Lawmakers in Oklahoma are examining whether the state should tax digital services and software subscriptions as consumer spending habits shift from physical goods to online platforms.
The interim study, hosted by Rep. Mark Lepak, R-Claremore, examined how Oklahoma taxes Software as a Service, digital memberships, and related products including music, audiobooks and streaming services. The study considered the potential revenue impact and reviewed how other states approach the issue.
The Oklahoma Municipal League requested the study because local governments rely heavily on sales taxes. Sales and use taxes account for 68% of local government budgets in Oklahoma — the highest reliance on sales tax of any state, according to Dave Andren, director of research for the league. He said consumers have increasingly shifted from purchasing physical goods like CDs and DVDs to subscription-based services that are not currently subject to Oklahoma sales tax.
"The economy has changed, but our policy has not," Andren said. "We have gone from a tangible society into a digital society, and we need to move forward."
If Oklahoma were to tax digital products, the state Tax Commission estimated the change could generate approximately $40 million annually in additional state sales tax revenue, according to Corey Jager, tax policy manager with the Oklahoma Tax Commission. Jager said lawmakers would first need to define which products would be taxable, establish exemptions, and create sourcing rules to determine where sales tax revenue would be collected — typically the purchaser's location under the Streamlined Sales and Use Tax Agreement, of which Oklahoma is already a member.
Jager noted the Tax Commission would need sufficient time to develop rules and educate businesses and taxpayers before any new tax took effect. Lepak said he will continue reviewing information from the study to determine whether additional legislative action is warranted.