SQ 766: Exempts all intangible personal property from ad valorem taxation

October 21, 2012 Posted by zachary

Final Question. State Question 766 is an interesting beast. I think this one has caused more controversy than any other question on the ballot. Much like SQ 758, this one also affects property taxes, but for a different kind of property, intangible.

Here is the text of the measure.

This measure amends Section 6A of Article 10 of the Oklahoma Constitution. At present that section exempts some intangible personal property from ad valorem property taxation. This measure would exempt all intangible personal property from ad valorem property taxation.

An ad valorem property tax is a tax imposed upon the value of property.

Intangible Personal Property is property whose value is not derived from its physical attributes, but rather from what it represents or evidences.

Intangible Personal Property which is still currently taxed but would not be taxed if the measure is adopted, includes items such as:

o patents, inventions, formulas, designs, and trade secrets;
o licenses, franchise, and contracts;
o land leases, mineral interests, and insurance policies;
o custom computer software; and
o trademarks, trade names and brand names.

If adopted, the measure would apply to property taxation starting with the tax year that begins on January 1, 2013:

Intangible property under current Oklahoma law is limited to things like cash on hand. Unfortunately, what is not covered are things like Patents, Trademarks and Copyrights. What this means is that if you invented something, created something or registered a product or business name, that is all property that can be taxed. If SQ 766 were to pass, you will no longer be open for taxation on those and a whole lot of other things such as customer lists and even your good will.

There are some issues with this question that I think are unfortunate. For the most part, this question is good, but because it creates a simple blanket ban on all intangible property, it is wide open for interpretation. This means that for many years to come, businesses and other people will be in court trying to prove that what they are being taxed on should be considered intangible. However, that is hardly different than it is today. This question came about because of such court battles.

Another issue that those opposed to the question have is that this will cut available funds from schools as they rely mostly on property taxes. However, that could be of little concern if the state would open up the schools to competition on the free market.

Finally, I think that passing this question is a good move to making the tax system more fair for those who work to move the nation, state and economy forward. It would also remove double taxation on productivity and creativity. Under the current system, you are taxed on the income you make selling the book you wrote as well as owning the copyright on the book. That is not fair. Same for inventors. Same for businesses. If you are a business that people love to come to and do business with, you are not only taxed on the money you make from your customers but also on the fact that your customers like doing business with you over the competition. That is a quick way to stifle competition.

So despite the weaknesses of this question, I suggest you Vote “Yes” on SQ 766.

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