OKLAHOMA CITY (OBV) – Oklahoma’s franchise tax is no more.
Gov. Kevin Stitt did not sign House Bill 1039X, which contained the measure to repeal the franchise tax. Instead, it automatically became law Friday, five business days after it fully cleared the Oklahoma State Legislature. Bills passed by the legislature become law after they have been on the governor’s desk for five days and have not been vetoed.
Stitt’s office did not issue a statement as of 1 p.m. Friday regarding why he did not sign 1039X into law.
Business advocates consider the franchise tax’s elimination as a step toward tax reform.
“Franchise tax is a direct tax on capital investment. So, it’s bad for Oklahoma’s economic growth,” said Ben Lepak, executive director of The State Chamber Research Foundation. “Repealing it is a good step in the right direction. It’s an antiquated tax, and not very many states still assess the tax on businesses just for the privilege of doing business in the state. We shouldn’t be punishing businesses that want to operate here; we should be encouraging them to grow and expand.”
The bill passed the Oklahoma Senate last Friday with a 36-9 vote, two days after succeeding in the Oklahoma House of Representatives with a 77-20 vote.
The franchise tax was a direct tax levied on a company’s net worth, taxing $1.25 for every $1,000 in capital, with the amount capped at $20,000, regardless of the company’s size or net worth.
Rep. Gerrid Kendrix, R-Altus, and Sen. Dave Rader, R-Tulsa, wrote the original legislation when it was House Bill 2695. Kendrix previously spoke with Oklahoma Business Voice and said the tax deters businesses from starting in or expanding into Oklahoma.
“We’ve always been of the mindset that we want to encourage businesses to come to the state and grow their businesses here in the state. If you got a scenario where you punish them for investing, that just doesn’t make a lot of sense,” Kendrix said.
Kendrix described the franchise tax as an antiquated tax implemented in the 1970s during Gov. George Nigh’s administration.
“A lot of states used to use that [tax], now we’re down to about 14 or 15 states roughly [that still do],” Kendrix said. “I think it’s one of those we can do away with; it doesn’t have a large price to it. It’s another one of those we can take off the list, when we try to court businesses for the state of Oklahoma to say you don’t have a franchise filing responsibility.”
Oklahoma was one of 14 states with a franchise tax. Mississippi and Connecticut are both in the process of phasing out their franchise tax.
Out of the 400,000 plus businesses in the state, only around 70,000 businesses pay a franchise tax, according to information from The State Chamber Research Foundation.
Sen. Roger Thompson, R-Okemah, and Rep. Kevin Wallace, R-Wellston, were the authors of HB 1039. Rep. Mark Lepak, R-Claremore, Sen. Chuck Hall, R-Perry, Rep. Ryan Martinez, R-Edmond, and Sen. John Michael Montgomery, R-Lawton, all contributed to the bill’s development.