by Rebecca Helmes
The Oklahoma Tax Commission (OTC) published various new and amended regulations, effective September 11, 2022, that implement tax legislation enacted in 2021. The regulations impact income tax, credits and incentives, sales and use tax, property tax, excise taxes, and administrative provisions. Among the more detailed regulations issued are those related to income tax credits for contributions to public school foundations or public school districts and a manufacturing exemption from property tax.
Corporate income tax.
Corporate income tax rates: Amended Okla. Admin. Code § 710:50-17-5 reflects the reduced corporate tax rate of 4% (previously 6%) for taxable years beginning after December 31, 2021.
Oklahoma taxable income adjustment for corporations: Amended Okla. Admin. Code § 710:50-17-51 states that in computing Oklahoma accrued income tax for corporate income tax purposes, taxpayers should divide the Oklahoma net income by 26 for tax years beginning after December 31, 2021, and divide it by 17.667 for tax years beginning after December 31, 1989, and ending before January 1, 2022. Appendix A – Computation of Tax Accrual When Tax Credits Are Allowable is revoked and replaced.
Interest on estimated tax underpayments: Amended Okla. Admin. Code § 710:50-13-8 provides that the underpayment period for estimated tax payments runs from the due date of a required installment to the earlier of the 15th day of the fourth month, or for corporations, 30 days after the due date for returns established under the Interanl Revenue Code (previously, the 15th day of the third month) following the close of the taxable year or the date on which the required installment is paid.
Personal income tax.
Personal income tax rates, withholding: Amended Okla. Admin. Code §§ 710:50-3-53, 710:50-3-54, 710:90-3-10, and 710:90-3-11 reflect the changes to the individual income tax rate for tax year 2022, requiring income tax withholding from oil and gas royalties, including by pass-through entities and trusts, at the highest Oklahoma marginal individual income tax rate (previously 5%) with respect to the production of oil and gas in the state.
Amended Okla. Admin. Code § 710:90-1-13 also requires that, for pensions, annuities, and certain other deferred income, non-periodic payments must have tax withheld at the highest Oklahoma marginal individual income tax rate (previously 5%). Filing format changes were made for a nonresident member withholding exemption affidavit.
Earned income tax credit (EITC) calculation: Amended Okla. Admin. Code § 710:50-15-90 reflects that Oklahoma’s EITC is refundable for tax years beginning on or after January 1, 2022, and discusses credit computation.
Garnishment of personal income tax refunds: Amended Okla. Admin. Code §§ 710:50-11-6, 710:50-11-7, and 710:50-11-9 through 710:50-11-11, in regards to priority of claims provisions, gives the OTC first priority over all qualified entities when the OTC is collecting a debt, court fines and costs (previously, municipal court fines and costs), or final judgment.
Interest on corporate and personal income tax refunds.
Amended Okla. Admin. Code § 710:50-9-3 provides that for returns filed after May 6, 2021, a taxpayer is entitled to interest paid at the delinquent tax payments rate if the refund is not paid within 45 days for electronically filed returns or within 90 days for all other returns, in both cases from the later of the date a processible return is filed or is due.
Credits and incentives.
Credit for qualified employers and employees of the aerospace sector: Amended Okla. Admin. Code § 710:50-15-109 redefines “qualified employee” and “qualified program,” and notes that “aerospace sector,” “compensation,” “institution,” “qualified employer,” and “tuition” will be defined by statute.
Credits for contributions to scholarship-granting organizations, educational improvement grant organizations, and public school foundations or public school districts: Amended Okla. Admin. Code §§ 710:50-15-114 and 710:50-15-115 require scholarship-granting organizations and educational improvement grant organizations to file annual reports with the OTC on or before September 1 of each year to maintain registration, and update statutory references. Various annual report requirements for educational improvement grant organizations are eliminated.
New Okla. Admin. Code § 710:50-15-115.1 outlines requirements for credits for contributions to public school foundations or public school districts made on or after January 1, 2022, including general provisions, application requirements, credit calculations, additional year commitments, the credit’s cap, annual report and notification requirements, and other credit limitations. The credit is generally 50% of the total amount of contributions made during the taxable year, up to $1,000 for each individual taxpayer, $2,000 for married taxpayers filing jointly, or $100,000 for any taxpayer that is a legal business entity, subject to certain limitations. Credits allocated through a pass-through entity to equity owners are only limited in amount for the income tax return of a natural person based upon the limitation of the total credit amount to the entity from which the credits have been allocated, and are not subject to the $1,000 limit for single individuals or $2,000 limit for married persons filing jointly. For taxpayers who make an eligible contribution and a written commitment to contribute the same amount for an additional year, the credit will be 75% of the total contribution amount made during the taxable year.
Oklahoma caps the amount of such credits it can provide each year, and if total credits claimed exceed the cap, the credit will be equal to the taxpayer’s proportionate share of the cap for the taxable year. The credit is not refundable, not transferable, and unused credits can be carried over, in order, to each of the three subsequent taxable years. Credits earned but not allowed due to statewide caps will be considered suspended and authorized to be used in the next immediate tax year and applied to the next year’s statewide cap.
Oklahoma Film Enhancement Rebate Program: Amended Okla. Admin. Code § 710:85-7-3 provides that the amount of claims prequalified and approved for any single fiscal year will not exceed $8 million (previously $4 million).
Sales and use tax.
Pass through of exemptions to contractors: Amended Okla. Admin. Code §§ 710:65-1-7 and 710:65-7-13 update the list of exempt entities that can pass through their sales tax exemption to a contractor to fulfill a public contract with the exempt entity. Additions include a city-county library system, Arbuckle Master Conservancy District, Fort Cobb Master Conservancy District, Foss Reservoir Master Conservancy District, Mountain Park Master Conservancy District, Waurika Lake Master Conservancy District, or the Office of Management and Enterprise Services only when carrying out a public construction contract on behalf of the Oklahoma Department of Veterans Affairs, and effective July 1, 2022, the University Hospitals Trust.
Relief of vendor’s liability to collect sales tax: Amended Okla. Admin. Code § 710:65-7-15 adds existing entities exempted from sales tax on purchases with certain documentation to be accepted by a vendor to relieve the vendor’s sales tax collection liability. Such entities include: tax exempt, independent, nonprofit community blood banks headquartered in Oklahoma; tax exempt, independent, nonprofit biomedical research foundations; museums not accredited by the American Alliance of Museums operating on budgets of less than $1 million; University Hospital Trust and nonprofit entity with a joint operating agreement with the Trust; tax exempt organizations that construct, remodel and sell affordable housing; nonprofit organizations restoring single family housing following a disaster; and businesses engaged in logging, timber, and tree farming.
Exemption from motor vehicle sales tax: Amended Okla. Admin. Code § 710:65-13-30 updates in lieu tax provisions, adding that power units (truck tractors) and trailers proportionally registered under the International Registration Plan or trailers and semitrailers registered to transport cargo over Oklahoma highways are exempt from the 1.25% motor vehicle sales tax.
Sales tax on cigarettes: Amended Okla. Admin. Code § 710:65-13-30 removes a sales tax exemption for sales of cigarettes and tobacco products to a federally recognized Indian tribe or nation or to a licensee of such tribe or nation upon which the tax levied by Okla. Stat. 68 §§ 349 (repealed) or 426 has been paid.
Exemption for sales between related entities: Amended Okla. Admin. Code § 710:65-13-201 exempts from sales tax transfers of tangible personal property between wholly owned subsidiaries of a parent company and between a parent company and its wholly owned subsidiary.
Exemptions for qualifying 100% disabled veterans: Amended Okla. Admin. Code § 710:65-13-275 requires veterans eligible for the sales tax exemption to register with the veterans registry created by the Oklahoma Department of Veterans Affairs. Veterans who were granted the exemption before November 1, 2020, must register before July 1, 2023 to remain qualified. The sales tax exemption card issued to the qualifying veteran by the OTC must be presented at the time of sale so that the vendor does not charge and collect sales tax on the purchase. The provisions discuss when refunds of erroneously collected sales tax may be claimed.
Exemptions for nonprofits related to affordable housing, rebuilding housing after disasters: Two new rules outline the process for nonprofit organizations to qualify for a sales tax exemption for sales of certain tangible personal property or services, when they construct, remodel, and sell affordable housing under new Okla. Admin. Code § 710:65-13-368 or when they restore single family housing following a disaster under new Okla. Admin. Code § 710:65-13-369. The new regulations describe general provisions and the application process. Both exemptions are limited to eligible, properly documented transactions, and the exemptions do not apply to purchases by contractors performing work on the nonprofits’ behalf.
Exemption for certain non-profit, non-accredited museums: New Okla. Admin. Code § 710:65-13-370 provides information on how to obtain a sales tax exemption available from November 1, 2021 through December 31, 2024, for sales of tangible personal property or services to museum that operates as an IRC § 501(c)(3) organization and is not accredited by the American Alliance of Museums. Such entities must operate on an annual budget of less than $1 million. The exemption is limited to eligible, properly documented transactions, and does not apply to purchases by contractors performing work on a non-accredited museum’s behalf.
Exemption for sales of commercial forestry service equipment: New Okla. Admin. Code § 710:65-13-470 outlines the process to qualify for the sales tax exemption for sales of commercial forestry service equipment, available from January 1, 2022, until January 31, 2027. Exempt equipment is limited to forwarders, fellers, bunchers, track skidders, wheeled skidders, hydraulic excavators, delimbers, soil compactors, and skid steer loaders for businesses engaged in logging, timber, and tree farming.
Sales tax permits for scrap metal facilities and junkyards: Amended Okla. Admin. Code § 710:65-19-305 describes how persons or entities must obtain a sales tax permit for each scrap metal yard owned or operated by them, and for junkyards making sales of tangible personal property in Oklahoma.
Quality Events Incentive Act: Amended Okla. Admin. Code §§ 710:95-21-2, 710:95-21-4, 710:95-21-6, 710:95-21-8, and 710:95-21-9 are updated to be consistent with revisions to the Quality Events Incentive Act requiring an economic impact study as part of the application, and amending certain deadlines, documentation requirements, and the OTC’s contact information. The regulations provide a new definition of “economic impact study,” and amend definitions of “incremental sales tax revenue,” state sales tax revenue,” and “vendors.”
OTC contact information: Amended Okla. Admin. Code §§ 710:65-3-1, 710:65-3-4, 710:65-9-10, 710:65-11-1, 710:65-13-33, 710:65-13-40, 710:65-13-55, 710:65-13-80, 710:65-13-122, 710:65-13-123, 710:65-13-133, 710:65-13-172, 710:65-13-174, 710:65-13-175, 710:65-13-177, 710:65-13-194, 710:65-13-210, 710:65-13-220, 710:65-13-334 through 710:65-13-346, 710:65-13-348, 710:65-13-350 through 710:65-13-355, 710:65-13-357, 710:65-13-359, 710:65-13-360, 710:65-13-362 through 710:65-13-367, 710:65-13-550, 710:65-13-650, and 710:65-19-116 change OTC contact information.
Property tax.
Manufacturing exemption: Amended Okla. Admin. Code § 710:10-7-2.2 modifies payroll and investment cost requirements for manufacturing exemption purposes. The investment costs of the construction, acquisition, or expansion of a manufacturing facility must be $500,000 or more with respect to assets placed into service during calendar year 2022, and the investment required in subsequent calendar years will be increased based on inflation. The OTC will publish the adjusted dollar amount required to qualify for the exemption. New payroll requirements include that for any entity applying for the exemption on or after January 1, 2023, for exempt treatment of real or personal property acquired or improved beginning January 1, 2022, and for any calendar year thereafter, the entity must pay new direct jobs an annualized wage that equals or exceeds the average wage requirement in the Oklahoma Quality Jobs Program Act for the year in which the real or personal property was placed in service. Similarly, distribution facilities seeking the exemption must have wages and salaries that equal or exceed the average wage requirements in the Oklahoma Quality Jobs Program Act for the year in which the real property was placed in service. The regulations also amend the “facility or facilities” definition. Wind electric generation facilities are excluded as qualifying manufacturing facilities for purposes of this exemption or the exemption authorized under the Oklahoma Constitution.
Further, the amendments specify manufacturing real and personal property exemption and qualification requirements for computer data processing, data preparation, or information processing services providers classified under NAICS Manual Industry No. 518210, 2017 revision. Eligible establishments must: (1) have a net increase in annualized payroll of the applicant at any facility or facilities in Oklahoma of at least $250,000, attributable to capital improvements; (2) have a net increase of $7 million or more in capital improvements, while maintaining or increasing payroll at the Oklahoma facility or facilities included in the application; and (3) the facility must meet requirements related to the provision of basic health benefits to certain facility employees. The real and personal property exemption is available, with an exception, for each year in which new, acquired, or expanded capital improvements to the facility are made for assets placed in service not later than December 31, 2021. An establishment that has applied for and been granted an exemption for personal property at any time within five years before November 1, 2021, may apply for exemption for items of eligible personal property to be located within improvements to real property and such real property and improvements having been exempt from ad valorem taxation before November 1, 2021, if such personal property is placed in service no later than December 31, 2036. No additional personal property of such establishment placed in service after that date will qualify for the exemption.
Business personal property valuation schedules: New Okla. Admin. Code § 710:10-2-6 defines “miscellaneous equipment” and notes that the OTC’s Ad Valorem Division uses a national valuation service, currently Marshall and Swift Valuation Service, to provide tables of values for personal property, depreciation schedules, and trending tables for historical cost of the various industries. This regulation replaces a previously revoked regulation of the same number, and the Oklahoma Register states that the new regulation removes antiquated types of miscellaneous equipment. Amended Okla. Admin. Code § 710:10-2-1 changes the contact information for the OTC.
Homestead exemption: Amended Okla. Admin. Code § 710:10-1-4 updates the maximum gross household income to $25,000 (previously, $20,000) for the preceding calendar year for heads of households to be eligible for the additional homestead exemption, and excludes federal stimulus or relief payments related to the COVID-19 virus from “gross household income.”
Homestead exemption for disabled veterans and certain unremarried spouses: Amended Okla. Admin. Code §§ 710:10-14-4 and 710:10-16-1 specify that homestead exemption provisions related to disabled veterans and the unremarried surviving spouses of persons who died in the line of military duty, and unremarried spouses of veterans killed in action, that own and occupy a residence on leased land owned by a municipality, town, or city, is considered a homestead for purposes of qualification for the ad valorem exemption authorized under the Oklahoma Constitution.
Excise taxes and fees.
Exclusion from annual vending device fee in lieu of sales tax: Amended Okla. Admin. Code § 710:25-1-2, beginning November 1, 2021, excludes from the vending device fee and annual decal requirement devices that dispense tangible personal property or provide amusement where payment is made solely through the use of a credit or debit card or other electronic or digital payment process. The gross receipts associated with such sales made from these devices are subject to sales tax.
Excise tax on tobacco products: Amended Okla. Admin. Code § 710:70-5-8 and revoked Okla. Admin. Code § 710:70-5-9, which address reports on tobacco products by persons, retailers, consumers, carriers, or bailees other than those required to report and pay tax, remove all references to drop shipments of tobacco products. Amended Okla. Admin. Code § 710:70-5-13 requires new invoice information to be maintained by tobacco products wholesalers and retailers, and changes the OTC’s mailing address.
Rental tax on motor vehicles related to peer-to-peer car sharing agreements: Amended Okla. Admin. Code §§ 710:95-4-2, 710:95-4-3, and 710:95-4-4 updates motor vehicle rental tax provisions to provide that the rental tax is due on all rental agreements, with exceptions, even if the consumer entering into the rental agreement is exempt from sales tax. The tax is collected by the rental business or peer-to-peer car sharing program at the time of the payment of the rental agreement. However, motor vehicle rental tax does not apply to any shared vehicle upon the purchase of which applicable taxes were paid. The regulation amendments also define “applicable taxes,” “peer-to-peer car sharing program,” “peer-to-peer car sharing program agreement,” “rental agreement,” “shared vehicle,” and “shared vehicle owner.”
Fuels and minerals taxes.
Gross production tax: Amended Okla. Admin. Code § 710:45-1-3 provides when the OTC may authorize a reduced bond amount related to gross production tax.
Administrative and miscellaneous provisions.
Settlement of tax liability: Amended Okla. Admin. Code § 710:1-5-81 updates the definition of “trust fund tax” to remove use tax and add Oklahoma gross receipts tax (AKA Mixed Beverage Tax).
Consumer Compliance Initiatve Relief: Amended Okla. Admin. Code § 710:1-13-3 requires business that want to receive Consumer Compliance Initiative relief to apply online.
Other OTC address changes: Amended Okla. Admin. Code §§ 710:1-3-70, 710:1-3-71, 710:1-3-73, 710:1-5-15, 710:1-5-16, 710:1-5-17, 710:15-2-5, 710:70-2-11, and 710:95-22-8 update the OTC’s contact information.
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