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Oklahoma CITY -- The House Revenue and Taxation Committee voted Wednesday to slap a temporary moratorium on a tax credit program that has soared in cost from $2 million to $66 million in just one year.
The bill is intended to curb companies suspected of forming limited liability corporations solely to grab tax credits for investors without helping new companies or creating jobs in rural Oklahoma.
Rep. John Nance, R-Oklahoma City, said he couldn't understand why the Oklahoma Tax Commission won't name these companies and why they do not have to show that they are creating jobs.
"I've been informed that the people who are profiting in an exorbitant way cannot be identified," he said.
"If it is government money, I resent not being able to know who the people are that are profiting from it."
Tax Commission officials have acknowledged an apparent lack of accountability but say they cannot reveal names because of prohibitions against releasing tax information.
Nance said: "It seems incredulous to me that we have money that we are responsible for, that you are disbursing, and we can't talk about where that money is going. I would like to see some remedy of that."
Under current law, investors can receive tax credits amounting to 30 percent of their investment in rural projects.
But Tony Mastin, a Tax Commission spokesman, explained how some investors are taking advantage of what has been called a loophole.
Investors can put up as little as $1 million, then borrow an additional $9 million for a total investment of $10 million. Based on that figure, investors can receive tax credits worth $3 million. They pay off the $9 million loan and end up with tax credits worth three times as much as their initial investment, Mastin said.
Sen. Ted Fisher, D-Sapulpa, who introduced the reform bill in the Senate, said companies are taking advantage of the loophole.
The current legislation says that "borrowed" Capital cannot be used to secure tax credits, but companies have skirted the law by forming limited liability corporations and handing them the borrowed money. Those new companies are then entitled to the tax credits even though they exist only on paper.
Representatives of investors and companies using the program said they had not been consulted when lawmakers and the Tax Commission revealed the problem.
They questioned whether the state can shut down a program when several projects already have been approved.
Rep. Kevin Calvey, R-Del City, said that issue might be ironed out on the House floor. The moratorium declared in the bill would last only until June 1.
Officials associated with an Altus group, Altus Venture Capital Fund, expressed alarm that the program might be shut down.
Their attorney, Matt Griffith, said his law firm has represented Altus Venture and other companies that could not have started without the help of the tax credits.
Griffith said it looks as if the state is not far from finding a solution, so the program should not be suspended.
However, Nance questioned how Griffith could say a solution was near when he had complained that nobody representing the investors or target companies had been consulted about the proposed reforms.
Fisher, other senators and House members said they hoped to come up with revisions within a few weeks. Once these are signed into the law, the program could resume.