Tax credits await changes.
The Oklahoman, April 17, 2006
By Paul Monies
That's why Robert Nall doesn't offer venture capital tax credits
to his clients. Instead, Nall prefers to focus on state tax credits that are freely transferable,
such as those for wind-powered energy. Transferable tax credits make up just six of the scores
of state income tax credits.
"I don't do any rural or venture capital deals," said Nall, who
owns Cash Flow Enhancement Strategies in Duncan. "I choose to deal in something that is in
black and white."
As the Legislature moves to tighten apparent loopholes in the venture capital tax credit law, the people who market these tax credits and the start-up companies that benefit from the direct investments are hoping a proposed moratorium won't scuttle pending deals.
Gov. Brad Henry issued an executive order in March that stopped the Oklahoma Tax Commission
from issuing rulings on new venture capital funds until lawmakers study the issue.
However, just who claims the tax credits remains a mystery, largely because taxpayer information is
private. Those involved in the deals say clients include wealthy Oklahomans, as well as banks
and insurance companies, which can claim the tax credits against state tax burdens unique to
Starting July 1, oil and gas companies paying gross production taxes
can take advantage of the state tax credits for rural and small business venture capital
funds, a change that the Legislature approved last year.
Many Oklahomans are familiar
with the state tax credits for child care, but most of the rest are out of the reach of
all but a few state residents. Those claiming large state income tax credits have sizable
tax burdens, experts said. "If you're paying a six-figure Oklahoma income tax, you've got
a pretty nice annual income," said Nall, who spent more than 30 years as banker before
starting his own company.
Rep. John Nance, R-Bethany, is one of the lawmakers concerned with disclosure requirements on the state's tax credit programs.
"If it's government money, I resent not being able to know who the people are who are
profiting from it, and if they are really Oklahomans, if they're really involved in
helping Oklahoma or if they're just involved in taking the money," Nance told a House
committee in March.
For its part, Capital West Securities in Oklahoma City said it has been
careful with its involvement in the rural venture capital tax credit programs.
The company has sold tax credits and investments
in the latest round of funding for Quartz Mountain Aerospace in Altus.
Bob Rader, senior vice president, said Capital West wanted a ruling from the Oklahoma Tax
Commission that the fund -- known as Altus V -- would be eligible for the tax credits.
It wasn't enough to have Capital West's attorneys sign off on it or to simply refer to the
Oklahoma statute, he said.
The fund received its Tax Commission ruling in 2004.
"We didn't want our clients to have to worry about the Tax Commission coming back at a
later date and saying the credits wouldn't qualify," Rader said.
The investments under the rural venture capital fund are for qualified investors only, Rader said. Besides
corporations, limited liability companies, trusts and partnerships, individuals who want to
invest to take advantage of the tax credits must have a net worth of at least $1 million,
or meet certain income requirements.
The investments -- with the added sweetener of a state income tax credit -- are offered in
what's called a private placement memorandum. Such private placements fall outside the
regulation for public offerings of stock, which typically need clearance from the
US Securities and Exchange Commission.
Rader said the subscription agreement that an investor signs is known in the industry as a "big boys' memo," with the understanding
that the investor has consulted his or her attorneys and accountants before buying
subscription units. Matthew Griffith, a securities attorney with Oklahoma City firm
Andrews Davis, is one of the key players in the state tax credit program. His firm
advises Altus in its funding efforts for Quartz Mountain Aerospace. Griffith concedes
that the venture capital tax credit needs tightening to protect it from abuse.
However, he said, lawmakers should be careful not to disturb the intent of the
law -- to help bring needed capital to undeserved areas of the state.