WITH the hubbub surrounding the income tax plan, it's easy to overlook the fact Oklahoma lawmakers are doing some good things on the tax front. Perhaps one of the most important bills advancing this year would block what critics say would be one of the biggest tax increases in state history.
Senate Joint Resolution 52 would submit a proposed amendment to the Oklahoma Constitution to a vote of the people. The amendment would exempt intangible personal property from ad valorem taxation.
The measure is meant to resolve problems created in 2009 by the state Supreme Court's decision in Southwestern Bell Telephone Co. v. Oklahoma State Board of Equalization. In that case, the court held that intangible personal property exempt from ad valorem taxation was limited to specifically listed intangible personal property set forth in the state constitution. That ruling dramatically expanded the amount of intangible property subject to local assessment.
Defining “intangible” property isn't easy, which is one problem created by the ruling. Nonetheless, the court decision could result in businesses paying taxes on things such as customer lists, databases, employment contracts, patented technology, lease agreements, trademarks and trade names, licensed software, advertising, copyrights on advertising materials and technical documentation — and many similar items.
In fact, customer relationships and the “good will” a company enjoys in the community would be taxable because that intangible asset can be priced into the sale of the business. However, we have a hard time seeing how county assessors will be able to determine a fair-market value for that “good will” asset. Two businessmen discussing a sale will reach a price agreeable to both, but we suspect the county assessor will simply assume massive good will that translates into major tax payments.
A day care center with an impeccable safety rating and one that lost track of three children on a field trip would likely have comparable “good will” assets in the eyes of assessors — and we don't mean they would err on the low side of the valuation. That's one reason this tax could result in such a significant hit — as much as $60 million according to one estimate, although many dispute that figure.
If this expansion of the intangible tax is allowed, Oklahoma businesses would be at a disadvantage with similar companies in surrounding states; this could lead some companies to pull operations out of Oklahoma.
Some may argue this is a “giveaway” to big business, but the resolution's House author is state Rep. David Dank, R-Oklahoma City, a leading critic of many business tax breaks. Clearly, if this was nothing but a sop to campaign contributors, Dank wouldn't be leading the fight.
A last-minute change to the bill not only prevents the expansion of the tax, but also repeals existing taxation of intangible assets that are now centrally assessed through the state Board of Equalization. That has led to some opposition, but we believe the resolution still deserves support, and citizens should have the chance to vote on the amendment.