Oklahoma Election 2012: Yes on State Question 766

How in the world can you fairly assess the value of intangible property? And if you can't fairly assess it, how in the world can you fairly tax it? That's why Oklahomans should welcome the opportunity to approve SQ 766 and abolish this arbitrary tax which has only been tolerable until now because it has only been applied to a small number of big companies.

SQ 766, proposed to Oklahoma's voters by the State Legislature, would strike nearly all of the very wordy Article X, Section 6A of the Oklahoma Constitution, and replace it with the following simple language:

Beginning January 1, 2013, intangible personal property shall not be subject to ad valorem tax or to any other tax in lieu of ad valorem tax within this State.

Article X, Section 6A, was added to the Constitution by State Question 460 to prohibit the legislature from levying ad valorem tax on specific categories of intangible property. It passed by about a three-to-one margin on the August 27, 1968, state primary ballot.

Once again, here's a quick summary of how I plan to vote on all the questions:

SQ 758: NO
SQ 759: YES
SQ 762: NO
SQ 764: NO
SQ 765: YES
SQ 766: YES

And once again we turn to State Sen. Rick Brinkley, who is graciously allowing me to post his analysis of and explanation of the history of SQ 766 here on BatesLine:

State Question 766 - Ends the Taxation of Intangible Property

This is Part 2 of my response to some of you who asked my opinion on the 6 State Questions on the Ballot on Tuesday. Part One dealt with changes in the Department of Human Services. Please look at my Wall if you would like to read that post and a three sentence history on why every year there are state questions on the ballot.

Failure for SQ 766 to pass will result in the largest tax increase in state history.

Please excuse my very elementary explanation of this issue:

Definition: TANGIBLE Property is property that you can wrap your hands around. If you own a McDonald's, Tangible Property is the building, the fryers, tables and Chairs, etc. INTANGIBLE PROPERTY is the "name" McDonald's (what is the "brand" worth?), Client Lists, Software developed by employees (A McDonald's Franchise may not be a good example for that one), and the institutional knowledge your employees possess, etc.

History: For years, counties did not really evaluate or charge tax on Intangible Property. However, the Board of Equalization assessed an Intangible Tax on large entities like Utilities, Railroads, etc. These companies are called "Centrally Assessed" companies, because they were not assessed on a County-by-County basis. It is important to note that even "Centrally Assessed" companies were not actually assessed a tax based on an actual determination of their Intangible Property, but rather it was calculated on a Unit Basis....meaning if your company was assessed at a certain tangible property amount, a certain percentage was calculated to be your Intangible Tax. Several years ago a company challenged its being taxed on intangibles to the State Supreme Court. They claimed it was unfair because other companies were not taxed for intangibles (just the Centrally Assessed Companies). The State Supreme Court ruled that not only was the Intangible Tax Constitutional, it could be assessed against all companies in the state as well as individuals.

Your Decision to Make: The question before you is "Should We Eliminate Taxation on Intangible Property?" My answer to that question is "YES." First, by the mere definition of "Intangible", it is not something that is easily determined and the variance from County to County and Assessor to Assessor could be great. How does the government assess the value of your company's name and then tax you on it? Also, please be reminded that these companies and, especially, small business owners have already paid income tax on the company's income and the salary they have paid themselves. Now, to "double dip" and tax them again on the Intangible Value of what they created seems inherently wrong to me. They will, of course, continue to pay Tangible Property Tax, Income Tax, Unemployment Tax, Payroll Taxes, etc. Plus, the taxes they pay as individuals.
We also should not pick and choose who pays Intangible Taxes. We either all pay them or none of us pay them, but we can't (in my opinion) say we only want certain companies to pay the tax and not others. We have also not addressed the issues related to taxation of Intangibles on individuals.

Opposition: The Oklahoma Tax Commission estimated the cost to eliminate the Intangible Tax would be approximately $50 million (meaning it would not collect approximately $50 Million of taxes on companies currently paying the Intangible Tax.) However, it provided no methodology for its calculations. Please remember, those companies which currently pay tax on Intangibles are really paying a "Unit Valuation" that the government uses to determine what they will charge them as their "Intangible Tax". It is not currently based on actual/factual determination of a company's Intangible worth. Those who oppose this state question do not want to see a reduction in the amount of money the state collects. However, many of them freely admit they also do not want this kind of tax to go into effect on individuals, small business owners, farmers, ranchers, etc.

It is impossible for the Tax Commission to estimate the magnitude of the taxes to be collected if Intangibles were to be taxed; however, some estimates put it between a $300 - $400 million tax increase.

My Opinion: State Question 766 needs to pass in order to be fair to Individuals/Businesses in this state, to prevent the largest tax increase in state history, and to help all businesses, especially small business owners, succeed.

Here's OCPA's analysis:

Summary: This measure would exempt all intangible personal property -- e.g. patents, inventions, formulas, designs, trade secrets, licenses, franchise, contracts, land leases, mineral interests, insurance policies, custom computer software, trademarks, trade names and brand names -- from property taxes. Historically the state has not taxed intangible personal property, except for some small instances of centrally assessed property for a small number of businesses. This measure is to respond to a recent Oklahoma Supreme court ruling mandating that all intangible personal property not specifically exempted is subject to property tax.

What's at stake: From a free-market, limited-government perspective, preventing property taxes on intangible personal property would serve as an incentive to entrepreneurship and prevent a massive intrusion of government into people's lives. Only ten states assess property taxes on intangible personal property as interpreted by the Oklahoma Supreme court and such an expansion of taxing authority would likely be the largest tax increase in state history. Things such as a person's interest in a public pension, the reputable name of a small family business, intellectual work during college and a host of other "intangibles" would now be subject to "valuation" and taxation by government bureaucrats. Ultimately, this state question is pretty cut and dry, a "Yes" vote ensures that all intangible property is exempt from property tax. A "No" vote subjects all intangible property to property tax.