Local merchants and city leaders have pointed to online shopping as one of the main reasons Norman and other municipalities across the state have seen a decrease in sales tax collections.
The city’s January’s receipts are 8.49 percent below last year’s in the same month.
States across the country are attempting to answer the issue of lost sales tax dollars with legislation and through settlements with major online retailers. Oklahoma is no exception.
Last year, state legislators passed the Retail Protection Act of 2016, which prompted the Oklahoma Tax Commission to send out letters to each of the top 500 online retailers asking these retailers to alert Oklahoma customers about how much use tax they owe to the state.
Oklahoma Tax Commission spokesperson Paula Ross said this is where taxpayers tend to get confused; what is a use tax and what does it have to do with sales tax?
“Use tax is really just the same a sales tax,” Ross said.
Use tax first became part of the Oklahoma tax code in 1937 to address companies buying materials out of state then bringing the materials into Oklahoma. At the end of the year, the amount of use tax owed to the state is totaled and added to yearly tax filings by these companies.
But it also applies to online sales, which technically take place out of state.
Most regular consumers don’t know about use tax, or don’t keep track of their online purchases throughout the year.
Ross said the state has tried to make it easier for people to file use tax. A line for use tax was added to Oklahoma income tax returns and the Oklahoma Tax Commission has undertaken an awareness campaign.
“Only about 4 percent of Oklahomans actually remit their use tax,” Kaplan said.
She said the Oklahoma Tax Commission does not have the resources to audit every single Oklahoman for their use taxes.
“It’s kind of on the honor system right now,” Norman’s Retail Marketing Coordinator Sara Kaplan said.
While that is a very low percentage, Kaplan and Ross said that is higher than the year before and every year more Oklahomans remit use taxes.
There is a website online retailers can use to easily add the correct sales tax to any purchase and then send the sales tax to the proper tax entity.
Ross said Oklahoma and other states have also worked together to make it easier for online retailers to remit sales tax for their customers, even if they do not legally have to do so.
Amazon now collects sales taxes from customers in 34 states and the District of Columbia and announced this week they will begin collecting sales tax from Wyoming customers later this year.
“It is working, but it’s a process,” Ross said.
The Retail Protection Act of 2016 is part of that process.
Sen. Rob Standridge, R-Norman, voted for the measure in November.
“This has caused so many problems for states and cities, especially Oklahoma municipalities,” Standridge said.
Standridge said Oklahoma cities, unlike municipalities in any other state, are heavily reliant on sales tax revenue.
Kaplan said cities do receive some additional funding from fees, but the vast majority of city funding is connected to sales tax money, which is why drops in that funding source are so detrimental to Oklahoma cities.
Standridge said he has fought against what he believes is interference from the federal government on numerous other issues, but online sales tax issues fall directly under the purview of the federal government since it is part of interstate trade.
“Here is something they are specifically enumerated to do,” Standridge said.
He said the goal of the legislator with the Retail Protection Act of 2016 is to cause enough of a headache for online retailers as they collect data for annual use tax reports that they will decide to instead simply collect sales tax for Oklahoma customers at the time of sale.
There is only one problem: the Oklahoma Tax Commission has no authority to make sure the letters about use tax are sent to customers or that customers are presented the exact amounts owed to the state.
But if Oklahoma lawmakers want to pass a tougher sales tax law this session, it is much more likely it will be upheld.
A similar, but enforceable law passed last year in Colorado was recently upheld by the Supreme Court.
Standridge said the Colorado law is a “couple steps ahead” of the Oklahoma law, so he and other lawmakers will closely follow that legislation.
The Colorado law requires online retailers to alert customers and the government of customers’ owed use tax each year.
“It had some more teeth to it,” Kaplan said.
Amazon previously lobbied against forcing online retailers to pay state sales taxes, but Kaplan said that is no longer the case and she believes company executives have realized they will eventually be forced to pay sales tax as they grow and have a physical presence, or nexus, in each state.
“If you have any sort of physical presence, whether it is a retail store, a distribution center or an employee located in that state, then you are required to remit sales tax to the point of delivery,” Kaplan said.
That means if someone in Norman makes a purchase online at Macy’s and has it delivered to their home, the sales tax for that purchase will be sent to Norman since Macy’s does have a presence in Oklahoma.
Even if someone makes a purchase in another Oklahoma city but has it sent to their home, the sales tax dollars will go to their home municipality instead of the city where they shopped.
But if a similar purchase is made at an online retailer that does not have a distribution center in Oklahoma, then no sales tax is paid and the city looses that money.
“It’s something that’s still in progress,” Ross said. “For Christmas, you may have bought 10 things online and paid sales taxes on five items.”
But even a year ago, customers probably only would have paid sales taxes on two items, according to Ross.
Ross said some of that is because retailers voluntarily include sales tax, and some because they now have to include it because they have a nexus in Oklahoma.
“There are very few what they call pure pay online retailers anymore,” Kaplan said.
Instead many are using an omni-strategy, with both physical locations and online shopping.
There are a few ways major retailers are merging online and in-person shopping. One is buying online, then picking it up in the store, which sends sales tax dollars to the location where the item is received.
Kaplan used Wal-Mart as an example. Some Wal-Mart locations allow customers to shop through an app then pick up their groceries at participating locations.
Major retailers have also found online sales are higher in areas where there is a brick-and-mortar location because people can return items without dealing with shipping. Kaplan said about 30 percent of items bought online will be returned to a store while under 10 percent of the items purchased in a store are returned.
Without an easy location to return items, customers are more leery of buying online.
This strategy can be seem with online retailers, too. Many previously online-only retailers are opening up showrooms and even Amazon has started opening some brick-and-mortar bookstores.
“You might even be in a store looking at a product and decide, ‘well, I don’t really like this one,’ and a sales person will come over and show you different options and ways to customize it online,” Kaplan said. “So it’s a blending of the two.”