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Abstract
Many state legislatures grant local governments the authority to
enact sales taxes on retail sales transactions that occur within local jurisdictions.
Local government reliance on these local option sales tax
(LOST) revenues is increasing. In many states, including Oklahoma,
municipal governments are unrestricted as to the LOST rate that can be
imposed. The ability to generate LOST revenues, however, may depend
on many factors outside a local government’s domain, including proximity
to large, urban retail centers, and tax competition from other localities.
This paper investigates aspects of LOST policy for municipal governments
located on the urban fringe using all Oklahoma municipalities
that imposed a LOST from 1990 to 2001. An important finding is that the
revenue impact of increasing LOST rates (i.e., the LOST tax elasticity)
depends on the urban influence measure. The implications are important
for guiding nonmetropolitan municipal governments in the determination
of LOST policy