Q: What is Oklahoma’s manufacturing sales tax exemption?
A: Goods and equipment used in a manufacturing operation can be purchased exempt from sales and use tax by manufacturers. This type of sales tax exemption is designed to attract and promote business. It’s a proven tool that governments employ to make their communities more attractive. The rationale is simple: draw out-of-state investment and keep in-state investment rather than relinquishing that investment (and the associated jobs, taxes and infrastructure) to a competing location.
Q: What is the relevance of the manufacturing sales tax exemption to the energy industry in Oklahoma?
A: Under Oklahoma law, the term “manufacturing” includes the conversion of materials and natural resources into other materials that have a different form or use. This definition encompasses processes ranging from the manufacturing of oil field equipment to petroleum refining. Electric power generation is also considered manufacturing. As a result, power generators such as natural gas-fired power plants, coal-fired power plants and wind energy facilities are deemed manufacturers and are permitted to purchase equipment to be used in the power generation process exempt from sales and use tax. Ultimately, the exemption is designed to help qualifying energy companies stay afloat — especially during capital-intensive phases — and keep investing in Oklahoma.
Q: This exemption has been a hot topic at the state Capitol during special legislative session. What are some of the issues at hand?
A: Oklahoma is facing a historic budget shortfall, with risks of further cuts to state agencies becoming a very real possibility. Legislators are searching for dollars to help plug financial holes before the ship sinks, and many of our state’s tax incentives and exemptions may be on the chopping block. There has been discussion of removing wind energy companies from access to the manufacturing sales tax exemption. While wind developers have made it publicly clear they’re already invested in Oklahoma to the tune of billions and plan to stay for the long haul, it’s important to revisit the reason for such exemptions in the first place and consider that the opposite is also true: if certain companies or industries are punitively cut out of such exemptions while still paying millions in taxes, it may make Oklahoma a difficult place to do business, which will, in the long run, discourage investment and aggravate our state’s budget problems.
From NewsOK / by Paula Burkes
Published: November 3, 2017
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