OKPOLICY.ORG
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.
Finally, one of the most important reasons why the non- collection of taxes of internet sales is a serious problem is that it puts local businesses in Oklahoma at a disadvantage in competing with out-of-state remote sellers. If local businesses have to charge Oklahoma sales tax and remote sellers don’t, then remote sellers start off with a built in price advantage.
DB: Why can’t states just assess taxes on these remote sellers?
MM: States can’t directly require remote sellers to collect tax when they have no physical presence in Oklahoma because of a Supreme Court decision from 1992. So even though the tax is technically due from the purchaser, there are some remote sellers that Oklahoma can’t require to collect these taxes. This new legislation is aimed at both increasing the ability of the state to make sure that the purchasers pay the tax and also, in some instances, increasing the incentive for sellers to charge the tax.
DB: Some are referring to this as a new tax or a new tax increase. Would you agree?
MM: This is definitely not a tax increase and I don’t think it can be fairly characterized as one. These are taxes that are due under existing law on remote purchases. Every state with a sales tax has a complementary use tax when the purchaser buys things that are sold across state lines. This tax has existed from virtually the beginning of the time since Oklahoma has had a sales tax. So it’s not a new tax, it’s always been there.
DB: What do you see as the good points about HB 2359 from the perspective of increasing collections from remote sellers?
MM: HB 2359 emulates what a lot of other states have done recently to maximize the amount of use taxes that are paid on remote sales. So, for example, the bill emulates part of a Colorado law passed a few months ago that required remote sellers to disclose to their consumers that they may owe use tax on what they are buying despite the fact that the seller is not charging use tax. It also clarifies that some Internet sellers ought to be collecting the tax because they have a related store in Oklahoma that may be doing things on their behalf that enhance their ability to make sales in Oklahoma. The Supreme Court has made clear that, notwithstanding the physical presence requirement, if you have a related party or an unrelated party that is helping you to make sales in a state, then that state can require you to charge the tax. One provision of the bill is aimed at putting out-of-state sellers that are in that situation on notice that they ought to be charging the tax…
Another thing I like in this bill is a provision that says that paid income tax preparers must tell their clients that they may owe use tax on what they bought… I think this is a very good thing to do. It’s another opportunity for someone in the position to do so to tell purchasers that they owe tax on what they buy.
DB: What did Oklahoma not do in this bill that it could have done?
MM: Well, I think that there are three significant shortcomings of this bill. As I’ve said, Oklahoma copied a Colorado law passed earlier this year in some respects, but it omitted two key provisions that I think would have been useful. The first is a provision that requires a remote seller to send a report to their customers at the end of each year, reporting the total amount of purchases they made from that seller over the year broken down by categories. This is another opportunity for the customer to be educated by the seller that they may owe tax on what they buy. HB 2359 requires the seller to provide some disclosure to the consumer on the invoice, but often times the invoice gets thrown in a box and the consumer never looks at it. So if sellers were required to send a separate mailing like they have to do in Colorado that increases the likelihood they would actually be informed by the seller that they owe the tax. In addition, the information on the form actually helps them comply with the use tax; it tells them how much they bought so they don’t have to go back and pull out their credit card bills. So the first major shortcoming of the bill is that it didn’t copy this provision of the Colorado law.
Second, the final version of HB 2359 dropped a provision of the Colorado law requiring remote sellers to report the total annual purchases of their Oklahoma customers to the Tax Commission annually. That would have enabled the Commission to make a follow-up contact with purchasers of big-ticket items like laptop computers and big-screen TVs to collect the tax from them.
Finally, Oklahoma failed to copy a law that was passed two years ago by New York and passed last year by Rhode Island and North Carolina that requires a certain set of Internet sellers to actually charge the tax in the state. New York passed the so-called ‘Amazon law’ that says if a remote seller has a so-called affiliate program, in which they pay commissions to in-state websites for linking customers to the website of the remote seller, then the remote seller has to charge tax because effectively they have an in-state representative. Oklahoma could also have emulated that law and actually require additional Internet sellers to collect the tax and not just report to their customers that the tax may be due.
DB: So based on experiences in other states, what do you expect the reaction to be to HB 2359 from online retailers? Should we expect a full-fledged assault on this bill?
MM: I don’t think so. I think the things that I just recommended that were left out of this bill were more controversial steps that states have taken in the past couple of years to address this problem. Without those three measures I wouldn’t expect a huge amount of opposition to this, but undoubtedly there will be some.
DB: Overall what grade would you give Oklahoma for HB 2359?
MM: Overall, I would give the state a “C.” I think you lost a good opportunity to address the problem a little more forcefully with the Colorado provisions that were omitted and not enacting the New York version of the law. Nonetheless, the state deserves some credit for trying to get more compliance from purchasers and increasing the likelihood that at least some sellers will charge the tax.
Where does a state get off demanding a sales tax on an item that CANNOT EVEN be acquired IN that State? Beyond that, Interstate Commerce is Federally controlled. Let the Feds charge a tariff or tax on Internet Sales. Just because Oklahoma is controlled by Republican idiots that cannot come up with an effective form of revenue collection, does not mean the they or the Governor should be allowed to create laws that are are basically unenforceable and will lead to the state tax commission terrorizing taxpayers with audits claiming they have undeclared internet sales. So now Book Club memberships and out of state purchases of important health or personal items which is already burdened with shipping costs, becomes taxed by a state “unwilling” to provide the items. The state doesn’t need any businesses….let everyone order from somewhere else and the state still gets to collect sales tax!
“Finally, one of the most important reasons why the non- collection of taxes of internet sales is a serious problem is that it puts local businesses in Oklahoma at a disadvantage in competing with out-of-state remote sellers. If local businesses have to charge Oklahoma sales tax and remote sellers don’t, then remote sellers start off with a built in price advantage.”
Of course, removing the sales tax to put them on a level playing field while solving all of the items in the previous paragraphs is out of the question!
The desire to take more money from the public is not a democrat or republican monopoly. All levels of local, state and federal politicians seem to think that OUR money is their money. I hope I’m not the only one sick and tired of this attitude. Tell them all to get real jobs, and see how they like someone else s hands, always in their pockets. They are like drugs addicts that can never get enough of our money.
Wow, after first hearing of the state use tax on the news, I had to go look it up. No clue what it was. I hail from Washington state and there are no use taxes there. You know why? Because Amazon is there. So is Microsoft and so is Starbucks. That being said, we don’t need a use tax because those companies pay the state a lot of money in taxes! If Oklahoma wants to complain about sales tax losses, maybe they should try getting bigger corporations to start up here. If they are so concerned with the loss of sales tax revenue, maybe they could demand this state have more than Walmart to shop at. That would be a great start. Don’t tell me local retailers suffer. If I could find what I needed at the local shop, don’t you think I would go there to make my purchases rather than wait 1 to 2 weeks and pay shipping? Common sense has left the state of Oklahoma for sure.
I guess I don’t understand??? i.e. If I have a bank that I use in another state and the item was bought in another state, shipped to Oklahoma I have to pay sales tax on it WTF. Next thing you know if a car drives into this state and stops at a house for more than a week we will be taxing it. I tell you what my job right now is shaky and if I get laid off I am way out of this piece of shit state. BTW born and raised in Tulsa.
If they want my money come peel it out of my cold dead hands!
Simon: I agree there should be no tax on internet items AT ALL, fed or state. It allows businesses to buy things at lower prices and allows me to make purchases of items that are either not available in OK or obtain them at a lower price. I agree the people behind this tax are idiots, but your stab at blaming Republicans as a whole is a usual uneducated liberal tactic. The bill was authored by two RINOs (Republican in name only) ie liberals that ran as Republican only to gain power in OK, but both men were ousted by the Tea Party. Miller was one http://kenmillerlied.com/
This liberal tax hike was heavily supported by liberal so called “think tanks” (an Oxymoron). Like http://www.cbpp.org/experts/index.cfm?fa=view&id=30 Michael Mazerov is a liberal idiot that loves to tax as do most tax and spend folks. Someone posted a link to this guys interview claiming hes an expert. He is an expert at taking public money and throwing it away.
No self respecting conservative should ever agree with a liberal. Hence them getting the boot.
John: Just because you have to charge tax doesnt mean you cant run a business and compete. No internet tax helps you get things cheaper too. There are things you cant sell in OK that I have to get over the internet anyway. Shipping on some items sometimes offsets my desire to buy over the internet anyway. Ill go somewhere local if its about the same price after tax or shipping. Destroying the wonderful internet commerce with taxes is NOT going to help your business do any better.
Dan, Amber: Ditto
Update, although Miller got the boot, he still managed to squirm his way into a treasury position. 🙁 Leeches are hard to get rid of I guess.
Talk about total spin-doctor statements.
Allow me to translate.
DB: What’s the problem that this legislation is trying to address?
MM: State governments don’t produce a product for sale and their inefficient high price services are paid from the pockets of the people. State governments want to expand and spend money like the federal government but lacks the ability to create such a debt as the federal government so their only recourse is to “increase” or “create” taxes. Bottom line is – those states don’t have money to spend and after this law they will.
DB: Why can’t states just assess taxes on these remote sellers?
MM: There was a supreme court decision in 1992 made by someone with reason in mind instead of dollar signs and that decision greatly limits our ability to siphon money from the people in order to provide unneeded or expensive,inefficient services that could be better provided by private industry.
DB: Some are referring to this as a new tax or a new tax increase. Would you agree?
MM: There is a tax ages ago that can in modern times be interpretted to mean that tax is owed on remote sales – so we are going to call this “new” tax neither a new tax or a tax increase.
DB: What do you see as the good points about HB 2359 from the perspective of increasing collections from remote sellers?
MM: It lets consumers know that the days of free trading online are over and they owe us money.
DB: What do you see as the good points about HB 2359 from the perspective of increasing collections from remote sellers?
MM: First thing, it didn’t copy part of the colorado bill requiring all sellers to provide a separate report, at the sellers expense, to the consumer detailing all taxes owed to us.
Second thing, the final version dropped the provision requiring sellers to report purchases directly to us so they we can contact law enforcement to “enforce” taxation based on these records.
Finally, we want large corporations selling tremendous amounts of product to go ahead and charge tax and send that money to us. This part of the bill was left out.
DB: So based on experiences in other states, what do you expect the reaction to be to HB 2359 from online retailers? Should we expect a full-fledged assault on this bill?
MM: I don’t think so. Everyday we need more money and not tapping into internet sales with taxation is a problem. There will be some opposition, because naturally people don’t want to be force-fed a lifestyle that they don’t want. However we are government and we can basically do what we want and as long as we have that we don’t really care.
DB: Overall what grade would you give Oklahoma for HB 2359?
MM: I would give a “C.” Despite that this is a great step for us, “US” – we are separate from the people, Oklahoma didn’t get an “A” because they didn’t reap the full benefits out of the hard working people of Oklahoma who were trying to evade state sales tax by ordering online.
Lets see if internet sales decline…
Let watch as USPS , UPS , Big Brown and FedX lose business…
@Tim,
It doesn’t matter if internet sales decline or not. Everything he said is a lie/deception. They could care less if internet sales decline or not – so long as they get their share.
This new law (HB 2359) is effectively punishing the great majority of people (Oklahoma consumers) for the “benefit” of a few (business owners). What rubish! I don’t see that Walmart has any problems competing with online out of state retailers. They sell truckloads of electronics, clothing, sporting goods, and lots else every day, and they charge sales tax with every purchase! This is nothing more than our greedy local goverment hiding behind a “supposed” need of local businesses, but really just an excuse to impose yet even more of a tax burden to it’s people. I intend to keep this in mind for future voting purposes.