New Tool for Collecting Local Sales Tax Available Now

An important new tool is available for you to increase collections of your sales and use tax.  Your knowledge of your community can now directly be brought to bear for local compliance of municipal and state law.  This is due to the passage in the 2011 legislative session of SB 750 and the successful completion of the required implementation plan and negotiation of the implementing contract between municipalities and the Oklahoma Tax Commission (OTC).

Under SB 750 municipalities were authorized to “engage in compliance activities, either directly or through contract with private persons or entities to augment the collection of the municipal tax by the Tax Commission.”  (See attached Subsection E. of 68 O.S. 2702, added by Senate Bill 750). 

It is important to note that SB 750’s municipal compliance activity is brought under the umbrella of the OTC in order to safeguard the continuing collection of sales tax on certain purchases made via the internet or catalog sales.  These collections under the Streamlined Sales and Use Tax Agreement (SSUTA) are responsible for $6,213,917.76 in statewide municipal sales in 2011.

By following the procedure in the statute, municipalities will have greater leeway to contact local merchants about compliance with the local sales tax ordinance.  If your activities under SB 750 result in an increase in sales tax collections, you will be reimbursed by the state for its resulting higher collections.   

Example:  A city’s tax rate is 4% and OTC retains 1% of collections of that 4% tax.  It reimburses the city ¾ of 1% of the state’s 4.5%.  As an illustration, for each collection on a sale of $100.00, the city collects its sales tax of $4.00, pays OTC 4 cents and is reimbursed 3.375 cents.  In other words, the municipality obtains the otherwise uncollected $4.00 in revenue at a cost of less than a penny plus its costs for compliance activities.

Pertinent Documents.  The statute set out two conditions for full implementation. An initial step was the adoption of an Implementation Plan by the Director of the Office of State Finance.  Following protracted negotiation between the OML Liaison Board and OTC, that step was completed in December 2011.  The last step, completed on June 15, 2012, is the negotiation of a basic contract between a municipality choosing to engage in compliance activities and OTC.  Both documents are as follows:

2011 Plan to Implement SB 750

SB 750 Contract 6-15-12

Procedure.  SB 750 sets out the following procedure for a city or town to follow in order to exercise this new authority to engage in compliance activity:

  1. Enter into a contract with Tax Commission to engage in compliance activities.
  2. Designate what persons or entities will carry out the activities for the municipality.
  3. Obtain approval from the Tax Commission to accept the person or entity as its agent.
  4. Complete training for agents by Tax Commission for all persons or entities engaged in compliance activities.
  5. Sign confidentiality statements by all persons or entities engaged in compliance activities.

A more detailed description of the SB 750 process follows.

How It Works. 

  1. A city or town notifies OTC that it wishes to engage in specified compliance activities.

 

  1. Pursuant to SB 750, OTC shall enter into a contract with the municipality for that purpose.
    • Note that this contract is in addition to the master contract for OTC to collect the municipality’s sales and use tax.
    • It is also in addition to any contract between the municipality and the private person or entity who will perform the compliance activities.
    • Through the contract, the municipality will identify the compliance activities it chooses to undertake. (The Implementation Plan, paragraph A, defines the scope of compliance activities.  At paragraph C, it reserves specified activities to OTC in order to maintain Oklahoma’s participation in the Streamlined Sales and Use Tax Agreement (SSUTA).)

 

  1. The municipality designates to OTC its employees and/or private persons or entities who will carry out the compliance activities for the municipality.
    • The designated persons will complete OTC training as provided in paragraph F of the Implementation Plan.
    • Upon completion of the training, the OTC will approve the designated persons or entities, who then shall be agents of OTC. (This is also to comply with SSUTA requirements.)
    • The municipality and its designated persons shall receive all information necessary for its compliance activities from the OTC system.

 

  1. The municipality shall be reimbursed for certain enhanced collections as defined at paragraph D of the Implementation Plan 
    • Elements for reimbursement (detail)

§  This means any remittance of past due or unpaid

§  state sales or use taxes, including penalty and interest,

§  obtained from a delinquent seller as defined in paragraph B of the Implementation and further clarified in the Definitions section of the basic Agreement to Engage in Compliance Activities

§  following compliance activity by or on behalf of a municipality

    • Rate and Process of reimbursement (detail)

§  ¾ of 1% of enhanced collections

§  paid on a monthly basis

§  using the Commission’s best efforts, no later than the tenth day of each month following actual collection of these taxes due to the municipality’s compliance activities.

§  along with a report to the municipality showing collections due to enhanced collections as set out in the Compensation section of the Agreement to Engage in Compliance Activities, pages 3-4

§  payments from a fund created for that purpose

§  upon a report from the municipality of the compliance activity

    • Fiscal effect

§  The municipality may use its efforts to cause delinquent sellers to collect and remit sales taxes due to the municipality.

§  OTC will retain 1% of municipal sales taxes collected pursuant to the master collection agreement between the parties.

§  OTC will reimburse the municipality for enhanced collections at the state’s higher sales tax rate.  (See example above.)

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