Oklahoma Bar Journal
2018 Oklahoma Tax Legislation
By Sheppard F. Miers Jr.
The following is a summary of some of the changes in Oklahoma law on state taxation enacted by the Oklahoma Legislature in the 2017 special sessions and 2018 session of the Legislature.
Limit of Itemized Deductions
The Oklahoma Income Tax Act was amended to provide that the net amount of itemized deductions allowable on an Oklahoma individual income tax return shall not exceed $17,000. Charitable contributions and medical expenses deductible for federal income tax purposes shall be excluded from the amount of the $17,000 limit.1
Vehicle Manufacturing Credits
Oklahoma income tax credits were enacted that will be allowed to a qualified employer and qualified employee involved in vehicle manufacturing in Oklahoma. A “qualified employer” is defined as a business entity whose principal business activity involves vehicle manufacturing in Oklahoma. For the credits “vehicle manufacturing” is defined to mean a company placed in operation in Oklahoma after Nov. 1, 2018, engaged in the research, development, design and manufacture of motor vehicles which may be driven on the avenues of public access, with specified exceptions. A qualified employer shall be allowed a credit for tuition reimbursed to a qualified employee and for compensation paid to a qualified employee. A qualified employee shall also be allowed an individual income tax credit annually. A “qualified employee” for purposes of the credits is defined to mean a person first employed as a full-time engineer in vehicle manufacturing in Oklahoma by or contracting in Oklahoma with a qualified employer on or after Jan. 1, 2018, who has been awarded an undergraduate or graduate degree from a program that has been accredited by the Engineering Accreditation Commission of the Accreditation Board for Engineering and Technology.
A qualified employer shall be allowed a tuition credit that shall be 50 percent of the tuition reimbursed to a qualified employee, if the employee has been awarded an undergraduate or graduate degree within one year of commencing employment with the qualified employer. A qualified employer shall be allowed a credit for 10 percent of compensation paid for the first five years of the qualified employee’s employment in vehicle manufacturing if the employee graduated from an accredited college or university in Oklahoma, and 5 percent if the employee graduated from an accredited college located outside Oklahoma, subject to a maximum compensation credit of $12,500 for each qualified employee annually. A qualified employee shall be allowed an individual income tax credit of up to $5,000 per year for a period of five years, with a carryover of any credit claimed but not used for the five subsequent taxable years. The total amount of credits allowed to qualified employers shall be adjusted annually to limit the annual amount of credits to $3 million. The total amount of credits allowed to qualified employees shall be adjusted annually to limit the annual amount of credits to $2 million. The credits will be allowed for taxable years beginning after Dec. 31, 2018, and ending before Jan. 1, 2026.2
Zero-Emission Electricity Generation Facility Credit Limit
The Oklahoma income tax credit for production of electricity from renewable resources and zero-emission facilities was amended to limit the credit for electricity generated by moving water, sun or geothermal energy to tax years ending not later than 2021, and for tax years beginning on or after Jan. 1, 2019, to limit the total amount of credits to $500,000 per year.3
Railroad Reconstruction/Replacement Credit Limit
For tax years beginning on or after Jan. 1, 2018, the total amount of railroad reconstruction/replacement credits shall be adjusted annually to limit the annual amount of credits to $2 million per year.4
Coal Production Credit
The income tax credit allowed for every person in the state furnishing water, heat, light or power to the state or its citizens, or for every person in the state burning coal to generate heat, light or power for use in manufacturing operations located in the state was amended to provide that for tax years beginning on or after Jan. 1, 2018, the total amount of credits authorized to be used to offset tax or paid as a refund shall be adjusted annually to limit the annual amount of credits to $5 million per year.5
Oklahoma Tax Installment Payment on Repatriated Foreign Income
For tax years ending after Jan. 1, 2017, if a taxpayer elects to make installment payments of tax due pursuant to the provisions of section 965(h) of the Internal Revenue Code, such election may also apply to the payment of Oklahoma income tax, attributable to the income upon which such installment payments are based.6
Pet Overpopulation Fund Refund Contribution
The income tax checkoff refund contribution to the Oklahoma Pet Overpopulation Fund was reauthorized effective Jan. 1, 2019.7
Court Appointed Advocates Refund Contribution
The income tax checkoff refund contribution for programs for Court Appointed Special Advocates was reauthorized effective Jan. 1, 2018.8
Public School Classroom Support Revolving Fund Contribution
The income tax checkoff refund contribution for programs for the Public School Classroom Support Revolving Fund was reauthorized effective Jan. 1, 2019.9
Oklahoma AIDS Care Revolving Fund Contribution
An income tax checkoff refund contribution for an Oklahoma AIDS Care Revolving Fund was enacted.10
Reporting and Electronic Data
The requirements for withholding tax were amended to provide that every employer required under 68 O. S. §2385.2 to deduct and withhold a tax from the wages paid an employee shall furnish to the Oklahoma Tax Commission, on or before Jan. 31 of the succeeding year, an annual reconciliation and such other information as the Tax Commission may require pursuant to the Tax Commission’s electronic data interchange program.11
SALES AND USE TAX
New Remote Sellers Compliance Requirements
Legislation was enacted providing for new requirements for collection and payment of Oklahoma sales and use tax by remote sellers for sales of tangible personal property through the internet. Persons that come within definitions in the law of “remote seller,” “marketplace facilitator,” or “referrer” will be required on or before July 1, 2018, (and each June 1 thereafter) to file an election with the Oklahoma Tax Commission to either 1) collect and remit sales and use tax on sales and deliveries to purchasers in Oklahoma and obtain a sales tax permit or 2) comply with specified notice and reporting requirements to inform purchasers that sales or use tax may be due, and to file a report with the Oklahoma Tax Commission with respect to sales or deliveries of tangible personal property to purchasers in Oklahoma. The requirements apply to a remote seller, marketplace facilitator or referrer that during the immediately preceding 12-calendar-month period had aggregate taxable sales of tangible personal property within Oklahoma or delivered tangible personal property to locations within Oklahoma, worth at least $10,000. The legislation enacted provides for penalties to be imposed for failure to comply with an election to collect and remit tax, or failure to follow the notice and reporting requirements if those are elected.12
AD VALOREM TAX
Ad Valorem Tax Definitions
The definitions applicable to the Ad Valorem Tax Code were amended to change and clarify the definitions of “assessed valuation,” “fair cash value” or “market value” and “taxable value” and to add a definition of “assessment percentage.”13
Amendment of Procedures on Notification of Increased Valuation and Taxpayer Protests
The statute providing for notification by the county assessor to taxpayers of increased valuation of property, taxpayer protests of such increased valuation, county assessor informal hearings on protests and county assessor decisions on protests and notification thereof to the taxpayer was amended.14
Amendments to Assessment Mapping and Appraisal Procedures
The requirements for county assessor accreditation were amended to provide for completion of academic units in cadastral mapping. The Oklahoma State University Center for Local Government Technology (OSU/CLGT) shall provide accreditation support for study and completion of courses. A County Government Educational-Technical Revolving Fund was created. The OSU/CLCT, in cooperation with the County Assessors’ Association, shall provide the administration, support, training and implementation of the OSU/CLGT-sponsored computer-assisted mass appraisal computer software system to any county using the services provided by the Ad Valorem Division of the Oklahoma Tax Commission and other counties upon request; and all powers, duties, responsibilities, property, assets, liabilities, fund balances, encumbrances and obligations of the Ad ValoremDivision of the Oklahoma Tax Commission for this are transferred to the OSU/CLGT. A Computer-Assisted Mass Appraisal Implementation Revolving Fund was created.15
GROSS PRODUCTION TAX
The gross production tax was amended to levy gross production tax on the production of oil, gas or oil and gas from wells spudded prior to the effective date of the bill, and on or after such date, at a rate of 5 percent commencing with the month of first production for a period of 36 months; and amending provisions for apportionment of revenue from the tax. Previously enacted gross production tax incentive provisions were removed.16
Prior Incentive Rate Change Enacted in 2017
For production commenced on or after July 1, 2011, and prior to July 1, 2015, on the production of oil, gas or oil and gas from a horizontally drilled well any reduced rate provided shall not apply to production occurring during or after the first full month following the effective date of HB 1085X. For tax levied on the production of oil, gas or oil and gas from wells spudded between July 1, 2011, and July 1, 2015, that are deep wells drilled to specified depths, the reduced rate that was provided shall not apply to production occurring during or after the first full month following the effective date of HB 1085X. The change was enacted during the first extraordinary session of the Legislature for 2017.17
Additional Cigarette/Little Cigar Tax
An additional tax is levied on the sale, use, possession or consumption of cigarettes at the rate of 50 mills per cigarette ($1 per pack of 20 cigarettes). A tax at the same rate as is levied on cigarettes is levied upon little cigars.18
Seizure of Contraband Cigarettes; Hearing Procedure
The procedures governing Tax Commission seizure of contraband cigarettes and tobacco products were amended to provide that within 60 days of seizure, the person from whom the property was seized may file a request for hearing with the Tax Commission or the attorney general to show why the seized property should not be forfeited and destroyed. If a hearing is requested, the owner of the cigarettes shall be given at least 10 days’ notice of the hearing. If no request for hearing is filed within the time provided, the property seized will be forfeited and destroyed.19
Excise Tax Stamps
The Oklahoma Tax Commission shall not sell cigarette excise tax stamps to any wholesaler in excess of the amount of the monthly average amount of such excise tax stamps sold to such wholesaler during the preceding calendar year. However, a wholesaler may purchase in excess of the monthly average purchased during the preceding calendar year upon documentation, to the Tax Commission’s satisfaction, of probable sales greater than the wholesaler’s sales in the preceding calendar year.20
MOTOR FUEL TAX
Increase of Gasoline, Diesel Tax
A new additional tax of 3 cents per gallon is to be levied on all gasoline used or consumed in the state. A new additional tax of 6 cents per gallon is to be levied on all diesel fuel used or consumed in the state.21
Importer Rate Amendment
The statutory provision that in consideration of the use of the highways of the state, and in addition to all other taxes levied for such purposes, all persons who import gasoline and diesel fuel into the state in the fuel supply tank or tanks of motor vehicles or in any other containers for use in propelling such vehicles on the highways for commercial purposes, shall report and pay to the Corporation Commission a tax for such use of the highways was amended. The provision was amended to provide that the tax shall be levied and imposed for gasoline and diesel fuel and shall be tax equal to the rate otherwise applicable at the time under the Motor Fuel Tax Code upon a gallon of gasoline and diesel fuel used or consumed in the state. 22
Conforming Exemption Amendment
The provision allowing specified exemptions from tax on motor fuel was amended to apply to the additional taxes on motor fuel imposed by changes enacted by HB 1010XX.23
BANKING PRIVILEGE TAX
Credit for SBA Fee
The credit allowed against the 6 percent tax imposed on banks and credit unions for the privilege of doing business within Oklahoma for the amount of the guaranty fee paid to the U. S. Small Business Administration pursuant to the “7(a)” loan guaranty program was extended until Dec. 31, 2021.24
AIRCRAFT EXCISE TAX
Commercial Airlines Exemption
The exemption from the Oklahoma aircraft excise tax for aircraft purchased or used by commercial airlines was amended to provide that if the operations of an aircraft are not at least 50 percent commercial operations annually, the Oklahoma aircraft excise tax levied shall be due and payable. An aircraft owner shall provide a report to the Oklahoma Tax Commission on an annual basis detailing the operations of the aircraft and any supporting flight, maintenance or charter log books required by the Tax Commission. For purposes of satisfying this requirement, such operations may not include those chartered by the aircraft owner as an individual or as a business entity in which the aircraft owner owns a majority interest.25
TAX ADMINISTRATION, PRACTICE AND PROCEDURE
Tax Commission Settlements; District Court Approval
The requirement that no Tax Commission agreement to compound, settle or compromise any controversy relating to tax liability shall be effective until the settlement has been approved by judgment of one of the judges of the district court of Oklahoma County, after a full hearing thereon, was amended to be applicable if the settlement exceeds $25,000. This requirement previously required district court approval of any Tax Commission settlement that exceeded $10,000.26
Tax Commission Abatement; District Court Approval
The Tax Commission authority to abate all or any portion of tax liability and interest and penalties accruing thereto, pursuant to a settlement agreement entered into with a taxpayer, upon finding that collection of the tax liability and interest and penalties accruing thereto would reasonably result in the taxpayer declaring bankruptcy; the tax is uncollectible due to insolvency of the taxpayer resulting from factors beyond the control of the taxpayer or for other similar cause beyond the control of the taxpayer; the tax liability is attributable to actions of a person other than the taxpayer and it would be inequitable to hold the taxpayer liable for the tax liability; or in cases of nonpayment of trust fund taxes, the taxes were not collected by the taxpayer from its customer, subject to approval by the district court of Oklahoma County was amended. Such abatement shall require district court approval if the amount of the tax liability exceeds $25,000. This requirement previously required district court approval of any abatement of tax liability that exceeded $10,000. 27
Tax Commission Tax Credit Data Access Website
The Oklahoma Tax Commission is authorized and directed to make tax credit data available on its website. Data shall be made available in an open-structured data format that may be downloaded by the public and that allows the user to systematically sort, search and access all data without any fee or charge for access. As used in this section, “tax credit” means a credit pursuant to the Oklahoma Income Tax Act against tax liability which is taken by a taxpayer. The website shall also include, but not be limited to, a brief explanation of the credit, including the year the credit was first allowed to taxpayer; and for 2013 and each year thereafter for each credit, the amount of credits claimed, the amount of credits used to reduce tax liability or refunded to taxpayers, the amount of credits carried over to a future tax year, if available, the number of taxpayers claiming the credit, and the annual growth rate in the number and amount of credits claimed. The Tax Commission is authorized to provide this regardless of the number of taxpayers claiming a credit notwithstanding the confidentiality of taxpayer information limits of 68 O. S. §205. The Tax Commission shall make the data available on its website on
or before Jan. 1, 2020.28
ECONOMIC DEVELOPMENT AND TAX INCENTIVES
Transfers to Oklahoma Quick Action Closing Fund
The provisions for incentive payments pursuant to the Oklahoma Quality Jobs Program Act, the 21st Century Quality Jobs Incentive Act, the Small Employer Quality Jobs Act were amended. Transfers of 5 percent of the quarterly incentive payment amount shall be transferred by the Oklahoma Tax Commission to an Oklahoma Quick Action Closing Fund.29
Oklahoma Quality Jobs Program Act
The Oklahoma Quality Jobs Program Act was amended to change the duty of the Incentive Approval Committee under the act.30
Saving Quality Jobs Act
The Saving Quality Jobs Act under 68 O. S. 2011, §§3701-3712 was repealed.31
Small Employer Quality Jobs Act
The provisions of the Small Employer Quality Jobs Act with respect to the maximum number of full-time employees and the requirements for receiving incentive payments related to projected new direct jobs and employment were amended.32
Oklahoma Quality Events Incentive Act
The Oklahoma Quality Events Incentive Act was amended with respect to definitions, the determination of incremental sales tax revenue, state sales tax revenue, vendors making taxable sales and procedures for determinations to be made under the act.33
ABOUT THE AUTHOR
Sheppard F. Miers Jr. is a shareholder in the Tulsa office of GableGotwals and practices in the areas of federal and state taxation. The author acknowledges information and assistance he received on the subject of this note from Joanie Raff, legislative analyst of the Oklahoma Senate staff.
1. HB 1011XX, amending 68 O. S. Supp. 2017, §2358; effective Jan. 1, 2018.
2. SB 1585, adding 68 O. S. Supp. 2018, §2357.404; effective Nov. 1, 2018.
3. SB 893, amending 68 O. S. Supp. 2017, §2357.32A, effective Jan. 1, 2019.
4. HB 1036XX, amending 68 O. S. Supp. 2017, §2357.104; effective Jan. 1, 2018.
5. HB 1034XX, amending 68 O. S. Supp. 2017, §2357.11; effective Jan. 1, 2018.
6. HB 3715, amending 68 O. S. Supp. 2017, §2368; effective Aug. 2, 2018.
7. HB 2716, amending 68 O. S. Supp. 2017, §2368.13; effective Nov. 1, 2018.
8. SB 1166, amending 68 O. S. Supp. 2017, §2368.12; effective Nov. 1, 2018.
9. SB 1198, amending 70 O. S. 2011, §1-122, effective July 1, 2018.
10. SB 943, adding 68 O. S. Supp. 2018, §2368.31, effective Nov. 1, 2018.
11. HB 3156, amending 68 O. S. Supp. 2017, §2385.3; effective July 1, 2018.
12. HB 1019XX, adding 68 O. S. Supp. 2018, §§1391-1397; effective April 10, 2018.
13. SB 1059, amending 68 O. S. 2011, §2802, effective Nov. 1, 2018.
14. SB 1059, amending 68 O. S. Supp. 2017, §2876, effective Nov. 1, 2018.
15. HB 3372, amending 68 O. S. 2011, §§2816, 2947, 3201, 3204, and adding 68 O. S. Supp. 2018, §§2947.1, 2947.2 and 2947.3; effective July 1, 2019.
16. HB 1010XX, amending 68 O. S. Supp. 2017, §§1001, 1004; effective June 28, 2018.
17. HB 1085X, amending 68 O. S. Supp. 2017, §1001; effective Nov. 17, 2017.
18. HB 1010XX, adding 68 O. S. Supp. 2018, §302-7; and amending 68 O. S. 2011, §402; effective June 28, 2018.
19. HB 3156, amending 68 O. S. Supp. 2017, §305, and 68 O. S. 2011, §§360.7, 417; effective July 1, 2018.
20. HB 1018XX, noncodified; effective April 3, 2018.
21. HB 1010XX, adding 68 O. S. Supp. 2018, §500.4B; effective June 28, 2018.
22. HB 3713, amending 68 O. S. 2011, §603, effective May 7, 2018.
23. HB 1015XX, amending 68 O. S. 2011, §500.10; effective June 28, 2018.
24. SB 883, amending 68 O. S. Supp. 2017, §2370.1, effective Nov. 1, 2018.
25. HB 2253, amending 68 O. S. 2011, §6001, and 68 O. S. Supp. 2017, §6003; effective May 10, 2019.
26. HB 3156, amending 68 O. S. 2011, §219; effective July 1, 2018.
27. HB 3156, amending 68 O. S. 2011, §219.1; effective July 1, 2018.
28. HB 3225 adding 68 O. S. Supp. 2018, §295; effective Nov. 1, 2018.
29. HB 3324, amending 62 O. S. Supp. 2017, §48.2, 68 O. S. Supp. 2017, §§3604, 3904, 3914; effective Aug. 2, 2018.
30. SB 897, amending 68 O. S. Supp. 2017, §3603; effective Nov. 1, 2018.
31. SB 897, repealing 68 O. S. 2011, §§3701-3712; effective Nov. 1, 2018.
32. SB 923, amending 68 O. S. Supp. 2017, §3904; effective Nov. 1, 2018.
33. SB 1252, amending 68 O. S. Supp. 2017, §§4301, 4303-4305, 4309; effective July 1, 2018.