It’s time to modernize Oklahoma’s sales tax structure
Modernizing Oklahoma’s sales tax structure will help create a more balanced tax environment and facilitate the end of Oklahoma’s reliance on income tax.
Oklahoma’s sales tax was first enacted in 1933. The sales tax applied to tangible personal property. It exempts most services as well as items such as fuel and items for resale. For the economy of the 1930s and 1940s, this made sense. Manufacturing was the dominant industry and most consumer goods purchased were tangible, things you could hold. Consumer preferences have changed over the past 90 years. Services now account for more than 66% of total personal consumption in the United States. (The number was 69% in 2019 before the pandemic ended most of the service sector in 2020 and 2021.)
Oklahoma has a similar mix, with service accounting for 64% of all consumer spending. Since 1997, this share has increased from 60% to 64%. This growing shift toward services means that Oklahoma’s current sales tax model excludes a growing share of consumer purchases. An efficient tax structure should not favor one industry or activity over another, but the Oklahoma sales tax does just that by favoring services over tangible goods.
Estimates have shown that if Oklahoma modernizes its sales tax structure, it could bring in an additional $700 billion to $1.5 billion, depending on how much the sales tax base is broadened.
However, restructuring the sales tax base should not be about increasing government. This additional revenue can be used to offset a reduction or elimination of state income tax. This would make Oklahoma more competitive when recruiting businesses and attract other taxpayers from surrounding states, or simply prevent fewer people from moving to Texas, which has no state income tax. ‘State.
It would also provide the state government with a more stable revenue base. According to the Pew Charitable Trusts, sales tax revenue is a more stable source of revenue than income tax revenue for Oklahoma.
This stability makes budgeting much easier and reduces the risk of massive shortfalls that create a call for tax increases or massive surpluses that inflate spending to a level that cannot be matched in years to come.
In short, modernizing the state’s sales tax structure creates a more balanced tax structure that does not favor one industry over another and paves the way for the elimination of Oklahoma’s penalty on work.