Board keeps capital gains tax break in place, drops ethanol
After considerable debate, a divided Oklahoma Incentive Evaluation Commission voted Friday to keep the state’s capital gains tax exemption in place, rejecting the recommendations of a consultant who found it has cost state coffers $465 million over five years while failing to spur investment.
“We really have no evidence that it’s leading to more spending in Oklahoma,” said Cynthia Rogers, one of four commissioners in attendance and the only opponent of the exemption.
Steve Burrage, chairman of the Oklahoma Tax Commission, defended the exemption as an incentive for investment.
“There is a benefit to Oklahoma taxpayers,” he said.
Rogers and Burrage verbally sparred repeatedly on the matter. Burrage and Vice Chairman Carlos Johnson argued the exemption spurred economic growth; Rogers and a private consultant noted there is little data to support that.
“There no guarantee they create jobs,” said the consultant, Randall Bauer with PFM Consulting.
For more than a decade, the state has allowed profits from the sale of Oklahoma-based property and stocks to be fully deductible. From 2010 to 2014, the tax breaks created an estimated $9 million in additional tax revenue while costing state coffers $474 million, a net loss of $465 million for the state. PFM found that 86 percent of the tax breaks went to residents making at least $200,000 annually.
The commission voted 3-1 to maintain the exemption after rejecting a motion by Rogers that would have modified it to require capital gains be re-invested in Oklahoma in order to qualify.
“I love the discussion,” said Chairman Lyle Roggow after the vote. “Seriously, this is why we’re here. This is not supposed to be quick and easy.”
Some of the discussion centered around whether the commission — which was created in 2015 to consider the effectiveness of tax breaks — has the authority to debate a major tax issue like capital gains.
“This is tax policy, this is not a tax incentive,” said Deby Snodgrass, executive director of the Oklahoma Commerce Department, arguing the commission should not consider it.
“With all due respect,” Rogers retorted, “I think we already had that discussion. That’s why it’s on our docket.”
The commission also chose not to repeal tax breaks for coal production and the purchase of Oklahoma coal. Bauer and PFM had found the tax credits cost the state $4.4 million while propping up a small employer in southeastern Oklahoma.
“It's not clear that this credit going away is going to make the industry go away,” Bauer said.
Burrage argued adamantly in favor of the tax credit, calling the coal industry a strong economic engine with well- paying jobs in struggling small towns.
“Let’s not put another nail in the coffin of rural Oklahoma. This benefit to that part of the state is tremendous,” he said.
“It’s not going to create any new jobs,” added Johnson, “but I do think it’s a factor in maintaining some of the jobs that are there.”
A motion to repeal the tax credits failed on a vote of 2-2.
In several cases, the commission modified tax exemptions without eliminating them entirely. They did so with a tax break for companies that create a headquarters in the state, restricting the number of companies that applies to. The vote was 3-1 with Johnson, a supporter of the tax incentive, voting against.
The commission also modified the state’s socalled 21st Century Quality Jobs program, which provides tax breaks to companies that create high-end jobs, such as aerospace corporations. The modifications will require businesses to file more often and will centralize data to improve future evaluations.
“I have some concerns about this one because the cost-per-job was enormous,” Rogers said. The PFM report found $40.8 million has been paid to companies creating 895 jobs, or more than $45,000 per job.
With Rogers’ reluctant support, the motion to modify was approved unanimously. The commission also voted unanimously to eliminate a 1.6-cent tax credit for ethanol. There was little debate on that motion.