Business Q&A discusses State Question 766

Q: What is State Question 766 and how would it change the Oklahoma Constitution?

A: SQ 766 is a change to Article 10 Section 6A of the Oklahoma Constitution which deals with the types of intangible personal property exempt from ad valorem tax, a value-based tax on personal and other types of property. Currently, the Oklahoma Constitution exempts some forms of intangible personal property, such as cash on hand, money on deposit, accounts and bills receivable, bonds, promissory notes, shares of stock, interests in property held in a trust, annuities and annuity contracts, and final judgments for the payment of money. Passage of SQ 766 would exempt all forms of intangible personal property from ad valorem property taxation.

Q: What is intangible personal property, and who has it?

A: Intangible personal property is property that doesn't physically exist, but still has value to its individual or business owner. Examples include patents, trademarks, trade secrets, customer lists, formulas, trade names, copyrights, business goodwill, software and licenses. Also, based on the proposed amendment, mineral interests would be considered intangible personal property.

Q: A 2009 decision by the Oklahoma Supreme Court ruled that all businesses should pay property taxes on intangible personal property that is not otherwise exempted. How would SQ 766 change this ruling, and when would the change take effect?

A: The 2009 decision ruled that the items not listed as exempt (the items listed above such as patents and trademarks) should be taxed under the ad valorem tax. This could have created a substantial change in how the tax was being applied. As a result, in order to avoid any immediate and drastic impacts on the Oklahoma economy, the Oklahoma Legislature in 2010 created the Business Activity Tax (“BAT”). The BAT allows locally assessed businesses through December 2013 to pay a $25 fee instead of paying the ad valorem tax on their intangible personal property, and this structure is still in place today.