The founding member of a task force looking into transferable tax credits wants to eliminate the program ” or at least the middle man ” to prevent the loss of millions of taxpayer dollars.
Rep. David Dank, R-Oklahoma City, said at last week’s task force meeting the state is losing money due to the open-ended and non-reporting practices of the program. Under the state’s transferable tax credit statute, a company that receives the credit may turn around and sell the credit to receive up-front cash. In most cases, the company sells the credit for a discount. But the purchasing company, usually a bank or insurance company, can use its share of the tax credit as it sees fit, which according to Dank may be selling the credit to another company, or writing off the company’s tax liability.
“Transferable tax credits are wrong to me,” Dank said. “A company not having anything to do with (the industry the tax credit is aimed at) can get money through the tax credit.”
One example is Rockeplane Global, which in 2003 was awarded an $18 million tax credit from the state. The company, designed to launch space tourism flights from Oklahoma, sold the credit to a bank and received $15 million in up-front cash for the deal. But the bank then had an $18 million credit to spend at its will.
To obtain the tax credit, Rocketplane’s owner George French took out a $30 million loan and invested it into the company, which qualified Rocketplane for the full amount of the tax credit.
“Whatever money is invested, even if it’s a loan, doesn’t change the math on the tax credits,” said Mark Harter, assistant chief counsel for the state House of Representatives.
Dank’s problem with the program is twofold: Companies are obtaining state money and may not be stimulating the state’s economy, and there is no accountability for how the money is being spent.
“Any time the state gives a tax credit, it should go to creating jobs, stimulating the economy or provide some good for the state,” he said. “It needs to be documented. There should be total transparency and total justification. It (tax credit) could have gone to bonuses or to buy (luxury cars) for company executives. We have no auditing at all.”
Several companies that have bought tax credits are using the credits to write off insurance premiums to the state. According to information Dank obtained from the Oklahoma Insurance Department, between 2006 and 2008, more than $100 million of tax credit money has been used against a company’s state premium tax liability.
Dank said he has no problem handing out tax credits to companies who need the extra funds to hire workers and stimulate the state’s economy. He just doesn’t want those companies selling its tax credits to other companies who may just write off its tax liabilities.
“We need to try and find a way for third parties not to make money off the deal,” Dank said.
At the task force meeting, several representatives from companies and industries benefiting from the tax credit spoke in defense of the program.
“Most railroad companies are taking the tax credits and selling them for cash, and it’s used to pay for the cost of their projects,” said John Kyle, executive director of the Oklahoma Railroad Association.
However, one railroad company official told the task force his company did not sell the tax credits. Instead, it used the credits to offset its state income tax debt.
Task force member Dave Herbert emphasized the importance the tax credits provide to Oklahoma towns, such as Shawnee.
“Shawnee Mills needs the rails to bring in wheat from Western Oklahoma,” Herbert, a former state senator, said of the agriculture food company. “If the railroads can’t ship their supplies, Shawnee Mills shuts down. If Shawnee Mills shuts down, Shawnee shuts down.”
Dank said he plans to file legislation for the next session in February. “Scott Cooper