Guest Blog (Wade Patterson): SQ 766 provides special treatment to some at the expense of others

Wade Patterson is the Garfield County Assessor. For more information on State Question 766, click here

As the County Assessor for Garfield County, I’m afraid that the solution to the issue of taxing intangible property being presented to the voters in November has not been well thought out at the legislative level. Instead, it’s an example of what happens when one group gets special treatment.  If SQ 766 passes it will simply transfer the responsibility to pay the property tax bill to everyone that did not receive the same special treatment.

Last year, I served on the 21-member Task Force for Comprehensive Tax Reform, which was charged with finding a solution to the intangible property issue and making a recommendation to the Governor and Legislature. After the State Supreme Court ruled that intangible property was taxable, the Legislature created a temporary Business Activity Tax (BAT) to serve as an in lieu of tax until the Task Force could meet and make recommendations.  The BAT expires on December 31^st of this year, so a solution needed to be developed so the Legislature could address the issue this session.

It was my position from the first Task Force meeting that legislation should be passed that would exempt intangible property at the local level (assessor).  Since county assessors did not tax intangible property before the court ruling, failure to exempt intangible property locally stood to be a new form of taxation.

The County Assessors Association of Oklahoma worked with Senator Mike Mazzei this past legislative session to craft language that would have kept the intangibles at the local level exempt from taxation. The centrally-assessed public service valuations are much more complicated since intangibles are imbedded in the “unit valuation methodology” the Oklahoma Tax Commission currently uses to establish the fair cash value of public service companies.

It was our suggestion that the legislation be broken into two separate bills, one that would deal with local valuations (assessor), and the other dealing with public service valuations (OTC). The legislation was simple and dealt with local valuation only and would have kept a new tax from being created.

However, a solution could not be reached on the public service valuation methodology so the authors changed the bill’s language back to include all intangible property.  The impact of exempting the public service property is still not known, but the estimates range from $12 million to $68 million, depending on who you ask and what is considered to be intangible property.

As Oklahoma Policy Institute has discussed, this shortfall will be spread out among all the property owners. Every school district in my county has a sinking fund, as do most districts in Oklahoma; therefore, all property owners in the district will be required to make up the difference to the sinking fund for the reduction in the public service valuations.

Here’s how to understand sinking funds: you simply divide how much you need (bond payments) by how much you are worth (net assessed value). The result is the millage needed to cover your debt payment.  The total amount of the bond payments will still need to be collected, so if you divide the bond payment amount by a lower value, you’ll have to raise the mill levy to satisfy the debt.  The only people who win are the ones that get a lower value because of the new law – the public service companies and other centrally-assessed businesses.

Whether someone is for or against the exemption is not the issue here. The issue is the Legislature’s lack of understanding and unwillingness to be problem-solvers. I believe it would have been wiser to write the state question to exempt the intangibles at the local level this year, thus addressing the Chamber of Commerce’s fears of a large increase in taxation.  The public service valuation could have been left as it currently exists to be addressed next session.  This would have allowed the public service companies to protest their values to the State Board of Equalization and assured them of their due process.

It should be noted that the Legislature did pass SB 1436, which is the fall-back language in case SQ 766 fails.  If the question fails, SB 1436 kicks in and extends the Business Activity Tax until December 2013.

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