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Oklahoma City loses millions in unreported online sales taxes

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Not long ago, A Cleaner Place was one of many small businesses looking to cash in on some of Amazon’s 188 million monthly visitors.

That changed when the northwest Oklahoma City company’s staff reviewed Amazon and Empty Storefronts, a study by Civic Economics and the American Booksellers Association. Oklahoma ranked No. 7 nationally in “total tax loss” to the state and local governments at $47.78 million. It ranked even higher, No. 5, in “sales tax loss” at $45 million.

A Cleaner Place owner Stephen Fuhrman, who also serves on the Warr Acres City Council, said his jaw dropped as he read the 2014 study.

“We removed all our listings from Amazon,” Fuhrman said. “The straw that broke the camel’s back was the report. … [And] that’s just Amazon. That’s huge.”

Lost Internet sales tax revenue means states and local governments have fewer funds from which to provide residents essential services, such as public safety, health and education.

Oklahoma City loses as much as $15 million annually in potential sales tax revenue to online sellers, said Jane Abraham, the City of Oklahoma City’s community and government affairs manager.

“Municipalities are very dependent on sales tax for general revenue,” Abraham said. “This is a big deal to us and to all municipalities in the state.”

Internet sales tax is a hot topic in America, and Oklahoma municipalities routinely list it at the top of their federal legislative agendas, said Carolyn Stager, Oklahoma Municipal League (OML) executive director.

OML is a nonprofit corporation that provides services and programs to cities across the state.

“We are the only state where cities and towns do not receive ad valorem for general operations,” Stager said. “It makes our cities and towns overly dependent on local, voter-approved sales tax to fund everything — police, fire, roads, bridges, parks, libraries — all the essential functions that citizens expect their local municipal governments to provide.”

The law

In Oklahoma, Internet retailers with a brick-and-mortar storefront, business office or warehouse in the state must collect sales tax on purchases from Oklahomans. However, under a 1992 Supreme Court ruling that dealt with catalogue sales, out-of-state Internet retailers are not required to remit sales tax. Instead, it falls upon consumers to report and pay taxes from online purchases to the Oklahoma Tax Commission.

For example, a state resident who orders a pair of jeans from the Macy’s website is charged sales tax because Macy’s maintains stores in Oklahoma. If that same resident orders a book from Amazon.com, no sales tax is added. However, that resident is required by law to report and pay the “use tax” on their tax return.

Typically, Oklahomans who click-and-buy online don’t report use tax on their individual income tax return forms, Oklahoma Tax Commission data shows.

“It is not something that is difficult to do,” said Paula Ross, commission spokeswoman. “It is still one of those things — like most taxes — that is voluntary, but you have to do it. Think about your community. You are following the law if you pay that.”

The tax commission estimates Oklahoma loses $185 million to $225 million in uncollected state and local taxes annually. The agency’s enforcement is limited to public education. There is no way to monitor online transactions.

Federal action

The Internet sales tax issue concerns Gov. Mary Fallin, who broached the topic in her Feb. 1 State of the State speech.

Two years earlier, as the National Governors Association chairwoman, Fallin called on U.S. Congress to pass the Marketplace Fairness Act, a law to expand states’ ability to levy sales taxes on online purchases.

“We all know that cities and states are losing out on sales tax revenue each year as more business is conducted online, and states like Oklahoma can’t collect sales tax because of federal inaction,” Fallin said in her State of the State speech. “We all need to call on Congress to level the field for small businesses and Oklahoma retailers by implementing a fair system for online sales tax.”

Kiley Raper, Oklahoma Retail Merchants Association CEO, agreed that federal action is needed. The association said growth in Internet shopping has led to a drop in sales for local brick-and-mortar shops.

Customers visit local shops, browse products and receive help from sales staff, but make purchases online to avoid sales tax, Raper said. Consumers might believe they’re saving money by doing this, but it’s no savings considering the responsibility falls on the consumer to report and pay the use tax.

“A federal solution would be the best possible solution for the whole country and retailers,” said Raper, who has followed the federal legislation Marketplace Fairness Act since 2013. “They have guaranteed a vote this year, but with this being an election year, it is not looking great. Retailers can’t wait. They can’t go through another Christmas. Oklahoma retailers need a solution, and they need it now.”

U.S. Senate Majority Leader Mitch McConnell, R-Kentucky, pledged to bring the Marketplace Fairness Act to a vote “sometime this year.” In the U.S. House of Representatives, Rep. Jason Chaffetz, R-Utah, introduced the Remote Transactions Parity Act, which is similar to the Marketplace Fairness Act.

Like Raper, Oklahoma City and OML are monitoring both federal bills closely. In tough economic times, with cities reporting fewer dollars in sales tax collections, the legislation could go a long way to help restore lost revenue.

State and local governments have already lost millions in uncollected sales tax revenue from the Internet, which Fuhrman — the Oklahoma City businessman — pointed out to former Oklahoma Sen. Tom Coburn’s staff in Washington, D.C., four years ago.

“When it comes down to it, when the local schools call for someone to advertise on their sports programs or the Little League team needs a sponsor for uniforms, they don’t call Amazon,” Fuhrman said. “They call on us.”

Print Headline: Bottom line, Government and retail leaders support enhancing laws to collect online sales taxes. Changes could return millions of dollars to state and local municipalities.

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