City Wins in Court
The city's year-long battle with the state to be allowed to collect its own sales tax receipts may not quite be over, but Tulsa officials were very pleased by a court ruling last week in the city's favor.
Tulsa filed suit last year after the Legislature adopted a measure requiring municipalities in Oklahoma to contract with the state Tax Commission to collect their share of sales tax receipts. City officials had signed a contract with Revenue Discovery Systems, a Birmingham, Ala.-based firm, to perform that service, arguing the company could provide the service more cheaply and efficiently. But implementation of that contract was put on hold after lawmakers passed House Bill 2359 at the end of the 2010 session and Gov. Brad Henry signed it.
District Judge Bill Graves issued a ruling on May 9 in the city's favor, declaring the state had acted unconstitutionally in mandating that municipalities contract with the Tax Commission.
"It's a tremendous victory," said Terry Simonson, Mayor Dewey Bartlett Jr.'s chief of staff and the architect of the move to privatize sales tax collections. "We've been fighting for the right to do this for a year, and we always felt like we were right in pursuing it."
Simonson was especially pleased that Graves' ruling was issued in Oklahoma County, where the city of Tulsa presumably has no influence over the local judiciary. He also was pleased at the fact that Graves issued a 23-page ruling outlining his decision in depth.
The mayor's chief of staff said it was his understanding that any decision to appeal the judge's ruling would rest with Gov. Mary Fallin.
"We hope, over the next 30-day period, to visit with her key advisers on why it might be in the best interest of the state and cities not to appeal," he said. "We have begun the process of having that meeting. It is our position that the judge is right and the Legislature last year unconstitutionally infringed on the city of Tulsa's rights. And we don't feel an appeals court will find any different.
"So, given that, we would respectfully request the governor not slow down a process that's been 18 months in the works," he said. "We'd like to start moving forward."
Implementation of the contract with Revenue Discovery Systems potentially could have a large impact on Tulsa's financial situation. City officials have maintained that many businesses are delinquent in paying their taxes, and collection of those sums would be a priority for Revenue Discovery Systems.
Simonson has said in the past that company officials have told him that cities across the country have seen a 4 to 6 percent increase in tax collections in their first year of using the firm. If Tulsa were to experience a similar increase, it would mean millions of dollars in additional revenue at a time when city officials are still struggling to make ends meet during a modest economic recovery.
Additionally, the city pays the Tax Commission a 1 percent fee on the money it collects, while Revenue Discovery Systems would perform that service for a 0.6 percent fee, Simonson said.
"There's absolutely no down side for the taxpayers or the city when you consider the fee they charge is about half what the state charges," Simonson said. "Plus, they have the ability to be more timely in identifying delinquency in the collection of taxes, so that should increase our revenue stream."
Tulsa officials have argued all along that the Tax Commission is inadequately staffed, leading to the creation of so many delinquent accounts.
Though the agency did step up its pursuit of those accounts last year, there is still a lot of money rightfully owned to cities across the state that has gone uncollected, Simonson maintains.
There is also a good chance the city will enter into an agreement with other local governments to "bundle" its sales tax collection service with RDS, Simonson said, and be rewarded with an even cheaper rate. Tulsa County officials had expressed interest in such an arrangement last year, he said, along with the leaders of other communities in the metropolitan area.
"That would be a great example of a cooperative agreement that's a win-win for everybody," he said.
The city's contract with RDS, signed June 1, 2010, provided for a five-month "ramping-up" period before the firm officially took over the service on Nov. 1, 2010. Simonson said if the state agrees not to appeal Graves' ruling, a similar ramping-up period likely will need to be established this time, as well.
"So we would still use the Tax Commission for a certain period of time until all the details of the contract were in place," he said.
The additional revenue he expects the new arrangement to provide is sorely needed, Simonson said.
"It certainly will come at a very good time," he said. "Even if any kind of economic recovery slows down or stalls, we would hope that by the beginning of 2012, we would have found a way to sustain city services and repel and negative impact of the economy not growing. So I think it's all about good planning, good preparation and thinking ahead."
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