Oklahoma Must Modernize Sales Tax

It’s no secret that Oklahoma is facing an impressive budget shortfall; recent projections predict the state will bring in approximately $900 million less during the next fiscal year than it will bring in during the current one. In response to this dire news, Governor Mary Fallin’s administration has drafted a FY 2017 budget proposal that includes some notable revenue changes. At the top of the list is “Sales Tax Modernization.”

Modern Sales Tax

For the governor, modernizing sales tax means the following:

• Broadening sales and use tax
• Eliminating exemptions
• Improving sales and use tax audits

Farewell exemptions

All told, Oklahoma loses more than $8 billion annually to sales and use tax exemptions. According to the governor, it doesn’t have to be this way.

“Reading our sales tax code is like watching a VHS tape when you can use Netflix."

That pithy remark from the Governor’s 2016 State of the State Address sums up her attitude toward exemptions; it’s time they caught up with what’s happening in the world today. She continued, “Modernizing the sales tax code means keeping the same low rates and applying them in ways that better reflect today’s commerce and consumer behaviors.”

Spread out

Keeping up the neighbors seems a good place to start. The governor noted that Texas sales tax applies to “roughly 60 more categories than Oklahoma’s;” in New Mexico, that figure is more than doubled, at 130.

Extending sales tax to services is a good place to start. As the governor says, “The services component of the economy has for decades been the fastest growing segment of the U.S. economy and our tax code does not reflect that.”

Modernization also means extending sales tax to products that are relatively new on the market, such as electronically delivered goods. She singled out digital music in particular.

And a bill has already been introduced that would extend sales and use tax to Internet sales made by remote retailers. It’s controversial, but is making its way through the Legislature.

New and improved audits

Finally, the governor would like to improve audit procedures to capture sales tax revenue that should have been caught the first time around. She notes, “[A]uditing of sales tax collections has faced technological limitations, which likely causes sales tax revenue losses for the state and local governments.” It’s time to put technological advances to good use.

No state rate increase

It has been said by some that Oklahoma needs a higher state sales tax rate, and the Oklahoma Supreme Court has determined that increasing the rate to fund education improvements and teacher salaries would be constitutional.

But the governor disagrees that a higher rate is the answer. She insists that her plan, “If structured properly, … could present an opportunity to reduce the state sales tax rate, which is currently the sixth-highest in the nation.”

Show me the money

Modernizing sales tax under the governor’s proposed budget could generate an additional $200 million in annual revenue for the state. That’s a step towards the $900 million it needs.

When sales tax changes, businesses must comply or face negative audit findings. Sales tax software helps. Learn how it works.