Newspaper article THE JOURNAL RECORD

Tax Credit Loophole in Oklahoma Questioned

Newspaper article THE JOURNAL RECORD

Tax Credit Loophole in Oklahoma Questioned

Article excerpt

State Rep. David Dank said he wants to eliminate transferrable tax credits.

Dank says those credits - which can be monetized by the entity that received them - are little more than robbery.

Used for everything from the construction of energy-efficient housing to venture capital and rural small businesses, transferrable tax credits, he said, were picking the pockets of taxpayers.

"Those credits drained $88 million from the state's budget," Dank said. "A lot of people using those need to wear a mask and carry a gun."

But while the Oklahoma City Republican could find support for eliminating transferrable state tax credits, a little-known loophole is allowing other tax credits - including those considered nontransferable - to be transferred and sold.

The process works like this: A group of investors form a limited liability corporation, or LLC, and apply for a tax credit. The credit is granted. The nontransferable tax credit flows through the LLC to each of the individual owners. Those owners sell the credit to new investors in the LLC, effectively transferring and monetizing the credit.

The system works, Tax Commission officials said, because an investor in an LLC benefits from the LLC's income and is also responsible for its debts.

"If you have a pass-through entity, an LLC or a Sub-S corporation, all that ends up landing with the owners," said Oklahoma Tax Commissioner Dawn Cash. "If there is a credit, that lands with them, too."

In a 2007 letter ruling from the Oklahoma Tax Commission, the commission's staff wrote that shareholders, partners or members of a pass-through entity were entitled to a tax credit, even if the credit was originally considered nontransferable.

"The Tax Policy Division agrees that shareholders, partners or members of a pass-through entity that are entitled to a credit under Section 2357.73 of Title 68 may receive an allocation of credits from the pass-through entity, subject to the provisions of Section 2357. …

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