OKLAHOMA CITY - Kraftours, a charter operator based in Tulsa, Okla., is going eyeball to eyeball with the Oklahoma Tax Commission over its collection of state sales taxes on intrastate coach services.
"Barring equitable enforcement actions by the Oklahoma Tax Commission, beginning June 1, 2004, Kraftours will no longer be collecting or remitting sales tax for bus and motorcoach services," Michael Kraft, director of vehicle operators at Kraftours, wrote in a letter to the tax agency last month.
Kraft also asked the commission to refund all sales taxes his company has collected and sent to the state during the past three years so it can return the money to customers.
Kraft says he is battling the tax commission because his company has been collecting state sales taxes while his competitors haven't.
In fact, following a routine tax audit five years ago, the state insisted Kraftours be more aggressive about collecting sales taxes. At the time, a state auditor told Kraft he had to start demanding official proof when a customer claimed it was exempt from Oklahoma sales tax. "Since that time, and at considerable irritation to our customers and demonstrable cost to our firm, we have felt compelled to insist that customers provide documentation of exemption from the tax commission before we can perform services on a tax-exempt basis," Kraft said.
Suspecting his competitors weren't collecting and remitting sales taxes to the state as was he, Kraft contacted the tax commission 18 months ago to get answers. He got no where. "I played their game for a year and a half," he explains. The only thing Kraft received for his time and effort was a letter saying "the issue needs more study."
However, Kraft was able to learn elsewhere that competitors were not collecting sales taxes and, if fact, at least one competitor was insisting the tax did not apply to charter bus operators.
To confirm what his competitors were doing, Kraft surreptitiously contacted three operators in April, asking them to submit charter quotations based on a presumed trip from Tulsa to Oklahoma City for a cheerleading group. According to Kraft, none of the competitors asked whether the phony cheerleading group had tax-exempt status, and none of the quotes from the competitors indicated sales tax was due.
"Any industry in which similarly situated competitors are struggling for the same business cannot be operating on a level playing field when one of the competitors is required by governmental mandate to charge 8.517 percent more (for sales tax) than all the others," says Kraft. "In our example of a trip from Tulsa to Oklahoma City, the tax difference amounts to approximately $50.
"It's easy for a customer to quickly rule out one of the competitors who is forced to charge $50 more than his competitors because of sales tax regulations," Kraft adds.
Kraftours is a 44-year-old company that operates eight motorcoaches. The Kraft family has been in the bus industry since 1915.
In the letter Kraft sent to the tax commission, he accused the agency of violating the equal protection provisions of the U.S. and Oklahoma constitutions because of its unfair and inequitable enforcement of tax statutes. He also informed the agency he planned to stop collecting the tax until the commission "can settle on language it deems enforceable and which it intends to apply equally."
According to another Oklahoma charter operator, the sales tax issue boils down to the vagueness of Oklahoma tax statutes. "No one knows what is taxable," says Jeff Polzien, president of Red Carpet Charters in Oklahoma City. He said a group of tour and charter operators met with tax commission officials earlier this year, and three tax attorneys in the room could not agree on the applicability of the tax statute to bus operators.
"It's crazy," said Polzien. "The statute is so poorly written. The way I read it, I'm not taxable, period."
Polzien said he knows of no other operator in Oklahoma that is collecting sales tax except Kraftours.
That, of course, galls Kraft almost as much as the tax commission's inability to acknowledge that its enforcement policies are as lackadaisical as they are unfair.
Kraft's declaration that he intends to stop collecting the sales tax has not endeared him to the tax commission. The director of the commission's tax policy and research division says if Kraft goes through with his threat he will be treated like any other delinquent taxpayer. That means Kraft could be subject to fines, penalties, interest and possible incarceration.
The tax commission wants Kraft to litigate the issue as the law provides. However, amassing thousands of dollars in legal fees to get equal treatment from tax collectors doesn't hold much appeal for Kraft.
"We are a tiny, little family-owned bus company," he says. "It's simply beyond the resources of a company like ours to take up the banner of sales tax equity in any other way than we have."
Meanwhile, Kraft says he is exploring other options that will keep him from violating the law, which he wants to avoid.