Henry Puts Tax Credits on Hold

By Mick Hinton, Tulsa World, Okla.

Mar. 31–OKLAHOMA CITY — Gov. Brad Henry issued an executive order Thursday to effectively suspend a questionable state tax credit program, while rapping investors who may be profiteering from a loophole in the law. The Oklahoma Tax Commission has reported that the cost of a $2 million tax credit program aimed to help small businesses and rural communities has jumped to $66 million in just a year. Yet, lawmakers say they have not been able to determine whether jobs have been created, which is the intent of the program.

"The incentive programs were designed to create new jobs in Oklahoma, not to reward individuals who operate an accounting shell game to claim inflated tax credits," Henry said. "The only way to stop the abuse permanently is to change the law. But, in the meantime, we can take steps that will make it more difficult for people to play the system for an unjust profit." Similar programs have been stopped in other states after officials noted that their treasuries could be depleted quickly. Sen. Ted Fisher, who introduced a bill to throttle the complicated program, said the state of Louisiana discovered the cost of its tax credit program had jumped from $17 million to $340 million in the space of a year. In Missouri, an audit of a similar program found that $140 million in tax credits produced only $23.6 million in projected revenues and created fewer than 300 jobs in 15 years, said Fisher, D-Sapulpa. Although Henry cannot terminate the venture capital program, he has the authority to tell the tax commission that it cannot issue any more letters authorizing tax credits. This means that investors or companies that move forward with new ventures do not have assurance that they will qualify for tax credits. Henry’s action comes a day after the House Taxation and Revenue Committee voted unanimously to declare a moratorium on the program until its deficiencies can be addressed. Lawmakers said they hope to clear up problems in the next few weeks so the program can resume and not penalize legitimate investors. Their moratorium proposal would have to be approved by both houses and the governor before taking effect. Tax commission spokesman Tony Mastin said it appears some investors are amassing tax credits derived from borrowed money that is never used to help companies get a start. Several years ago, the Legislature set up a program to provide tax credits amounting to 30 percent of the money invested in a new company. But some investors have found a loophole. Mastin gave an example: A group of investors has $1 million. They go to a bank and borrow another $9 million. Based on their $10 million investment, the state gives them $3 million (30 percent) in tax credits. The investors simply pay back the bank and end up with the tax credits, while no new businesses are aided. A couple of years ago, the Legislature passed a measure stating that tax credits could not be issued on borrowed money. Investors apparently got around that requirement by forming a new company and giving that entity the borrowed money. The new company, at least on paper, did not have any debt, although both companies could have the same investors, who end up with the tax credits. ———— Mick Hinton (405) 528-2465 mick.hinton@tulsaworld.com

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Copyright (c) 2006, Tulsa World, Okla.

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