Commentary: Oklahoma Tax Reform: New and Hidden Taxes

Article excerpt

From a political standpoint a gross receipts tax to replace the state income tax has several advantages. It is little wonder legislative leaders are looking favorably in its direction in the currently pending tax reform discussion.

A single, broad-based gross receipts tax could replace a significant amount of the revenue lost by eliminating the state income tax, exempting groceries from the sales tax, and changing the estate tax to make Oklahoma a so-called pick up state.

The Revenue Neutral Tax Reform For Oklahoma (RNTR) final report was prepared by two OU and three OSU economics professors at the direction of Senate President Pro Tempore Stratton Taylor. It points out a 1 percent gross receipts tax would produce $2.04 billion in state revenues. That comes close to covering doing away with the income tax and exempting groceries from the sales tax.

Since there are no constitutional amendments needed to enact the gross receipts tax while getting rid of the income tax and making the proposed changes in the sales and estate tax, technically the whole package could be enacted by the Legislature. It's possible but not likely.

When it comes down to an issue of this importance there is little doubt the Legislature will want voters to decide. Why not? Given an opportunity to choose a tax ostensibly falling in the business sector, while eliminating the income tax and sales tax on groceries, it takes no political genius to figure out how they will vote.

Another political advantage is the gross receipts tax is a hidden levy. It becomes part of the price of a service or commodity. Consumers are unaware of its existence. They only see what they pay as the price of the product.

The tax is like a salesman's expense report. There are items in it that aren't on it.

It is easier to manipulate or raise hidden taxes because consumers don't knowingly feel the brunt. Income taxes, and property taxes are all identifiable to the taxpayers because they have to make a direct effort to pay them.

Even with the sales tax, where the tax is clearly listed separately from the price of the item, consumers rarely notice. About the only time they pay attention to it is if they buy large- ticket items like furniture or major appliances where the tax is a significant amount.

In Oklahoma the only real levy that passes for a gross receipts tax is the 7 percent severance tax on minerals, the bulk of which is oil and gas production.

There is a difference in this particular case.

Oil and gas purchasers, not producers generally determine the price. The result is the tax is not passed on to the consumer. If a producer sells his oil for $10 a barrel the 70 cents gross production tax is not added to that price, but is subtracted from the proceeds to the producer and paid to the state. There is little or no opportunity for the producer to charge a higher price for his oil and gas to cover the tax.

Because of this existing 7 percent tax the report suggests producers be exempt from the gross receipts tax. It also suggests Oklahoma's price-based sliding tax scale on oil priced at $17 or less per barrel be extended. …