December 5, 2011

Oklahoma Tax Task Force Ends Hearings

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The inside lobby of the Sieber Hotel in downtown Oklahoma City, which is completing its renovation from a hotel to apartments in large part due to Oklahoma tax credits.

Graham Lee Brewer/Oklahoma Watch

The inside lobby of the Sieber Hotel in downtown Oklahoma City, which is completing its renovation from a hotel to apartments in large part due to Oklahoma tax credits.

BIXBY – The state tax reform task force wrapped up more than two months of hearings December 1 with testimony from three small business experts.

As the panel begins considering its final report to Gov. Mary Fallin and legislative leaders, Sen. Mike Mazzei, R-Tulsa, co-chairman of the committee, said several consensus points emerged from the expert testimony:

• Make Oklahoma’s business tax system simpler.

• Keep state taxes away from intangible assets.

• Figure out a way to enforce state taxes on Internet sales.

• Examine special-interest income tax credits critically with an eye toward eliminating most – if not all – of them.

Less consensus existed on what the state should do with any extra revenue that results from those reforms, Mazzei said.

One school of thought is that by broadening the tax base, the state could lower the income tax rate or even eliminate it, he said.

But two of the three witnesses who testified Thursday recommended against taking drastic actions on the state income tax, suggesting that the state might want to use extra income to improve key government services.

Ron Barber, a tax attorney and CPA who has been involved in the founding of more than 1,000 businesses, said Oklahoma’s income tax rate is a low priority to people making decisions about where to create jobs.

“Taxes were way down on the list. In fact, they barely made the list,” he said. “I don’t know if (a lower tax rate) is the panacea that some think it is.”

The quality of life, workforce quality, the school system, the public infrastructure and housing concerns are far more important issues to decision-makers, Barber said.

Eliminating the state income tax would have some positive economic effect, but perhaps not as much as advocates have suggested, he said.

He also cautioned lawmakers against a precipitous move to eliminate the state income tax because the state constitution makes new taxes difficult to create.

“Once you get there, it’s virtually impossible to get back,” Barber said.

Rep. David Dank, R-Oklahoma City, co-chairman of the committee, told Barber of a friend who was a top executive with Kerr-McGee Oil Co. who had moved his legal residence to Texas to avoid paying state taxes on capital gains.

Barber said he knew of a similar case of a high-tax-rate immigrant, but typically people in that situation are late-career workers who are past their job-creating prime.

“I don’t think that’s something that we necessarily need to worry about,” Barber said.

CPA William Lohrey told the committee that a 4 percent to 5 percent state income tax might be best for the state. The top rate is currently 5.5 percent but will go to 5.25 percent Jan. 1.

He agreed with Barber that other state spending priorities might be more important than changing the income tax rate.

A third Thursday witness also was cautious about big changes to the state tax code.

Jerrod Shouse, state director of the National Federation of Independent Business, said some small businesses are concerned that a lower income tax might lead the state to increase the tax burden elsewhere, such as property taxes.

Small businesses, which represent about 98 percent of the private jobs in the state, generally believe in small government, but also recognize that “we do pay taxes for a reason,” Shouse said.