Federal Tax Law A Boost For Oklahoma, Native Americans Story-Date: 07:47 p.m. PST Wednesday, August 6, 1997 Federal Tax Law A Boost For Oklahoma, Native Americans BY DAN RUTHERFORD, TULSA WORLD, OKLA. Knight-Ridder/Tribune Business News Aug. 7--When President Clinton put his signature on the balanced-budget agreement Tuesday, he clarified a section of tax law that could place more Native Americans in jobs and spur further economic development for Tulsa and most of Oklahoma. Included in the sweeping tax legislation was an amendment by Rep. Wes Watkins, R-Okla., that outlines ``former Indian lands'' of a state that once was referred to as Indian Territory. The clearer demarcation is expected to loosen an IRS logjam that has stalled an estimated $100 million in tax refunds to businesses in eastern, southern and portions of western Oklahoma. It also will make a 1993 tax law a star marketing tool for the State Chamber, Oklahoma's Association of Business and Industry. The signing of the Watkins amendment concluded a months-long fight to include Oklahoma in a 1993 measure that expanded federal enterprise zones to Indian reservations. That bill included two big tax breaks for businesses that located on Indian land: First, any business operating in these areas can speed the depreciation of assets placed in service since 1994. This frees more money from tax bills, which can be reinvested into expansions, repaying debt, buying more equipment, raising salaries, dividends, etc. Second, the 1993 law established a tax credit for employers of Native Americans or their spouses who earn less than $30,000. For each qualified employee, businesses can receive up to 20 percent of the annual cost of wages and health insurance costs, to a maximum of $4,000 per worker per year. The 1993 tax changes went virtually undetected in Oklahoma until November 1996, when Oklahoma City attorney Timothy Larason opined in the Oklahoma Bar Journal that virtually the entire state of Oklahoma was considered an ``Indian reservation'' under federal law. This got the attention of several accountants in the state who quickly began turning in alternative accounting methods and amended returns. However, the Internal Revenue Service put a halt to the claims, and asked Washington for a clarification -- could an entire state take advantage of benefits designed specifically for job creation on remote reservations? ``That obviously is not something Wes could let go by,'' said Watkins spokeswoman Leslie Belcher. ``It effectively treated Oklahoma like it had no Native Americans and no Native American lands.'' David Stell, spokesman for the IRS in Oklahoma City, said even though the amendment has become law, the IRS is still studying the matter -- keeping businesses in suspense and claims in suspension. One issue under review is a precise survey comparing old tribal and non-tribal borders with today's landscape. The other issues lie in the finite language of the amendment, Stell said. The IRS has called in the Department of Interior and its Bureau of Indian Affairs to help in the research. Stell had no idea how long the study will take, but promises action ``as soon as possible.'' Oklahoma accountants are confident it won't be long. ``They can't rewrite Oklahoma history,'' said August Helmbright, tax partner with Oklahoma City's Ernst & Young practice. ``Those lines of demarcation are out there ... it's just a matter of calculating where they are.'' Jack Short, managing partner of Coopers & Lybrand in Tulsa, said he expects IRS action within the next 45 to 60 days. ``Now that it's law, it will be explained by a joint committee and I think the IRS will have to honor those claims immediately,'' Short said. ``Otherwise there will be a lot of unhappy taxpayers calling Senator Nickles and Representative Watkins.'' How much could the state gain from Watkins' amendment? The congressman previously estimated that if the tax breaks were in place last year, Oklahoma businesses could have seen an additional $145 million in their returns. State Chamber vice president Bud Marshall said an estimated $100 million in claims are al ready in IRS hands awaiting action. But Helmbright believes both of those are ``conservative estimates.'' Since Oklahoma boasts the largest Native American population in the country, it stands to reason that much of the benefits will come in wage credits, he said. The 1990 U.S. Census recorded 89,466 employed Native Americans, which make up 6 percent of the state's labor force. If half earn less than $30,000 -- a conservative number since the average wage in the state is less than $25,000 -- it would mean more than $134.2 million in credits under the 1993 law. Still, Native Americans are not employed as often as whites, Asians or Hispanics. According to the census data, the unemployment rate for Native Americans was 11.8 percent in 1990, compared with 5.7 percent for whites, 6.6 percent for Asians and 11.1 percent for Hispanics. The only group that has a higher unemployment rate in the state are blacks at 15.2 percent seven years ago. There are other questions surrounding the amendment and the tax breaks as they apply to Oklahoma: -- How long will they stay on the books? Even Sen. Don Nickles, R-Okla., opposed Watkins' amendment initially because he feared it favored Oklahoma over other states bringing a repeal of the 1993 tax benefits altogether. Then there is a small chance it could fall victim to the line-item veto. Belcher is confident that is not a threat, but even on the slight chance it did occur the vague 1993 definitions of Oklahoma Indian land would apply. This time, however, Congress' intent would be clear -- the rules do apply to Oklahoma. ``This is the second time we fought this battle,'' Marshall said. ``This amendment clarified things even more. But the one thing about politics and legislation is nothing is forever.'' -- What will be the short-term economic impact? Marshall says it means nothing but good things for the state. His office already is updating marketing information that targets businesses looking for new locations, touting the tax advantages available to two-thirds of the state. The State Chamber also is putting together workshops and seminars to explain how existing Oklahoma businesses can take advantage of the tax breaks. ``It means a tremendous amount to Oklahoma,'' Marshall said, ``literally millions of dollars. ``The bottom line of the whole scenario is those funds stay in this state and are used by those companies to pay more wages, which get spent in the community, or to expand, or hire more people.'' But Rusty Linker, Metropolitan Tulsa Chamber of Commerce's director of new business development, believes the impact on new business recruitment will be minimal. The same tax advantages are available in other states. It helps, he said, but doesn't make Oklahoma unique. ``It would help a company on the bottom line, but what drives them to an area are people, cost of living, land. Tax incentives are good but they are not as big of an incentive as people might think,'' Linker said. -- What will be the long-term economic implications? The tax credits apply to hires made or assets deployed between 1994 and 2003. That may cause a turnover in employment after six years, but the depreciation benefits would stretch to a maximum of 22 years for nonresidential commercial property. Sweet depreciation rates spurred a flurry of speculative building in the early- to mid-80s, and when tax laws changed, the money dried up, sending the state's economy into a tailspin in 1986. But the experts say history is not likely to repeat itself. The 1993 incentives are more restricted and its sunset is pre-determined. Therefore, investors will not be panicked as the benefits fade. Besides, they said, most investors learned their lessons on spec buildings 10 years ago. ``Is this going to cause the boom-bust, the yo-yo economy? No,'' Marshall said. ``This is going to be something that helps Oklahoma to attract the kinds of jobs in industries we want.'' ``We never looked at this as a way to set up Oklahoma to fail later,'' said Belcher, the Watkins aide. WHAT FIRMS CAN DO: Although current refunds claiming Indian land tax credits are on hold in Oklahoma, tax professionals say businesses should move now to claim the benefits. ``Our advice to anyone who falls within the area under interpretation of the new law ... is that they move forward on filing any future returns to claim property depreciations,'' said August Helmbright, tax partner with Ernst & Young in Oklahoma City. But David Stell, spokesman for the IRS in Oklahoma City, recommends a more cautious approach. ``Our recommendation would be that businesses do what they feel is correct under the law or wait until the IRS comes forth with an interpretation of the law.'' Businesses in the effected areas can claim the credits back to Jan. 1, 1994. For some, said Mark Elser, tax manager at Tulsa's Coopers & Lybrand, getting a refund for accelerated deprecia tion rates may mean filing a change of accounting method for tax years 1994 and 1995, depending on when the last tax return was filed. Likewise, if the 1996 return has already been filed, an amended form will need to be submitted. For the payroll credits, however, businesses can simply file amended returns for 1994, 1995 and 1996. ``This is something you definitely need to look at as soon as possible,'' Elser said. Remember, he said: All depreciable assets put in service since 1994 fall under the new rates. The accelerated depreciation rates can be used to calculate alternative minimum tax estimates. All Native Americans on payroll between 1994 and 2003 can be counted toward the payroll credit. Accountants and tax specialists can provide more information. ----- ON THE INTERNET: Visit tworld, the World Wide Web site of The Tulsa (Okla.) World, at http://www.tulsaweb.com/tworld.htm ----- (c) 1997, The Tulsa (Okla.) World. Distributed by Knight-Ridder/Tribune Business News. ------------------------------------------------------------