House Votes to Expand Sales Tax Holiday, Guarantees Promised Income Tax Cut

The Oklahoma House of Representatives has voted to expand the sales tax holiday for parents making back-to-school purchases for their children.

House Bill 3358, by state Rep. Randy Terrill, expands Oklahoma's "sales tax holiday," conducted the first full weekend of each August, to include a tax break on school supplies.

The legislation also reduces the franchise tax on small
businesses and guarantees the income tax cuts
promised by Gov. Brad Henry and the Legislature in
previous sessions.

House Bill 3358 would repeal the state's
4.5 percent sales tax on the purchase of
school supplies so long as the combined
purchases total no more than $100.

The holiday would cover items including binders,
book bags, calculators, tape, crayons, erasers, glue,
highlighters, lunch boxes, notebooks, paper, pencils,
pens, rulers and many other items.

The current tax holiday applies only to sales of
clothing and footwear valued at less than $100
apiece.

Although the state Senate has approved a similar bill, Oklahomans would get a more immediate benefit from the House proposal, Terrill noted. The Senate bill would not expand the sales tax holiday until next year while the House bill allows families to enjoy the expanded tax break starting this August.

In addition, the Senate proposal would not take effect at all unless state tax collections grow 3 percent in a given year.

"House leaders want to give working families a tax break this year," said Terrill, a Moore Republican who chairs the House Revenue and Taxation Subcommittee. "It makes no sense to condition the inclusion of school supplies in the sales tax holiday based on some arbitrary growth
figure."

The sales tax holiday is expected to save Oklahoma
families with children a combined $3 million
annually on more than $65 million in school supply
purchases.

House Bill 3358 would also increase the franchise
tax exemption from $250 to $500 starting July 1,
2009. The franchise tax rate is $1.25 per $1,000
of capital employed in Oklahoma.

"The franchise tax is a silly little 'nuisance
tax' because it frequently costs more to
calculate the bill than many small
businesses actually pay the state in tax,"
Terrill said. "It's basically a tax levied on
businesses simply because they exist."

The franchise tax change would benefit an
estimated 5,565 small businesses.

Since 2005, the Legislature has slowly
increased the franchise tax exemption
from $10 to $250.

House Bill 3358 would also guarantee the
income tax cuts promised by the governor
and lawmakers in recent years.

Since 2005, lawmakers have voted to cut
the top marginal income tax rate (which
includes people earning more than
$10,000 in taxable income per year) from
6.65 percent to the current rate of 5.5 percent.

The rate was supposed to fall to 5.25 percent
in 2009, but will not because state revenue
did not grow by more than 4 percent - a
"trigger" condition of the original law.

House Bill 3358 locks in that promised tax
cut and ensures the tax rate will fall to 5.25
percent when state revenue grows by 4
percent in the future.

"We may not hit it this year, but at some
point working Oklahomans will receive the
tax relief they were promised," Terrill
said.

After the rate is reduced to 5.25 percent, the
bill calls for an additional cut to 4.95 percent
once state revenue grows by another 3 percent.

"Since Republicans won the majority in the
Oklahoma House of Representatives, our
short-term goal has been to reduce the top
marginal income tax rate to less than 5 percent,
" Terrill said. "House Bill 3358 achieves that goal
and makes good on the promise we made to taxpayers."