The State of Oklahoma recently approved a law banning property taxation for intangible property. Intangible property includes: workforce, customer records, system information, software, trademarks and trade names, and going concern. If these items can be valued and carved out of the valuation of the total property, the company will save money on property taxes. The companies this really affects are non-rate base regulated companies.
The law in Oklahoma requires that an inspection is performed for a business for tax assessment. This is where it becomes essential to have separation between tangible and intangible property. The difference is approximately $50 million decrease in property tax costs to companies.
With intangible property being an important driver of a company’s revenue, the need for valuation of these assets is important. There is also a matter of determining what should be classified as intangible and what could be still considered tangible. Most intangible assets, including those mentioned above, are categorized as market-related, customer-related, artistic-related, contract-related or technology related. This can cause a problem, depending on the type of business that is being assessed.
Difficulties between definitions
The question for utilities becomes whether or not certain technology that operates the system be considered tangible or intangible. Is the software that monitors peak water flows in a water system considered intangible? Based on this new law in Oklahoma, the context may become unclear. Some definitions of intangible property may say that it is considered intangible and should be part of the tax assessment, while other definitions may say that since it operates the system, it is considered part of property, plant and equipment and thus, taxed.
This shows that more concise definitions of technology and intangible property need to be addressed. Laws also need to provide a more black-and-white definition as to what intangible property is. This will cause more discussion and law making, but in the end the appropriate definitions should be in place so more objective observations can be made and the appropriate assessments be made.