September 9, 2011

Investment Tax Credit Draws Concern

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Legislators should learn from good parents when it comes to dealing with tax credits, the co-chairman of a legislative task force looking into the credits and other economic incentives said Wednesday.

Information on many of the tax credits indicates that many have no caps or limits, said Rep. David Dank, R-Oklahoma City.

“There are literally no caps at all on the cumulative amounts that can be used annually on all but two of these credits,” he said.

“That’s like handing the keys to the car and a credit card to a 16-year-old boy and saying, ‘Have fun, son!’ You know he’s thinking the sky’s the limit,” Dank said.

“But that family is ultimately going to have to balance the budget he wrecks. And so does state government.”

Dank’s task force members met Wednesday to discuss the investment/new jobs tax credit and the Oklahoma Quality Jobs Program, which provides cash rebates to qualifying businesses that create new jobs.

No restriction on time

The investment/new jobs tax credits, Dank said, accounted for nearly $50 million in 2008. Credits not used may be carried over to subsequent tax years without any restriction on the number of years.

A tax credit is a direct, dollar-for-dollar reduction in tax liability.

The state’s investment/new jobs tax credits are income tax credits for either an investment in property used in a manufacturing or processing facility, or for a net increase in average levels of employment.

When the program first started in 1980, the credits had to be used within 15 years, Oklahoma Tax Commissioner Dawn Cash said. Legislators removed the restriction in 2000 and put no deadline on when the credits must be used.

$16M IN CREDITS USED

As of the 2009 fiscal year, the program had about $137 million in tax credits that could be applied, she said.

About $16 million in credits were claimed, leaving $121 million.

The program was among 30 tax-credit programs in 2010 that legislators, grappling with significant revenue shortfalls, placed on a two-year moratorium to allow more time to review the incentives and to see their effect on the state’s budget.

Task force members also were troubled about Tax Commission figures provided to them that showed for the three-year period ending in 2009 that $312 million was available in tax credits and $63.8 million in credits were claimed, leaving nearly $250 million in available tax credits.

Cash said it’s possible that some of those credits were issued under the 15-year limit and had expired.

State Auditor and Inspector Gary Jones, a member of the task force, said he is troubled the state has so little information about the program.

“We have no way of knowing what the exposure is to the state of Oklahoma,” he said.

Rep. Earl Sears, a task force member, said after the meeting he has many questions about the program’s effect on the state’s budget.

“We’ve got to look at that,” said Sears, R-Bartlesville, who is chairman of the House of Representatives Appropriations and Budget Committee.

“That’s one we must review to have a clear understanding exactly what our tax liability is in regards to this tax credit. I personally want to know what that total number is. What are we on the hook for?”

Little information could be provided whether the tax credit was a deciding factor for any company deciding whether to locate or expand in Oklahoma. Officials with the Tulsa Metro Chamber and the Greater Oklahoma City Chamber said it was one of several factors.

QUALITY JOBS PROGRAM

However, task force members seemed pleased with the Oklahoma Quality Jobs Program, which provides incentives to various industries, nearly half of which are manufacturers, to create new jobs. The incentive program is a cash rebate of up to 5 percent over a 10-year period on new taxable payroll to qualifying businesses.

Jobs must be new to the state, and must pay the average county wage or $29,745, whichever is lower. The company must achieve and maintain a $2.5 million annual payroll within three years and must offer basic health insurance.

Justin McLaughlin, vice president of economic development for the Tulsa Metro Chamber, said the jobs program is effective because of its simplicity.

“If you don’t create the jobs, you don’t get the incentives,” he said. “I believe this program is vital to Oklahoma’s future.”

McLauglin said in the past three years 12 companies have located in Tulsa largely because of the Quality Jobs Program. Those companies provide about 1,250 jobs.

He encouraged legislators to keep the program intact.

Since the Quality Jobs Program began in 1993, 610 companies have participated, creating more than 443,000 jobs. The average wage of the new jobs was $34,619, said Jon Chiappe, research division deputy director with the state Commerce Department.

He said about 150 companies currently are taking part in the program.

Mike Ogan, director of business development with the Greater Oklahoma City Chamber said he sees the Quality Jobs Program as a premier incentive.

“It differentiates us from other states,” he said.

“Other states have tried to copy, but none have done so exactly. It’s a positive, pro-business effort.”

The program cost the state about $49 million in revenues during the 2010 fiscal year, which ended June 30, 2010, said Richard Schwalbach, manager of the Quality Jobs Program with the state Commerce Department.

Dank said, “I think the Quality Jobs concept can serve as an example of what we are working toward with this task force.

“It’s being run like a business … and supervised properly,” he said.