Oklahoma lawmakers are scrambling to fix the state’s tax code after a court decision created business uncertainty.
The outcome of a 2009 ruling from the state Supreme Court could mean that Oklahoma businesses face a tax on all of their intangible personal property.
This could mean taxes on business licenses, trade secrets and company logos — things with value beyond their tangible physical traits.
On November 6, Oklahoma voters will decide on a potential expansion of the state’s intangible property tax. A yes vote on SQ 766 would amend the state constitution and eliminate the tax all together.
Supreme Court Sets the Stage
The state Supreme Court issued the decision that set this issue off in September 2009. Southwestern Bell sued the state, saying it should have been exempt from taxes on customer lists, databases, licensed software and trademarks, among other intangible property.
“I don’t have the expertise to tell you how much Sonic’s name is worth, and I don’t know anyone who has that knowledge.”
—Oklahoma County Assessor Leonard Sullivan
Not only that, it ruled all intangible property should be taxed and only the handful of items outlined in the state constitution should be exempt. Before the decision, only centrally assessed companies like utilities and airlines were liable for the tax. The court would have it apply to all businesses.
Oklahoma County Assessor Leonard Sullivan is one of the many people who think taxing all intangible property is a bad idea.
“First thing, I don’t have the expertise to tell you how much Sonic’s name is worth, and I don’t know anyone who has that knowledge,” Sullivan says. “I think I have as much expertise as any assessor in the United States, and I wouldn’t know how to put a value on Sonic’s name and logo. So, it’d been total chaos to begin with”
Sonic’s Vice President of Tax, Charles Woods, says he doesn’t know how much his company’s identity is worth either.
“Well, that’s a question that the counties would have to deal with. I think that illustrates the problem,” Woods says.
Who Benefits, Who Pays?
The State Chamber of Commerce is pushing for the passage of State Question 766. Chief Operating Officer Chad Warmington calls a tax on intangible property a “tax on ideas,” and says the failure of SQ 766 would cause confusion.
“If I’m in one county and being levied an intangible tax, why am I not levied it the same way in another county, or why is it not levied at all,” he says. “And it just becomes — 77 different taxing jurisdictions — which becomes a big problem for business.”
The solution is simple, Warmington says.
“We just need to eliminate it altogether. Exempt it all in the constitution — because there are some specific things that are already exempt in the constitution,” he says. “This just says any intangibles are exempt.”
That is a direct message. But Warmington’s answer highlights the main problem with State Question 766: It exempts all intangible property. Centrally assessed companies currently are paying taxes on intangible property. If 766 passes and those companies don’t have to pay that tax, education officials say it could cost Oklahoma’s schools about $30 million a year.
“For the Norman public schools, 766 alone is a $650,000 impact on our budget,” Norman Public Schools Superintendent Joseph Siano says.
That figure could be seen as a small a drop in Norman Schools’ $100 million annual budget, Siano admits. But because schools have faced years of budget cuts, the impact could be far greater, he says.
And another constitutional measure voters will decide on in November, SQ 758, could compound the problem further by capping the future growth of ad valorem taxes that fund local schools, Siano says.
“If you go back to the fact that since 2008 we’ve been reduced by about $5 million,” Siano says. “That cumulative impact on the school district is significant.”
After the 2009 Supreme Court ruling, lawmakers replaced a potential tax on intangible property with a business activity fee of $25. Siano points out that at the end of the 2012 session, the legislature agreed to an extension of that tax if SQ 766 fails. So Siano doesn’t see an urgent need for the change.
“My sense is there’s not this big risk of this automatic tax weight that will be put on businesses,” he says. “But I do know there’s certainly a risk of significant — and I mean by significant about $32 million — of revenue being taken out of common education. And that would be an immediate type of impact.”
Siano says he doesn’t necessary argue the pros and cons of taxing intangible property on the county level, but he does want to give the legislature more time to figure out how to replace those millions of dollars before they disappear.