The Oklahoma legislature could make big changes to the state sales taxes this session in an attempt to balance an estimated $870 million budget shortfall and provide a pay raise to teachers.
In her state of the state speech on Monday, Governor Mary Fallin proposed a pair of tax cuts, coupled with an expansion of the state’s sales tax system that would raise Oklahoma’s tax revenue by $1.1 billion.
A large portion would come from sales taxes on services, such as residential utilities and child care services. Her proposal calls for taxing over 160 services that currently are not taxed. She also wants to see a higher tax on gasoline and diesel fuel.
House Bill 1841 will be considered on Monday, February 13 and proposes a $1.50 tax increase on cigarettes to go toward Oklahoma health care.
The cigarette tax was proposed again this session after failing last year due to disagreements in the House about how the money would be spent.
Fallin’s proposal to get rid of the state grocery sales tax has been well received by both parties. The legislature is looking at eliminating state sales tax on groceries, while allowing counties and cities to continue to collect that tax to fund local government. The potential cut would save Oklahomans about $250 million per year.
Governor Fallin also proposed cutting corporate income tax.
During his weekly conversation with KGOU, eCapitol news director Shawn Ashley said the Oklahoma legislature has a big job ahead of it as it considers the governor’s budget.
“It’s very much like a Jenga game. If you pull out one piece, then you’re off balance and you’re going to have to look at balancing this another way,” said Ashley.
House and Senate Democrats have expressed opposition to the cigarette tax unless it goes toward the Oklahoma Healthcare Authority and its Medicaid program, and Ashley said there is hesitance on both sides of the aisle about raising sales tax on services.
A three-fourths majority is needed to pass any tax-raising measures. There are currently 73 Republican members of the House, which means Republicans will need at least three Democratic votes to advance tax increases.
INTERVIEW HIGHLIGHTS
On some of the big tax changes Governor Fallin has proposed:
Shawn Ashley: And what she outlined was about a $1.1 billion increase in tax revenue to the state. A large chunk of that comes from the sales tax on services. At the same time, she would also increase the tax on motor fuel, generating another quarter of a billion dollars. Also, though, there are tax cuts in the proposal. The state sales tax on groceries would be eliminated, as well as the corporate income tax, and then there were a number of other small tax changes in her proposal as well.
On how legislators feel about state sales tax changes:
Shawn Ashley: The House Democrats have staked out a position early before the start of the legislative session where they wanted to see changes in the individual income tax, the gross production tax and the cigarette tax but only if it went to the Oklahoma Healthcare Authority and its Medicaid program. Senate Democrats also expressed some reluctance. And it seems there is a growing concern, even among Republicans, that increasing the sales tax on services may not be the way to go. Senate Republicans talked about the issue on Tuesday, and the general consensus I’m beginning to hear is that there are some hesitations and reservations on their part as well.
On how House Republicans will get bills passed:
Pryor: And because revenue measures require a supermajority of 76 votes in the House, the Democratic House leader Scott Inman holds some cards.
Ashley: Yes, he certainly does. Right now there are 73 Republican members in the House, after the resignation of Rep. Dan Kirby at the beginning of March so they need at least 3 votes from the Democrats in order to pass anything there.
FULL TRANSCRIPT
Dick Pryor: Shawn, legislators are up and running and Gov. Fallin delivered on her promise to propose a change in the tax code.
Shawn Ashley: That’s correct. The governor had said she would provide for a major tax overhaul in her executive budget in the state of the state speech. And what she outlined was about a $1.1 billion increase in tax revenue to the state. A large chunk of that comes from the sales tax on services. At the same time, she would also increase the tax on motor fuel, generating another quarter of a billion dollars. Also, though, there are tax cuts in the proposal. The state sales tax on groceries would be eliminated, as well as the corporate income tax, and then there were a number of other small tax changes in her proposal as well.
Pryor: The repeal of the state sales tax on groceries is being well received.
Ashley: Yes it is. This is something that has been proposed for a number of years, dating back to the mid-1990s, but it never got traction. One of the concerns about it was that is if you eliminated the state sales tax on groceries, you would also have to eliminate the city and county sales tax on groceries. But that appears not to be the case. By a simple statutory change, they would be able to allow cities and counties to continue to apply the sales tax to groceries and fund their local government services and eliminate the state sales tax on groceries, which would save consumers about $250 million per year.
Pryor: The governor’s executive budget starts with $8 billion in revenue, but that’s dependent on more than 160 sales tax changes taking place.
Ashley: That’s exactly right. When you look at her budget, that $860 million or so, as well as the other components of her $1.1 billion increase. It’s very much like a Jenga game. If you pull out one piece, then you’re off balance and you’re going to have to look at balancing this another way, and it gets very, very complicated.
Pryor: That makes it very complicated for the legislature going forward.
Ashley: That’s exactly right. They have to consider a number of proposals, a number of different ways. There are concerns about 640 questions, whether applying the sales tax to certain services would mean that it requires three-quarters of the legislature to pass it, or if it would have to go to a vote of the people.
Pryor: How are legislators responding to the proposal to change the state sales tax?
Ashley: Well I think it depends on the legislators you talk to. The House Democrats have staked out a position early before the start of the legislative session where they wanted to see changes in the individual income tax, the gross production tax and the cigarette tax but only if it went to the Oklahoma Healthcare Authority and its Medicaid program. Senate Democrats also expressed some reluctance. And it seems there is a growing concern, even among Republicans, that increasing the sales tax on services may not be the way to go. Senate Republicans talked about the issue on Tuesday, and the general consensus I’m beginning to hear is that there are some hesitations and reservations on their part as well.
Pryor: And because revenue measures require a supermajority of 76 votes in the House, the Democratic House leader Scott Inman holds some cards.
Ashley: Yes, he certainly does. Right now there are 73 Republican members in the House, after the resignation of Rep. Dan Kirby at the beginning of March so they need at least 3 votes from the Democrats in order to pass anything there.
Pryor: How is the governor’s call for a teacher pay raise of $1,000 teacher per year being greeted?
Ashley: It depends on who you ask. Teachers, I think, felt it was a little too little, perhaps too little too late, particularly after other proposals have promised more, as well as the vote which took place back in the fall.
Pryor: What should we be watching for in the coming days?
Ashley: I think one of the more interesting things will come on Monday when the House Appropriations and Budget Committee considers House Bill 1841, the $1.50 per pack cigarette tax increase to see how well it’s received in committee.
Pryor: There’s a lot to be watching at the state capitol. eCapitol news director Shawn Ashley, thank you.
Ashley: You’re very welcome.
Capitol Insider is a collaborative news project between KGOU and eCapitol. As a community-supported news organization, KGOU relies on contributions from readers and listeners to fulfill its mission of public service to Oklahoma and beyond. Donate online, or by contacting our Membership department. eCapitol is legislative news and bill tracking service. Online content is available via subscription.
