Tax Break Basics: Understanding Oklahoma’s Economic Incentives

  • Joe Wertz

Oklahoma has an array of tools to encourage economic development and business growth, the sum of which are generally refereed to as tax “incentives” or “breaks.”

As we’ve learned from the ongoing tax credit task force meetings, Oklahoma’s incentives vary wildly in their use, accounting and oversight.

Oklahoma’s major economic incentives fall into four functional categories.

1. Cash

The most direct form of business incentives, these programs offer cash to qualifying companies that meet specific requirements and benchmarks.

Example: Quality Jobs Program

This program provides quarterly cash payments of up to 5 percent of newly created gross taxable payroll. The payments continue for the first three years if the new jobs have salaries at or above the average wage and include basic health benefits. If the company achieves a $2.5 million annual payroll for the new jobs, the payments can be extended for an additional seven years.

2. Credits

These programs reduce the total amount a taxpayer owes to the state. In Oklahoma, tax credits usually reduce state income tax bills or ad valorem taxes, which are local taxes. Oklahoma offers income tax credits for businesses, investors, entrepreneurs and individuals.

Example: Tax Credit for Manufacturers of Small Wind Turbines

Approved manufacturers must meet capacity requirements, agree to be audited by the Oklahoma Tax Commission and incorporate certain advanced technologies into their turbines. The total amount of the income tax credit is determined by the turbine’s square footage of “rotor swept” area. For 2005-2012, the credit is $25 per square foot.

3. Exemptions

These offer qualified taxpayers relief from specific taxes, including income, property and sales taxes.

Example: Manufacturer’s Sales Tax Exemption

Qualified manufacturers are given a three-year permit that exempts purchases of machinery, equipment and other personal property used for design, development and manufacturing.

4. Refunds

Some Oklahoma companies qualify for sales tax refunds, which require the company to apply for an interest-bearing account with the Oklahoma Tax Commission, which tracks paid sales taxes through company-supplied invoices.

Example: Computer Services/Data Processing/Telecommunications Equipment refund

Sales taxes collected from the purchase of computers, telecommunications and data processing equipment are refundable to new and expanding businesses that meet certain revenue, income and personnel requirements, such as adding at least 10 new full-time employees with an average salary of $35,000.