Wednesday, September 16, 2009

Tax Attorney: OKC tax attorney urges CPA awareness of new rules

Tax Attorney

Legislators, judges and the Oklahoma Tax Commission have been busy this year making changes that CPAs and their clients need to keep up with, Oklahoma City tax attorney Richard Kells said Thursday.

Kells also told the 2008 Oklahoma Tax Institute that the Oklahoma Bar Association and Oklahoma Society of Certified Public Accountants are working for an independent tribunal to hear initial disputes involving state taxes, rather than Tax Commission administrative law judges.

As Kells pointed out, currently state tax cases are heard by an ALJ, then by the three-member commission, with adverse rulings appealed to the Oklahoma Supreme Court.

Kells, with Hartzog Conger Cason and Neville, said a ballot issue approved last month by voters provides an exemption from household personal property taxes for totally disabled military veterans. It also applies to surviving spouses. Kells said only 13 counties still assess household personal property taxes. Oklahoma County does not do so.

Another law change requires that applications for ad valorem tax exemptions be filed by March 15, he said. Supporters of this particular ballot issue said it was needed to prevent counties from having to pay refunds for retroactive exemptions.

Kells also reported that Oklahoma's $2 million estate tax exemption is scheduled to rise to $3 million next year, before being repealed in 2010.

Legislators extended the qualifying period for a 48-month gross production tax exemption for wells 15,000-17,499 feet deep and a 60- month exemption for wells 17,500 feet or deeper to July 1, 2011, he explained.

They also extended Quality Jobs incentives to professional sports teams with a payroll of at least $2.5 million, and expanded the program's benefits to 15 years, he said. The existing limitation was 10 years.

Kells also reported on the success of the state's "Clean Slate" tax amnesty program, which provided a window of time for Oklahomans to pay back taxes without interest or penalties. He said the program, estimated to pull in about $30 million, actually garnered state coffers some $81.9 million.

The attorney said he thinks it is questionable whether the law actually provides for double penalties after the program concluded, but Tax Commission officials say it does. However, Kells said Oklahoma tax law still allows an offer and compromise procedure for all but trust fund taxes.

Kells also outlined the results of several court cases, including one in which the Oklahoma Supreme Court held that natural gas stored in Oklahoma is tangible personal property subject to ad valorem taxation.

The case involved taxation of gas stored in Woods County by a Missouri company.

Kells, who said the court found no constitutional problems with taxing the gas, said he understands there is a good chance the case may be appealed to the U.S. Supreme Court.

In another case, Kells said, the Oklahoma justices ruled that a natural gas gathering company is not a public service corporation for purposes of ad valorem taxation.

The distinction is important because public service companies are centrally taxed by the state, at about double the rates of other ad valorem taxpayers who are taxed at the county level.

He said the case involved a gas gathering company that was carved out of a larger company that was a public service corporation.

In an October decision, the justices held unconstitutional an Oklahoma law that prohibited changes in the way gas gathering systems are valued and assessed for ad valorem tax purposes, effective Jan. 1, 2003. the court said the statute unreasonably required different methods for similarly situated companies based on a company's status at an arbitrary past date.

Kells also explained several recent Tax Commission orders to the CPAs, including one from March that involved an out-of-state firm that acquired all the assets of an Oklahoma company, retaining all employees. He said the commission denied the company a jobs credit, reasoning that the jobs already existed in the state, but gave the company an investment credit.

In another ruling, he said, the commission determined that two mechanical workers who signed independent contractor agreements were not employees for purposes of withholding taxes. The panel said the workers had no specific work times and could accept or refuse work, among other factors. Kells said the commission ruled that the two workers who testified about their job status were not employees, but that others who did not appear before the panel were employees.

The tax institute continues Friday at the Clarion Convention Center.


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