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Will Oklahomans See a Sales Tax Question this November?

3 min readBy: Erica York

On November 8, Oklahomans may be asked to decide on State Question 779, a one percentage point sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. increase. The ballot question’s status is uncertain: in late June, opponents filed a legal challenge contending that the ballot description and summary fail to adequately explain the sales taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. increase proposal. They seek removal of the measure from the ballot. Should the measure indeed go to the voters, however, it bears asking what the proposal entails and how it would impact the state’s economy.

State Question 779 proposes a one percentage point increase to the sales tax rate that would generate an estimated $550 million in annual revenue. This revenue would be dedicated to a new limited purpose fund called the Oklahoma Education Improvement Fund.

Source: Calculations based on text of Oklahoma State Question 779
Allocation of Oklahoma Education Improvement Fund
Teacher salary increases and teacher shortage prevention 60%
Adopt or expand programs to improve early reading, high school graduation rates, and college and career readiness 9.5%
Improve college affordability by funding education and general operating budgets of higher education institutions 19.25%
Improve career and technology education 3.25%
Increase access to early learning opportunities for low-income and at-risk children 8%

The largest share of the fund would be used to give every teacher in the state—regardless of current salary or experience—a $5,000 salary increase. The remaining revenue would support higher education budgets and fund the expansion or addition of other educational programs. This funding may not be used to maintain preexisting programs.

Though the sales tax increase would provide a financial boost to state education, it could also make the state less economically competitive. The tax increase contained in State Question 779 would give the Sooner State the second highest combined state and local sales tax rate in the nation, after only Louisiana.

My colleague Scott Drenkard wrote about the proposal in November of last year, arguing that the sales tax increase would hurt Oklahoma’s competitiveness on a national scale. Note that I have updated analysis with the latest local option sales tax calculations, just released.

While the Oklahoma statewide sales tax currently sits at 4.5 percent, and the hike would bring the statewide rate to a modest 5.5 percent, local sales taxes are hefty in Oklahoma, adding an average of [4.35 percent] on to the total sales tax consumers are likely to see on their receipts. If the state sales tax hike were enacted, the combined average state and local sales tax rate would be [9.85 percent], with towns like Fort Gibson paying as high as 12 percent, and Tulsa paying 9.517 percent.

A decrease in competiveness could discourage long-term growth and disincentivize relocation to Oklahoma. It would likewise impact individual pocketbooks, placing the highest burden on those with lower incomes and possibly leading consumers to purchase less, engage in cross-border shopping, or buy online.

Furthermore, counties, cities, and towns in Oklahoma rely on local sales tax revenue to pay for essential services. A higher state rate could provide them with less flexibility on local rates.

Decreased competitiveness, greater burdens on lower-income individuals, and the second-highest combined sales tax rate in the nation could be on the Oklahoma ballot this November. If voters get the opportunity to decide on State Question 779, they should be wary of the economic costs associated with the proposed sales tax increase.

More entries in our series on Top Ballot Initiatives to Watch in 2016.