Oklahoma Back Taxes: Resolution Options and Collection Activities
The Oklahoma Tax Commission (OTC) administers personal and business taxes in Oklahoma. You can file individual, corporate, franchise, and partnership income tax returns with the OTC as well as Oklahoma sales and withholding tax returns.
But what if you can't afford to pay your Oklahoma tax liability? The state offers several options for taxpayers who cannot pay their tax bills in full, but you need to act promptly. The OTC outsources tax collection to private collection agencies, and once your account has been assigned to an agency, you can no longer make arrangements with the OTC.
To help you out, this guide explains the resolution options for back taxes in Oklahoma. Then, it looks at what can happen if you don't pay your back taxes.
Oklahoma Back Tax Resolution Options
If you cannot afford to pay your taxes, the OTC recommends filing your return and paying what you can. Then, the OTC will send you a billing notice outlining the tax, penalties, and interest due. At that point, you need to contact the OTC directly or work with a tax professional to make arrangements for your tax liability.
The options vary based on your situation. Here is an overview of the essentials as well as links to pages with more information on OK payment plans and offers in compromise.
Payment Plans for Oklahoma Back Taxes
The OTC is willing to let taxpayers pay off their back taxes in monthly installments. To set up a payment plan, you must owe more than $100, and you must meet the eligibility criteria.
Most importantly, you must contact the OTC to set up the payment plan before your account is placed with a third-party collection agency. To learn more, check out our overview of an Oklahoma tax commission payment plan.
Oklahoma Offer in Compromise
If you meet strict qualifications, you may be able to settle your OK taxes for less than you owe through the state's offer-in-compromise program. To apply, you must complete a lengthy application process and convince the OTC that your offer is the most the agency is likely to be able to collect. Find everything you need to know on the OK state offer-in-compromise page.
Innocent Spouse Relief
Oklahoma offers innocent spouse relief to taxpayers who are divorced, separated, widowed, or deserted. To qualify, you must prove that your spouse understated the tax on your state return without your knowledge and that it would be unfair to hold you responsible.
Note that innocent spouse relief relieves you of state income tax related to your spouse's income. You still must pay the tax due to your own income. When assessing your application, the OTC considers your involvement in your family's financial affairs, your business or educational background, and whether or not you benefited from the unpaid tax.
The application asks questions about all of these issues. It also has a space where you can include information about domestic violence and abuse.
To apply for this program, submit Form L-21 (Request for Innocent Spouse Relief in Oklahoma). You also need to include copies of your divorce petition, divorce decree, or late spouse's death certificate as well as your federal income tax returns for the years you're requesting relief. If you have received innocent spouse relief from the IRS, you should include your determination letter with your application.
Hardship Status
The OTC does not advertise a hardship program for state income taxes. If you cannot afford to pay your state income tax, you may want to consult with a tax professional about the best options for your situation.
However, at the time of writing, the OTC has a hardship plan in place for sales tax. If you had a hardship or a good reason for not filing a sales tax return, you can get an abatement on penalties and interest until April 10, 2023. This program was designed to help businesses as they get into compliance with the state's new sales tax rules implemented in 2018 after the South Dakota Vs. Wayfair ruling.
Penalty Abatement
You can request a waiver of your penalties once you have paid the tax in full. The OTC will consider why you paid the tax late as well as your previous history of compliance. Typically, you cannot request penalty abatement if you still have an outstanding balance.
Appeals Process for Oklahoma Taxes
If you disagree with an order, ruling, or finding of the OTC, you have the right to appeal. You can request an appeal trial de novo in the district court of Oklahoma County or in the county where you live. You must appeal within 30 days of receiving a notice from the OTC. If you disagree with the results of the appeal trial, you can appeal directly to the Oklahoma Supreme Court.
Appealing assessed taxes can be a complicated process. You have the legal right to represent yourself, but to protect yourself and your assets, you may want to work with a tax attorney or another tax professional such as a certified public account (CPA) or enrolled agent (EA).
Enforcement Actions for Oklahoma Back Taxes
If you ignore your Oklahoma back taxes, the OTC Collection Division can pursue involuntary collection actions against you. The state has many different collection options at its disposal. Take a look at the enforcement options that you may face if you owe back taxes in Oklahoma.
Oklahoma Warrants for Unpaid Taxes
Oklahoma can issue tax warrants for unpaid taxes. Also called tax liens, the warrants declare that the state has the right to a taxpayer's personal or real assets. Oklahoma state tax warrants supersede any other liens placed against the assets after the warrant.
Once a warrant has been attached to your property, you will not be able to sell or take loans out against the property. To get the lien removed, you must pay the tax, interest, and penalties in full. If you pay with a debit card, electronic funds transfer, or automatic withdrawal, there will be a 30-day hold for lien removal. The state will immediately release the lien if you pay by credit card, cash, money orders, or certified check.
Liens expire after 10 years. But as long as the state acts before the lien expires, it can issue a new lien. The second and all other subsequent liens also last for 10 years.
Oklahoma Tax Levy
Once the state has issued a tax warrant, the sheriff in the county where the lien has been issued has the right to sell your personal or real property. The sheriff does not have to evaluate or appraise the assets prior to selling them, and the sheriff has the right to collect unpaid taxes, penalties, interest, advertising costs, and collection fees through the sale.
The state also has the right to garnish wages and seize bank accounts for unpaid taxes. In Oklahoma, wage garnishment is called a "continuing garnishment" because it continues until the tax liability has been paid in full. A bank account garnishment is called a "one-time garnishment".
Tax Penalties Charged
The OTC assesses a one-time penalty of 5% of the tax due for unpaid taxes. The penalty applies if you are even a day late, but it can also apply if you don't pay your quarterly taxes on time.
There is a 10% one-time penalty for paying business taxes late. The state also charges interest at a rate of 1.25% per month on both personal and business taxes. If you owe over $1,000 and underpay your estimated taxes, the interest rate is 20% per year. That is 1.667% per month.
Other Enforcements for Unpaid Oklahoma Taxes
The state publishes a list of the top 100 tax delinquencies over $25,000. This list is on the OTC's website, and Oklahoma-based newspapers often reprint the list. To be on the list, your total amount due must be over $25,000 and more than 90 days delinquent.
However, you do not necessarily get a spot on the list if your unpaid taxes are over $25,000. Instead, you need to be in the top 100, and at the time of writing, every person or business on the list owed over $450,000. Appearing on this list can hurt your personal and business reputation significantly.
In the past, the state dismissed employees who owed state back taxes. Luckily, this law was overturned (almost unanimously) in 2020. Now, state employees can keep their jobs, but the state has the right to garnish their paychecks for unpaid taxes.
Statute of Limitations on Oklahoma Tax Liabilities
Under Section 53 of Article 5 of the Oklahoma State Constitution, the state legislature does not have the right to extinguish any debts to the state. There is an exception for property taxes, but the state cannot extinguish other tax liabilities. In other words, Oklahoma has no statute of limitations on tax liabilities. The state has the right to collect them indefinitely.
In 2005, the state legislature proposed amending the constitution to place a 10-year statute of limitations on state tax liabilities. But, unfortunately for people with Oklahoma back taxes, this amendment did not pass.
Third-Party Collections for Oklahoma Back Taxes
As of 2022, the OTC outsources income tax collection to Harris & Harris LTD (H&H) and Linebarger, Goggan, Blair & Sampson, LLC (LGBS). These are private collection agencies, and they have different options available to help you negotiate arrangements for your tax liability. Once your tax liability has been placed with a collection agency, you cannot set up a payment plan with the state.
If a collection agency contacts you and you want to ensure that they are legitimate, you can contact the OTC Collections Division directly at 405.521.2212. They can let you know how much you owe and whether or not your account has been referred for third-party collections.
Get Help With Oklahoma Back Taxes
If you owe back taxes in Oklahoma, you should get help from a tax professional. Don't call the big-name tax resolution firms that charge excessive fees and make promises they can't keep. Instead, reach out to a local tax pro.
Using the search feature on TaxCure, you can look for Oklahoma tax professionals based in your area who have experience with your specific tax concern. To learn more, contact an OK tax pro for help today.