As online shopping grows, "use taxes," or taxes on goods shipped across state lines, are becoming more important to the state's economy. For years, Oklahoma wasn't getting as much revenue from use tax, but that is changing, according to recent reports. Journal Record editor Russell Ray discusses why use tax is essential, as well as the Supreme Court case and state legislation that brought the state $685 million in use tax revenue last year.
Drew Hutchinson: This is the Business Intelligence Report, a weekly conversation about business news in Oklahoma. I’m Drew Hutchinson, and joining me is Russell Ray, editor of The Journal Record. Today, I’d like to talk about online sales and what’s called a “use tax,” which is becoming increasingly important given the proliferation of online shopping. According to numbers from the federal Department of Commerce, internet purchases last year accounted for 14.3 percent of retail sales nationwide. And that was up 1.4 percentage points from 2017. Oklahoma is particularly reliant on sales tax to pay for its state and local government services. And previously, a lot of sales tax came from brick-and-mortar businesses. Now, the law has long required that a use tax be paid. “Use tax” is essentially the same thing as sales tax except it’s for goods shipped across state lines. And both taxes are collected at the same rate of 4.5 percent. But for years, Oklahoma wasn’t getting as much revenue from use tax.
Ray: You're right. Yhe law has long required use taxes to be paid. For years it was left up to individual taxpayers to voluntarily remit taxes they owed when they filed individual income tax returns each year. In 2017, voluntary remissions resulted in only about $4.4 million in use taxes collected by Oklahoma and its municipalities, according to the treasurer’s office. But according to figures released recently, nearly $685 million was collected by the state in use tax in the fiscal year that ended June 30, and that's a big increase of about 36% from the previous fiscal year.
Hutchinson: So Russell, what changed here?
Ray: Officials attributed these big increases in collections partly to a 2018 Supreme Court case decision known as Wayfair vs. South Dakota. In this decision, the court held out-of-state retailers responsible for collecting taxes if they delivered more than $100,000 worth of goods or services or engaged in 200 or more separate transactions for delivery into the state annually.
Hutchinson: Right. With this court decision, we saw more responsibility placed on retailers -- not just consumers -- when it comes to bringing use tax revenue to Oklahoma. And the Oklahoma Legislature followed suit in its most recent session. Language in Oklahoma’s Retail Protection Act was modified to conform with the high court’s ruling.
Ray: In the wake of the Supreme Court decision and action taken by the Legislature, the number of remote sellers collecting and remitting use tax to the Oklahoma Tax Commission increased by more than 4,000 retailers from 2018 to 2019. Those new sellers alone collected $44.4 million in state taxes during the most recent fiscal year. State Sen. Stephanie Bice, who co-authored the legislation, said it was important for language in the state’s law to conform with the court’s decision, especially as online commerce continues to grow. She said tax collection is incredibly important for municipalities dependent on sales tax, and she said the past methods for collecting this tax were really unreliable.
Hutchinson: Right. And another state representative, Chad Caldwell from Enid, said the update to the Retail Protection Act was a good way to even the playing field for brick-and-mortar retailers while still enjoying the ease of online shopping.
Russell, thank you for speaking with me today.
Ray: Thank you, Drew.
Hutchinson: Russell Ray is the editor of The Journal Record. KGOU and The Journal Record collaborate each week on the Business Intelligence Report. You can follow us both on social media. We're on Facebook, Instagram and Twitter: @journalrecord and @KGOUnews. You'll find links to the stories we discussed during this episode at JournalRecord.com. And this conversation, along with previous episodes of the Business Intelligence Report, are available on our website, KGOU.org. While you're there, you can check out other features and podcasts produced by KGOU and our StateImpact reporting team. For KGOU and the Business Intelligence Report, I'm Drew Hutchinson.
The Business Intelligence Report is a collaborative news project between KGOU and The Journal Record.
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