Below is a slightly longer version of the story on tax credits that appeared in today’s paper:
- View the latest Tax Expenditure Report
- Read a report about the Investment/New Jobs tax credit by the Incentive Review Committee
- See who has qualified for tax credits on Open Books
BY PAUL MONIES
pmonies (at) opubco.com
One of southeast Oklahoma’s largest landowners has accumulated more than $54 million in state income tax credits, even though the company has closed or sold all but one of its manufacturing plants.
Also making the list are several executives affiliated with Nebraska-based Tenaska Inc., whose subsidiary owns a power plant near Kiowa. Together, those executives qualified for more than $23 million in state income tax credits.
The tax credits have piled up because the Oklahoma Investment/New Jobs tax credit allows businesses or individuals to take up to 20 years to claim the credits. The incentive allows tax credits of between 1 and 2 percent of the cost of a new manufacturing plant or expansion.
The long timeline gives new companies time to get established and build profits, said Treasurer Scott Meacham. But it can also cause problems for state budget forecasters, who likely face another revenue shortfall next year and no federal stimulus funds to close the budget gap.
“From a state budgetary standpoint, we don’t want those multiyear incentives,” Meacham said. “We would rather them hit currently so we have more predictability of our revenue stream.”
The Oklahoma Tax Commission publishes two reports on tax credits: a tax expenditure report that lists the total amount of credits, rebates or deductions claimed by taxpayers; and a list on the state’s Open Books website of who has qualified for tax credits.
The tax expenditure report shows companies and individuals claimed $28.5 million under the Investment/New Jobs tax credit in fiscal year 2010. However, the Open Books site shows $121 million was available to be claimed under that tax credit.
The two reports are not comparable, said Paula Ross, spokeswoman for the Tax Commission. That’s because the Open Books site lists the amount that could be claimed under a type of tax credit. If it’s actually claimed depends on whether the taxpayer has a tax liability large enough to use the credit, Ross said.
Big projects, big credits
Weyerhaeuser spokesman Greg French said that’s how the timber company ended up with such a large tax credit of $54 million. The company began operating in Oklahoma in 1969.
“The amount reflected is the total amount available to us as a result of previous investments in the state over a period of several decades,” French said. “That’s a running total of the credits still available to the company.”
Weyerhaeuser sold a Valiant container board mill in 2008 and closed its Wright City sawmill last year. The company still operates a softwood lumber sawmill in Idabel and timberland offices in Broken Bow. It has 162 employees and owns or leases nearly 500,000 acres of timberland in Oklahoma.
“Even though we no longer own some of those facilities, my understanding is that the credit stays with the company,” French said. “We made the investment, and therefore earned the credit. We would have to offset the credit with tax liabilities. It’s not a refund. Our earnings capacity in the state is substantially reduced. We have a smaller footprint, based on selling of facilities and closing of Wright City.”
Weyerhaeuser had no tax liability in Oklahoma last year and could not take advantage of the credit, French said.
Economic development officials and companies using the Investment/New Jobs tax credit say it’s a valuable part of an incentive package the state can offer to new and expanding companies.
A Tenaska subsidiary, Kiowa Power Partners LLC, spent $450 million to build a natural gas-fired power plant near Kiowa that employs 35 people. The plant began operations in 2003.
“Without these tax credits, this plant probably would not be in the state of Oklahoma,” said Ron Quinn, executive vice president of Tenaska. “It’s one of the ways in which the community has offered to share in the success of that facility being in the state. It doesn’t cost the state anything in the sense that they are offsets to Oklahoma tax revenue if and when we would owe such income taxes. If the plant wasn’t there, there wouldn’t be any tax revenue anyway.”
More than a dozen executives of Tenaska have qualified for income tax credits of at least $23 million, according to the Open Books tax credit data. Quinn said the structure of Kiowa Power Partners means those individuals are responsible for the income taxes on that project.
“It is our hope that we will be able to utilize every dollar of those credits that are available, because that is a good thing for us and a good thing for the state of Oklahoma,” Quinn said.
Tax credits face scrutiny
Tax credits of all types have come under scrutiny as the state faces budget shortfalls and evidence arose of misuse among some types of venture capital tax credits. Lawmakers passed a moratorium on several income tax credits earlier this year, including a two-year moratorium on the Investment/New Jobs tax credit.
The suspension of the tax credits is expected to bring in an extra $55 million in the current fiscal year, according to the latest state Board of Equalization estimates.
Tax credits also have become part of the campaign over State Question 744, which would raise common education per-pupil funding to at least the regional average. It’s estimated the state would need to find between $830 million and $1.7 billion a year to get to that level.
Backers of SQ 744 said the additional money could come from ending some state tax credits. But detractors said passage of the measure could mean cuts to all other state services and possible tax increases.
“There’s an attitude out there now that all tax credits are bad, and I don’t believe that,” said Meacham, who opposes SQ 744. “We need tax credits as a tool to stimulate economic development and job creation in our state.”
Still, part of the idea of the moratorium on some tax credits was to give officials time to study their effectiveness, he said.
“A lot of these credits really need revisiting to make sure the way they work makes sense for the state,” Meacham said. “What happened over time is that different entities would come to the Capitol and lobbyists would come to try to get deals made for their clients. Our tax code got riddled with all these different sorts of credits.”
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Written by Paul Monies