The Journal Record
By Michael Laird
Jan. 6, 2011
Just a few weeks ago on Dec. 20, in response to questions officially raised by state Rep. David Dank, R-Oklahoma City, Drew Edmondson – in what will no doubt be one of his final official acts as one of Oklahoma’s longest-serving attorneys general – issued Opinion 2010-16. The basic subject of the questions raised was in essence, the legality of income tax credits (i.e. incentives) under Oklahoma law. The answers to these questions could have profound impacts on Oklahoma’s economic future, and the state’s ability to attract, keep and expand private sector commercial businesses with the resulting jobs and expanded tax base.
Before continuing, I want to mention two things. First, I do not intend in this column to analyze the AG’s opinion or comment on its conclusions. Second, I am a member of the legislatively created Incentive Review Committee that was assigned the task beginning in 2004 of reviewing Oklahoma’s various tax incentives to determine their relative costs and benefits to the state’s economy. With regard to the latter point, my comments here are personal and I do not speak for the IRC or any of its members.
The questions presented were relatively complex, but they actually boiled down to three. Under what conditions is the state authorized to issue income tax credits? Could transferable tax credits violate the Oklahoma Constitution? And finally, could the mere investment of money in the state qualify for an income tax credit?
The 14-page AG opinion concluded generally that noneconomic income tax credits were permissible subject to qualification. Economic credits must have three factors present – they must promote a public purpose, have adequate consideration present and be subject to adequate controls and safeguards. It went on to state in two separate places that “the mere investment of money into a company does not alone satisfy the three factors necessary for a valid Oklahoma economic development income tax credit.”
What does this all mean? Good question.
The arduous journey of the general economy over the last couple of years that is bringing us back to the “new normal,” whatever that will ultimately mean, has focused a very white hot light of scrutiny on tax incentives across the nation; Oklahoma is no exception. Are the state giveaways to some taxpayers to the detriment of others, or rather legitimate and even crucial economic tools to help the state attract and keep valuable business generators (and correspondingly important job creators and business taxpayers)? Regardless of where you land on this issue (or inhabit the murky gray zone between the two opposing views), one thing is certain. Our competition, many of the other states both in our region (can you say “Texas”?) and elsewhere in the nation, will have tax incentives in some form. Those states that intelligently create and manage their incentives, with appropriate oversight and transparency, will have a significant economic leg up on those who don’t.
Michael S. Laird is an attorney with Crowe & Dunlevy in Oklahoma City.
Posted on Thu, January 6, 2011
by Crowe & Dunlevy