CDR sold all of its assets to another company in 2008 and reported gains of $49.8 million. CDR claimed the Oklahoma capital gains deduction, resulting in an exclusion of $3.6 million from Oklahoma taxable income. The Tax Commission disallowed the deduction and CDR appealed.
CDR in its appeal said the commerce clause prohibits measures intended to benefit in-state companies, relying on an earlier court case ruling that a state tax that favors in-state business over out-of-state business for no other reason than the location of its business is prohibited by the commerce clause.
The Oklahoma Court of Civil Appeals found that the Oklahoma capital gains deduction discriminates against out-of-state companies because it affords Oklahoma companies different treatment for similar taxable events.
“Non-Oklahoma companies — by definition those not ‘primarily headquartered' in Oklahoma — do not enjoy the same benefit,” Wiseman wrote. “A company not primarily headquartered in Oklahoma only receives the same treatment if the property sold has been owned for five years, no matter how sizable or long-standing an investment the company has made in Oklahoma's economy.”
Tax Commission attorneys argued the Legislature determined that having a company's primary headquarters in Oklahoma for at least three years amounted to a significant investment in the state that was sufficient to grant the deduction.