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No change expected in oil and gas drilling incentives

BY MICHAEL MCNUTT Published: September 29, 2011

Lawmakers likely will not alter several oil and gas drilling tax incentives that legislators extended earlier this year to 2012, the chairman of a legislative task force looking at tax credits said Wednesday.

“I don't see any (changes) at all in the oil and gas (credits),” Rep. David Dank said after Wednesday's hearing looking at incentives for the oil and gas industry.

The House of Representatives voted 85-12 and the Senate voted 40-0 to renew the credits earlier this year.

Dank, R-Oklahoma City, said other states with oil and gas reserves are offering similar incentives, and that Oklahoma could risk reducing oil and gas activity by reducing or eliminating benefits.

“With these incentives, we have created a climate by which they are not only going to drill 22,000-foot horizontal wells out there that could cost up to $14 million and could be a dry hole, but that also it creates a climate by which they're going to stay in Oklahoma and keep their employees here and keep their offices here,” he said. “I can't say enough good things about the oil and gas industry. It's our bedrock industry. If it were not for that industry, our economy would resemble that of a Third World nation.”

But Dank said he's hoping lawmakers next session will make adjustments to the home office tax credit for insurance companies by placing limits on it and making sure companies that receive it cannot get other state tax credits or incentives.

“Certainly we should not renege on any existing agreements, but we need to take a look at creating an endgame provision to establish a time limit on these tax credits,” said Dank, R-Oklahoma City.

Dank said he's concerned the program providing insurance premium tax credits for insurance companies that maintain home or regional offices in Oklahoma allows an insurance company to benefit from other state tax credits at the same time.

“We need to examine any loopholes to stop double-dipping in the future,” said Dank, chairman of the Task Force for the Study of State Tax Credits and Economic Incentives.

The Oklahoman reported earlier this month that one of the state's largest insurance companies received about $20 million in job creation rebates and tax credits in two separate economic development programs.

Farmers Insurance Co. Inc., which is based in Los Angeles, received $9.6 million in Quality Jobs rebate payments from 2002 to 2011, according to Oklahoma Tax Commission records, and claimed at least $8.8 million in “home office” tax credits against its insurance premium tax in the last decade, according to data from the Oklahoma Insurance Department. Those credits may be used if insurance companies establish headquarters or regional offices employing at least 200 people.

Oklahoma has a 2.25 percent tax on all insurance premiums written in the state, which totaled $172 million during the 2011 fiscal year that ended June 30.

Assistant Insurance Commissioner Rick Farmer told the task force that Farmers Insurance was allowed to receive benefits from both programs because the employees worked in two separate divisions. The legal interpretation approving the transactions was made in 2001, said Farmer, who joined the Insurance Department earlier this year.

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