Oklahoma Watch: Plentiful exemptions complicate Oklahoma sales taxes

Buy a $275 ticket to an NBA basketball game, no sales taxes.

Buy a bottle of aspirin, pay sales tax.

Buy a bottle of prescription OxyContin, no sales taxes.

Seem confusing? Oklahoma's sales-tax rules are pretty simple in theory. Everything that's sold in the state is subject to the sales tax, unless there's an exemption.

But there's the rub: There are 149 exceptions at last count. State and federal law, court decisions and interpretations by the Oklahoma Tax Commission have created a network of exemptions, some of which are peculiar and complex.

If you buy a cotton gin, you won't pay sales taxes … but if you buy a conveyor belt for your cotton gin, the state gets its due.

If you buy a bottle of vitamins, it's tax time … unless you buy it in your chiropractor's office.

If you buy an artist's painting, it's taxable … unless you commission the painting beforehand, then it's not.

Sen. Mike Mazzei, R-Tulsa, heads a task force looking at tax reform and says the state has a problem with the number of sales-tax exemptions it has granted. “It has exploded to somewhat of an out-of-control level.”

Last year, the tax commission estimated the revenue impact on 64 of the exemptions at just short of $4.1 billion a year, more than half the state's annual budget.

But getting big state revenue hikes by wiping out exemptions isn't all that simple.

The two biggest exemptions: $1.5 billion on sales of goods that will be sold again and the $1.7 billion for sales to manufacturers.

While both exemptions represent a huge loss of revenue to the state, their removal would amount to double taxation on consumers — products would be taxed before they got to the final consumer and again when they are sold retail — and would result in a significant increase in prices.

The manufacturers' exemption is also fundamental to the future growth of the state economy, said Mike Seney, senior vice president of the state chamber of commerce. “You take away that sales-tax exemption for manufacturing and those manufacturers aren't going to stay here.”

Mazzei said he doesn't foresee the state taking on the manufacturers' exemption or the wholesale exemption, but through a process of analysis and prioritization, the state can whittle down the number of exemptions.