Mortgage brokers protest Keating tax plan

Journal Record, The (Oklahoma City), Jan 25, 2002 by Ray Carter The Journal Record

Since Gov. Frank Keating unveiled his tax reform plan in December, it's come under fire from municipalities, bankers, commercial property owners and state lawmakers.

Now you can add Oklahoma's mortgage brokers to that list -- especially A'Kos Kovach, president of the Oklahoma Association of Mortgage Brokers.

"I haven't heard any positive feedback on Governor Keating's proposal," Kovach said, "which, when you stop to think that the majority, probably, of the mortgage brokers are Republican, (means) it's not a partisan issue. It's something that's not good for Oklahoma and it's not good for the service industry in particular."

The Keating plan would eliminate the state income tax and sales tax on groceries, and replace them with a 5.9 percent sales tax on more than 200 services. Keating's plan would also repeal the business franchise tax and bring the Oklahoma estate tax in line with the federal estate tax.

The sales tax on services would yield an estimated $2.7 billion each year, replacing all revenue lost through the repeal of other taxes. The revenue-neutral aspect of the plan doesn't appeal to Kovach, who was interviewed at a mortgage industry summit hosted by the Oklahoma Association of Mortgage Brokers in Oklahoma City on Thursday.

"All we're doing is swapping who's collecting the fee," he said. "It's just a shell game and it's an embarrassment that it's even on the table."

Kovach said the governor's tax plan would have a major impact on home purchases.

"Basically, everybody in the process is a fee-based entity," he noted.

Kovach said the new sales tax would be levied by "literally everybody in the food chain," including title attorneys, appraisers, lenders, home inspectors, surveyors, and even "the guy that goes out and inspects the well or septic system."

As a result, Kovach said officials estimate that the Keating plan would increase the cost of a home purchase by $1,200 to $1,500 per loan closing.

"That's a lot of money for a lot of people," he said.

The increased cost would likely prevent many lower-income earners from becoming homeowners, he said.

"Since we've identified thoroughly that the number one obstacle to home ownership is the down payment, why would we want to increase the cost of the down payment?" Kovach asked. "That's pretty elitist. I'm sorry, but that stinks. Because some people, like the governor, what's 1,200 or 1,500 bucks to him? Nothing. It's nothing. But to the hard-working guy or the person that only works part-time because he's got a disability or something, that's two months worth of income or a month-and-a-half of income -- that's a lot of money. And we want to make those people homeowners."

Two state lawmakers speaking to attendees at the summit said there is little chance that the Keating plan will pass the Legislature in its current form.

"The governor's tax proposal would be devastating," said Rep. Debbie Blackburn, D-Oklahoma City. "I haven't heard a single business person that is supporting the plan who fully understands that we're talking about taxing virtually everything."

Blackburn, who chairs the House Banking and Finance Committee, said a sales tax on services was "the most regressive type of tax" and said policy-makers have rejected that type of tax since statehood.

"I think what we've tried to do is to have a variety of taxes that we've tried to keep at a low level so you didn't have a big hole," she said.

In addition, Blackburn said Keating's plan is "fraught with danger," noting that many municipalities "are scared to death" that the plan will impact their ability to levy a sales tax on groceries.

Blackburn also noted that several corporations have threatened to leave the state if a sales tax on services is imposed, since it will leave them at a competitive disadvantage in a national market.

In addition, she said the tax could create a huge "underground economy" as consumers seek to avoid the sales tax. And she noted that the paperwork hassle would balloon for business owners all over Oklahoma.

"These are people who would have to start collecting taxes that have never had to collect taxes ever," Blackburn said.

When Keating first unveiled his plan, Jim Walker, former chairman of the Oklahoma Tax Commission, noted that there are currently 70,000 taxpayers that collect sales tax in Oklahoma. He said Keating's plan could boost that number to 700,000.

Due to those concerns and the lack of popular support for the plan, Blackburn predicted Keating's proposal would not become law this year.

"I would be very surprised if it passed," she said. "I don't think there's support really even from the governor's own party."

Sen. Glen Coffee, R-Oklahoma City, did not dispute Blackburn's assertion.

"I think there's going to be a lot of debate," he said. "At the end of the day, if we do have tax reform, it probably won't look much like (the governor's plan) or it will be a hybrid."