SALT Report 1197 – The Oklahoma Attorney General has issued an opinion on whether a city that cannot legally annex a commercial property can still contract with the property owner to annex the property in exchange for the city paying compensation to the owner that includes an amount equal to a share of the additional sales tax revenue collected as a result of the agreed-to annexation.
The attorney general based his opinion on whether:
- It is a valid public purpose under for a city to use its general revenue fund to pay compensation in the form of the pro rata share of sales tax revenue to a retailer that voluntarily consents to annexation by the city, and
- Whether such action by a city is an impermissible instance of a city obtaining or appropriating money for, levying a tax for, or loaning its credit to a corporation, association, or individual
The attorney general noted an Oklahoma Supreme Court precedent which held that deference should be given to a city council’s determination that certain economic development plans will serve a public purpose, intervening only where action is noticeably arbitrary, capricious, or unreasonable.
The attorney general also noted that the Supreme Court upheld a proposed economic development plan for which a city council had made findings in its ordinance that increasing sales tax revenue, adding and retaining jobs, and supporting economic growth would promote a legitimate public purpose.
Therefore, the attorney general held that a city can contract with a commercial property owner for compensation in the form of a pro rata share of the additional sales tax collected as a result of the agreed-to annexation of the property if the city council votes to find that the arrangement will serve the legitimate public purpose of promoting the general welfare, economic security, and prosperity of the city.
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