Small: 'Trigger' law needed for income tax repeal

‘Trigger’ law needed

By Jonathan Small

The fallout from the U.S. Supreme Court’s 2020 ruling in McGirt v. Oklahoma continues today. A recent federal court decision declaring Indians to be exempt from city police enforcement of municipal laws in local courts in Tulsa is just the latest example.

That issue is being appealed and many other issues are winding their way through the court system.

Rather than avert their eyes, Oklahoma lawmakers should prepare by pre-emptively addressing potential fallout. Among the best tools available are “trigger” laws that declare anytime an Oklahoman of American Indian descent is exempted from a state law or regulation, that law will be repealed for all other Oklahomans.

It is especially important that lawmakers approve a trigger law for the personal income tax.

In McGirt, the U.S. Supreme Court declared the Muscogee (Creek) Nation’s Oklahoma reservation was never formally disestablished for purposes of federal major-crimes law. That ruling has since been expanded to include other tribes whose historic reservations cover an estimated 42 percent of Oklahoma.

In one notable case now before the Oklahoma Supreme Court, Alicia Stroble basically argues American Indians living in McGirt areas are now exempt from paying state income tax.

Stroble was employed by the Muscogee (Creek) Nation in tax years 2017 to 2019, but her residence is on private land not held in trust for a tribe. Under longstanding precedent that means she must pay state income tax.

But Stroble—with the support of several tribal governments—argues that because her privately owned home lies within the Muscogee (Creek) Nation’s historic reservation lines, an area that includes most of Tulsa, she no longer has to pay state income tax.

A ruling in Stroble’s favor would open the door for thousands of other individuals in eastern Oklahoma to claim similar exemptions based on Indian heritage. That could impact state revenue by more than $70 million annually.

That’s why lawmakers should pass a law that says if American Indians are exempted from state income tax, the tax will be automatically repealed for all Oklahomans.

This might require greater reliance on other taxes, primarily sales tax, although not necessarily. The increased economic growth created by whole-state repeal of the income tax would generate replacement revenue, and past studies have shown full income-tax repeal does not automatically require tax increases elsewhere.

Also, the sales tax is among the least susceptible to the McGirt exemption argument. Thus, this proposal would ensure fairness by subjecting all Oklahomans to the same taxes.

McGirt is a major headwind to business growth in eastern Oklahoma. Repeal of the personal income tax is a way to make lemonade out of otherwise very sour lemons.

Jonathan Small serves as president of the Oklahoma Council of Public Affairs.