Legal Challenge Filed Against Oil and Gas Tax Petition

The political fight by one group pushing for a statewide vote to increase the gross production tax on oil and gas in Oklahoma is turning into a legal battle.

The Oklahoma Independent Petroleum Association has filed two legal challenges with the State Supreme Court to the drive for state question 795 led by Restore Oklahoma Now. In a filing made Tuesday by the OIPA, it challenged the recently filed constitutional amendment which would eliminate Oklahoma’s two-tiered gross production tax system. The OIPA contends the elimination would result in a 250 percent potentially retroactive tax hike on the oil and gas industry in the state.

“The two-tiered gross production tax that starts at 2 percent and moves to 7 percent after 36 months for all new wells in Oklahoma is a key driver in encouraging continued investment in Oklahoma’s oil and natural gas fields, and is the reason our state continues to see revenue higher than projections over the past several months,” OIPA President Tim Wigley said. “The oil and natural gas industry is Oklahoma’s defining industry and any tax increase, such as the proposed constitutional change, which will hamper investment and have a detrimental effect on the industry and the state economy as a whole is a bad idea.”

The legal challenge claims that the petition filed with the Secretary of State is unclear and includes biased language that could impact the decision of potential signators. The OIPA also is challenging the question’s language that would make the tax retroactive and contends the way the question is written “violates the state’s single-subject rule.”

“Singling out one industry for a constitutionally enacted tax increase is not only unprecedented, it is bad public policy,” said OIPA Vice President of Regulatory Affairs A.J. Ferate, who also represents OIPA as an attorney on the filings. “By setting such a precedent, this state question could open the door to placing similar tax increases in the constitution on other Oklahoma industries like agriculture, manufacturing or aerospace.”

Under the proposed constitutional amendment, the plan would end the incentive rate producers pay for the first 36 months. It would use the difference to pay for education. The paperwork for the petition drive was filed by Mickey Thompson, a former president of the Oklahoma Independent Petroleum Association.

“We trust the state supreme court will see through this smokescreen,” said Thompson in an interview with OK Energy Today. “My former brethren will apparently do anything they can to prevent Oklahomans from exercising their democratic rights.”

His drive has the support of the Oklahoma Energy Producers Alliance led by oil and gas producer Mike Cantrell. He has said the increase in gross production taxes would be good because it would improve the industry’s image.

Cantrell said that it doesn’t look good for producers to get tax breaks when the state is facing a financial crisis and a teacher exodus. Getting Oklahoma back on a good fiscal footing, improving education and health care, would be beneficial to all industries. 

Thompson says the state should return the tax to where it always was.

“The big money crowd’s made billions of our system and it’s time to use the tax revenue to give teachers a raise. Now it’s in the hands of the court.”

No petition effort was legally underway because opponents had ten days to respond to the filing of the petition paperwork.

“They had ten days and they waited till the end, thinking they could drag it out,” added Thompson. “Now we’re going to wait patiently.”

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