Tulsa World: Task force told of tax-credit problems

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Task force told of tax-credit problems
Officials say they are not necessarily used for their intended purpose.

By RANDY KREHBIEL World Staff Writer
Published: 11/6/2009 2:19 AM
Last Modified: 11/6/2009 4:34 AM

Tens of millions of dollars in tax credits issued to encourage such things as coal mining and maintaining short-line railroads are winding up in the hands of insurance companies that use them to offset the state premium tax, a legislative task force was told Thursday.

The task force, which met at the University of Oklahoma-Tulsa's Schusterman Center, heard state officials describe how the credits can be legally passed among individuals and business entities. The credits can then be applied against outstanding income or premium taxes.

Jonathan Small of the Oklahoma Insurance Department said $57.9 million in premium taxes almost 40 percent of the total tax liability of insurance companies — was wiped out by such credits in 2008.

The task force is concentrating on what are known as transferable tax credits, which can be — and often are — openly traded like any other financial instruments. In particular, it heard Thursday about transferable tax credits issued for burning Oklahoma coal and for maintaining the state's 18 short-line railroads.

Short-lines are independent railroads that operate within the state boundaries. Some, such as the Tulsa-Sapulpa Union Railway, cover only a few miles. Others, such as railroads used to transport grain and other produce in western Oklahoma, have hundreds of miles of track.

Many of the tax credits' original recipients sell them at a discount — typically about 85 percent, according to Thursday's testimony.

Mark Harter, the state House of Representatives' assistant general counsel, explained how even non-transferable credits, which cannot be legally traded, can nevertheless reach a wide circle of end users by distribution through limited liability companies.

Several members of the task force expressed frustration at what they called the system's inefficiency and lack of accountability.

"We have no — zero — accountability," said Rep. David Dank, R-Oklahoma City. "It's kind of like the money that's been given out on Wall Street."

Representatives of the coal industry and the short-line railroads say the credits keep them in business but that they are open to other forms of assistance.

"I have no problem changing," said Lundy Kiger of the AES-Shady Point electricity generating plant in LeFlore County.

AES-Shady Point, which is specially equipped to handle the high sulfur content of Oklahoma coal, receives a tax credit of $5 per ton, amounting to around $3 million a year, for buying from state mines. Kiger said the credits help offset higher costs associated with Oklahoma coal.

Randy Krehbiel 581-8365
randy.krehbiel@tulsaworld.com By RANDY KREHBIEL World Staff Writer

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