As voters keep an eye on what other states are doing, one of the biggest areas of interest for Oklahomans has been related to tax reform. Recently, legislators in Oklahoma have succeeded in reducing corporate and individual income taxes; however, the economy is changing quickly. Several states are concerned about matching their race to their neighbors, doing everything they can to attract residents and businesses.
Addressing Issues in Oklahoma
Although Oklahoma is in a good position regarding its income and commercial property taxes, it is important to focus on pro-growth tax reform. For example, the corporate tax rate decrease occurring next year is ideal, but there are still several hurdles to overcome. These changes can create a revenue buffer that allows the state to absorb potential transition costs that could be incurred as tax policies change. If the state and the Oklahoma Tax Commission remain proactive about the pro-growth model, the result could mean extensive resident and company attraction.
Remove the Throwback Rule
What is a “throwback rule”? And How does it affect businesses? In short, this rule punishes businesses that sell out of state. Although the goal of this order is to encourage businesses to sell in-state, it has the opposite effect, encouraging businesses to move distribution facilities out of state. Repealing this rule might convince more businesses to move to Oklahoma. Manufacturing companies (one of the largest industries in the state) could, especially, benefit from the removal of this rule.
Adopt a Single Sales Factor Apportionment
Oklahoma is behind competitors when it comes to sales factor apportionment. Presently, the traditional three-factor apportionments (the total property, payroll, and sales) taxes in-state investments are used more heavily than its neighbors. The tax landscape is changing quickly, and Oklahoma would benefit from a single sales factor apportionment that focuses solely on a company’s sales within the state.
Change Individual Tax Issues
There are also ways to make taxes more manageable for individuals and families. For example, a single-rate income tax with one standard deduction can eliminate many issues in the individual tax code. There should also be income tax rate reductions using revenue triggers, which would create incentives for investment in the state. The way the income tax is currently written creates a penalty on saving and investments by penalizing people for being fiscally responsible. By adopting a consumption tax model, individuals would be taxed based on their spending patterns rather than earnings.
Change the Property Tax Code
Finally, changes need to be made to the property tax code. For example, if Oklahoma removes its inventory tax, that change could influence distribution centers and retailers into making Oklahoma the home for their businesses. Additionally, the franchise tax, which is levied on the net worth of the business instead of its ability to pay, should also be removed. This type of tax (especially during the covid pandemic) harms businesses that may have fallen on tough times.
If Oklahoma can eliminate these property taxes, it will immediately become more attractive to individuals, families, and businesses looking to move to the area.