Tax credit being abused, officials say
Associated Press, March 9, 2006
A tax credit program designed to stimulate job growth is being abused by investors who are
realizing millions of dollars in gains without providing the intended economic development
benefits to Oklahoma, officials said Wednesday.
State Sen. Ted Fisher, D-Sapulpa, said the Oklahoma Tax Commission estimates tax credits under
the program during the 2005 calendar year will cost the state treasury $66 million. In previous
years, the tax credit cost averaged about $2 million, he said.
He is sponsoring legislation to ensure the credits go to investments that create jobs.
Under existing legislation, venture capital investors qualify for a tax credit of 20 percent for
startup funding of companies in urban areas. In rural areas, the tax credit is 30 percent.
Some investors have found a way to apply these credits to a larger pot of money than the funds
strictly intended for business startups.
"It's a shell game," said Jim Fulmer, president of Oklahoma Development Finance Authorities.
Fulmer said large profits gained by private investors through tax credits may or may not lead to
the creation of jobs.
Ed: note: Oklahoma Attorney General tax credit ruling - Dec 22, 2010 says this is illegal - "The public gets adequate consideration" (just value in return); Promote a public purpose; There must be adequate controls and safeguards.
Fisher said there is "nothing illegal" in the complex financial arrangements that lead to the
windfalls for venture capital investors. He said authorities have had to step in and change laws
to stop similar schemes in other states.
Ed: `nothing illegal`? Try this -
$643 million - fraudulent bank loan scheme. Six loans to shell LLCs with no assets, and used with false tax credit investment claims.
"This is robbing from roads and bridges and schools," said Fisher, Democratic majority leader, who
is sponsoring legislation to tighten the law and make sure venture capital funds go to enterprises
that create jobs.
"I think the easy way to explain it is, it is called greed," said Greg Main, former secretary of
commerce and now president of the nonprofit Oklahoma Technology Commercialization Center.
Main's entity, which is affiliated with the Oklahoma Center for the Advancement on Science and
Technology, works with universities and entrepreneurs to jump start new technology companies.
Investors use secured or "restricted" funds to qualify for much higher tax credits than the actual
amount being invested in companies.
For example, a venture capital company could invest $15 million in five different small businesses
while containing a 30 percent tax credit on that $15 million, as well as an additional $85 million
in a certificate of deposit not used for business development.
Investors make more money up front in tax credits than the real cash they actually put into the new
companies, he said.
Main said there are some scenarios where companies could get "an incentive of as much as 500 percent
on their investment, which is ridiculous."
He said he hopes the loophole can be fixed and the program will be continued because it has been
successful in past years in creating jobs by helping small companies get off the ground.