August 11, 2011

Panel Continues Inquiry on Tax Credits

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After looking at just a couple of state tax credits, a state task force already is hearing from those pushing three new tax credits, the co-chairman of the panel said Wednesday.

“It never ends,” said Rep. David Dank, R-Oklahoma City. “The simple truth is that we could exempt almost everything from taxation.

“And then I suppose we could apply for a historic preservation tax credit to turn this state Capitol building into a casino or something because state government would be broke and out of business.”

An estimated $5 billion annually is diverted from the state’s coffers through tax incentives, exemptions and deductions. That’s money that taxpayers had to make up in the state budget or were funds that were simply cut from the state’s budget, Dank said.

INCENTIVES EYED

With the state facing revenue shortfalls the past three years, lawmakers are taking a look at several tax credits and incentives.

“Every time we grant a tax credit to Bob, Joe winds up paying the difference,” Dank said.

The three latest tax credit suggestions are for charging electric cars, storm shelters and low-income housing, Dank said. More people need to take personal responsibility, he said.

“If you want a storm shelter, great, but why should you expect your neighbor to subsidize it?” Dank asked. “And if you get an electric car and want a place to plug it in, good for you. Just don’t demand that the rest of us pay for the wiring.”

Dank assured task force members and others that he has no intention of seeking to eliminate the state’s five-year ad valorem exemption for qualifying manufacturing concerns, one of the incentives reviewed Wednesday, its second meeting. The panel also looked at the merits of a tax credit for energy-efficient home construction.

Under the ad valorem exemption incentive, new manufacturing plants, which include operations that produce electricity, may apply to be exempt from paying property taxes during the first five years of operation; expanding manufacturers may seek the exemption on the expansion.

“We have to (have it) to compete,” Dank said. “It’s not something that I’m necessarily happy with, but you have to compete in this environment. If other states are giving it, we have to give it.”

ENTITIES REIMBURSED

As part of the incentive, the state reimburses schools, counties and other entities for the amount of taxes the manufacturing companies would have paid each year for the first five years. Dank said Oklahoma is the only state that reimburses entities 100 percent.

“Why are we doing that?” he asked. “It makes absolutely no sense to me to give the reimbursement to the local entities.”

Dank said he would support legislation reducing the reimbursement rate or seek a constitutional amendment allowing voters to decide whether to eliminate the reimbursement altogether.

Oklahoma Tax Commission Administrator Tony Mastin said the ad valorem reimbursement fund hasn’t kept up with the amount of money the state has had to reimburse over the years. Since the ad valorem exemption program began in 1987, the state’s reimbursements peaked at $52 million in 2004. The funding source for the reimbursement program is 1 percent of state income tax collections. In the fiscal year that ended June 30, the taxes generated $26 million while about $33.5 million had to be reimbursed.

Martin said the Tax Commission has reimbursed about two-thirds of the amount, or about $20 million, with schools getting paid first and then the counties. The state should make its final payments in February.

During discussion on the energy-efficient tax credit, Mike Means, executive vice president of the Oklahoma State Home Builders Association, said the credit became law in 2005. It provides a subsidy of up to $4,000 per home to builders who meet certain efficiency standards for heating, cooling, insulation, roofs, doors, windows and appliances.

The credit is available for new homes measuring 2,000 square feet or less. To qualify, they must be at least 20 percent more efficient than accepted energy conservation code standards.

CREDIT SUSPENDED

Lawmakers last year suspended the credit for two years as part of a budget agreement. It is scheduled to go back into effect July 1.

During the 2009 fiscal year, builders received tax credits on 944 energy efficient homes, which reduced money going into the state’s general revenue fund by $3.7 million, Dank said.

The credit is transferrable, which irritates Dank, who believes that practice is unconstitutional because a person not involved with building energy efficient homes is getting a tax credit. Some homebuilders receive more energy-efficiency credits than they owe in state taxes so the transferability feature allows them to sell their surplus credits to other corporations or individuals, usually for about 80 cents on the dollar. The buyers use the credits to reduce their state tax bills.

Means and Kelly Parker, an energy consultant and owner of Guaranteed Watt Savers, told the task force it costs more to build energy-efficient homes and the credits allow them to sell the homes at prices that consumers can afford. Otherwise, the cost would be passed onto consumers.

State Auditor and Inspector Gary Jones, a task force member, suggested homebuilders do a better job of marketing and tell potential buyers of the utility savings. He also figured that without the tax credit the extra cost would amount to only $12 a month more in a typical mortgage payment.

The task force is expected to issue recommendations about which tax credits and incentives are ineffective and should be discontinued. Dank said he expects legislators will have the political will to overcome lobbyists and others who will fight to keep them.