Ad Valorem Manufacturing Exemption

In 1985, Oklahoma voters approved State Question 588 by a 69.7 percent majority. This created the ad valorem manufacturing exemption. Under Article X, Section 6B of the Oklahoma Constitution, all real and personal property that is necessary for the manufacturing of a product and facilities engaged in research and development, which meet certain requirements, receive a five-year exemption from ad valorem (property) taxes. Since 1985, the range of entities eligible for the exemption has been expanded.

The law says that the state will reimburse local recipients of ad valorem taxes, such as counties and school districts, for the full amount of lost revenue under the exemption. The cost of the exemption has grown to $161.2 million in Tax Year 2019, a 13 percent increase from 2018 and more than a five-fold increase compared to 2009. In 2019, 27 percent of the total exemption ($43.8M) was claimed by electric wind generation, with traditional manufacturing (26 percent, $42.6M),  computers (25 percent, $40.5M – the lion’s share attributable to the Google plant in Mayes County), and large manufacturing (21 percent, $33.7 million) being the other large categories. As a result of legislation passed in 2015, wind producers are no longer able to claim the ad valorem exemption for facilities developed after 2016

One percent of state personal income tax revenue goes to the Ad Valorem Reimbursement Fund to cover the cost of the exemption. This fund typically falls far short of what is needed. In most years, this leads to a supplemental appropriation to schools for lost property tax revenue; for FY 2020, the supplemental hit $112.0 million (SB 1922).