Letter to the Oklahoma Tax Commission on Cigarette Taxes

January 27, 2009

UPDATE: The Oklahoma Tax Commission has notified us that they will be correcting their regulations.

The following letter was sent to the Oklahoma Tax Commission.

As part of a research project on state cigarette taxes, we have discovered a regulation issued by the Oklahoma Tax Commission that may be beyond the power of the authorizing statute. We believe that it is likely the result of a drafting error, but its correction is important for transparency and compliance purposes. If the error is deliberate policy, it likely represents a violation of the statute and a punitive tax unjustified by adopted policy.

Pursuant to 68 Oklahoma Statutes § 302 et seq., cigarettes sold, used, received, possessed, or consumed in the state are subject to a tax, to be evidenced by stamps provided by the Commission. The statutes set out the tax as follows:

§ 302               4.0 mills per cigarette

§ 302-1            2.5 mills per cigarette

§ 302-2            2.5 mills per cigarette

§ 302-4            2.5 mills per cigarette

§ 302-5            40.0 mills per cigarette

Total               51.5 mills per cigarette

Consequently, the Commission properly adopted OAC 710:70-2-9(c), setting the non-tribal cigarette tax rate as $1.03 per pack (51.5 mills X 20 cigarettes).

However, in OAC 710:70-2-9(a), the Commission regulations state:

Rates for packages of twenty-five (25) cigarettes are One Hundred Twenty-five percent (125%) greater than the rates for the twenty-unit packages.

Since the statute specifies a tax rate per cigarette, the Commission is empowered only to impose a rate on a 25-cigarette pack that is 25% greater than (or put another way, 125% the rate of) a 20-cigarette pack. "125% greater than" is substantially different from "25% greater than." The regulations, as they currently read, would impose a tax of $2.3175 per 25-cigarette pack, or 92.7 mills per cigarette.

As mentioned, we believe that this regulatory problem is likely the result of drafting error. Left uncorrected, however, the regulation could lead to enforcement problems in the future and compliance problems in the present. To prevent confusion about the taxes collected by the Commission on 25-cigarette packs, it may be advisable to address the regulatory language. Its current form states a tax that the Commission is not empowered to collect.

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