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COMMENTARY: Keeping it Real – Time to vote yes on State Question 766?

Patrick B. McGuigan Story by on October 11, 2012 . Click on author name to view all articles by this author. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

Pat McGuigan of the City Sentinel

by Patrick B. McGuigan

Executive Editor

 

Among the half-dozen ballot questions facing Oklahoma voters in November, State Question 766 is arguably the most significant in economic terms.

 

If voters agree, the measure would exempt “all intangible personal property from property tax. No person, family or business would pay a tax on intangible property. The change would apply to all tax years beginning on and after Jan. 1, 2013.”

 

An “intangible” tax, according to state law, involves items that certainly are tangible to property owners — cash on hand, gold, silver, coins, money on deposit, accounts receivable, promissory notes, and similar things. But it could include almost anything, from the value of insurance policies to a business’ good will.

 

The measure resulted from a collaboration between state Sen. Mike Mazzei, a Tulsa Republican, and state Rep. David Dank, a Republican who represents parts of the MidCity area.

 

Passage would put in place clear, affirmative protections for businesses and individuals against what would otherwise be major new taxes.

 

This year’s legislative work on the issue, leading to placement of the constitutional amendment before the people, flowed from a process that began in the 2010 legislative session, as legislators grappled with the implications of a 2009 ruling in the case of “AT&T v. Oklahoma State Board of Equalization.

 

Controversy emerged because the justices decided that anything not listed explicitly would be considered “tangible” for purposes of taxation.

 

In a nutshell, that’s the rub.

 

The court in that instance interpreted existing state constitutional provisions that explicitly exempt from taxation a variety of business assets. These are items deemed tangible, in Article 10, Section 6A of the state constitution, such as gold and cash.

 

Concern about intangible taxation brought the free market Oklahoma Council for Public Affairs and the liberal Oklahoma Policy Institute to nearly the same conclusion at hearings held last fall, during the legislative task force’s hearings designed to address unease created in the business community over the ruling’s implications.

 

Testifying before the task force, OCPA president Michael Carnuccio pointed out that no surrounding states levy a tax on intangibles. In fact, according to the Tax Foundation, only 10 states in the whole nation do so.

 

David Blatt of the Oklahoma Policy Institute said last fall the best solution was a constitutional amendment to restore the “status quo ante,” putting the levy on centrally assessed entities only, that is, larger entities whose property tax assessments are made at the state level.

 

This year, however, Blatt’s group has offered criticisms of S.Q. 766.

 

In a July 18 blog post, OK Policy’s Gene Perry argued that a result of the measure’s passage “would be a revenue loss to schools and local governments of about $65 million that would have to be made up for by a combination of budget cuts and hikes in the tax rate on the property that remains taxable.” He said, “there are much better way to achieve property tax relief than creating more arbitrary caps and exemptions.”

 

In a Sept. 11 guest post on the OPI blog, Michelle Cantrell, a tax specialist in Tulsa, contended the measure could cost local governments around $50 million, most of that in public school funding, and an undefined higher amount over time.

 

The concern is that over the past three decades, in a growing service economy, “intangibles” have become a higher portion of the perceived value of businesses. Pointing to Oregon and Washington state as places that include intangible taxation to one degree or another, Cantrell said the approach proposed in S.Q. 766 would create “a giant tax loophole for corporations.”

 

Concerns from conservatives, however, are not theoretical. The logic of the state court decision could lead to significant increases in the size of government and the tax burden on business.

 

Are some of us worrying too much about theoretical possibilities?

 

Probably no. At least one county assessor in central Oklahoma — not Leonard Sullivan in Oklahoma County, the state’s most populous urban center — has been making inquiries to lawyers and tax accountants about the value of goodwill in home sale transactions. In that scenario, the intangible to be taxed could shift from business to the most ubiquitous benchmark of the American dream, a man’s or woman’s castle.

 

In the views of one seasoned, admittedly Republican, student of government, with S.Q. 766, “personal pensions, the value of any license — including a teaching certificate — and even ‘goodwill’ could be taxed.”

 

More on that in a moment.

 

In Florida, before intangible taxation was tossed overboard, even the cash value of whole-life insurance policies was subject to the levy.

 

Supporters of S.Q. 766 include OCPA’s analysts, chambers of commerce members, leading businesses, and, unsurprisingly, AT&T.

 

Legislation sending the constitutional measure to the ballot sailed through the state House easily, guided by Dank, on a relatively bipartisan vote, then got locked up a bit in the Senate, where Democrats broke against it.

 

On this one, there is broad unity on the political “right,” loosely defined, in Oklahoma. There is concern about what failure for the proposition would mean — among the majority of conservative activists, as well as those analysts sometimes deemed “Chamber types.”

 

Speaking of chamber types, people engaged in commerce worry about taxing the value of items identified by the State Chamber of Oklahoma’s Gwendolyn Caldwell in a recent backgrounder — customer lists, relationships, databases, goodwill, employment contracts, patented technology, lease agreements, trademarks, trade names, software, land leases, mineral interests, insurance, and a virtually endless list of other possibilities.

 

At this point, arguing against S.Q. 766 is Blatt’s OK Policy, based in Tulsa, some school superintendents and defenders of the original decision.

 

Here’s a personal take on the situation. For business interests, a tax on intangibles is essentially double taxation. A woman’s business is taxed on profits, not the unrealized value of a name brand. A man who leases mineral rights already pays a tax on income — should he also have to pay a tax on the value of a lease?

And, what about the value of a relationship established by contract?

 

For that matter, what about the value of a handshake agreement, which is still the way a lot of Oklahomans do business? To this day, such deals benefit both parties, in most cases.

 

In the end, a successful outcome gets taxed the right way, on actual profits. I run the Oklahoma bureau of the Franklin Center’s news organization, a nationwide nonprofit dedicated to strong, independent journalism, albeit on the Internet rather than in print.

 

When people quiz me about being in the pioneer generation of the adventure known as nonprofit journalism, I often tell them that the weekly community newspaper I am part of, The City Sentinel, is a longstanding pioneer of nonprofit journalism, even if it wasn’t intended that way.

 

As a journalist, I will never get rich, but I do get taxed. I have accumulated, dare I say it, “goodwill.” The “brand name” for both news organizations is obviously “valuable” – one locally, the other nationally.

 

Still, I don’t know how in the world anyone could determine the taxable value of that any more than they could put a monetary value on the respect I have for advocates like Carnuccio and Blatt.

 

Taxes are plenty high on the things that can be assessed and monitored, like real property values and profits.

 

Keep it real, and tangible. That ought to be enough for any government.

 

Editor’s Note: This essay first appeared in the October edition of Perspective Magazine, monthly publication of the Oklahoma Council of Public Affairs.This commentary also appeared nationally, on the Watchdog.org website.

 

2 Comments for “COMMENTARY: Keeping it Real – Time to vote yes on State Question 766?”

  1. […] McGuigan argued in favor of SQ 766 in The City Sentinel and responded to two pieces from OK Policy about the consequences for public […]

  2. […] McGuigan argued in favor of SQ 766 in The City Sentinel and responded to two pieces from OK Policy about the consequences for public […]

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