OKPOLICY.ORG
This blog post was authored by Michelle Cantrell, a tax specialist residing in Tulsa
One of the six ballot measures facing voters this November is State Question 766, which asks Oklahomans whether the state should have the authority to tax intangible personal property. While seemingly a simple question, SQ 766 has widespread implications that could drain tens of millions of dollars from schools, fire and police protection, and other vital services, while potentially boosting homeowners’ property taxes.
The state question was placed on the ballot in response to the Oklahoma Supreme Court decision in a case, Southwestern Bell Tel. Co. v. Okla. State Bd. of Equalization, that challenged the state’s method of determining property taxes. Like most states, Oklahoma determines ad valorem taxation of certain entities, including public service companies, railroads, and airlines, at the state level instead of the local level. To determine the value of these centrally-assessed companies, the Oklahoma Board of Equalization looks at the value of the entire company as a unit, subtracts certain non-taxable items, then determines Oklahoma’s portion of that value before applying tax rates.
Currently, the Oklahoma Constitution exempts certain intangible properties, such as stocks, bonds, and cash on hand, from taxation. In its lawsuit, Southwestern Bell asserted that the value of additional items should be subtracted, including the value of customer relationships, trademarks, assembled work force, and employment contracts. The Oklahoma Supreme Court determined that only those specific items that were listed in the Constitution as exempt had to be subtracted, and that any intangible property that was not listed was taxable.
Because the Supreme Court had ruled that most intangible property was taxable, concern arose that local assessors would have to begin assessing and taxing intangible property, creating a large new tax and placing a tremendous burden on local assessors. In response, the Legislature created a task force to formulate a solution.[1] Last spring, responding to pressure from AT&T, the State Chamber of Commerce and others unhappy with the ruling, state legislators decided to ask voters whether the Oklahoma Constitution should be amended to exempt all intangible property from taxation at the state or local level.
If passed, SQ 766 could cost local governments at least $50 million in property tax revenue, 60 percent of which goes to schools. Yet because the proposed language does not define or limit the definition of intangible personal property, the cost to schools, public safety and other local services could be far greater than estimated and grow over time. As our economy has become more service- and technology-oriented, the value of a company is increasingly based upon intangible assets. In 1975, intangible assets comprised around 2 percent of the net asset book value of S&P 500 companies; by 2005, it was over 40 percent, and the trend is likely to continue. If SQ 766 passes, Oklahoma will find itself increasingly limited in its ability to tax properties.
The amendment would also likely mean a property tax increase for homeowners. Tulsa County for example receives around 8 percent of its property tax revenue from centrally assessed property. Any significant reduction in that amount would have to be offset by cuts in spending on public schools and other programs; for items that cannot be cut, such as bond issues and legal judgments, local assessors will have to increase property tax rates to offset lost revenue. In other words, while passage of SQ 766 would hand a large tax cut to big corporations, most homeowners and small businesses could see their property taxes go up.
Because SQ 766 does not define or limit the definition of intangible property, it will likely result in further litigation if passed. Most states that have exempted intangible property have later sought to more clearly define and narrow the definition either legislatively or through extensive court cases as companies pushed to expand deductions. Other states, foreseeing the potential problems with exempting intangible property, have tried to strike a balance. For example, Oregon specifically allows taxation of intangible property of property assessed at the state level. Washington exempts certain intangible property from taxation, but permits the use of appraisal methods that might incorporate intangible value when appraising tangible property.
Unfortunately, Oklahoma’s legislature chose the worst approach, one that – if SQ 766 passes – will create a giant tax loophole for corporations and deprive schools, public safety and local services of badly needed resources. By rejecting SQ 766, Oklahoma voters could force the legislature to come back with a narrower and less costly solution to the uncertainty created by the Southwestern Bell decision.
[1] Initially, as a temporary solution, the Business Activity Tax (BAT) was created as a “tax in lieu of” intangible personal property tax. The $25 tax will continue if SQ 766 fails.
Intangible- This is a very broad term. You need to specifically spell out what Intangibles are taxable and what are not. Are you going to come to my home and tax me on all the intangibles I have in my home? I cannot support such a law unless it has specifics. My property taxes may go up 8% becasue of this but what else can the Govt. tax in my home that is intangible. My taxes may go up 50% with all of my intangibles.
If you are not a business owner, you must VOTE NO to Q766. The state legislature showed it’s cowardice by colluding to not take legislative action to get rid of this tax and agreeing to pass the question to “the people” of the State of Oklahoma. The legislature approved this Ballot question because the state and local chambers want the tax eliminated. By approving the ballot question, the legislature found a way to please the chamber while washing their hands of any wrong-doing. Voters should keep that in mind this November. The State senate voted 31-14 in favor of the ballot question. In the end, a joint resolution was signed and sent to the Secretary of State to approve and publish the State Question.
Excerpts from the Southwest Bell case that led to Q766:
1. “As previously noted, the Legislature has classified five types of property for purposes of ad valorem taxation. The Legislature has made “personal property” a separate class.”
2. ¶16 In addition to this single exception, the Legislature defined personal property, for purposes of ad valorem taxation, to include 12 categories of tangible things and “[a]ll other property, having an actual, constructive or taxable situs in this state, and not included in the definition of real property.”
3. ¶16 In addition to this single exception, the Legislature defined personal property, for purposes of ad valorem taxation, to include 12 categories of tangible things and “[a]ll other property, having an actual, constructive or taxable situs in this state, and not included in the definition of real property.”
Actually, Marvin, you need to vote “YES” if you do NOT want to be taxed. The wording is such that if you vote “NO” you are voting to approve taxing intangibles.
http://www.kswo.com/story/19764730/only-on-kswocom-sq766-could-cause-confusion-for-voters
Dan, we want to keep taxes on intangibles so taxes will not go up on tangibles (homes) so we need to vote NO
Personally, I care about Oklahoma being a more attractive place to do business, which this state question will help do if passed. I do not think it is fair for the state to be able to tax me based on what THEY think my intellectual property is worth, including patents, inventions, my business logo, how many customers I have, my business name recognition, etc. A better environment for business helps ALL Oklahomans, not just those who own a home. Keep Oklahoma competitive. Let the citizens keep more of their own money. Don’t choke small business. Vote YES on 766.
https://www.sos.ok.gov/gov/proposed_questions.aspx#sq766
You people are idiots. If you pass this it allows the state government to invade our homes legally. If you think that there will not be a functioning squad going around and counting all of your personal items for taxation you are stupid. Whats next taking my guns. I am suprised that none of you care about the education of our young people whom this SQ deeply affects. We are going to lose 4.22million a year because of the proposed SQ’s this year and you people are griping about buisness taxes. What ever happened to peoper education and care for our children.
I find this very conflicting….I don’t want businesses to be taxed on intangibles. From reading some of this and putting it in terms I understand,it would be a little like taxing someone who has 150 IQ more than someone with an 80 IQ because they have more to work with. However, I work in a school and schools are having a hard time right now. Class sizes are too big!!!! The demands for teaching children huge amounts of information each year keeps rising and class sizes get larger so children that need any additional help aren’t afforded that. If revenues are lost, how will schools be funded? Will businesses grow enough and increase the number of workers significantly enough to replace lost revenue through taxes of tangibles? I’m hoping to retire in a few years and increased property taxes on a fixed income doesn’t sound good either. Does anyone have answers?
Agreed that it’s confusing. But if SQ 766 fails, no one’s property taxes are going up. There is fallback language in the legislation that says that if it fails, the state will continue to assess a modest Business Activity Tax in lieu of intangible property taxes, as has been done the past two years. Whatever ultimately happens, individual homeowners will not be taxed on their intangible property – this could only affect businesses. Tangible property is taxable now and no one comes into your home counting or assessing your guns, stereo equipment or Picassos, so there’s absolutely no reason to believe (unless you’re trying to frighten people) that anyone’s going to be taxed on their teaching certificate or real estate license.
As a small business whose “products” are almost all intangible… I sell marketing, public relations and advertising services… this could potentially affect the tax burden on my business in a devastating way. What I would LIKE to see happen here is a system like Oregon’s which allows the taxation of intangibles only if a business is being centrally assessed (in other words, if you ARE AT&T or Southwestern Bell or BNSF Railroad) and DISallows taxation of intangible property at the local level.
That solution would preserve the tax base at the state level (making sure schools, etc., don’t lose funding), leave the local tax levels unchanged (intangible property isn’t being taxed now, though it apparently, technically, could be), and would PREVENT the future taxation of my business based on an arbitrary, outside valuation of my client lists, intellectual property, and ideas. If you think the local taxation authorities won’t start taxing those kinds of assets if they are given the green light to do so, I would encourage you to think about past history. When local budgets tighten, the city does things like annex the fairgrounds to boost sales tax collections.
In the absence of a solution that actually makes sense, I intend to vote YES, protecting my business, along with the “80% of jobs in Oklahoma are in small businesses” as the Chamber likes to tout, and look for the Legislature to craft a smarter piece of policy.
Mandy: this is exactly what we (OK Policy) would like to see happen, too – the continuation of the system that has long been in place and has worked well. Your solution could’ve been enacted this session – but the big telecomm companies succeded in getting their $50 million tax break on the ballot. Now, if SQ 766 passes, the centrally-assessed properties will be exempted forever and school funding will suffer. Conversely, the legislation that put SQ 766 on the ballot specified that if it fails, local businesses will continue to be exempted from being assessed for intangible property. So I’d humbly suggest that to get the outcome you want, you (and others) should vote No
Just another reason for scraping all the tax codes (state and federal) and passing the FAIR TAX at the state and federal levels.