Few online shoppers report, pay taxes

Oklahoma City receives about $500,000 per year in self-reported taxes from residents who shopped online or with catalog retailers, shopping networks and others that don’t collect local sales taxes.

By comparison, the city faces a $9.2 million shortfall in sales tax revenue this year.

The shortfall reflects in part the growing popularity of online shopping and low rates of compliance with the law requiring consumers to selfreport and pay sales tax on online purchases.

In his State of the City address this week, Mayor Mick Cornett said sales tax — key to police and fire protection — is slipping away to online sales.

The city council last month trimmed the police force by 15 positions, while the Fire Department is leaving rigs unstaffed to help make up for the shortfall.

Cornett called for state help to reform the tax system and said Oklahoma’s reliance on sales tax to fund municipal government “is no longer a working, viable model.”

Many cities across Oklahoma and the nation face the same challenge, he said.

“This is especially frustrating for us at city hall because we know more

and more people are moving to the city,” Cornett told his audience of 1,500 business leaders.

“We know we are creating more and more jobs,” he said. “But sales tax is not rising at the same rate. And other cities are seeing the same thing.”

Tax owed

“Use tax” is the technical term for sales taxes due on purchases from online retailers that are outside the state of Oklahoma.

The use tax rate is the same as the sales tax rate— 8.375 percent in most of Oklahoma City, slightly higher in Cleveland and Canadian counties.

There’s a line on the Oklahoma individual tax return — 2016 Form 511 Line 21 — for reporting use tax “due on internet, mail order, or other out-ofstate purchases.”

Actual tax owed can be reported or there’s a schedule for estimating tax due based on income.

But officials say only a small percentage of taxpayers report shopping online.

The city has data on use tax paid by Oklahoma City income tax filers for the past three fiscal years, said Bob Ponkilla, the city treasurer.The figures: • 2014: $513,000. • 2015: $456,000. • 2016: $516,000. Again, by way of comparison, Oklahoma City began fiscal 2017 expecting to receive $218.2 million in sales tax and $37.9 million in use tax, or a combined $256.1 million, for the general fund, the primary account for dayto-day expenses.

Much of the use tax the city receives is levied on goods, such as expensive manufacturing equipment, purchased elsewhere and shipped into the state.

State’s letter

The Oklahoma Tax Commission composed and sent a letter last September, notifying leading online retailers of legislation intended to encourage them to collect sales tax.

The four-page letter clarifies which retailers must collect sales tax.

Retailers with offices or stores in the state already were required to collect sales tax.

The law broadened the definition of retailers that maintain a “place of business” in the state, including, for instance, the presence of anyone using a trademark or name that is “the same or substantially similar” to that of the outof-state retailer.

It encouraged online sellers to send customers an annual statement advising them of how much they spent and how much tax they might owe.

Because the companies are beyond the reach of Oklahoma law, compliance is voluntary, so arrival in the mailbox this winter of a tax statement along with a favorite catalog would be a win for the state.

The tax commission estimated just 4 percent of online, catalog and other purchases are reported on Oklahoma tax returns.

Municipal leaders such as those in the U.S. Conference of Mayors have long looked to Congress for help through such measures as the Marketplace Fairness Act.

If enacted, the law would authorize states to compel “remote sellers” such as online and catalog retailers to collect sales tax at the time of a transaction. It would require states to simplify their sales tax laws as some two dozen states, including Oklahoma, have done. But it remains pending before Congress.

Cornett, who is president of the U.S. Conference of Mayors, sounded a pessimistic note with regard to the prospects for congressional action.

“We’ve been waiting on that for, like, 12 years and at some point you have to realize help may not be on the way,” Cornett said.