A touch of common sense

The Story

Oklahoma taxpayers are still losing $100s of millions through a long known and abused tax credit loophole. The losses are through the same tax credit loophole state legislators have twice attempted to close. The last attempt in 2006 not only failed to close the loophole but resulted in an additional $330 million in loses in the first 5 months after the law went into effect. In September 2007 another new scheme surfaced that was designed to take an additional $300 million. Ref. Another Tax credit letter causes public outcry. With state government imposed secrecy surrounding the program there is no way of knowing how much more is being lost.

How the loophole remained in tact.

Kevin Calvey, R-Del City, a candidate for US Congress in 2006 was also chairman of the House Revenue and Taxation Committee, making him a key player in shaping the subject tax credit legislation. At the time of the writing of the new tax credit legislation, in March 2006, Rep. Calvey received $21,900 from the principals of Altus Ventures the largest known abusers. Altus Ventures was using the loophole to take tax credits seven times what the law allowed. This same loophole is found in the new legislation.

Involvement by other state officials?

The question is not are government officials involved, but why wouldn't government officials be involved?<

The law allows public officials to hide any involvement.
The opportunity is too lucrative for everyone to pass up while all of their friends are enjoying.
There is nothing in the law to prevent public officials from owning interest in a business, investing in new business ventures or using tax credits.
State officials, in regard to this tax credit abuse, have publicly stated legal action can not be taken against anything the law does not specifically declare illegal. A strange, but self serving position.

How is the program suppose to work?

Any qualifying* venture capital company can launch as many new ventures as they can find investors. To help the venture capital company attract new investors the state issues investors $0.30 for every $1 they invest - put "at risk" - in the venture capital company. Example if a person invests $100,000 the investor should receive $30,000 in tax credits. Tax credits not needed can be sold and converted to cash.

One key element! Determination Letter (tax credit qualifying letter)

Although no state official or agency is assigned responsibility over the program, the Oklahoma Tax Commission is in a unique position as the one issuing tax credit qualifying letters (determination letter) to refuse any they feel does not meet the venture capital company qualifications. The power to allow, or deny as the case maybe, access to fortunes, with no responsibility for what is done with the money makes the Oklahoma Tax Commission the keeper of the key to the money gate. The power to allow access to fortunes, without dirtying their hands.

How does the program actually work that allows the abuse?

Those using the program work a financial scheme using artificial loans to inflate the investment to nearly 7 times what the investors actually invest at risk. Fulfilling the promise to investors $2 for every $1 invested, e.g., a $200,000 return for their $100,000 investment.

What protects the program allowing it to continue the abuse?

1. There is no person or entity to watch for wrong. The law omitted assigning the program to any state office or official, leaving no one the responsibility for oversight, review, approval or auditing. No requirements those receiving tax credits meet any performance criteria or return value.

2. The law includes a provision requiring state officials to protect the details of the program from both the public and state lawmakers.

In summary any qualifying venture capital company is free to do as they please, as long as they please and there is no way the public will ever know what happened or how much was lost!

Odds and ends

Some vague language does exist giving the Oklahoma Tax Commission authority to ask for supporting documentation from those taking the tax credits. However, considering all the known abuses the Oklahoma Tax Commission has never shown any inclination to question any questioned abuses. Just the opposite the Oklahoma Tax Commission when questioned has always responded there is nothing illegal occurring in the taking of the excessive tax credits. An interesting observation considering there has been not one investigation to insure the venture capital companies fulfill the criteria they state in their filings.

This is the equivalent of accepting the claims of every private taxpayer on their state tax forms.