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Oklahoma state Auditor Gary Jones announced Thursday he plans to audit several state tax credit programs for compliance and benefits.

Tulsa World June 21, 2012
Randy Ellis

State Auditor Gary Jones announced Thursday he plans to audit several state tax credit programs, including one that financed an Altus aerospace project that failed to get off the ground and took a bank down with it.

Jones said the goal of the audits will be to determine whether there has been compliance with legislative and Oklahoma Tax Commission program requirements and whether the economic benefits to the state justify the loss of potential tax revenue.

"The Tax Credit Task Force identified numerous areas of concerns as a result of its lengthy review of all of Oklahoma's various tax credit programs," Jones said. "Among the recommendations submitted to the Legislature was the need for these tax credits to be audited by the state auditor to ensure compliance with statutory requirements granting the credits."

Tax credit programs

Jones told The Oklahoman he would like to start by auditing three tax credit programs that have generated controversy in recent years.

He identified those programs as the Rural Venture Capital Formation Incentive Act, Small Business Capital Formation Act and Venture Capital programs.

The Rural Venture and Small Business Capital tax credit programs were at the center of a major controversy six years ago when it was disclosed that attorneys and bankers had discovered a loophole that enabled them to promise investors $2 or more in tax credits for every dollar invested in projects.

That led to the funding of several controversial projects, including the Quartz Mountain Aerospace project in Altus that failed and was partially blamed for the failure of the First State Bank of Altus.

Then-state Treasurer Scott Meacham said at the time that the programs represented a "serious financial threat to the state" if they were not reformed.

The state Legislature responded by making changes in the law, but secrecy laws that govern Oklahoma Tax Commission filings have made it difficult for the public to determine whether the programs are now producing the intended economic benefits.

A group of Republican state lawmakers proposed abolishing several state tax credit programs this past session as a way of funding a proposed cut in state income tax rates without cutting services or raising taxes in some other area.

The effort failed amid heavy lobbying efforts from groups that benefit from the tax credits. Tax credits, unlike tax deductions, represent a dollar for dollar break on tax liability. Once a company obtains them, if transferable, they can be sold at a discount to individuals who can use them to avoid paying a like amount in taxes.

State Rep. David Dank, the Oklahoma City Republican who spearheaded efforts to eliminate certain tax credit programs during the last legislative session, has said he plans to bring it up again next session.

No funding for audit

Jones said auditing tax credit programs is expected to be expensive and his office hasn't been given extra money to do them. Nevertheless, Jones said he decided to begin the audits because he considers them to be "critical to state government accountability and transparency."

Jones said he decided to start his audits with the three tax credit programs he believes are likely to give the public the "biggest bang for the buck." Jones said he will ask lawmakers next year for additional funds to focus on the other programs.

Jones said he has talked with Oklahoma Tax Commission Administrator Tony Mastin and been assured he has the full support of that agency in his auditing efforts.

"We welcome the audits because there have been so many questions," said Paula Ross, spokeswoman for the Tax Commission. "Because of the volume and nature of what we do, the auditors have an office at the Tax Commission. We always cooperate with them."

As audits are completed, Jones said a copy of each final report will be provided to Gov. Mary Fallin and legislative leaders to assist them as they move forward with their examination of tax credit programs.

Jones said he intends to make as much information public as possible, while still abiding by Tax Commission confidentiality requirements designed to protect the privacy of taxpayers.

"This is about doing the right thing on behalf of Oklahoma taxpayers," Jones said.

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