A lawmaker said Monday the state could be on the hook for as much as $400 million because of a court ruling earlier this year that said a capital-gains tax deduction for Oklahoma-based companies is unconstitutional.
But a state finance spokesman said any adverse effects from the ruling should not affect the 2014 fiscal year budget, which begins July 1.
Rep. Mike Reynolds told lawmakers on the House of Representatives floor that they should be concerned about the effect that amount of payout would have on the legislatively appropriated $7 billion budget for the 2014 fiscal year.
“I find it disturbing that the leadership hasn't bothered to inform the members of the House of Representatives other than apparently a select few on the leadership team about this $400 million problem,” said Reynolds, R-Oklahoma City. “In my 11 years here I've seen them have massive heartburn over a $5 million or $10 million or $15 million problem and we're talking $400 million.”
The Oklahoma Tax Commission is appealing the Jan. 17 ruling by the Oklahoma Court of Civil Appeals. Because of the appeal, agency officials can't comment on the case, a Tax Commission spokeswoman said.
John Estes, a spokesman for the state Office of Management and Enterprise Services, which compiles budget figures for the governor, said, “It's something we've been monitoring closely, but at this time we don't anticipate it causing complications for next year's budget.”
Joe Griffin, spokesman for House Speaker T.W. Shannon, R-Lawton, said House leadership is working with the Tax Commission, the governor's office and the Senate.
“At this time we can't plan a budget on the what-ifs of the court,” Griffin said.
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.
Tax Commission officials said earlier it was unknown how much money the state takes in from out-of-state companies paying the capital gains tax. It varies depending on the amount of capital gains claimed by out-of-state companies that pay corporate taxes in Oklahoma and whether they meet the criteria of the deduction.
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.