Tulsa officials have signed an agreement with an Alabama-based firm to begin collecting the city's sales tax revenue on Nov. 1, leaving the city on an apparent collision course with the state, which recently adopted a law effectively banning the privatization of sales tax collections.
Gov. Brad Henry signed House Bill 2359 on June 10, which includes a provision requiring all municipalities to contract with the state Tax Commission for the collection of sales tax revenue.
Terry Simonson, Mayor Dewey Bartlett Jr.'s chief of staff, said the city had been exploring the idea of contracting with an outside firm to collect its share of sales tax revenue for several months when the bill forbidding such a step was passed by the Legislature in late May. Shortly thereafter, the city entered into an agreement with Revenue Discovery Systems of Birmingham, Ala., to take over that function from the state Tax Commission by Nov. 1. City officials believe the firm can perform the task more efficiently and more cheaply than the state.
The governor's signature was the final step in the bill's journey, but Simonson noted the law does not take effect until July 1 -- a detail that leaves some room for debate.
"The bill passed on the last day of May, and we actually signed an agreement on June 1," he said. "The governor signed it (on June 10), and the law takes effect July 1. So there's certain to be a question as to, do we, as we believe, fall under the old law, which would allow this."
Simonson said city officials did not rush into the agreement just to have something in place before Henry signed the bill, which was intended primarily to increase the collection of sales taxes on items purchased over the Internet or by other remote retailers.
"We did our due diligence," he said, noting that it was state lawmakers who inserted the language requiring cities to contract with the Tax Commission into a bill during the final hours of the last day of the session. Simonson had had conversations with House Speaker Chris Benge, R-Tulsa, and Senate Pro Tem Glenn Coffee, R-Oklahoma City, outlining Tulsa's interest in hiring an outside firm to collect the city's sales tax revenue, "and there was no resistance or push back from them," he said.
"But we were aware there were some lawmakers who were closely aligned with the Oklahoma Tax Commission who did not like the idea," Simonson said. "So we kept our eyes out on amendments that someone might want to slide in."
On the afternoon of the final day of the session, Simonson said he received a call from a lobbyist who was monitoring the action at the Capitol for the city. A subtle change of language in one section of the 77-page HB 2359 had drawn his attention.
The bill had read that municipalities "are authorized and empowered to" enter into contractual agreements with the Tax Commission to collect their sales tax revenue, but that language was struck and replaced by the word "shall."
"Basically, it took out the language that made it optional and inserted wording that made it mandatory," Simonson said.
That didn't stop the city from signing a professional services contract with Revenue Discovery Systems on June 1. Simonson said city staff members had been investigating the possibility of making the shift for several months, traveling to the firm's headquarters in Alabama this past winter to visit with company officials. They also paid a visit to the offices of the state Tax Commission in Oklahoma City to compare the two operations, he said, and came away convinced that that agency was overworked and understaffed.
Simonson has said RDS officials claim that many of their client cities across the country have seen dramatic increases in their sales tax collections since employing the firm -- in the neighborhood of 4 to 6 percent in the first year alone. If Tulsa were to experience a similar increase, he said, it could mean millions of dollars in additional revenue at a time when layoffs, furloughs and reduced services have become the norm for city government.
Simonson said he wasn't sure what the city's next step would be, but he anticipates that Tulsa will come into conflict with the new state law eventually. The city's legal department is exploring options, he said.
"At some point, when we feel like we're ready, we'll begin to move forward with this company in a transition period," he said.
"Do we then notify the Oklahoma Tax Commission we're exercising our notice that we'll no longer be using them? And what does the other side feel like they need to do? That's one scenario. Or do we go out now and say the new law interferes with our agreement? We're still working through that now."
Simonson said RDS officials have said they will need to be notified 120 to 150 days ahead of time before the firm is prepared to begin operations in Tulsa.
Tulsa County officials have expressed interest in privatizing their sales tax collections, as well, along with a number of metropolitan-area municipalities. Simonson believes it's an idea whose time has come.
"This really isn't about Tulsa," he said. "This is something the state should look into, as well. Why does the government want to compete with the private sector in something the private sector has experience in and the knowledge to do? Collecting taxes is not a government-only job; although, I guess some thought different."
There appears to be at least two issues up for debate in regard to Tulsa's position on the issue. The first is whether Tulsa's agreement with RDS was in place before HB2359 was enacted, possibly allowing the contract to be grandfathered in. The second is whether the state has the constitutional authority to mandate that municipalities contract only with the state Tax Commission to collect their sales tax revenue.
Simonson said he has been told that point of contention is worth exploring.
Throughout the next couple of weeks, city officials will finish analyzing the situation and decide "what's the best legal position for us to begin with," he said.
"Do we give the Tax Commission notice now that, effective Nov. 1, we'll be using another company? We just need to weigh the pros and cons of that decision," he said.
Simonson said the city will follow through on its intention to begin employing RDS by Nov. 1, making it unlikely a confrontation with the state will be avoided.
"I believe so," he said. "It still has as much value and as much potential benefit as in January when we started looking at it. It has not been presented to us why this is a bad idea."
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