Once again, tax credits will be a major focus for the 2011 Oklahoma Legislature.
In her State of the State speech, Gov. Mary Fallin said: ” … Our course of action will be simple: only tax credits that create jobs will stay. For instance, my budget begins the process of restoring the Aerospace Engineer Tax Credit, which brings good, high tech jobs to Oklahoma. But those tax credits that do not create jobs must be eliminated.”
Rep. David Dank, chairman of the House Revenue and Taxation subcommittee, held his first committee meeting Monday evening. It was delayed several hours by a contentious meeting in the House to go over new rules.
“This is a very complex area,” Dank said of tax credits. “We’ve been working on it a long time and we’ll probably be working on it for a long time to come.”
Dank had one of the state’s foremost experts on tax credits, Mark Harter, give a presentation to lawmakers setting up the landscape of tax credits. Harter is assistant chief counsel for the House. Here’s a copy of Harter’s presentation:
Dank said a recent opinion by former Attorney General Drew Edmondson’s office would help shape the subcommittee’s work on tax credits this session. The opinion called into question the constitutionality of several existing tax credits and set up a framework for evaluation. Since only the courts can strike down existing statutes as unconstitutional, the AG opinion is nonbinding.
Basically, the AG opinion sets up a three-part test for the constitutionality of tax credits or other incentives: They must have a public purpose; the state should get something in return for giving up expected revenue; and incentives must have “adequate controls and safeguards.”
Several members of the committee had questions for Harter about the possibility of filing a lawsuit that would force the state Supreme Court to rule on the constitutionality of certain tax credits. Harter said it was doubtful the subcommittee could bring an action in court, but individual lawmakers might be able to band together to bring suit in either district court or before the Oklahoma Supreme Court.
Rep. Mike Reynolds, R-Oklahoma City, asked Harter if lawmakers could bring what’s called a “qui tam” lawsuit (a type of whistleblower lawsuit) and recapture revenue from tax credit claimants that has been lost over the years. Harter said he’d have to review the law in that area. Even so, former lawmakers who passed the laws setting up various tax credits would not have any personal liability in such a lawsuit, Harter said.
Lawmakers and panels studying tax credits have always grappled with a lack of information about their true costs. That’s partly due to the confidential nature of tax filings, which ties the hands of the Tax Commission. Tony Mastin, director of the Tax Commission, said his agency is not really set up to evaluate tax incentives passed by the Legislature.
“The commission has always taken the position that it’s there to enforce the statutes,” Mastin told committee members. “They are presumed to be constitutional.”
Mastin said asking the Tax Commission to pick and choose which tax credits are constitutional “would put us in an awful position. We have a very large tax code to administer. We are set up to administer and collect taxes, not administer economic development programs. That would put extra stress on our agency.”
A few lawmakers said the process for evaluating tax incentives should be a task for the state’s Commerce Department.
Dank warned committee members to be wary of lobbyists touting their favored tax credits.
“I think it’s a runaway train,” Dank said. “I think there are good things that happen, but there’s a lot of brilliant lawyers in downtown offices coming up with these credits. There’s going to be a lot of lobbying. Every tax credit is going to be good in the eyes of those presenting them, but we’ve got to remember the taxpayers.”
Dank has several bills dealing with tax credits this session, including HB 1284 and HB 1285. The first opens up certain information about credits claimed against the insurance premium tax that’s administered by the Insurance Department. HB 1285 sets up a so-called “Blue Ribbon” task force to study tax credits. (The state’s Incentive Review Committee has been studying such incentives for the last several years.)
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Written by Paul Monies