The popularity of state tax credits skyrocketed five years ago, but exact figures on the growth of these programs and who is participating in them is hard to come by. Tony Mastin, administrator of the Oklahoma Tax Commission, told an Oklahoma House panel Monday that the credits became popular among investors trying to offset income tax. He didn’t provide figures documenting the increased use of the credits. Lawmakers are considering limiting some tax credits as they look for ways to close a $1.2 billion revenue shortfall. Asked whether some investors could be inappropriately gaining financially, Mastin told members of the House Administrative Rules and Agency Oversight Committee, "There’s always a way to scam the system.” Legislators in 2006 adjusted the small business and rural small business capital credit programs — which offer 20 percent or 30 percent tax credits on money invested in qualified projects — after it was determined individuals were participating in the programs with borrowed money to obtain tax credits 200 percent or more of their investments. In some cases, the borrowed money apparently never was intended to go into new or expanded businesses and was used solely to boost the amounts of the tax credits.
Cost state $102.7MTax Commission records show income tax credits took about $161.5 million from state revenue in the 2008 tax year, tax credits claimed in the rural small business capital credit program were $65.6 million, and credits claimed in the small business capital credit program were $13.8 million. For the current 2010 tax year, it’s projected the state tax credits will take away about $102.7 million from state revenue. Credits for the rural small business program are estimated at $37.4 million, and credits for the small business program are estimated at $11.1 million. Three members of the Oklahoma Tax Commission oversee the programs, which were established through the years by the Legislature. Rep. John Wright, the committee chairman, said more information should be made public about who is investing and benefiting from the tax credit programs. "If someone believes they’re bringing positive value to the state by their economic incentives, they shouldn’t hesitate to be identified with it and defend it in the town square, if you will,” said Wright, R-Broken Arrow. "It has been the lack of transparency that causes me to question whether or not someone could defend the economic contribution that their specific incentive is bringing to the state.” Wright said the secrecy of the tax credit programs is concerning. Tax credit information involving limited liability companies is considered confidential by the Tax Commission. "The level of involvement in terms of who’s actually participating is not visible,” Wright said. "To be able to conceal their involvement behind various legal structures — limited liability companies — leads to potential misuses of the incentive programs,” Wright said. "In a tight budget year, I want to make sure that there are not inappropriate activities that are going on to essentially farm the system for the value of the credits.”
Who participates?Income tax credits take away more than $100 million from state revenue the past couple fiscal years, Mastin said. A similar amount is expected to cut into state revenue for the 2011 fiscal year in which legislators have about $1.2 billion less to spend compared with a year ago. Mastin told committee members that all the various tax incentive programs — such as sales tax exemptions, income tax deductions and exemptions and credits for oil and gas companies as well as credits for certain businesses brining in new jobs — are in the billions of dollars. He told Wright that the total tax exemptions could be close to the state budget, which for the 2011 fiscal year is about $5.4 billion. Asked by Wright who participates in tax credit programs, Mastin said it’s those with incomes of at least $500,000 a year, which he estimated make up less than 1 percent of the state’s population. Rep. Mike Reynolds, a committee member, said it’s possible for out-of-state individuals to hide their identities through limited liability companies and receive benefits from the incentive programs; as a result, money intended for jobs or capital investment in the state is diverted to out-of-state earnings, he said. Reynolds, R-Oklahoma City, asked Mastin about several ventures and about a proposal he heard last week involving the Tulsa School District. The school district, according to a May 2009, agreement, plans to sell 135-200 buses to Joe Cooper Ford of Tulsa which will convert them to compressed natural gas vehicles. The company then will sell the vehicles to NGV Fleet Leasing LLC, which, Reynolds said, can receive 10 percent federal and 50 percent state tax credits for buying the compressed natural gas vehicles. NGV then will lease the buses back to the Tulsa School District, which has the option eventually to buy the buses back, Reynolds said. Mastin said he was unfamiliar with the program. He was asked to look into it and return Wednesday before the committee.