Oklahoma Capital Gain Deduction Upheld by Oklahoma Supreme Court


The Oklahoma Supreme Court has ruled that the Oklahoma income tax capital gains deduction is allowable and does not violate the Commerce Clause of the U.S. Constitution. The denial of the deduction to an out-of-state company had earlier been found to be unconstitutional under the Commerce Clause by the Oklahoma Court of Civil Appeals. Published commentary on the decision indicated it raised the possibility of as much as $450 million in Oklahoma income tax refunds being owed by the state to other taxpayers. The law, Oklahoma Statutes, Title 68, Section 2358(D), allows an Oklahoma income tax deduction for capital gain from the sale of assets of, or stock in, an Oklahoma company held for more than three years.

An “Oklahoma company” is defined in the law as an entity whose primary headquarters have been located in Oklahoma for at least three uninterrupted years prior to the date of the transaction from which the net capital gains arise. While the law allows a three year holding period for deduction by an Oklahoma company, a five year holding period applies for other companies which do not meet the Oklahoma primary headquarters requirement. The opinion of the Oklahoma Court of Civil Appeals in 2013 ruled this difference in taxation of capital gain transactions as between corporations classified as Oklahoma companies by having their primary headquarters in Oklahoma and out-of-state companies having a primary headquarters in another state violated the Commerce Clause of the U.S. Constitution.

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