By Norman McNickle, Stillwater City Manager
Last March, online retail giant Amazon agreed to start collecting sales tax in Oklahoma.
Governor Mary Fallin said this was good news, and “cities, towns and counties will see a bump of collections immediately when it is collected and dispersed in the April and May timeframe.”
As city manager of Stillwater, I’m not so sure this “gentleman’s agreement” with Amazon produced a steady revenue stream as was promised. In fact, Stillwater’s tax collections for 2017 have been flat, so we are still waiting for that bump.
The problem is Amazon’s agreement with the State of Oklahoma seems not to have included Amazon’s vendors—and there’s thousands upon thousands of vendors—who do business through Amazon. For example, if I go to Amazon.com and buy something, it may be through a vendor; however, the vendor may choose not to collect sales tax. This is an unexamined loophole at best or overt deceitfulness at worst.
Why am I so passionate about sales tax? Oklahoma is the only state where municipalities rely primarily on sales tax collections to fund city government operations. Sales tax revenue makes up most of the General Fund, which pays for the City’s day-to-day operations like police, fire and streets.
This is not a new problem, and lawmakers have been proposing solutions for years. For example, the Main Street Fairness Act (H.R. 5660)—which would require out-of-state retailers to collect and remit sales tax on purchases shipped to residents of those states—has languished in the U.S. Congress since 2010. Supporters say it will benefit state and local governments by increasing tax revenue and protect local businesses from unfair competition that exploits what they see as a tax loophole.
Online retail is here to stay. No problem, but online retailers should collect sales tax at the time of purchase. At the moment, only 170 of the top 500 online retailers collect sales tax.
The Retail Protection Act, which was passed by the Oklahoma Legislature last year, was hailed as a savior for Oklahoma cities. But it’s a law without teeth. It only notifies residents to voluntarily remit use tax on their online purchases when they complete their annual income tax forms.
Right now, only 4 percent of Oklahomans remit use tax to cover the sales tax on their online purchases. This is not a new tax. Use tax has been a line item on Oklahoma’s income tax form for many years.
The Retail Protection Act and the Amazon agreement are both weak.
I’m calling on Oklahoma lawmakers to pass a bill similar to the ones that Colorado and Louisiana passed. These bills have the effect of requiring online retailers to collect and remit sales tax on behalf of the states. The 10th U.S. Circuit Court of Appeals, of which Oklahoma is under, upheld the Colorado law, and the U.S. Supreme Court even declined to hear the appeal.
Oklahomans should not have to worry that their local governments can’t fund essential services. Without bold action, cities are facing some hard decisions this budget season: Do we fix deteriorating streets or do we pay for police and fire services?
Yes. It’s that bad.
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