Modernizing the Sales Tax Relief Credit will cut taxes for those who need it

• Information sheet about the Sales Tax Relief Credit [PDF] 

In recent years, state leaders have continually proposed eliminating the state portion of the sales tax on groceries. The House of Representatives passed House Bill 1955 in late March to do just that, and while the bill was not heard in a Senate committee before the hearing deadline passed, the proposal could certainly resurface in future budget talks. While cutting the grocery tax may be the politically popular choice, it could make inflation worse, it would provide little to no impact to the lowest-income Oklahomans, and it would cost the state hundreds of millions of dollars every year. Lawmakers who truly want to provide meaningful inflation relief to Oklahomans who need it should instead opt to modernize the Sales Tax Relief Credit. 

Updating the Sales Tax Relief Credit delivers fiscally conservative inflation relief 

In its current form, the Sales Tax Relief Credit is outdated. The credit was created in 1990 to offset the cost of the state sales tax on groceries, and the credit amount was set at $40 per person. The credit remains at $40 today, meaning it has lost about 60 percent of its buying power from when it was first introduced three decades ago. Similarly, the qualifying income limits to claim the credit — $20,000 for single filers and $50,000 for families, disabled Oklahomans, and people over 65 — have not been updated since 1998. The credit is no longer meeting its intended goal.

The credit should be modernized to reflect today’s economic realities. Relatively simple changes will substantially reduce or entirely eliminate the state and local sales tax on groceries for most low-income Oklahomans without taking needed revenue from localities.

The changes to the credit could include: 

• increasing the credit amount to $200 per person; 
• allowing single filers making less than $30,000 annually to claim the full credit amount, and phasing the credit out by $40,000 annually; and 
• allowing families, seniors, and people with disabilities to claim the full credit amount up to $40,000 annually, with a full phase-out at $60,000 annually.

Adding a phase-out to the credit amount will prevent cliff effects:

Making these changes would cost the state $120 million annually, according to an analysis by the Institute on Taxation and Economic Policy. Modernizing the credit in this way would also provide a tax cut for more than 576,000 Oklahomans, according to Oklahoma Policy Institute’s analysis.

Interactive: A county-by-county look at how increasing Oklahoma’s Sales Tax Relief Credit benefits families, seniors

Eliminating the sales tax on groceries doesn’t accomplish stated legislative goals 

Some lawmakers, along with the governor, have shown an interest in entirely eliminating the state portion of the sales tax on groceries in response to recent high inflation. But rather than mitigating inflation, an across the board tax cut like this one would likely make inflation worse. Further, it would provide little to no relief for the lowest-income Oklahomans – since people who use food assistance programs like SNAP and WIC do not pay taxes on those purchases – while cutting taxes for the state’s millionaires. Finally, cutting the state sales tax on groceries would cost the state $370 million every year, which is more than the entire Fiscal Year 2023 budget for the Department of Mental Health and Substance Abuse Services. While state revenues are artificially high now, Oklahoma cannot afford to cut revenue in the midst of immense economic uncertainty.  

Lawmakers should cut taxes for those who need it

This year, Oklahoma can cut taxes for low- and moderate-income taxpayers without breaking the state’s proverbial piggy bank. Entirely eliminating the state sales tax on groceries will cost hundreds of millions of dollars annually, and it could cause even more fiscal harm in the future. Because of State Question 640’s supermajority requirements, if lawmakers cut the state portion of the grocery tax now, it will be virtually impossible to raise that revenue again in the future if the state sees a revenue shortfall or failure. Modernizing the Sales Tax Relief Credit, on the other hand, provides more flexibility for future lawmakers to raise revenue if necessary, because it would not be subject to the SQ 640 supermajority requirements. 

Before this session started, lawmakers were unified in their statements about delivering inflation relief to Oklahoma families. To protect state revenue now and in the future — and to provide a tax cut to 576,000 Oklahoma families who need it — state leaders should modernize the Sales Tax Relief Credit. It’s the most fiscally responsible solution that prioritizes the well-being of many Oklahoma families.