State Chamber working on ‘intangible’ tax solution

By Patrick B. McGuigan

Published: 18-May-2010

The State Chamber of Oklahoma is working closely with legislative leaders to fashion a short-term solution for a controversial state Supreme Court ruling with potential dramatically to impact the state’s business climate. CapitolBeatOK has learned State Chamber leaders plan to circulate a letter on the issue soon. Dozens of top state business leaders will be included in the communication. 

A September 2009 High Court decision ruled that only items specifically listed in Article 10, Section 6A of the state Constitution are exempt from “intangible” property tax levies. As the Chamber reports in a set of talking points presently circulating at the Capitol, “This means that such things as trademarks, software, patents, licenses, contracts, customer lists, goodwill, etc.; are now taxable as intangible personal property.”

Implementation of the court decision has the potential negatively to impact Oklahoma’s business climate, as no locally assessed companies presently pay such taxes. The Chamber, working with legislative leaders, are relying on state constitutional provisions that allow “in lieu of” levies.

As The Chamber memo reports, “Presently Oklahoma businesses are liable for a state franchise tax. By creating a small business activity tax that would be paid in lieu of ad valorem tax on intangible personal property, we can eliminate the current franchise tax and save Oklahoma businesses from a large tax increase that will inevitably result from the State Supreme Court’s ruling.”

The Chamber is arguing that “This solution in the end will neither increase or decrease taxes. It is designed to be revenue neutral.  As such, there will be no effect on education, counties or others that are recipients of ad valorem taxes.”

The proposal is likely to be folded into Senate Joint Resolution 61, the Oklahoma Business Activity tax code. The measure would “Require a $25 business activity tax to be paid in lieu of any taxes on intangible personal property.  Most businesses and individuals will receive a corresponding tax credit for this tax. Exceptions are “S” corporations and general partnerships.”

The Chamber memo said the new law would focus on “the potential problem of assessment of ad valorem tax on intangible property for the past three years” and “Require businesses to calculate a tax of 1 percent of net revenue to be reported to the Oklahoma Tax Commission for data collection purposes only for tax years 2010, 2011 and 2012.” No new taxes would actually be collected.

The measure would freeze corporate franchise taxes “so that they do not exceed the tax paid in 2009.” Perhaps of greatest significance, the bill would “Create a task force to review the different types of taxes imposed on businesses and individuals in Oklahoma and develop recommendations and proposed legislation to provide increased simplification and fairness to the state’s tax structure. The task force shall also have the responsibility of recommending amendments to the Oklahoma Business Activity Tax Code. The task force shall submit its report on or before January 1, 2012.

The State Chamber, in an email blast to members early this month, warned last fall’s state court ruling, “could bring a big tax increase to Oklahoma businesses.”

That Chamber communication continued, “Locally-assessed businesses do not now pay, and have never paid, taxes on their intangible personal property. The State Chamber and others have been working all session to develop a solution to this dilemma.”

Sources with the State Chamber said today (Tuesday, May 18) that the organization was pulling together a broad coalition to endorse the potential legislative solution to the quandary. A letter from Chamber president Fred Morgan and dozens of business leaders could circulate this week, perhaps even late today.

The president pro tem disclosed his work on the thorny issue to members of the Capitol Press Corps three weeks ago, saying an imperfect but timely proposal would be unveiled this legislative session, designed to buy time for the next Legislature to grapple with the potentially unsettling consequences of the Court’s decision.