Oklahoma Basic Business Taxes 2012
Oklahoma's economic development, finance and tax organizations provide a range of incentive programs to initiate new business and commercial investment. Specific programs include a corporate income tax, sales tax exemptions, and property tax abatement.
Area Development Research Desk (2012)
Corporate income tax:
A 6 percent corporate income tax is imposed on the net taxable incomes of corporations attributable to state sources. There is no worldwide unitary tax. Income tax credits for manufacturers and some service companies may be carried forward up to 20 years.
Sales and use taxes:
A 4.5 percent state sales tax is levied on the sale, rental, or lease of tangible personal property. Items sold for resale are not taxed. Businesses are allowed a deduction of 2.25 percent of the tax due for collecting the tax and record keeping provided they file electronically.
A 4.5 percent state use tax is imposed on tangible personal property purchased or brought into the state for storage, use, or consumption that is not subject to the sales tax. Items exempt from sales tax are also exempt from use tax.
Counties or cities may levy a local sales and use tax.
Sales tax exemptions:
Oklahoma's sales tax exemption program offers exemptions in the following areas:
1. Machinery and equipment used directly in the manufacturing process, including replacement parts;
2. Tangible personal property that becomes part of the finished product, including fuel;
3. Interstate 1-800, WATS and private-line business telecommunications systems;
4. Containers that are sold to persons regularly engaged in reselling empty or filled one-way containers or when the containers are purchased to package raw materials;
5. Primary and secondary packaging materials used to pack, ship, or deliver tangible personal property may be purchased sales-tax exempt by a manufacturer or producer (does not apply to returnable containers or reusable packaging in some circumstances);
6. Machinery, equipment, fuels and chemicals used directly or in treating controlled industrial waste (approval is required by the State Department of Environmental Quality);
7. Sales by manufacturers of personal property to one who transports it to another state for immediate and exclusive use;
8. Certain aircraft and parts at qualified aircraft-maintenance facilities;
9. Machinery and equipment purchased and used by certain computer-service and data-processing companies with significant out-of-state sales;
10. Sales of tangible property to a space port user.
The state levies no property tax. Real property not specifically exempted is subject to local property taxation. Personal property of households may not be taxed in some counties. There is no tax on intangible property.
Property is assessed in the taxing districts where located. Assessment rates are between 11 percent and 13 percent on real property and 10 percent and 15 percent on personal property. The actual tax rate is the aggregate of all levies of all local taxing authorities.
Property tax abatement:
A constitutional amendment allows the state to reimburse counties for a five-year ad valorem tax exemption for new, expanded, or acquired manufacturing facilities, research/development facilities, some computer services, data processing services, and some warehouse distribution facilities. Land, buildings, machinery and equipment used directly in the manufacturing process are eligible. Threshold requirements for the exemption require a capital investment of at least $250,000 and new payroll of $250,000 in counties with a population of 50,000 residents or fewer, and maintenance of the same payroll for each of the four subsequent years of the exemption. If the company is located in a larger county, an additional annualized payroll of at least $1 million is required. However, if a $7 million investment is made in new facilities for certain computer service companies already in the program, no new payroll is required. No manufacturing concern can receive more than one five-year exemption unless an expansion meets the capital investment and employee payroll requirements. A strictly local abatement (no state reimbursement) is available to new businesses (except retail - does not include hotel/motel) in certain incentive districts.
Former Indian Lands tax incentive:
The Taxpayer Relief Act of 1997 clarifies qualifying areas of the state that constitute former Indian reservation land as determined by the federal Secretary of the Interior.
More than two-thirds of all land in Oklahoma meet the definition and qualify for the accelerated depreciation of real and personal property (capital goods, equipment, etc.) that are currently in place or will be located in the former Indian lands during the relevant tax years. The incentive provides a shorter recovery of approximately 40 percent for most nonresidential depreciable property placed in service during the calendar years 1994 to 2005. The federal tax deferral can substantially increase the after-tax income of a business. Since Oklahoma business taxable income is based on federal taxable income, the depreciation benefits will automatically apply for Oklahoma tax purposes.
A federal income tax credit is also available for businesses located on former Indian lands and employing American Indians. The amount of the credit is based on increased wages paid to enrolled tribal members and their spouses during the 1994 to 2004 time period, compared to the wages paid in 1993. An annual tax credit of up to $4,000 for each such qualified employee is available. Has yet to be renewed by Congress for 2012.
Income tax credits/exclusions:
Oklahoma's income tax credits/exclusions include the following:
1. Job creation tax credit: Through the investment/new jobs tax credit for manufacturing, processing, or aircraft maintenance operations, a credit of one percent on corporate income tax is allowed for investment in qualified depreciable property. If the investment credit is taken, a minimum of $50,000 qualified investment in a tax year is required or a credit of $500 is allowed for each new full-time equivalent manufacturing employee, whichever is greater. In enterprise zones the credit is doubled. Employment must not decrease. This credit is also doubled if a business invests $40 million in the first three years.
2. Technology transfer: Corporations assisting small businesses with technology transfer are entitled to special income tax exemptions on royalties received.
3. New product development: Royalties earned by an inventor on products developed and manufactured in the state are exempt from state income tax for seven years (product must be patented or patent pending). Manufacturers may exclude from Oklahoma taxable income 65 percent of the cost of depreciable property purchased and utilized directly in the manufacturing of the products. The maximum exclusion is $500,000. It may be carried forward for four years.
4. Clean-burning motor fuel: There is a one-time tax credit for equipment installed to modify a motor vehicle from gasoline propellant to compressed natural gas, liquefied natural gas, or liquefied petroleum gas.
5. Business Incubators: Other income tax exclusions are available for sponsors and tenants in business incubators and hazardous-waste recycling plants.
6. Agricultural commodity-processing facility: Owners of agricultural commodity-processing facilities may exempt from income 15 percent of the total investment in facilities beginning in 1997. After 1999, certain ceilings apply.
7. Ethanol Facility: Owners of an ethanol facility may receive income tax credits of twenty cents per gallon of production for up to five years.
8. Food-processing investment: An income tax credit of 30 percent of investment is available to Oklahoma agricultural producer investors in Oklahoma producer-owned agricultural processing ventures, cooperatives, or marketing associations. The investor must be an owner who owns a qualified facility, which may be processing plants, marketing associations or investment firms. The facility must do more than merely store, clean, or transport agricultural commodities.
9. Insurance Premium Tax Credit: Insurance companies that locate or expand regional home offices in Oklahoma and maintain an employee level above 200 are eligible for special tax credits against the tax imposed in the Insurance Code. Annual credits range from 15 percent to 50 percent based on the numbers of full-time, year-round employees.
10. Venture Capital Tax Credit: Investment in qualified venture capital companies creates a transferable income tax credit or premium tax credit. Venture Capital companies must be capitalized at a minimum of $5 million and invest at least 55 percent of those dollars in qualified Oklahoma companies over a 10-year period. The credit equals 20 percent of the cash invested.
11. New Markets Tax Credits: Two Oklahoma organizations have been selected as eligible Community Development Entities (CDE's) for purposes of the New Markets Tax Credits on behalf of the U.S. Department of Treasury. The CDE's are the REI New Markets Investment, LLC, and Meta Fund, Inc. Investors in these organizations earn federal income tax credits when the organizations invest in underserved low-income communities. The credits are five percent of investment for the first three years of the credit and six percent for the last four years of the credit, for a total of 39 percent of investment over the seven years of credit period.
Goods, wares and merchandise that enter and leave Oklahoma within nine months, where such goods, wares, and merchandise are held for assembly, storage, manufacturing, processing, or fabricating purposes, are not subject to ad valorem taxation within the state.
Construction materials tax refunds:
Refunds of sales taxes on construction materials are available for new or expanding manufacturing facilities, including:
• Facilities with construction costs exceeding $5 million that create 100 new jobs - maintained for a minimum of 36 months.
• Facilities with construction costs exceeding $10 million, and the combined total of material, construction, and machinery exceeding $50 million, that add 75 new employees.
• Qualified new or expanding aircraft maintenance and manufacturing facilities that create 250 or more jobs, with investment totaling at least $5 million.
• Distribution centers for Oklahoma manufacturers or land used for packing, repackaging, labeling, or assembling for distribution products at least 70 percent made in Oklahoma but at an off-site, in-state manufacturing facility or facilities may qualify.
Oklahoma Film Act:
A rebate of up to 17% percent of expenditures in Oklahoma on a film budget and up to an additional 2% if productions company spends at least $20,000 for the use of music from an Oklahoma resident that is recorded in Oklahoma or for the cost of recording songs or music in Oklahoma for use in the film production. The minimum budget of the film is $50,000 with at least $25,000 spent in state. Must be insured for general liability with coverage of at least $1,000,000.
A sales tax exemption is available to certain businesses for the purchase of computers, data processing equipment, related peripherals, and telegraph or telecommunications services and equipment when at least 50 percent of the annual gross revenue of the business is generated by sales of product or service to an out-of-state buyer or consumer (including the federal government). Seventy-five percent of annual gross income must be from R&D. These companies may receive sales tax refunds for such purchases if the business employs at least 10 new workers at an average salary of $35,000 for at least three years.
Aircraft Manufacturing Facility:
In addition, Oklahoma also offers a sales tax refund for sales of computers, data processing equipment, and related telecommunications equipment for use in an aircraft maintenance or manufacturing facility that is new or expanding; is primarily engaged in aircraft repair, building, or rebuilding; has a total cost of construction exceeding $5 million; employs at least 250 new full-time employees upon completion; and pays at least $2 million for computer services/data processing equipment.
Oklahoma State Contact:
Oklahoma Department of Commerce
900 N. Stiles
Oklahoma City, OK 73126-0980
(405) 815-5148 or (800) 588-5959
Incentive and tax information is provided to Area Development by each state's economic development or commerce agency for information purposes only and is subject to revision at any time by the state government. Please contact the state agency directly for full requirements and offerings.