The Norman Transcript

March 12, 2013

State works to close Internet tax loophole

By Joy Hampton
The Norman Transcript

NORMAN — Oklahoma businesses are joining with its cities and counties to battle an increasing problem — loss of sales tax resulting from online sales. While much of the e-fairness battle is being fought in Washington, D.C., Oklahoma lawmakers are doing what they can to close that tax loophole.

House Bill 1363  authored by Rep. Earl Sears, R-Bartlesville, amends the current Oklahoma Sales Tax Code by redefining and broadening what it means to have a presence in the state.

“Basically, what the bill does is says if you have a presence in Oklahoma, you must pay sales tax,” Sears said. “A company may be in another state but may have a relationship in Oklahoma that ships it out.”

In Oklahoma, sales tax is a major municipal revenue source that supports fire, police, infrastructure such as roads and bridges, and other essential city services. Any business that has a presence in Oklahoma has to pay state and local sales tax, but some vendors don’t have a retail presence in the state.

“As Internet shopping grows more popular, some out-of-state online retailers can take unfair advantage of a tax loophole as they compete with our local Main Street businesses who do so much for our community,” Norman Mayor Cindy Rosenthal said.

Locally, many brick and mortar retailers say they particularly feel the pinch as online shopping grows in popularity with the college crowd. For city leaders, the loss of tax revenue is a loss of funding for vital city services.

“Oklahoma municipalities have struggled with the impact of online sales on city revenue,” Rosenthal said. “Closing this loophole about ‘physical presence’ is a step in the right direction to create a level-playing field for local retailers and to fund necessary municipal services like police, fire and street maintenance.”

Sears believes the new definition of presence could get some giant online retailers like Amazon that have warehouse or other connections back in the loop and paying Oklahoma taxes.

“The tax will be collected at the point of origin. There are companies out there that hold the TVs and the toasters,” Sears said. “They send them an order, an invoice, that tells them to send this ... The box will come and there it is. That’s a presence.”

The bill has made it out of committee and is on the floor to be heard, but it must be heard this week and there’s a lot of competition for the limited time left available this session.

“We’ve probably got about 350 bills to be heard,” Sears said.

The Norman Chamber of Commerce and the Oklahoma Municipal League support the measure.

OML reports that, based on numbers from the Oklahoma Tax Commission, $225 million is lost from all remote sources to state, municipal and county governments. Based on that number the loss to the state was about $121.5 million in 2012, with municipalities losing about $85.5 million and counties missing out on about $18 million in potential tax revenue.

“The Chamber is highly supportive of the measure and certainly encourages its passage,” said John Woods, Norman Chamber of Commerce president. “It is a piece of legislation that brings fairness to the system. It does not increase taxes but changes the point of collection. Rather than the consumer having to report the taxes on their tax forms, it puts the burden on the retailer to collect the taxes, just as our local brick and mortar retailers have to do.”

Joy Hampton



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