Ad Valorem Manufacturing Exemption

In 1985, Oklahoma voters approved State Question 588 with 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, receives 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 grew to $161.2 million in Tax Year 2019, but has since declined to $138.6 million in Tax Year 2021. In 2021, 34.5 percent of the total exemption ($47.9M) was claimed by large manufacturing businesses.  The second largest sector in 2021 was computers (33.6 percent, $46.6M), of with the lion’s share – $45.9M – went to Mayes Co. for its Google factory. Traditional manufacturing (15.3 percent, $21.2M) and wind (11.3 percent, $15.6M) were 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. After Google, the single largest beneficiary of the ad valorem exemption was Koch Fertilizer in Garfield County, which received a $13.8M tax exemption in 2021.

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 2022, the supplemental was $95.3 (SB 1040, s. 143).