Homeowners and locally assessed businesses could see property taxes go up regardless of whether Oklahomans vote Nov. 6 to exempt all intangible personal property from state property taxes by approving State Question 766, officials say.
“We have no clue what the impact is going to be,” admits Garfield County Assessor Wade Patterson, who has an advantage over most folks because he served on a committee that studied the issue.
The Oklahoma Tax Commission's best estimate is that 251 centrally assessed companies like AT&T, Oklahoma Gas and Electric Co., American Airlines and Cox Communications will receive a collective $50 million tax break if voters approve State Question 766.
Patterson said he has seen other estimates ranging from $12 million to more than $60 million.
Regardless of the amount, less money will be distributed to school districts and counties, which will be required to absorb the bulk of the loss. When property taxes are reduced for one taxpayer, like a utility company, that means a higher percentage must be paid by other businesses and homeowners in the district to pay off outstanding indebtedness on school and county bonds, Patterson said.
But a vote against the state question won't necessarily save homeowners and small businesses from higher taxes either.
The State Chamber of Oklahoma has been running television ads warning homeowners and businesses that a vote against eliminating intangible property taxes could lead to the “single largest tax increase in state history.”
“That's the fear,” Patterson said. “Theoretically, I think they would be right.”
The fear is based on a 2009 Oklahoma Supreme Court decision that affirmed the state Tax Commission's authority to tax some types of intangible property owned by centrally assessed businesses. In its ruling, the court also opened the door for local county assessors, who have not been taxing intangible property owned by businesses and homeowners, to perhaps begin doing so in the future.
“Even if a county assessor didn't want to collect the tax, I think they have a duty to collect the tax under their general duties,” said Fred Morgan, president of the State Chamber.
Patterson said it's a bit more complicated than that.
Residents of 71 of Oklahoma's 77 counties have voted previously to exempt household personal property from taxation. One more county, Harper County, has a vote scheduled on the issue in November.
Patterson said he believes intangible property falls within the category of household personal property for homeowners and would not be subject to taxation in 71 counties, even if State Question 766 is defeated.
“I disagree with that,” Morgan said.
Morgan said he believes the household personal property tax exemption only refers to tangible property, and county assessors could begin taxing homeowners on a wide range of intangible items. He listed music copyrights, the right to use a smartphone app after paying a licensing fee, teaching certificates, nursing licenses and doctor licenses as being among items that might be taxed if the state question is defeated.
Courts might have to decide the issue, Patterson said.
As for the six counties that haven't approved household personal property tax exemptions — Cherokee, Adair, Choctaw, Texas, Beaver and Harper (depending how the local vote goes there) — Patterson agrees that assessors in those counties could be under an obligation to start collecting taxes on intangible property that is not specifically exempt by law.
“This whole thing is bad tax policy because you're going to have every county assessor scrambling around looking for things to tax,” Morgan said.
Locally assessed business owners also have reason to be concerned, Patterson said. Under the Supreme Court decision, county assessors could begin assessing taxes on some of their intangible property, like copyrights and trademarks, he said.
Business activity tax
However, the Legislature foresaw that possibility and passed a temporary $25 business activity tax that locally assessed businesses currently pay in lieu of paying intangible taxes, Patterson said.
That in lieu tax would continue through next year, if the state question is defeated, so lawmakers would have another year to come up with legislation to prevent what could be a substantial tax increase on local businesses, he said.
Patterson said county assessors pushed for legislation last session that would have preserved the status quo by exempting locally assessed businesses and homeowners from intangible property taxes.
That proposal had widespread support but was amended in the last weeks of the Legislative session to also exempt centrally assessed businesses like public utilities and airlines.
Morgan said business leaders believe, as a matter of fairness, all businesses should be exempt from intangible property taxes.
Patterson said he agrees all intangible property taxes probably should be eliminated. However, before granting public service companies a tax break, adjustments should be made so some counties and school districts don't experience devastating shortfalls, he said.
“The huge unknown about how much will be unfunded is our big question,” he said.
The financial pain will not be distributed equally among counties and school districts.
In Cleveland County, 4.11 percent of the total assessed property value comes from centrally assessed businesses. But in Noble County, where an OG&E power plant is located, that percentage soars to 58.86 percent. There are 22 counties that depend on centrally assessed businesses for more than 20 percent of their property valuations.
“Sixty percent of our county values are all from public service,” said Mandy Snyder, Noble County assessor. “And the majority of that is in one school district ... the Frontier School District.”
Snyder said no one can tell her how much money her county or that school district will lose if State Question 766 passes, but she believes the amount would be substantial.
“I hate to even say a number because I just have no idea, and that's the scariest part,” she said.
Oklahoma Tax Commission officials estimate that centrally assessed companies would receive an average tax cut of about 16 percent but say the percentage would vary considerably from company to company. The average property tax cut for telecommunications companies is projected to be about 28.6 percent, while the tax cut for electric companies is expected to be about 10 percent.
Brian Alford, OG&E spokesman, said his company doesn't know how much money it will save if the tax on intangible property is eliminated.
However, he said the company expects the total property taxes the company pays in the state will increase because it has been investing heavily in tangible assets.