A House committee has voted to reform Oklahoma’s tax code by restricting or eliminating the use of “transferable tax credits,” a special form of credit that can be sold to other individuals who are not involved with the activity qualifying for the tax credit.
“Thanks to extensive study of this issue in recent months, it has become clear that transferable tax credits result in little if any permanent job creation and often simply allow other individuals to avoid tax payments,” said state Rep. Dennis Johnson, R-Duncan. “Oklahoma voters do not want their tax dollars to be used to subsidize activity that does not serve the broad public interest, and I believe this reform is long overdue.”
House Bill 2621, by Johnson, limits the transferability of tax credits for coal production, zero emission facilities, small wind turbine manufacturers, qualified historic rehabilitation expenditures, energy-efficient residential construction, and qualified railroad reconstruction or replacement expenditures.
Under the bill, coal production tax credits may not be applied to the rural cooperative tax, insurance premium tax, or insurance retaliation tax; and tax credits for small wind turbine manufacturers and qualified historic rehabilitation expenditures may not be applied to the bank privilege tax, or to portions of insurance premium tax or insurance retaliation tax associated with the General Revenue Fund.
The bill’s provisions would not be applicable to tax credits earned, transferred, or eligible to be carried forward before January 1, 2012.
Under current law, an individual or business who qualifies for a transferable tax credit may sell that credit to another individual for an amount that is less than the value of the credit. The arrangement allows the original credit holder to indirectly raise funds from the private sector with taxpayer assets, and allows buyers to reduce their tax liability without actually engaging in any activity that qualifies for the tax credit.
In 2008 and 2009, the average annual amount of tax credits transferred was $26.7 million. Of that amount, $16.2 million was transferred to insurance companies, allowing them to reduce their tax liability. The remaining $10.5 million in transferable tax credits was purchased by individual tax filers, according to an Oklahoma Tax Commission analysis.
Based on those figures, it is estimated that House Bill 2621 will free up $10.5 million for the state this year.
“A tax credit intended for one entity being used by another defeats the genuine purpose of having tax credits. The shell game created using transferable tax credits is simply bad public policy,” Johnson said. “By closing this loophole and others like it, we can lower the tax rate for working families without cuts to core areas of government.”
House Bill 2621 has passed out of the House Appropriations and Budget Subcommittee on Revenue and Taxation on a bipartisan 11-0 vote. It now goes before the full House Appropriations and Budget Committee.