Revenue system inflates Oklahoma's sales tax burden
OKLAHOMA'S cities and towns don't have the option of restricting tobacco use to a greater extent than the state itself does. But those municipalities do have the option of taxing sales at a rate greater than the state itself.
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Thus it is that the average combined state and local sales tax rate in Oklahoma is fifth highest in the nation. That average is 8.67 percent. This means that, on average, municipalities tax sales at a rate almost as high as the state's 4.5 percent rate.
Ask the folks in Watonga. They pay a 5 percent city sales tax, a .5 percent county sales tax and the state's 4.5 percent sales tax. The combined 10 percent rate is like a tithe on sales.
National rankings on sales tax are somewhat meaningless because state and local governments tax things in many different ways. Some states have no income tax but they do tax sales. Some states tax incomes but not sales. Property tax rates vary widely.
What really hurts lower-income Oklahomans is that the sales tax applies to groceries, although a modest rebate is available. In the debate over reducing the income tax rate, class envy arguments will surface over the fairness of reducing rates for the wealthiest Oklahomans while doing nothing for the poorest. It's a valid argument but it also ignores the fact that local governments in Oklahoma, unlike in most other states, depend so heavily on sales tax revenues.
If cities could tax things the state doesn't (they can't), it's likely that municipalities would levy taxes on state-exempt items. If cities could restrict smoking in ways the state doesn't (they can't), it's likely that many of them would do so.
As it is, the Legislature holds the taxing cards even when it comes to local governments. But one card that it doesn't hold is the ability of cities, with the consent of voters, to raise municipal sales tax rates. When considering the sales tax ranking for Oklahoma, consider that it has as much to do with the local government funding structure and voter preferences as it does with state tax policy.
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