Oklahoma’s local tax structure is outdated and the Legislature should vie to restructure it, said Claremore City Manager John Feary.
Four members of the Oklahoma State Legislature — including the body’s two highest-ranking senators, both former mayors — came to town June 27 for the Claremore Area Chamber of Commerce’s “State of Legislative Affairs” forum. Before taking questions, they discussed some of the 480 new pieces of law the Legislature passed this session.
Sen. Lonnie Paxton, R-Tuttle, is president pro tempore of the Oklahoma Senate. Only Lt. Gov. Matt Pinnell, as president of the Senate, outranks him. Paxton appointed Sen. Julie Daniels, R-Bartlesville, his majority floor leader, making her second in command.
Paxton and Daniels both served as city council members and mayors of their respective towns before their election to the state Senate.
Feary told the legislators he believes Oklahoma’s statutory scheme for city tax collection — notably, that cities and towns may collect sales tax but not property tax — is inhibiting growing cities like Claremore.
“It is time to tear down the antiquated system in which municipal government is funded, especially when we’re forced go out and place that burden on our utility customers and our taxpayers,” Feary said. “It puts us in a position where we have to come to you and ask for things, where, if we had more resources and an updated policy, we could do things on our own.”
Claremore’s municipal sales and use tax rates rose from 3% to 4% Tuesday. In his spring campaign for the tax increase, Feary said it was necessary because by law, Oklahoma communities depend heavily on sales tax to raise money for costly infrastructure projects.
Oklahoma is one of 31 states that follows Dillon’s Rule, a judicial doctrine counter to home rule in which cities and counties may only act only as state law explicitly allows.
Of these 31 states, all but Oklahoma – and Hawaii, which lacks incorporated cities – have legislatively authorized cities to collect property and sales taxes. But §68-2701 of the Oklahoma Statutes states municipalities may levy taxes for general government “except ad valorem property taxes.”
According to 2017 data from the Tax Policy Center, cities in other states raised an average of 24% of their general revenue from property tax. The Government Finance Officers Association estimates this figure closer to 18%.
Claremore raises nearly 70% of its revenue from user charges – primarily electric, water and sewer – and 23% from sales tax, according to the GFOA, which cites the U.S. Census Bureau.
By comparison, cities nationwide gathered 29% of their revenue from user charges and 7% from sales tax.
Feary said the legislators should support the Oklahoma Municipal League, an organization that lobbies on behalf of municipal governments, in its effort to make cities less reliant on sales tax and user charges.
“We understand where you’re coming from, and we worked very well with OML this year,” Daniels responded.
Since the Oklahoma Constitution, Article X, Section 9, forbids Oklahoma cities from collecting property tax for general government; voters would have to approve a constitutional amendment to change it.
Daniels said she doubted voters would give cities that right.
Paxton said he and Daniels know what Feary means because they served as Tuttle’s and Bartlesville’s mayors, respectively.
He said one conversation he and other Senate leaders have had is whether to expand the range of services on which Oklahoma cities may levy sales tax.
Both Texas and Oklahoma tax services, Paxton said, but Texas’ list is broader. While the Oklahoma Tax Commission does not allow cities to tax services unless they are explicitly enumerated in laws or regulations, the Texas comptroller considers taxable all “labor to restore or maintain tangible personal or real property.”
“Maybe lower the overall rate, but move more services into the realm as well — that’s a discussion we have,” Paxton said. “It’s very easy to talk about cutting taxes. It’s very difficult, as you’re talking about, expanding into something else.”
Feary said he hoped OML would encourage the Legislature to change Oklahoma’s local tax laws.
“Twenty-one years I’ve been doing this, and we’ve been having the same conversation for two decades,” Feary said.