2019-07-05 ne-taxesg1

Revenue from higher state gross production taxes has far exceeded expectations, according to the Oklahoma Tax Commission, but industry insiders and some general skeptics are warning that the new levies may be taking a long-term toll.

A broader question, though, is whether the most recent reworking of the tax code, accomplished amid great turmoil over the past few years, is really a long-term solution to Oklahoma’s frequent budget shortfalls. It includes few broad-based taxes and, some argue, increases the state’s dependence on suspect commodities — a presumably finite resource (oil and gas) and products whose use seems to have either leveled out (motor fuel) or is diminishing (cigarettes).

“Oil is not only super dependent on the world economy, but there seems to be a long-term move away from oil and gas,” said Paul Shinn, senior budget and tax policy analyst for the Oklahoma Policy Institute. “We’re still going to be drilling for oil and gas in Oklahoma in 20 years; whether it’s something we want to depend on as part of the tax base is an open question.”

Actually, reducing Oklahoma’s dependence on oil and gas, in particular, has for years been a widely stated goal of lawmakers and policy analysts.

“We’re in the top seven states for government revenue volatility, and that is largely due to being too reliant on taxes that directly correlate with what’s going on in the economy,” said Jonathan Small, president of the Oklahoma Council of Public Affairs.

For the present, though, the new taxes seem to be working fine.

19% more than projected total

According to the Oklahoma Tax Commission, the higher gross production taxes under 2018’s House Bill 1010xx totaled $290.9 million for fiscal year 2019, and that’s only through the end of the May.

When June’s collections are added, the sum will almost double the $170 million predicted for FY 2019 when HB 1010xx passed.

Receipts from the other two big-ticket tax increases in 1010xx — a sharp increase in cigarette taxes and a smaller one on motor fuels — are closer to the original predictions.

The bump in fuel taxes had brought in $97.2 million through the end of May, which puts it on track to exceed by a narrow margin the $105 million expected for the full fiscal year.

The higher cigarette tax had brought in $119.1 million, which means it’s likely to fall short of the $152.1 million projected by about the same margin that cigarette sales dropped in the same time period: 25%.

Combined, the three brought in $507.2 million in additional revenue in FY 2019, already far more than the roughly $425 million projected for all of FY 2019 when legislators agreed to HB 1010xx.

$252M from other measures

Although HB 1010xx received more attention as lawmakers struggled over several sessions to make state government’s ends meet, a series of “51 measures” – so called because they require only a simple majority instead of the three-fourths required of bills such as HB 1010xx — also amounted to tax increases.

The OCPA says it’s identified $1.1 billion in what amounts to state tax increases since 2015. It is difficult to get complete numbers on all of those, but for several months the tax commission tracked seven “51 measures” passed in 2017.

The commission attributed $252.3 million to those seven measures in less than a full budget year.

Oil and gas bore the largest share of the increases — somewhere in the vicinity of $400 million at a minimum with current prices.

Some industry observers say this has hurt the industry and note a decline of more than a third in the number of active drilling operations, which could bode ill for future production.

Rig counts, like the business itself, are cyclical, though, and were about 40% lower than at present just three years ago. Also, new technology and changes in oil and gas law allows greater production from each individual well.

Meanwhile, federal statistics show total oil and gas production at or near record levels and industry employment fairly stable.

Quietly generating revenue

For all the attention given gross production, cigarette and motor fuel taxes, one of the biggest increases has gone largely undetected by the general public.

In 2017, a “51 measure” removed a state sales-tax exemption from motor vehicle purchases. Although several attempts were made to reinstate the exemption for truck fleet sales, the full 4.5% tax remains in place and has averaged almost $12 million a month in revenue during its first year.

Democrats, especially in the House, pushed for an income tax component of revenue reform. Small and Shinn both say there are problems with income taxes, but for different reasons.

Small and the OCPA say income taxes hurt the overall economy, especially with Oklahoma next to Texas, which has no personal income tax.

Shinn says, and Small agrees, income taxes are just hard to collect. “Both property taxes and sales taxes are more stable than income taxes,” Shinn said.

“There are plenty of legal ways to avoid income taxes,” he said. “And then there are ‘aggressive’ ways to avoid it. It’s very hard to avoid property tax, and it’s much harder to avoid sales tax (than income tax).”

Public sentiment and powerful lobbying groups make property taxes a third rail of Oklahoma politics. Oklahoma does not have a state property tax, but relatively low local taxes contribute to increased demand for the state to pay for schools and other services.

“Those who want more government need to have a conversation about paying for it at the local level,” Small said. “Property taxes are the chief way of doing that. It’s more stable and more realistic.”

Small said this particularly applies to education.

“To the extent people believe their schools need more money, they should look for ways to pay for that with local taxes.”


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Randy Krehbiel

918-581-8365

randy.krehbiel@tulsaworld.com

Twitter: @rkrehbiel

Randy has been with the Tulsa World since 1979. He is a native of Hinton, Okla., and graduate of Oklahoma State University. Krehbiel primarily covers government and politics. Phone: 918-581-8365

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