Experts weigh in on Fallin tax proposal (The Journal Record)

By Catherine Sweeney

OKLAHOMA CITY – Gov. Mary Fallin called on legislators to make Oklahoma the third state in the country to operate without a corporate income tax or an equivalent.

State finance officials backed Fallin on her claim that the tax’s revenue is so volatile it’s hard to properly predict how much it will generate, which can have a negative effect on budget planning. Some analysts warned that although the pitch is part of an overall tax modernization package that would also create new revenue, the measure could be too costly.

The flow of funds from the corporate income tax is problematically irregular, said Tim Allen, deputy treasurer for communications and program administration. He said that he often puts a line at the bottom of reports that wide variances are to be expected.

“Oftentimes, there are more refunds paid in a month than payments,” he said.

For January, Oklahoma netted $0 of revenue in corporate income tax, even though it brought in more than $25 million. Last month’s value was an $18 million drop from January 2016.

Netting no revenue in January wasn’t a new development, said Michael Baker, director of public affairs for the Department of Management and Enterprise Services.

Between 2006 and 2016, monthly reports showed no net revenue 18 times, and four of those months occurred in 2016.

“They were mostly – entirely – consumed by rebates,” he said. “There just wasn’t anything left over for the general revenue fund.”

It’s hard to pin down the myriad reasons the revenue fluctuates so widely; he named a few.

“That can be from just the different types of tax credits that are handed out, inaccurate estimated payments, or accounting practices,” he said.

Some state officials said that the proposed sales tax expansion, which would require new taxes on services such as equipment installation and repair, would ensure commercial and industrial organizations would be paying their fair share.

Private sector officials agreed, in theory.

“I think because services represent a large percentage of our economy, then just about everyone that’s in the marketplace – corporations, individuals – would effectively be subject to that additional sales tax,” said Blaine Peterson, executive director of the Oklahoma Society of CPAs.

He said there’s no way to be sure until more details are hammered out, and that if they went into effect, accountants would be just as busy.

“If the tax compliance requirements for income tax were reduced and replaced with a sales tax expansion, we would just shift our focus,” he said.

The move would drop $140 million out of the general revenue fund, according to the 2018 executive budget. The administration claims those costs, as well as the costs incurred when killing the grocery tax, would be offset if legislators adopt a sales tax on services.

Some analysts doubt that the decreased income would reflect the 2018 calculations once the state’s economy improves.

“That actually understates it,” said Gene Perry, policy director of Oklahoma Policy Institute. “If we eliminate the tax when the economy is doing better, that’s giving up between $300 million and $500 million in revenue.”

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