The state budget crisis has put nearly all public services under intense scrutiny. With most state agencies taking cuts of 15 percent or higher, and more cuts expected, public officials have been forced to streamline operations, eliminating both waste and many useful programs.

With states hurting everywhere, they are also beginning to look at holes in the tax code that lack any good rationale. One glaring example is sales tax collections for online purchasers. Many states, including Oklahoma, require residents to pay taxes for online purchases, but they put the burden on individual taxpayers to identify how much tax is owed when filing their tax return.

Collecting in this way is highly inefficient, and it subsidizes large online retailers like Amazon at the expense of Main Street businesses who directly employ Oklahomans. Since they aren’t required to include sales tax in their prices, online retailers are able to undercut local business and move more money out of the state. Untaxed remote sales also starve state and local governments of resources – an estimated $92.7 million for Oklahoma in 2009, rising to $156.3 million in 2012. Read the rest of this entry »

One measure adopted this session to mitigate the extent of budget cuts was HB 2359, which aims to increase the collections of taxes owed on purchases made over the Internet or by other remote retailers. After opposition emerged, the final enrolled version of the bill dropped a controversial provision that would have required online retailers to report annual sales by each customer to the Tax Commission. Michael Mazerov, a Senior Fellow at the Washington-based Center on Budget and Policy Priorities, is one of the leading national experts on state taxes and a staunch proponent of state efforts to collect taxes on remote sales. He discussed Oklahoma’s new bill, which awaits final action by the Governor, in a phone interview with OK Policy’s Director, David Blatt.

David Blatt: Remind us of why a bill like HB 2359 is needed? What’s the problem that this legislation is trying to address?

MM: Legislation like this is needed because, like every state with a sales tax, Oklahoma is losing a significant share of revenue because it can’t collect sales taxes from many purchases made from internet sellers, catalog companies, and other so-called ‘remote sellers’. In fact, the best estimate is that Oklahoma is losing over a hundred million dollars a year in potential sales tax revenue from uncollected taxes on remote sales. This is revenue that is already due under existing state law. The state’s failure to collect this revenue makes its budget gap that much bigger and undermines the ability of state and local governments to maintain basic public services. It also makes the sale tax more regressive because most of the people that are avoiding paying this tax are relatively affluent people who have computers and Internet access account and can buy things tax-free online, while low-income people have to pay tax when they shop in stores. Read the rest of this entry »