Budget & Tax

Sales Tax for Education Would Generate Millions

September 9, 2016

Steve Anderson

Sales Tax for Education

Would Generate Millions

If policymakers want to disincentivize government spending,
level the playing field for Oklahoma businesses, and help
fill the 2017 state budget gap, they should force educational
institutions to pay sales tax on their purchases.

By Steve Anderson

University of Oklahoma president David Boren is leading the charge for a 22 percent increase in the state sales tax rate. But of course such a tax hike would have many harmful effects.

“A decrease in competiveness could discourage long-term growth and disincentivize relocation to Oklahoma,” writes Erica Wilt of the Tax Foundation. “It would likewise impact individual pocketbooks, placing the highest burden on those with lower incomes and possibly leading consumers to purchase less, engage in cross-border shopping, or buy online. Furthermore, counties, cities, and towns in Oklahoma rely on local sales tax revenue to pay for essential services. A higher state rate could provide them with less flexibility on local rates.”

What’s interesting is that Mr. Boren wants to raise a tax that educational institutions—both in higher education and in common education—do not pay.

When I was budget director for the State of Kansas, we floated the idea of making the state government—including educational entities—pay sales tax on their purchases. This was after we discovered that the amount of lost revenue to the state was approaching $650 million (including about $8 million in state sales tax charges to the federal government they would not have been able to collect unless the state also paid sales taxes).

The hue and cry from the education establishment was immediate. It consisted largely of complaints that it would make things more expensive for them. Well, yes. As conservatives, we believe that disincentivizing government spending is a good thing, not a bad thing.

Consider, for example, the never-ending building spree in higher education. Rick Green, reporting on the latest example July 13 in The Oklahoman, writes: “The major new construction comes at a time of increasing student costs, a state recession caused by the oil industry downturn, and a state revenue shortage that has cut funding to most state agencies.”

Are all these new projects necessary? “Anyone that has driven through a college campus in Oklahoma in the last 10 years has seen a tremendous growth in construction projects, whether at the University of Oklahoma, Oklahoma State University, or smaller institutions,” state Sen. Patrick Anderson (R-Enid) was quoted as saying. Although some of the spending is necessary, Anderson says, higher education officials have used the “Master Lease Program” to purchase “scoreboards, AstroTurf, golf carts, airplanes, things that don’t seem to be the most necessary items for colleges and universities.”

Sen. Anderson, who is also a banker, told The Oklahoman that fees charged to students to pay for the bonds only increase the financial burden on students. “When you see the bill, the fee costs are equal to the tuition costs,” he said.
In Kansas, we discovered that state sales-tax exemptions on new buildings and other construction alone totaled nearly $170 million, the vast majority of which was in education (higher education more so than common education). I would estimate the number would be similar in Oklahoma. Clearly this is a function of the build-ever-bigger-and-fancier-structures groupthink of government, especially of the education establishment.

But of course buildings come with not only operational costs such as heating and cooling, but ongoing maintenance costs and long-term replacement issues. These costs consume large annual streams of funds or create hidden costs issues in deferred maintenance. Disincentivizing these expenditures by raising the cost to the university system is a good thing—not the simple “cost increase” that education officials would have you believe.

Moreover, private-sector companies pay these sales taxes. Making the government pay them would help level the playing field.

In sum, if policymakers want to disincentivize government spending, level the playing field for Oklahoma businesses, and help fill next year’s budget gap, they should force educational institutions to pay sales tax on their purchases.

OCPA research fellow Steve Anderson is a Certified Public Accountant with more than 30 years of experience in private practice. He has also served as budget director for the State of Kansas and as a budget analyst in the Oklahoma Office of State Finance. At one time he held 17 state teaching certifications, ranging from mathematics to physics to business.