Oklahoma’s corporate income tax is set at a flat rate levied upon the taxable income of every corporation doing business within the state or deriving income from business within the state. The rate has historically been set at 6 percent, but under HB 2960, approved in the 2021 legislative session, the rate is lowered to 4 percent as of January 1, 2022. The tax is based on a three-part formula that looks at the portions of a company’s sales, property and payroll that is based in Oklahoma.
The corporate income tax generated $510.4 million in Fiscal Year 2020, which was 4.9 percent of total state tax collections. The corporate income tax tends to be, along with the gross production tax, one of the state’s most volatile tax sources, fluctuating dramatically from year to year and often coming in far above or below certified estimates. This volatility has been explained by changes in corporate tax laws, the use of corporate tax breaks, and the outsized impact that a small number of corporations can have on total collections. Under a 2016 law, a portion of corporate income tax collections are allocated to the Revenue Stabilization Fund in years where collections are projected to exceed their five-year average.
The corporate income tax has generated a declining share of total tax revenue over time as more businesses incorporate as S-Corps and LLCs (which report their income on the personal income tax return of shareholders) and as companies find ways to take advantage of loopholes and tax breaks to limit their corporate tax liability.