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Oklahoma appellate court strikes down tax deduction

A corporate income tax deduction that favors Oklahoma-based companies is unconstitutional, the Oklahoma Court of Civil Appeals rules
BY MICHAEL MCNUTT Published: January 18, 2013

A capital-gains tax deduction for Oklahoma-based companies is unconstitutional, the Oklahoma Court of Civil Appeals ruled Thursday.

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 receive the deduction.

The appellate court ruled the Oklahoma capital gains deduction, which took effect Jan. 1, 2006, violates the commerce clause of the U.S. Constitution.

A spokeswoman for the Tax Commission said attorneys were still reviewing the ruling, handed down Thursday afternoon.

It was unknown how much money the state takes in from out-of-state companies paying the capital gains tax, she said. 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.

What it is

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.

“Discrimination in the current provision lies in requiring a nonresident company (one not primarily headquartered in Oklahoma) to make a longer term investment in the state than a company headquartered in Oklahoma … in order to quality for the benefits of capital gains treatment,” Judge Jane Wiseman wrote.

CDR Systems Corp., formed in California with headquarters in Florida, claimed the Oklahoma capital gains deduction on its 2008 Oklahoma small business corporation income tax return. The company, which manufactures equipment for telephone, water and electric companies, has a facility in Waynoka.

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