SQ 766 - Ballot question stacking up as hot-button item
Joy Hampton CNHI
OKLAHOMA CITY —
Editor’s note: This is the first in an ongoing series of stories exploring the six state questions on the Nov. 6 ballot. Today, State Question 766.
A state question that sounds innocuous is likely to be one of the most hotly debated state issues in the coming election.
State Question 766, if approved, exempts all intangible personal property from ad valorem taxation.
According to the ballot language, “This measure amends Section 6A of Article 10 of the Oklahoma Constitution. At present that section exempts some intangible personal property from ad valorem property taxation. This measure would exempt all intangible personal property from ad valorem property taxation.”
A decision by the Court of Tax Review in a 2009 lawsuit, styled Southwestern Bell Telephone Company v. Oklahoma State Board of Equalization, said that only the intangible property set forth in the Oklahoma Constitution is exempt. This left businesses concerned they will be taxed on intangibles in the future.
Voting yes on SQ 766 will allow the exemption of intangible personal property from ad valorem taxes.
What is intangible property?
According to ballot language, Intangible Personal Property which is still currently taxed but would not be taxed if the measure is adopted, includes items such as:
• patents, inventions, formulas, designs, and trade secrets;
• licenses, franchise, and contracts;
• land leases, mineral interests, and insurance policies;
• custom computer software; and
• trademarks, trade names and brand names.
Norman Chamber of Commerce President John Woods said intangible property subject to taxation could include software, client lists, logos, professional licenses and marketing materials. That makes assessment very subjective.
“How do you quantify the value of an item of this nature?” Woods said. “That can vary widely from county to county.”
Cleveland County Assessor David Tinsley said county assessors have a different take on the issue.
“If we have intangibles, that’s because they (the businesses) give it to us,” Tinsley said. “We don’t value intangibles unless the business turns it in. Oklahoma is a self-reporting state. We ask for furniture, fixtures, equipment and inventory.”
But the legal decision handed down in the Southwestern Bell lawsuit left businesses vulnerable to the assessment of intangibles.
“The court was very specific in its requirement that all intangible property not currently exempted should be taxed,” the Chamber’s Woods said. “One assessor’s opinion, unfortunately, is not enough guarantee to prevent a massive tax burden to be imposed on local businesses.”
Current intangible exemptions
Not all intangibles are taxed. Currently, the Oklahoma Constitution exempts certain intangible properties from ad valorem such as cash and cash on hand, money on deposit, accounts and bills receivable, bonds, promissory notes, stock, property held in trust, annuities and annuity contracts.
The outcome of this vote will not change those exemptions already in effect.
Proponents of a ‘yes’ vote
The business community, in particular large public service providers, support a “yes” vote.
Woods said a levy on intangible personal property creates a tax on business assets that are difficult to measure such as marketing materials, client lists, and software.
“The state question, if passed, would prevent the taxation of intangible property of businesses,” Woods said.
Woods said taxing intangibles can be a problem for businesses with multiple locations since there’s no set way for various assessors to measure intangibles.
“If the state question fails, it would result in one of the largest tax increases on businesses in state history,” Woods said. “There is already a growing coalition of businesses that support this exemption.”
Woods believes passage of the bill is critical for Oklahoma businesses.
“Ultimately if SQ 766 fails, Oklahoma businesses will be crippled with a subjective and mounting tax burden crippling job creation, investment and innovation.”
Proponents for a ‘no’ vote
Public schools and other recipients of ad valorem taxes oppose this state question.
“State Question 766 alone would have about a $600,000 impact on schools and it’s about a $33 million impact to public schools in general,” Norman School Superintendent Joe Siano said. “You can take each one of these tax reductions independently and say, ‘that’s not going to hurt very much,’ but when you take them together and couple it with the fact that schools are being funded at less than 2008 levels, I think you’re facing a critical problem.”
Siano said SQ 766 and the proposed 3 percent cap in SQ 758 create a cumulative effect of reduced revenue at a time when revenue is short.
“It’s certainly a revenue reduction in the way we currently tax, and it’s unpredictable in the future,” Siano said.
The Oklahoma Policy Institute is a non-profit organization with a mission to promote “adequate, fair, and fiscally responsible funding of public services and expanded opportunity for all Oklahomans by providing timely and credible information, analysis, and ideas.”
The institute, in a blog post by tax specialist Michelle Cantrell says, “SQ 766 has widespread implications that could drain tens of millions of dollars from schools, fire and police protection, and other vital services, while potentially boosting homeowners’ property taxes.”
Cantrell said that SQ 766 could cost local governments as much as $50 million in property tax revenue, the majority of which supports schools.
“As our economy has become more service- and technology-oriented, the value of a company is increasingly based upon intangible assets,” Cantrell writes in her blog post. “In 1975, intangible assets comprised around 2 percent of the net asset book value of S&P 500 companies; by 2005, it was over 40 percent, and the trend is likely to continue. If SQ 766 passes, Oklahoma will find itself increasingly limited in its ability to tax properties.”
The impact if approved
Passing the measure could create a loophole for some public service businesses, Tinsley said
“If it passes, what we feel will occur is the big companies will turn in less public service because that’s intangibles,” he said. “The assessors believe we will see a drop in public service (taxes).”
The Oklahoma Tax commission assesses public service companies.
“The state values that,” he said.
Rural counties likely will feel the greatest impact.
“The bigger counties are not going to be hurt,” Tinsley said. “In some counties, 60 percent of their revenue is in public service because they don’t have a big market as far as business tax.”