A coalition of business groups headed by the State Chamber of Oklahoma support passage of SQ 766, which is on ballot Tuesday, asserting that its failure could spur a vast expansion of state taxes on items as varied as retirement benefits, professional licenses, hunting leases, and even copyrighted song lyrics or ideas for patents.
SQ 766’s opponents — including the Oklahoma Policy Institute, a Tulsa-based think tank; and Oklahomans for Sovereignty and Free Enterprise (OK-SAFE), a Tea Party faction — contend that the question’s approval would trigger a statewide revenue shortfall.
The state Tax Commission estimated that such a shortfall could be as high as $50 million in fiscal year 2014 and would have to be made up by higher property taxes.
“Anyone who studies this issue realizes [failure to pass SQ 766] would be devastating to the Oklahoma economy, probably the largest tax increase in state history,” said Fred Morgan, president and CEO of the State Chamber.
By approving the measure, he said, average Oklahomans “would avoid a large tax increase and the potential to be assessed a tax on things that most people wouldn’t think could be taxed, [like] an app for your smart phone.”
Tax hike or tax cut?
As it now stands, Oklahoma’s intangible-tax statute has its greatest impact on large corporations, such as telecommunications and utility companies, which are assessed by the state.
Morgan said if the current law isn’t amended, Oklahoma’s county assessors could be compelled to issue new tax bills to their residents for an expanded list of taxable intangible property. Morgan said that scenario would likely lead to an increased number of court challenges.
David Blatt, director of the Oklahoma Policy Institute, called that claim “a distortion.”
Instead of blocking a proliferation of local tax assessments on intangible property, Blatt said, passing SQ 766 would spur a drastic drop in education funding. Individual property owners would then be saddled with a property tax hike to cover the resulting shortfall.
“This is a tax cut that is going to have real and tangible consequences for Oklahoma homeowners who will be facing higher property tax bills and for schools and parents [who] are going to see more cuts in education funding,” he said.
According to Blatt, SQ 766 stems from a failed intangible-property tax challenge brought against the state by Southwestern Bell.
“Southwestern Bell filed a lawsuit against the state, saying that their intangible property should not be taxed as it had been,” he said. “They lost the lawsuit and now, with the backing of the state chamber, they’ve gone this constitutional amendment route to ensure themselves of a tax cut.”
Blatt points out that SQ 766 proposes the elimination of a tax that large companies have already been paying for some time.
“Remove that tax and we’re going to create a big budget hole, which is going to affect school districts,” he said. “It’s going to affect libraries and vo-tech centers and health departments, and it’s going to provide no benefit to Oklahoma homeowners.”
Morgan said he doubts the approval of SQ 766 would significantly impact education funding once the tax reduction is spread out over the state’s 77 counties and 600-plus school districts.
“There would be some counties where it would have no impact, and some school districts where it would have no impact. And, of course, then you’re dividing it up with 600 school districts,” he said. “The actual amount [lost from] an individual school’s budget will vary from zero to whatever. But when you divide it up, as a percentage of their budget, we think it will be very negligible.”
Under current state law, Blatt said, the changes that would result from approval of SQ 766 are unnecessary.
“If 766 fails, there is no catastrophic outcome,” he said. “It’s not the end of the world for anybody. We continue doing what we’ve been doing for the last few years — what’s provided for in the [existing] legislation — and either continue to go that way indefinitely, or find another solution.”