On Jan. 1, 2023, the City of Bartlesville will begin collecting use tax on items purchased from out-of-state sellers.
The City Council on Monday voted 5-0 to adopt a use tax ordinance that will enable the City to collect existing sales tax on items purchased from out-of-state sellers — which could total as much as $3.7 million annually for the City. The votes comes after a lengthy presentation and discussion during a special meeting held last month.
Adoption of the tax is not a tax increase for Bartlesville residents, but rather allows the City to collect the existing sales tax from out-of-state sellers. While in the past the tax was considered a business-type tax, a change in the law in 2018 now requires sellers to collect and remit use tax, not purchasers.
“Until very recently, use tax had a very low compliance rate for individuals and, because of this, it was primarily regarded as a business-type tax,” Bailey told the council on Sept. 20. “Now a majority of use tax growth is related to sales traditionally considered sales tax. In Oklahoma, use tax grew an average of 12 percent from 2019 to 2021, compared to a 2 percent growth in sales tax. The growth in online sales has led to a substitution from sales to use tax, and purchases that have traditionally generated sales tax are now accounted for as use tax. Due to these changes, use tax is no longer primarily a business tax and is increasingly composed of consumer purchases previously taxed as sales tax.”
As a result of this substitution, use tax growth is outpacing sales tax growth by a large margin, he said.
“In fact, use tax has grown by 12 percent across the state in the last 24 months, while sales tax has only grown by 2 percent during that same period,” he said, noting an increase in online shopping during the pandemic, a trend that is expected to continue permanently.
In Bartlesville’s peer cities, use tax grew 22 percent over the two-year period, Bailey said. Despite these gains, however, sales tax remains the City’s primary source of revenue.
“Traditional sales tax is still our largest source of revenue, but much of the growth in retail sales is shifting to online sales,” Bailey said. “Without a use tax, we will likely be forced to continually increase our sales tax to overcome the lack of growth. This is an unsustainable model that requires diversification to avoid long-term disruption to essential services.”
Though approved Monday by the council the tax will not be implemented until January 2023 to allow for adequate planning by local businesses and resident but before the expiration of the American Rescue Plan Act, Dec. 31, 2024.
“Also, starting the tax in mid-fiscal year (January) allows City staff to budget more accurately for Fiscal Year 2023-24,” he said.