Dank Plans Study Of Income Tax Credits
|Rep. David Dank|
The opinion was requested earlier this year by Rep. David Dank, R-Oklahoma City, the incoming chairman of the House Revenue and Taxation subcommittee.
Dank said he plans to hold a special meeting in January to brief panel members on the opinion and on tax credits. He said the attorney general's opinion would be a good framework to debate the effectiveness of the state's tax credits.
“If there's a tax credit that creates jobs and serves a real meaningful purpose for the taxpayers of Oklahoma, I'm their best friend,” Dank said Wednesday. “If there's a tax credit that's simply a giveaway to a certain entity or individual, I'm your worst enemy if it's not serving a purpose for the taxpayer. I don't mean to be sanctimonious or a Puritan, but I think the main reason I was sent out there was to look after the taxpayer money.” Dank asked the attorney general's office if income tax credits constituted a “gift” under the Oklahoma Constitution. He also asked about the constitutionality of transferrable tax credits and the rural small business and small business venture capital tax credits.
Attorney general opinions on constitutional matters are nonbinding. That means a court would still have to rule that legislation setting up a tax credit is unconstitutional.
Edmondson's opinion separated tax credits into those that benefit economic development and those that don't. For example, the state's earned income tax credit for lower-income households goes to individuals.
But the state Supreme Court has ruled it is not a “gift” and is constitutional. Economic development income tax credits must meet a three-part test, the opinion stated. Generally, that means the credits should have a public purpose, the state should get something in return and credits should have “adequate controls and safeguards.” Under those conditions, a tax credit for manufacturers of small wind turbines appeared to be constitutional, the opinion stated.
But tax credits for contractors who spend money on energy-efficient building materials and transferrable tax credits for the rehabilitation of buildings do not appear to be constitutional.
The opinion also called “constitutionally infirm” the tax credits for investments in rural small business venture capital companies and small business venture capital companies.
“If a tax credit is predicated on investment only and not actual benefit to the inhabitants of the state, it is only the individual company receiving the money that is benefited, and no public purpose is served,” the opinion stated.
Lawmakers placed an 18-month moratorium on rural small business and small business tax credits earlier this year in part to close a budget shortfall. Taxpayers claimed $48 million under those types of income tax credits in the last two years, according to the Oklahoma Tax Commission.
Through a spokeswoman, Edmondson, a Democrat, declined to elaborate beyond the 14-page opinion. The opinion was written by David Kinney, an assistant attorney general.
Dank said he may ask incoming Republican Attorney General Scott Pruitt for additional guidance.
Dank is preparing legislation to convene what he called a “blue-ribbon” committee to study state tax credits.
“Because it is so complex, we may have to go back to the new attorney general with some additional questions concerning these credits and whether or not they meet the constitutional standards,” Dank said.