Oklahoma Bar Journal

Oklahoma Administrative Rules on State Taxes

By Sheppard F. Miers

The Administrative Procedures Act (APA), Title 75, Oklahoma Statutes, Sections 250 and 250.1 and Article I, Sections 250.2 through 308.3, intersects with the Tax Commission rulemaking authority provided under the Uniform Tax Procedure Code. The Tax Commission must comply with rulemaking requirements in Article I of the APA with respect to rules the Tax Commission is authorized to promulgate under the Uniform Tax Procedure Code.3 The Tax Commission generally is not required to comply with the provisions of Article II of the APA, which provides notice and hearing rules for administrative agency individual proceedings.4 The notice and hearing requirements for Tax Commission individual proceedings on state taxes are provided in the Uniform Tax Procedure Code, not the APA.5 The result is two sets of statutes governing Tax Commission administrative authority and action.

Under the APA, the Legislature retains control of rulemaking by the Tax Commission and other state administrative agencies. It retains rights to retract rulemaking authority, legislate policy despite promulgation of agency rules, designate methods of rulemaking and approve and disapprove agency rules.11 As a result, the Tax Commission’s authority to adopt and promulgate rules interpreting and administering Oklahoma tax law under the Uniform Tax Procedure Code is not absolute and is subject to significant APA rulemaking requirements, as well as authority and oversight retained by the Legislature and the governor. Rules adopted by the Tax Commission are put in place and codified by the Legislature and the governor as well as the Tax Commission.

The APA provisions appear to be intended to assure transparency as to the source, existence and terms of Tax Commission rules. The rulemaking requirements provided under the APA are, in a sense, a test required to be met before any Tax Commission statement of tax policy or procedure constitutes a final adopted rule promulgated and recognized as effective pursuant to the APA. Meeting APA rulemaking requirements is necessary to give a Tax Commission rule effect as to interpretation or implementation of state tax law. The APA rulemaking requirements give the public and taxpayers knowledge of the content of a rule proposed, adopted and promulgated by the Tax Commission before it takes effect. When a Tax Commission rule is adopted and promulgated in accordance with the APA, it is also approved by the Legislature and governor.12 For taxpayers and the professionals advising them, the interpretation and application of Tax Commission rules can necessitate considering not only the form and terms of rules but also the rulemaking requirements under the APA that must be met for the rules to be codified and given the effect provided for in the APA.

An initial focal point of APA rulemaking requirements for a Tax Commission rule to be codified in the Oklahoma Administrative Code is in definitions stated in the APA.

The APA defines “rule” as:

1)  Any Tax Commission statement or group of related statements of

  1. a) general applicability and future effect that

1)  implements, interprets or prescribes law or policy, or

2) describes the procedure or practice requirements of the tax commission and

 

The APA definition of “rule” provides it does not include:

1) The Tax Commission’s issuance, renewal, denial, suspension or revocation or other sanction of an individual specific license,

2) The approval, disapproval or prescription of rates (with the term “rates” not including fees or charges fixed by the Tax Commission for services provided by it, including but not limited to fees charged for licensing, permitting, inspections or publications),

3) Statements and memoranda concerning only the internal management of the Tax Commission and not affecting private rights or procedures available to the public,

4) Declaratory rulings issued pursuant to the APA,

5) Orders by the Tax Commission or

 

As used in the APA, the term “rulemaking” means the process employed by the Tax Commission for the formulation of a rule.19 The APA rulemaking requirements impact any Tax Commission “rule,” as so defined. The interplay of the APA definition of “rule,” the detailed APA rulemaking requirements that must be met for a rule to become a final adopted rule and promulgated and codified in the Oklahoma Administrative Code has a significant effect. Tax Commission policy and procedure statements or interpretations about state law made pursuant to the Uniform Tax Procedure Code are statutorily given full interpretative effect by the APA by meeting the APA rulemaking requirements.

Application of the APA rulemaking requirements generally appears to start with a “statement” of the Tax Commission.20 The term “statement” is not defined by the APA, but it is likely to often be obvious if made by the Tax Commission publishing a written proposal to adopt and promulgate of a rule pursuant to the APA in The Oklahoma Register, intending that it is to become a part of Tax Commission codified rules in the Oklahoma Administrative Code. In such a case, the written document or documents prepared, filed and published should indicate a Tax Commission “statement” of policy or on a procedure that is intended to become a Tax Commission rule.

Although the broadly defined meaning of “rule” under the APA may fit the cliché “rules are rules,” the detailed APA rulemaking requirements described appear to distinctly set apart a Tax Commission final adopted rule that is promulgated, codified and published in the Oklahoma Administrative Code from other Tax Commission “statements” of tax policy or procedure even if they come within the broad APA definition of “rule.”

The APA provides that no Tax Commission rule is valid or effective against any person for any purpose unless it has been promulgated as required by the APA.30The provisions of this sweeping provision appear to make a major distinction between Tax Commission rules promulgated and codified in the Oklahoma Administrative Code by meeting the APA rulemaking requirements and any other statements of policy or procedure, even ones that can come within the definition of a “rule” under the APA that are not promulgated and codified in the Oklahoma Administrative Code pursuant to the APA.

The impact of a Tax Commission rule, as broadly defined in the APA, meeting or not meeting the rulemaking requirements of the APA, was demonstrated in the case of Highland Dairy Foods v. Oklahoma Tax Commission,35 involving Oklahoma sales tax and the taxpayer’s entitlement to a manufacturing exemption. The court held the Tax Commission’s action changing the statutory requirements for the exemption by an internal policy without a rulemaking violated the provisions of the APA that prohibit an agency from expanding upon or limiting statute by internal policy, memorandum or other forms of action not otherwise authorized by the APA. The court held the Tax Commission had erred in ruling that under its interpretation and policy, a manufacturer had to have a separate manufacturer exemption permit for each manufacturing facility location in the state when the statute only required a manufacturer to obtain a single manufacturer exemption permit.

As indicated in the APA definition of “rule,” for purposes of the APA, the term does not include an order made or entered by the Tax Commission. The APA then defines “order” to mean all or part of a formal or official decision made by an agency including but not limited to final agency order and in that context defines “individual proceeding” to mean the formal process employed by an agency having jurisdiction by law to resolve issues of law or fact between parties that results in the exercise of discretion of a judicial nature.40 The Uniform Tax Procedure Code, as a counterpart to APA applicable to Tax Commission individual proceedings, provides with respect to Tax Commission decisions in individual proceedings that after a hearing, the Tax Commission shall make and enter an order in writing in which it shall set forth the disposition made of the case (protest). The order shall contain findings of fact and conclusions of law, and after removing the identity of the taxpayer, the Tax Commission shall make the order available for public inspection and shall publish those orders the Tax Commission deems to be of precedential value.41 Such Tax Commission orders are therefore not rules subject to the APA, although they can have a comparable application and precedential effect in the future.

In this regard, the Tax Commission, as a state administrative agency, is considered to have a “choice” in whether to use general rulemaking under the APA or a case-by-case application of its stated position on administering tax policy or procedure matters in individual proceedings.42 The distinction is primarily between a “general” statement by the Tax Commission on tax policy or procedure, as a “rule” subject to APA, and statements and action of the Tax Commission determining legal rights, duties, privileges or immunities of an identified individual or individuals as an “order” not subject to the APA. A “rule” is considered legislative in nature and generally applied to all individuals or entities, while an “order” is adjudicative in nature as to the law applied to the facts of a particular case.

An agency’s authority to make rules has been held distinguishable from that of adjudication. Rulemaking includes the power to adopt rules and regulations of general application, both substantive and procedural, that are legislative in nature, operate prospectively and have general application, while orders of an administrative agency are adjudicative in character, and they apply to named persons or specific situations and have immediate rather than future operation.43 This indicates the Tax Commission, in some situations, can choose to interpret and administer an Oklahoma tax law by adopting a rule that must be published to the public and approved by the governor and Legislature to become final and effective under the APA. In other situations, the Tax Commission can choose to interpret and administer an Oklahoma tax law by adjudication in individual proceedings involving taxpayers before the Tax Commission and in court under the Uniform Tax Procedure Code.

 

The Tax Commission has authority under the Uniform Tax Procedure Code to promulgate and enforce reasonable rules to enforce state tax laws. This authority has been exercised by Tax Commission promulgation of an extensive set of rules pursuant to the APA that is codified in the Oklahoma Administrative Code. Tax Commission adoption and promulgation of rules must meet APA prescribed rulemaking requirements for the rules to be recognized as correct interpretations of the state tax laws to the extent provided in the APA. Taxpayers have the right to propose that the Tax Commission promulgate rules and the right under the APA to challenge the validity and application of rules adopted by the Tax Commission. The APA rulemaking requirements are for legal and practical purposes a test that must be met by the Tax Commission to give effect to its interpretations pursuant to the APA rather than in individual proceedings. The application and effect of the APA is an important part of determining the position of and representing a taxpayer with respect to Tax Commission rules.

 

Sheppard F. Miers Jr. is a shareholder at the Tulsa office of GableGotwals and practices in the areas of federal, state and local taxation.

  1. 68 O. S, §203 (OSCN 2021).
  2. Id.
  3. 75 O. S. §250.4 (OSCN 2021).
  4. Id.
  5. 68 O.S. §§201-295.
  6. Maurice Merrill, “Oklahoma’s New Administrative Procedure Act,” 17 Okla. L, Rev. 1 (1964); Michael P. Cox, “The Oklahoma Administrative Procedures Act: Fifteen Years of Interpretation,” 31 Okla. L. Rev. 886 (1978); Phyllis E. Bernarda, “From ‘Good Ol’ Boys’ to ‘Good Young Law’: The Significance of the Oklahoma Administrative Code,” 18 Okla. City U. L. Rev. 267 (1993); Gary E. Payne, “A Primer on Administrative Law in Oklahoma,” 79 OBJ, No. 1, 39 (2008).
  7. Laws 1987, HB 1493, c. 207, §12.
  8. 75 O. S. §250.4 (OSCN 2021). Local government exception is provided in 75 O. S. §250.5 (OSCN 2021).
  9. 75 O. S §250.2 (OSCN 2021).
  10. 68 O. S. §§102, 203 (OSCN 2021); Title 710, Oklahoma Administrative Code (OAC) www.oar.state.ok.us, www.oklahoma.gov/tax.html.
  11. 75 O. S. §250.2 (OSCN 2021).
  12. 75 O. S. §§251-256, 302-304.
  13. 75 O. S. §§250.9-251.
  14. Title 710, Oklahoma Administrative Code (OAC) www.oar.state.ok.us, www.oklahoma.gov/tax.html.
  15. The Oklahoma Register, www.oar.state.ok.us.
  16. OAC §710:1-3-71.
  17. 75 O. S. §250.3(19) (OSCN 2021).
  18. Id.
  19. 75 O. S. §250.3(20) (OSCN 2021).
  20. 75 O. S. §250.3(19) (OSCN 2021).
  21. 68 O. S. §§201-295. (OSCN 2021).
  22. 75 O. S. §308.2. (A). (OSCN 2021).
  23. OSU-AJ Homestead Medical Clinic v. The Oklahoma Health Authority, 2018 OK CIV APP 30, 416 P.3d 1082.
  24. 75 O. S. §308.2(C) (OSCN 2021).
  25. 75 O. S. §303 (OSCN 2021).
  26. 75 O. S. §303.1 (OSCN 2021).
  27. 75 O. S. §§303.1, 308 (OSCN), Oklahoma Constitution, Article VI, Section 11; Executive Order 2019-11, OAC §175-1-5-13.
  28. 75 O. S. §§308(E), 308.1, 308.2(A), 308.3, 304, 251(A)(2) (OSCN 2021).
  29. 75 O. S. §253(OSCN 2021).
  30. 75 O. S. §308.2(A) (OSCN 2021).
  31. Id.
  32. Id.
  33. 75 O. S. §302 (E)(OSCN 2021).
  34. 75 O. S. §308.2(C) (OSCN 2021).
  35. 2006 OK CIV APP 68, 136 P. 3d 1072.
  36. Oklahoma Tax Commission Order No. 2002-10-01-033/PRECEDENTIAL.
  37. Oklahoma Tax Commission 2020 Form 511, Oklahoma Resident Individual Tax Return and Instructions; 68 O. S. §§227(f), 2373.2385.10,2385.16; OAC §§710:50-9-1 -710:50-9-10.
  38. See, for examples: Oklahoma Tax Commission published document/statements examples: Field Audit Guide for Taxpayers, Voluntary Disclosure Agreement, Frequently Asked Questions re U. S. Supreme Court Decision in South Dakota v. Wayfair?, published online. www.oklahoma.gov/tax.html
  39. 75 O. S. §308.2(A),(C) (OSCN 2021).
  40. 75 O. S. §250.3 (10), (13), (19). (OSCN 2021).
  41. 68 O. S. 221 (G) (OSCN 2021).
  42. El Paso Natural Gas Co. v. Oklahoma Tax Com’n, 1996 OK CIV APP 69, 929 P.2d 1002.
  43. Harry R. Carlile Trust v. Cotton Petroleum Corp.,1986 OK 16 732 P.2d 438.
  44. See, for example, Oklahoma Tax Commission Decision 1992-09-29-048/PRECEDENTIAL; Oklahoma Tax Commission Decision, 2012-02-02-09, 02/02/2012.
  45. Cox Oklahoma Telecom, LLC v. Oklahoma Corporation Commission, 2007 OK 55, 164 P. 3d 150; In the Matter of the Sales Tax Protest of Betts Telecom Oklahoma, Inc., 2008 OK CIV APP 19, 178 P. 3d 197.
  46. Margaret C. Wilson, “‘Because I Said So’ May Not Be Enough: Just How Far Does a Taxing Agency’s Discretion and Presumption of Correctness Go,” Journal of Multistate Taxation and Incentives, Aug. 2013; Maria M. Todorova, Erich S. Tresh, Justin T. Brown, “It’s Time to Balance the Scales: Chevron Deference,” State Tax Notes, July 8, 2019.
  47. Frank Shepherd, Roberto Martinez, Ben Reaveley, Savannah Padgett, “The Demise of Agency Deference: Florida Takes the Lead,” Florida Bar Journal, January/February 2020, describing Fla. Const. art. V, §21, which provides a state court or officer hearing an administrative action may not defer to an administrative agency’s interpretation of a statute or rule and must instead interpret the rule de novo.
  48. 75 O. S. §302(B) (OSCN 2021).
  49. 75 O. S. §305 (OSCN 2021).
  50. OAC §§710:1-5-15,710:1-5-16.
  51. 75 O. S. §306 (OSCN 2021).
  52. Id.
  53. Id.
  54. Id.
  55. Waste Connections, Inc. v. Oklahoma Department of Environmental Quality, 2002 OK 94, 61 P. 3d 219.
  56. Id.

Originally published in the Oklahoma Bar Journal – OBJ 92 Vol 9 (November 2021)

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