November 28, 2011

Exemptions Cost Oklahoma Billions

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Buy food for your family, pay sales taxes.

Buy food for your earthworm farm, no sales taxes.

Buy a $9 ticket to the movies, pay sales taxes.

Buy a $275 ticket to an NBA basketball game, no sales taxes.

Buy a bottle of aspirin, pay sales tax.

Buy a bottle of prescription Oxycontin, no sales taxes.

Seem confusing? Oklahoma’s sales-tax rules are pretty simple intheory.

Everything that’s sold in the state is subject to the sales tax -unless there’s an exemption.

But there’s the rub: There are 149 exceptions at last count.

State and federal law, court decisions and interpretations by theOklahoma Tax Commission have created a network of exemptions, some ofwhich are peculiar and complex.

If you buy a cotton gin, you won’t pay sales taxes … but if you buy aconveyor belt for your cotton gin, the state gets its due.

If you buy a bottle of vitamins, it’s tax time … unless you buy it inyour chiropractor’s office.

If you buy an artist’s painting, it’s taxable … unless youcommission the painting before hand, then it’s not.

Sen. Mike Mazzei, R-Tulsa, heads a task force looking at tax reform —including changes to the state’s system of sales-tax exemptions.

He says the state has a problem with the number of sales-tax exemptionsit has granted.

“It has exploded to somewhat of an out-of-control level,” Mazzeisaid.

The state needs to review those exemptions to make sure they are eitherhelping the economy grow or are helpful to the public in general, hesaid.

Last year the Oklahoma Tax Commission estimated the revenue impact on64 of the exemptions. The total was just short of $4.1 billion a year,more than half the state’s annual budget.

But getting big state revenue hikes by wiping out exemptions isn’tall that simple.

The two biggest exemptions are the $1.5 billion exemption on sales ofgoods that will be sold again and the $1.7 billion exemption for salesto manufacturers. While both exemptions represent a huge loss of revenueto the state, their removal would amount to double taxation on consumers— products would be taxed before they got to the final consumer andagain when they are sold retail – and would result in a significantincrease in prices.

Fundamental to growth

The manufacturers’ exemption is also fundamental to the future growthof the state economy