Child care services could become taxable in Oklahoma under governor's plan.

Child day care services could become taxable in Oklahoma under governor’s plan.

More than 160 currently exempt services would be subject to sales tax in Oklahoma if Governor Mary Fallin has her way. Groceries, on the other hand, would become exempt. The governor says her plan to modernize Oklahoma’s tax laws would “provide a more stable source of revenue.” Last year, she opposed a plan to increase the state sales tax rate; when put to a vote in November, the proposed rate increase failed.

Many disagree with extending sales tax to services, including Lt. Gov. Todd Lamb. In fact, he so strongly opposes the governor’s agenda that he resigned from her cabinet. In response to this surprise news, Gov. Fallin said, “There will always be a seat at the table for his independent voice.” However, she remained firm on her stated course: “If we want to educate our children, a teacher pay raise and ensure the health and public safety of our citizens as well as improve our roads and bridges, we must fix the structure of our budget so we don’t keep having budget shortfalls and uncertainty.”

The country’s shift from a manufacturing-based economy to a service-based economy is the stated cause for such a dramatic change in tax policy. As the Executive Budget states, “The way we impose taxes and collect revenue no longer reflects the current economy.” Indeed, the governor has been trying for some time to enact this change; in her 2016 State of the State Address, she likened reading the sales tax code to “watching a VHS tape when you can use Netflix.”

Services that could be taxed

Services that the governor wants to tax are too numerous to list. They include:

  • Cable TV
  • Child day care services
  • Facilities support services
  • Health services
  • Individual and family services
  • Job training and related services
  • Personal care (e.g., barbers)
  • Professional services (e.g., attorneys)
  • Residential care
  • Social services
  • Tattoo services

Eliminate state sales tax on groceries

The budget proposes eliminating the state sales tax on groceries, described as “the most regressive tax on the books today.” This could save a family of four anywhere from $350 to $676 annually. Local taxes on groceries, however, would remain permissible.

Modernization or regression?

Critics of broadening sales tax say that sales tax is regressive and burdensome for people with lower incomes. Democrats are “fundamentally opposed to the sales tax proposal,” says Oklahoma’s House Minority Leader Scott Inman. They’d like to generate more revenue from the income tax or the gross production tax on gas and oil.

And Democrats aren’t the only opponents, as evidenced by Lt. Gov. Lamb’s actions. At least a dozen other Republican lawmakers have also said they’ll fight to “stop this tax increase dead in its tracks.”

Changes to product taxability are one of the reasons sales and use tax compliance is so challenging. Tax automation software facilitates compliance in all states. Learn more.