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OKLAHOMA: Multiple Taxes: Voters Approve Income Tax Changes, Cigarette Tax Increase

Constitutional amendments and a referendum approved at the November 2, 2004 general election ballot will (1) decrease the top Oklahoma personal income tax rate; (2) expand an Oklahoma personal income tax exemption; (3) increase the Oklahoma cigarette tax; (4) change the method for setting the income threshold for determining the fair cash value of certain homesteads for purposes of Oklahoma property taxes; and (5) create a homestead exemption from Oklahoma property tax for certain injured veterans or their surviving spouses.

Personal Income Tax Provisions

Personal income tax rate: The top Oklahoma personal income tax rate, for taxpayers who do not deduct federal income tax, will decrease from 7% to 6.65%, and the provision that required a fluctuation of the rate based on the revenue projection certified by the State Board of Equalization is eliminated for tax years beginning after 2003.

Retirement income exemption: The Oklahoma personal income tax exemption on retirement benefits received from federal and Oklahoma state or local government retirement plans will increase from $5,500 to $7,500 for tax years beginning after 2004. Also effective for tax years beginning after 2004, the personal income tax exemption on retirement benefits will increase from $5,500 to $7,500 for taxpayers whose Oklahoma adjusted gross income is $37,500 or less for single taxpayers, a head of household, or married taxpayers filing separately. For married taxpayers filing jointly or for a qualifying widow, Oklahoma adjusted gross income must be $75,000 or less to qualify for the exemption.

Capital gains tax rate: All Oklahoma personal income tax on capital gains that are the result of a sale of Oklahoma-based property that is held for five years or more will be eliminated for tax years beginning after 2004.

Sales tax credit: The refundable personal income tax credit for sales tax paid in the amount of $40 per person will be available, for tax years beginning after 2004, to childless households with a total income of $20,000 or less (currently, $15,000); and households with children, an individual with a physical disability that is a substantial handicap to employment, or a person who is 65 years of age or older at the end of the tax year, and having a total income of up to $50,000 (currently, $30,000). Also, the provision that suspends the credit if the revenue projection certified by the State Board of Equalization is less than the appropriation limit for the current fiscal year is eliminated.

Cigarette/Tobacco Tax Changes

Cigarette and tobacco tax rates: Effective January 1, 2005, the Oklahoma sales tax on purchases of cigarettes and tobacco products will be eliminated. The Oklahoma cigarette tax will increase by 4 ?? per cigarette, and the tobacco product tax will increase on little cigars and cigars. The discount permitted to those affixing cigarette tax stamps will be modified from 4% of the face value of each lot of stamps to 1.50 per stamp when the purchase value of the stamps exceeds $100.

Tobacco compact enforcement: Effective December 1,2004, Indian tribes that do not comply with the terms of tobacco tax compacts requiring payments in lieu of taxes will not receive a share of the taxes for the reporting period during which the noncompliance occurred. The Oklahoma Tax Commission will conduct annual audits to determine if tribes are complying with the terms of the tobacco compact and whether the correct amount of tax is being remitted.

Homestead Exemption for Veterans and Spouses

A homestead exemption from Oklahoma property tax for the full fair cash value of the homestead will be available, beginning January 1,2006, for a head of household who (1) was honorably discharged from active military service; and (2) has been certified to have a 100% disability that was incurred during active military service. The exemption will also be available to the surviving spouse of a head of household who qualifies for the exemption.

Fair Cash Value of Homestead

The income threshold for determining the fair cash value of certain homesteads, for purposes of Oklahoma property taxes, is modified, effective January 1, 2005. The income limit for a head of household who is over 65 years of age will be determined by the estimated median income for each individual county or metropolitan statistical area which includes the individual county. Currently, the income limit is $25,000 per year. (Oklahoma State Questions 713, 714, and 715, approved by the voters at the November 2, 2004 general election.)