Last week, the Oklahoma Attorney General decided that the state’s tax on pay per views was unconstitutional. MMA Payout takes a brief look at the potential legalities behind this question.
As those who have been following know, the UFC threatened to sue the state of Oklahoma for its 4% tax on pay per views. As a result, there was a possibility that the state would have to shut down the regulation of MMA events within the state. Since the initial issues, the state Attorney General reviewed the PPV tax and determined it could not defend the constitutionality of the law.
So we postulate on what the AG could have looked at to determine why it could not support the law.
State regulations and state taxes that burden interstate commerce can be challenged under the dormant commerce clause of the US Constitution if they place an undue burden on interstate commerce. Essentially, even if Congress has not acted with respect to a state/local law affecting interstate commerce, it would fall under the purview of federal law. Under the Dormant Commerce Clause, there is a strong presumption against state discrimination against out-of-staters. Any tax related to this would be struck down. The US Supreme Court has made it clear that states cannot use their tax systems to help in-state businesses at the expense of out-of-state businesses.
In general, taxes specific to out of state commerce are never allowed while nondiscriminatory taxes are much more likely to be permitted.
In Complete Auto Transit, Inc. v. Brady, the issue was whether a tax was unconstitutional because it was applied to an activity that was a part of interstate commerce. A tax was placed on Complete Auto as it hauled General Motors vehicles from out of state to in state car dealers. The US Supreme Court upheld the law and applied a four part test in concluding that a state tax does not violate the commerce clause. The four part test ask if:
1) It is applied to an activity with a substantial nexus to the taxing state;
2) It is fairly apportioned so as to tax only the activities connected to the taxing state;
3) It does not discriminate against out-of-staters; and
4) It is fairly related to services provided by the state.
Without going through an exhaustive analysis of the test (since the issue has been decided), arguably the state PPV tax could fall within the Complete Auto test if the tax was similarly applied to in-staters (#3, the nondiscrimination element). However, as explained in this article, most of the OK State Athletic Commission’s revenue came from out of state PPVs. The AG probably looked at the likelihood of successfully arguing in favor of the PPV tax and determined that the law could not be successfully defended.
Obviously, there were other legal issues it factored into its analysis but this was one of the likely hurdles the state decided it could not overcome.
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Matt C. says
Thanks for this.
It amazes me how many MMA sites jumped on this story initially but never followed up on it. I mean if you looked at the comments it was clear people were confused on what was actually going on with this at the beginning. Also taking into consideration how some sites presented the information known at that time.
For example I remember the initial article on this site called the UFC’s threat to sue a strong arm tactic. Now in hindsight with OK’s own Attorney General deciding the tax was unconstitutional it doesn’t look like much of a strong arm tactic. So it’s good to see the follow up here for that reason.
Diego says
Jason,
Nice disclaimer.
Interesting point of view on the non-discriminatory test. I suppose if OK could show that at least one PPV had been held there and it had been taxed just like out of state PPVs, they may have been able to get away with it.
If on the other hand they did not have a past PPV to point to, they could argue that the commerce clause is intended to prevent states from protecting in-state businesses from out-of-state competition, but there is no in-state PPV business to protect.
I suspect the AG foresaw a long and expensive campaign and decided it wasn’t worth the effort.
BrainSmasher says
I believe they could have argued the tax would apply to anyone in any state even their own who run a PPV. States tax services all the time without the company actually being in that state. I dont think anyone would suggest a OK company on PPV wouldnt be taxed. They would and they could argue it is a fair tax. But i dont think theyreally wanted this fight for such a small amount of money. By fighting the UFC on this they risk losing events to help their economy and the fees they get from gate and other things. They also waste a lot of resourses to fight the battle that they lose either way. All that over a couple hundred thousand bucks they can easily get from the state and not amount to more tha pocket change. I think if the commission was asking for 1 million plus annually there would have been a fight. But not over $200,000.
Bruce says
LMAO you could’ve just copied and pasted my post from 3 weeks ago on this…
Since this is a case of first impression, no AG could state with certainty the outcome of litigation regarding this tax. This was a political decision pure and simple.