the State, and the $225 million in new revenue it generates is necessary to balancing the budget.
¶38 The State Respondents insist that this Court has "consistently taken a narrow view of what constitutes a `revenue bill,'" and that based on our cases, measures creating "taxes and fees that are regulatory and compensate the public for harm caused by a business enterprise" are not revenue bills because they lack the primary purpose of raising revenue. While it is true that we have historically given the term "revenue bill" a more restricted meaning than its text suggests, we have never held that the term does not encompass a quintessential excise tax designed to raise a near-quarter-billion dollars in new revenue each year. The cases relied on by the State Respondents do not prove otherwise.
¶39 For example, in In re Lee
¶40 Ex parte Ambler, a Court of Criminal Appeals case, merely stands for the well-accepted proposition that a measure is not a revenue bill when it merely imposes a licensing fee on particular businesses in order to offset the costs of regulating those businesses.
¶41 So too for the cases relied on by the State Respondents where we have held that measures imposing a "mileage tax" on commercial over-the-road carriers are not revenue bills.
¶42 The position taken by the State Respondents is, in this regard, extraordinary. In their view even a measure that explicitly levies a massive new tax, can evade Article V, Section 33's "revenue bill" requirements so long as the tax is enacted for a "regulatory" purpose. In this respect, the State Respondents are willing to go even further than the House of Representatives because, under their view, even a measure which explicitly levies a new excise tax on cigarettes — like the four failed House measures — could have been enacted with a bare majority vote. This is so, insist the State Respondents, because the purpose of the new $1.50 assessment has always been to discourage smoking.
¶43 In addition to determining that SB 845's primary purpose was to raise revenue, we also look to whether the measure "levies a tax in the strict sense." The answer to this second question is in part determined by our answer to the first, because a key difference between a tax and a fee is that a tax "is levied primarily for revenue raising purposes," while a fee "is assessed primarily for regulatory or punitive purposes."
¶44 First, assessments of this sort on cigarettes have, for the entirety of this State's history, been enacted and codified as excise taxes.
¶45 Second, the assessment functions as a "payment exacted by the state . . . as a contribution toward the cost of maintaining governmental functions, where the special benefits derived from th[e] performance [of the function] is merged in the general benefit," which we have said, "is a tax."
¶46 The gasoline tax, on the other hand, is a tax despite the fact that it-like the toll road fee-also generates revenue that is used to pay for roads and bridges. This is so because the tight nexus between the assessment and the government benefit is lacking. The tax is paid to the state's tax collection agency rather than the agency providing any benefit or service. The assessment cannot be called consideration for any government-conferred benefit because there is no guarantee that the consumer who ultimately bears the cost of the tax will ever make use of a single road or bridge-he may well be buying gasoline for his lawnmower. Likewise, the amount of the assessment is not tied to the cost of the benefit conferred because the assessment is the same whether the buyer of a gallon of gasoline uses that gallon to travel 40 miles on Oklahoma roads, or none. Many gasoline consumers are in fact subsidizing the cost of benefits conferred on others, such as those who drive electric cars, and thus "the special benefits derived from th[e] performance [of the function] is merged in the general benefit."
¶47 Here, the "tobacco cessation fee" is not paid in exchange for any specific government-conferred benefit-it is paid, in fact, to the Oklahoma Tax Commission rather than to any state health agency that might be able to confer a smoking-related benefit. The consumer who ultimately bears the costs of the assessment is paying the retailer consideration in exchange for a pack of cigarettes, rather than the government in exchange for healthcare for his smoking-related illnesses. The consumer may never need such healthcare, may not qualify for any state provided healthcare, and even if qualified may not take advantage of that healthcare. And even if the consumer does, he might cost the State a lot of money, or very little, but the amount he paid through this "fee" remains the same. There is no direct nexus between the assessment and any particular government benefit to be conferred in exchange. Thus, the assessment has all the hallmarks of a tax, "where the special benefits derived from th[e] performance of the function is merged in the general benefit.".
¶48 Nor can the assessment be considered a fee intended to cover the cost of administering a specific regulatory program. The $225 million is proportionate to the amount of revenue the Legislature needed to balance the budget rather than to the cost of administering the State's cigarette regulatory regime. And given that the new assessment will be administered through the State's existing cigarette excise tax stamp system, the administration of the new assessment will come at minimal cost to the State. Nor can the broad cost of the "toll that smoking has taken on the health of Oklahomans"
¶49 Lastly, were we to hold otherwise, the distinction between fees and taxes—and thus the protections against taxation provided by Article V, Section 33-would be meaningless. The State Respondents tell us that this is a common refrain from those raising such challenges, and one we should thus ignore. But despite any prior false alarms, this cry of "wolf!" rings true. If this quintessential excise tax can be transformed into a fee merely by calling it a fee and adding some regulatory gloss to the measure enacting it, then the promise of Article V, Section 33-a promise made to citizens in 1992 when they went to the polls and enacted the amended version-will be an empty one. The "tax relief" to be expected from the requirement that all "future bills `intended to raise revenue' . . . be approved by either a vote of the people or a three-fourths majority in both houses of the Legislature"
¶50 SB 845 contains several provisions that are not revenue raising in effect, so we must determine whether those provisions are "inseparably connected with and so dependent upon" the revenue raising portions such that "the surviving provisions would not have otherwise been enacted."
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¶51 For these reasons, we assume original jurisdiction and grant Petitioners' request for declaratory relief. Sections 2, 7, 8, and 9 of SB 845 were enacted in violation of Article V, Section 33 of the Oklahoma Constitution and are therefore invalid.
¶52 Any petition for rehearing shall be filed no later than the 17th day of August, 2017. If no petition for rehearing is filed by that deadline, this opinion shall be final.
Combs, C.J., Gurich, V.C.J., Kauger, Winchester, Edmondson, Reif, and Wyrick, JJ., concur.
Watt and Colbert, JJ., concur in part and dissent in part.