Phillips v. Oklahoma Tax Commission

Decision Date14 March 1978
Docket NumberNo. 51159,51159
Citation1978 OK 34,577 P.2d 1278
PartiesTed M. PHILLIPS, Petitioner, v. OKLAHOMA TAX COMMISSION, Respondent, Continental Oil Company and Halliburton Company, Intervenors, The American Cast Iron Pipe Company, Duffens Optical, Inc., Jayhawk Optical Service, Inc., Duffens Contact Lens Co., Inc., Oklahoma Municipal League, Amici Curiae.
CourtOklahoma Supreme Court

D. Hays Foster, Oklahoma City, for petitioner.

Larry Derryberry, Atty. Gen., James H. Gray, Asst. Atty. Gen., Marjorie Patmon, General Counsel, Clyde E. Fosdyke, Oklahoma City, for respondent.

Guy Clark, Ponca City, for intervenor, Continental Oil Co.

James D. Fellers, John Joseph Snider, Warren F. Bickford IV, Fellers, Snider, Blankenship & Bailey, Oklahoma City, for intervenor, Halliburton Co.; Robert E. Rice, Duncan, of counsel.

James Dudley Hyde, Peter B. Bradford, McAfee, Taft, Mark, Bond, Rucks & Woodruff, Oklahoma City, L. M. Cornish, Jr., Rodney P. Kubat, Glenn, Cornish & Leuenberger, Topeka, Kan., for amicus curiae, Duffens Optical, Inc., Jayhawk Optical Service, Inc., Duffens Contact Lens Co., Inc.

William F. Murray, Jr., Thomas, Taliaferro, Forman, Burr & Murray, Birmingham, Ala., for amicus curiae, American Cast Iron Co.

William G. Paul, Clyde A. Muchmore, Richard C. Ford, Crowe, Dunlevy, Thweatt, Swinford, Johnson & Burdick, Oklahoma City, for amicus curiae, Oklahoma Municipal League.

Finis W. Smith, pro se.

SIMMS, Justice:

The question before us is whether the recent increase in Oklahoma's use tax is constitutional. Under 68 O.S.Supp.1977 Petitioner is a businessman residing and doing business in Seminole County, Oklahoma. He alleges that he purchases equipment and supplies outside the State of Oklahoma for ultimate consumption in the State, some of which are subject to the additional use tax authorized by § 1402a. Petitioner argues that the provisions of § 1402a place a more onerous burden upon products purchased in other states and brought into Oklahoma through interstate commerce for consumption and use than it imposes upon products purchased within Oklahoma.

§ 1402a 1 the tax on tangible personal property purchased outside Oklahoma and brought into the state for use or consumption was increased from 2% to 4%. State sales tax on property purchased within Oklahoma remains at 2%.

Petitioner asks this Court to assume original jurisdiction and restrain Respondent, Oklahoma Tax Commission (Tax Commission), from assessing and/or collecting the additional 2% "use" tax, asserting it discriminates against interstate commerce in violation of the Commerce Clause. U.S.Const., Art. I, § 8, Cl. 3.

Respondent Oklahoma Tax Commission has entered a general appearance in the cause and has consented to this Court's assuming original jurisdiction for the purpose of ascertaining the constitutional validity of the additional use tax.

Two intervenors, Continental Oil Company and Halliburton Company, have joined in this action and amici curiae briefs have been filed by American Cast Iron Pipe Company, the Duffens Companies (Duffens Optical, Inc., Jayhawk Optical Service, Inc., Duffens Contact Lens Co., Inc.) and the Oklahoma Municipal League.

Intervenors are both Delaware corporations authorized to do business in Oklahoma. They each allege that in order to carry on their operations in Oklahoma they must purchase millions of dollars worth of goods annually. On those goods purchased in Oklahoma they pay a state sales tax of 2%, as specified by 68 O.S.1971, § 1301, et seq., and prior to the enactment of 68 O.S.Supp.1977, § 1402a, they paid a co-equal tax of 2% on goods purchased outside Oklahoma and brought into the state for use, as specified by 68 O.S.1971, § 1402. They complain that since the effective date of § 1402a, July 1, 1977, they have had to pay a use tax of 4% on goods purchased outside Oklahoma and that this tax is an impermissible burden on interstate commerce in violation of the Commerce Clause. Both intervenors have paid the tax under protest and have brought suit to recover it.

Halliburton contends that in addition to violating the Commerce Clause of the Federal Constitution, § 1402a also violates Article X, Sections 5 and 20 of the Oklahoma Constitution, as those provisions relate to uniformity and the local purpose proscription.

Intervenors ask this Court to assume jurisdiction on grounds of publici juris and for the purpose of avoiding a multiplicity of suits.

Filing amici curiae briefs in support of Petitioner's position are American Cast Iron Pipe Company, and the several Duffens Companies, all of whom are foreign corporations doing considerable business in Oklahoma. They argue that their products, which are shipped through interstate commerce into Oklahoma for use here, are unconstitutionally discriminated against by the § 1402a tax of 4% because similar businesses within Oklahoma do not pay an offsetting 4% state sales tax. They urge this Court to declare § 1402a unconstitutional.

The Oklahoma Municipal League, appearing as amicus curiae, argues that its members, comprised of over 300 municipalities Respondent Tax Commission contends that § 1402a does not impose an undue burden on interstate commerce and that the enactment, being nondiscriminatory, does not violate the Commerce Clause. Respondent presents two major arguments in support of its position. First, Respondent contends that because many purchases made within Oklahoma are subject to municipal, as well as state, sales tax, there is no "substantial" inequality to interstate commerce. Respondent submits that prior to the passage of § 1402a, Oklahoma had been discriminating against its own citizens inasmuch as some municipalities had enacted a 2% sales tax (pursuant to the Municipal Taxation Code, 68 O.S.1971, § 2701, et seq.) subjecting some in-state sales to 4% tax, while the use tax on interstate commerce was only 2%. Respondent warns that because the limitation on municipal sales tax has been allowed to lapse (68 O.S.Supp.1973, § 1323 et seq.) it is possible that some sales within the state will be subject to a sales tax levy in excess of 4%. Respondent argues that the additional use tax is merely the Legislature's attempt to equalize the interstate tax rate with the greater in-state tax burden. Respondent also asserts that if any discrimination exists, it is only a minimal or incidental discrepancy because of the large portion of in-state sales which are subject to a 4% total sales tax.

would lose "several" million dollars annually if the questioned provisions of § 1402a were held unconstitutional. The Municipal League assumes the position that there is no unconstitutional discrimination even if a few Oklahoma sales of products were taxed at a lower rate than sales made through interstate commerce.

Respondent's second contention is that this Court should adopt a construction of § 1402a which will render it constitutional and uphold the tax. Respondent suggests that we may do this, and at the same time eliminate the entire question of whether § 1402a places an onerous burden on interstate commerce, by construing the use tax provisions of § 1402 and § 1402a to apply to the storage, use and consumption of all tangible personal property in Oklahoma, whether purchased within or without the state.

I. ASSUMPTION OF ORIGINAL JURISDICTION

Petitioner launches a frontal attack upon the constitutionality of 68 O.S.Supp.1977, § 1402a, effective July 1, 1977. All briefs indicate that by reason of the provisions of the Act in question, the revenues of State and local governments, and the tax liability of persons subjected to the additional 2% tax authorized by § 1402a will annually amount to approximately twelve million dollars. It is therefore urged that judicial resolution of the issues presented in this original proceeding becomes essential to the orderly fiscal management and budgeting of the governmental entities affected thereby.

Concluding that the question of constitutional validity of § 1402a of Oklahoma's Use Tax Code is of great public concern, we assume original jurisdiction under the rationale of Wiseman v. Boren, Okl., 545 P.2d 753 (1976). In the same vein, this Court held in State ex rel. Babb v. Mathews, 134 Okl. 288, 273 P. 352 (1928), syllabus one, that:

"Where the constitutionality of an act is questioned and is of such general public importance that there is a general public need for a speedy determination of its constitutionality, this court, in its discretion, will assume original jurisdiction of the question of its constitutionality."

II. APPLICABLE STATUTORY SCHEME OF TAXATION

Before reaching the constitutional challenge to § 1402a presented by petitioner, analysis must be made of the pertinent forms of excise tax presently authorized by Oklahoma's legislative enactments.

There are two levels of sales tax enacted in this State. First, a two per cent sales Second, under the provisions of the Oklahoma Municipal Taxation Code, 68 O.S.1971, § 2701, et seq., adopted in 1965, many cities and towns have enacted by ordinance a municipal sales tax. In 1973, the Legislature made into law 68 O.S.Supp.1977, §§ 1323-1327, which placed a 2% ceiling on any municipal sales tax imposed by ordinance. Under 68 O.S.Supp.1973, § 1325, however, that ceiling expired on March 1, 1975, by reason of the failure of the Legislature to extend the Act.

tax is levied by the State under the provisions of 68 O.S.1971, § 1304.

In discussing sales tax, it must be emphasized that sales tax is imposed upon the sale itself and, to be taxable in Oklahoma, the sale must be made in Oklahoma. Liberty Steel Company v. Oklahoma Tax Commission, Okl.,554 P.2d 8 (1976)....

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