State wants to close online sales tax loophole

Rep. Chad Caldwell

OKLAHOMA CITY — Customers who try on clothes and carry shopping bags pay taxes at the register. Store owners pay taxes on the money they collect from shoppers.

But online deals usually go undetected, and Oklahoma lawmakers facing a $1.3 billion budget shortfall are looking for a way to tax those sales.

State law now requires taxpayers to report online purchases and, when appropriate, pay sales taxes. Most Oklahomans don't bother — because of lax enforcement, record-keeping challenges or the complexities of figuring out which purchases are covered by the 4.5 percent sales tax and which are exempt.

Rep. Chad Caldwell, R-Enid, said he believes he’s found a way to close the loopholes that allow consumers to avoid brick-and-mortar businesses, and sales tax, by shopping online.

Businesses without a physical presence in Oklahoma and that fail to collect the state's sales tax online would be required to send statements to Oklahoma shoppers every February that outline what they've spent over the past year, under a proposal by Caldwell.

The statements summarizing online purchases will improve tax collections by making it easier for Oklahomans to sort out what’s owed, rather than dig through credit card receipts at year’s end, he said. Online retailers won't tell consumers how much tax they owe, just that they may owe something.

The approach is "better for business in Oklahoma and really for the whole state,” he said. “I’m confident that (collections) will rise, and it will rise significantly."

Caldwell said he expects lawmakers to vote on his plan this week.

Since 2008, about 40 states have passed laws that relate to cyber-purchases. Some have similar requirements as the one proposed by Caldwell.

Max Behlke, manager of state-federal relations with the National Conference of State Legislatures, said some online retailers find it easier to collect taxes than deal with the hassle of sending annual statements to each customer.

Online consumers, he added, don’t want to have to go back and figure out what they owe. Most would rather pay tax at the time of sale. Behlke said it’s hard to predict how much money Oklahoma could collect if it implements Caldwell's rules, but the revamped law could bring in as much as $25 million a year.

Alabama, which adopted a stricter online taxation law last year, already reports $6 million in revenue in just a few months.

Nearly 44 percent of Oklahoma's revenue comes from sales taxes paid by customers and receipts taxes paid by businesses. Come tax time, only 4 percent of Oklahomans settle up for online purchases, said Caldwell. The state collects about $2 million from them. About 1,200 online retailers collect sales taxes and pay the state, he said.

Bill Carter, state director of Oklahoma Small Business Development Center, based in Durant, said he's concerned about increased administrative rules for the state's 220,000 small businesses.

Most have "some sort of online presence," he said. And most employ fewer than 25 people.

“It’s just a burden that you’re putting on the principal job creators,” he said.

But online shopping continues to grow. Seven percent of all commerce nationally is done online, said Behlke, who heads a bipartisan task force of 35 states wrestling with how to “solve this problem without unintentionally hurting business.” Oklahoma is not a member of the task force.

States looking to tax online purchases must contend with a U.S. Supreme Court ruling that bars them from forcing out-of-state retailers to collect and remit sales taxes.

Behlke said taxation measures level the playing field for small businesses. He described the stories of small retailers, such as jewelers, visited by shoppers who try a product then buy it online, saving $500 or $600 in taxes. State governments, all of which rely on sales tax revenue, are frustrated because Congress hasn't acted to allow them to collect from out-of-state companies, he said.

“Nothing really signals state frustration more than all these effort that states are doing because Congress isn’t really doing anything at all,” he said.

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