Consequences of Tax Ruling Could Impact Every Oklahoman

AT&T Oklahoma is battling a September decision from the Oklahoma Supreme Court holding that intangible Oklahoma property of AT&T is taxable.
The ruling, which involved a case from 2005-2007, means AT&T would pay about $11.2 million of property tax when the decision is final and would be obligated to pay taxes on its intangible property going forward.
While AT&T respects the court decision, the company is planning to file a motion for the State Supreme Court to review the ruling, said Andy Morgan, AT&T spokesman.
“We are evaluating our options,” Morgan said.
Oklahoma City-based Mid-Continent Oil and Gas Association of Oklahoma Inc., Chesapeake Corp. and the Oklahoma State Chamber of Commerce have advised the court in filings that they support AT&T’s motion.
The issue has the potential to affect every taxpayer in the state, said Michael Bernard, president of Mid-Continent.
“This is not over yet,” he said. “There are a lot of things have have to be worked out.”
Schools and counties, among other state entities, would receive the cash. The Oklahoma Education Association is reviewing the pleadings, said Kandis West, Communication Specialist with the OEA in Oklahoma City.
“But, we have made no decision yet on whether to file an application with the court seeking permission to file an amicus pleading in this case,” said Richard Wilkinson, OEA Chief Legal Counsel.
Taxing Definitions
The ad valorem tax, Latin for “according to value,” is a tax based on the value of real estate or personal property. The ad valorem tax is used frequently to refer to property values by county tax assessors. In Oklahoma, broadly speaking, there are taxes for real, personal or intangible properties. Technically, under statute 68 OS 2001, section 2008, there are five categories: Real, personal, household goods, railroad and air carrier property. “Real” property includes land and buildings. “Personal” property includes business furniture and fixtures, business equipment, business inventory, farm equipment and manufactured homes.
AT&T’s argument has been about intangible property — claiming that under the state constitution, intangible property should not be taxed. That property can include customer lists, customer relationships, its work force, databases, goodwill, employment contracts, patented technology, leases, trademarks, software and advertising.
“While not addressed in this decision, we are concerned that similar companies are being assessed different amounts of taxes on intangible property,” Morgan said.
It is also important to note that neighboring states like Texas, Kansas and Missouri do not tax intangible property. Also, to date, only public service companies like phone companies and railroads have been taxed on their intangible property, but that could change with the court’s opinion.
AT&T believes the intangible list in the Oklahoma Constitution is not a exclusive list, Morgan said. The proposition adopting the constitutional amendment back in 1968 was entitled “a Constitutional Amendment prohibiting the taxation of intangible personal property.”
“It was meant to include other things,” Morgan said. “We believe the intent was that things like trademarks, software and advertising should be exempt from the assessment.”
The Case
The $11.2 million represents cash placed in escrow for the tax years 2005, 2006 and 2007 while the litigation was pending, Morgan said. The total will be more because of interest.
The issue was raised in court between then Southwestern Bell Telephone Co. and the Oklahoma State Board of Equalization. SBC protested its ad valorem taxes for 2005-07. The telecommunications utility and the State Board of Equalization reached a settlement on those assessments — except for the company’s claim that all of it intangible property should be exempt from ad valorem taxation.
AT&T officials believe intangible property is not clearly defined as a concept and can lead to unequal taxation, Morgan said.
Although it is hard to predict when the court will act, it appears that the case likely will not be heard until after the first of the year, Morgan said.
State Chamber
The issue is also on the radar screen of the Oklahoma State Chamber of Commerce. During a recent visit to Tulsa, State Chamber executives outlined their agenda for the 2010 legislative session.
Education, workers’ compensation, eminent domain and health care lead off the State Chamber’s list of legislative and congressional concerns, said outgoing Executive Director Dick Rush in a meeting with the Tulsa Business Journal.
The Chamber’s No. 1 agenda item, however, is resolving potential problems stemming from the ruling that made intangible property subject to ad valorem taxes.

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