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Contact: David Blatt, Director
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New Issue Brief Calls for Fixing Oklahoma’s Sales Tax;
Exemptions and Loopholes Are Distorting Economy, Starving Public Services
(Tulsa, February 22): Reform of Oklahoma’s sales tax is needed to support state and local services and to ensure fairness for Oklahoma businesses, according to a new issue brief from Oklahoma Policy Institute.
While the sales tax is a cornerstone of state and local revenues, generating $3.6 billion in FY ’08, it is increasingly falling short as a revenue source. The OK Policy brief, titled “Fixing the Sales Tax: Options for Reform,” identifies three aspects of the problem:
- Shifts in the economy from goods to services have left a decreasing percentage of sales in Oklahoma subject to the sales tax — just 35.7 percent in 2003 compared to 52.0 percent in 1990;
- The state’s inability to collect taxes on many online sales creates an unfair subsidy to out-of-state corporations and estimated annual revenue loss of $156.3M by 2012;
- A hodge-podge of almost 150 statutory exemptions to the sales tax results in substantial annual revenue loss and arbitrarily favors some businesses and buyers over others.
“Not only are state and local governments facing an immediate budget crisis, but we know that even when the economy has recovered, public finances will remain under great strains due to the long-term costs of a rapidly aging population, unfunded pension obligations and decaying public infrastructure,” said David Blatt, head of the Tulsa-based policy think-tank and the brief’s author. “Patching the holes that have left a growing share of economic activity outside the sales tax is essential if we are going to get our fiscal house in order and fund the core services Oklahomans expect in a fair and sustainable way.”
Among the options for strengthening the sales tax are expanding the tax base to include selected services, enforcing collection of taxes owed on online sales, and doing away with some of the sales tax exemptions written into state law.
“There is no question that any effort to bolster the sales tax poses difficult policy choices and will spark fierce political battles,” Blatt acknowledged. “However, the current system is riddled with too many exemptions and loopholes that distort the economy and give arbitrary subsidies to some businesses over others.”
Problems with the sales tax have gained growing attention of late. The 2010 Oklahoma Academy Town Hall, which focused on municipal government, recommended broadening the sales tax to include appropriate and practical services and reviewing all sales tax exemptions. “For the health, growth and development of our cities and towns, it is imperative that Oklahoma finds a solution for the sales tax, the single largest source of funding for municipal government,” stated Tom McKeon, Chair of the Oklahoma Academy.
In addition, the final report of the Legislative Task Force on Municipal Finances recommended reviewing sales tax exemptions and supporting efforts to collect sales and use taxes owed. Carolyn Stager, Executive Director of the Oklahoma Municipal League, said she hopes that this new issue brief helps keep attention focused on the need to address various problems with the sales tax. “Our cities and towns will continue to struggle to provide the services our residents depend on until a change is made to the existing municipal tax systems. Diversifying the municipal revenue stream along with ensuring “main-street fairness” in regards to remote sales are critical components of this overall endeavor,” Stager said.
Oklahoma Policy Institute is a 501(c)(3) think-tank that provide information, analysis and ideas on state policy issues. The full report and 1-page summary “Fixing the Sales Tax: Options for Reform”, can be viewed and downloaded online at: https://okpolicy.org/fixing-sales-tax To see all our information and resources: //okpolicy.org
