Michael Mazerov is a Senior Fellow with the Center on Budget and Policy Priorities, where he specializes in state and local taxation of businesses. This interview was conducted by e-mail on October 25, 2011. For additional information on combined reporting, see Michael’s issue brief.

David Blatt: What problem is combined reporting trying to address?

Michael Mazerov: Most large multistate corporations are actually corporate groups, with a parent corporation that owns numerous subsidiary corporations.  That structure allows members of the corporate group that are subject to Oklahoma’s corporate income tax to engage in artificial transactions at artificial prices with members of the group that aren’t in Oklahoma, in order to shift profits that are earned in Oklahoma beyond the taxing power of the state.  The profits get shifted on paper onto the books of the out-of-state parent or subsidiaries that Oklahoma doesn’t have the legal authority to tax. 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 »

As Oklahoma faces record budget shortfalls, the threat of massive cuts that would slow the state’s economic recovery and, in the Governor’s words, “have irreparable and damaging effects on our state services infrastructure,” looms large. This post is the third in a series that discusses some of the most promising policy ideas for a balanced approach to closing the budget deficit that includes new revenue sources.  Previous entries examined the vendor sales tax discount and the deduction for state income taxes.

The sales tax is the single largest revenue source for state and local governments in Oklahoma, providing more than one out of every four dollars that helps pay for such core public services as school teachers, police officers, environmental protection, and medical care. When purchases of taxable goods are made in-state, sales tax is collected directly by the retailer. When purchases are made of the same taxable goods out-of-state – whether via the Internet, catalogs or other sellers – taxes, in this case known as a use tax, are still legally owed by the purchaser. However, as a result of a pair of Supreme Court cases, the most recent of which was Quill vs. North Dakota, retailers who lack a physical presence, or nexus, in a state can not be required to collect and remit use tax owed to the state.  That has meant that an online retailer like Target.com, which has brick-and-mortar stores in Oklahoma, collects sales tax on online purchases from Oklahomans, while other online retailers, like Amazon.com, do not. Read the rest of this entry »

Should states be looking at broadening their sales tax bases to cover more currently untaxed services? That is the argument made in a recent paper by Michael Mazerov of  the Center on Budget and Policy Priorities:

Most states could improve their sales taxes and their tax systems in general with some expansion of the tax base to include services. Levying sales taxes on services makes state tax systems fairer, more stable, more economically neutral, and easier to administer. Moreover, because state sales taxes are a major source of funding for schools, universities, health care, public safety, and other functions of state and local government, adding services to state sales tax bases can help states maintain their support for those functions, for instance during an economic downturn when state revenues are declining. Read the rest of this entry »