Taxes will be a big part of the November election. Not just in the campaigns of those running for office but in tax issues up for a vote. Oklahoma has a doozy of one they will be voting on. State Question 766 will ask voters to expand the exemption from taxation to include more intangible assets.
A quick explanation; all assets can be broken down into 2 basic categories. The first is the tangible property you can touch and see. Intangible properties are assets that are not physical (and that is a little simplistic.) In my office, I have a lot of tangible assets. They include the desks, computers and all the furniture and equipment. But I also have intangible assets such as my client list and the goodwill my business has built up in almost 10 years. The intangible assets won’t come into play until I sell the business. Then they become a factor in negotiating the sale price. If I buy a business with intangible assets, those assets are amortized just like the tangible assets I buy are depreciated. For most businesses, amortization is the only tax treatment you have to worry about for intangibles. But not in Oklahoma.
Intangible assets are subject to property tax (ad valorem tax) in Oklahoma. In 1968, a constitutional amendment specifically exempted some intangibles from the property tax. That list includes cash, gold/silver, bank drafts/checks/accounts, receivables, stocks/bonds and brokerage accounts. It didn’t include intangibles like customer lists, goodwill, patents, trademarks, and a wide variety of other assets. Since then, AT&T has been fighting the issue. The way they interpreted the rules, more assets actually fell under the exempted intangible assets listing and shouldn’t be taxed. In 2009, the Oklahoma Supreme Court ruled against AT&T. Since then, the company has been working Oklahoma lawmakers to change the law.
Here’s the twist, the law hasn’t really been enforced. But if the list of intangible assets isn’t expanded, county assessors will have to start valuing, and taxing, intangibles. They will have to decide what intangibles each business has and how much it’s worth
Estimates are if State Question 766 passes, it will cost Oklahoma up to $50 million in 2013. Most of this money would come out of monies targeted for county governments and schools. Wait! How can that be? After all, if those intangibles aren’t being taxed now, how can the state lose tax money? Well in the case of public service companies like AT&T and the Oklahoma Gas and Electric Co, intangibles are taxed. The property taxes for these companies are based on the unit value of the company. That valuation includes intangible assets which other businesses aren’t paying tax on, yet. So, if the bill passes, they can exclude assets from their valuation and pay less ad valorem tax.
So if State Question 766 passes in November the state will lose a lot of tax money from a few businesses. If it fails, local assessors will have to enforce the law and most other businesses will have to pay more taxes. It’s really a no win situation.