The $7.1 billion budget agreement reached last week does not include setting aside nearly $500 million for a worst-case scenario if the courts uphold a court ruling earlier this year that a capital-gains tax deduction for Oklahoma-based companies is unconstitutional.
“We're not basing this budget off of something that could result either in a $120 million increase in available funds for the state or a possible reduction in funds and a deficit of $500 million,” said Senate Appropriations Committee Chairman Clark Jolley, R-Edmond.
“We think the capital-gains issue can be worked out separate from this budget and needs to be worked out separate fro this budget.”
The Oklahoma Tax Commission is appealing the Jan. 17 ruling by the Oklahoma Court of Civil Appeals.
Estimates from the commission indicate the state could gain $123.7 million if individual deductions are ruled no longer deductible and gain $12.2 million if corporate deductions are no longer deductible.
However, the state could be responsible for paying up to $421.8 million to individuals and up to $61.2 million to corporations if the court would find the deduction is unconstitutional and ruled it retroactive to the last three years it has been in place, according to estimates.
The appellate court ruled the Oklahoma capital gains deduction, which took effect Jan. 1, 2006, violates the commerce clause of the U.S. Constitution.
The court, in a 3-0 ruling, reversed an opinion by the Oklahoma Tax Commission, which denied an appeal from a California company stating it also should have received the deduction. The commission filed a petition for a rehearing March 6.
Capital gains include money from the sale of real estate, stocks or personal property.
Oklahoma companies may claim the capital gain deduction if they own the assets being sold at least three years before the transaction.
Out-of-state companies have to own the property for at least five years to claim the deduction, according to the law.
The appellate court found that the Oklahoma capital gains deduction discriminates against out-of-state companies because it affords Oklahoma companies different treatment for similar taxable events.
Rep. Scott Martin, R-Norman, chairman of the House Appropriations and Budget Committee, said no lawsuit has been filed seeking payment.