Franchise tax stifles growth

In Oklahoma we seek to create an environment where businesses can strive to grow free from unnecessary government interference, while providing valuable goods and services to Oklahomans. Unfortunately, the state’s franchise tax, also referred to as the Capital Stock Tax, prevents some businesses from growing to their fullest potential, which in turn impedes businesses from creating jobs and expanding the state’s workforce.

The state’s franchise tax is a direct tax on a corporation’s capital, taxing $1.25 for every $1,000 in capital, with the amount capped at $20,000, regardless of the corporation’s size or net worth. It is imposed on all corporations, whether they make a profit or not. Simply put, the franchise tax is a fee just for doing business in Oklahoma.

Most economists say it takes two to three years for a new business to become profitable, and in such a competitive marketplace, the franchise tax stacks the deck even higher against companies in their infancy. How can we expect these businesses to endure slow early months while the state is taking money from the modest revenue being earned?

The franchise tax has no off-season or consideration of downturns in the economy, becoming an even heavier burden upon businesses during difficult economic times.

Oklahoma is one of only 14 states that has a franchise tax. Mississippi and Connecticut are both phasing out their franchise tax. Also, a recent Legislative Office of Fiscal Transparency (LOFT) study recommended Oklahoma simplify its business tax structure by either transitioning to a single factor apportionment, eliminating the throwback rule or reducing compliance costs related to determining tax liability. We must take the antiquated, burdensome franchise tax off the books if we want to be competitive with other states.

Thankfully, House Bill 2695, filed by Rep. Gerrid Kendrix, aims to alleviate the compliance burden and financial impact this tax imposes. Oklahoma will discontinue collecting the franchise tax beginning in 2024, if HB 2695 is approved by the Legislature and signed into law by Gov. Kevin Stitt.

If we want businesses to thrive in Oklahoma, why are we taxing them simply for existing? Repealing the franchise tax will boost business investments in the economy and help create new jobs, while reducing tax compliance costs for businesses.

It’s a simple fix in our state tax code that will give Oklahoma businesses a clearer path to prosperity.

Chad Warmington President & CEO The State Chamber