March 2010 State Tax Return. Has the Era of Free Street-Legal Golf Carts for Oklahomans Ended?

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1 March 2010 State Tax Return Volume 17 Number 1 Has the Era of Free Street-Legal Golf Carts for Oklahomans Ended? Rachel A. Wilson Dallas rawilson@jonesday.com Street-legal golf cart racers of Oklahoma are united in wanting good news this spring. Combining both federal and state tax credits for certain electric motor vehicle purchases, savvy Oklahomans could acquire low-cost, street-legal golf carts as a gimme. When the Oklahoma Tax Commission ( OTC ) apparently realized the fiscal impact a run on such vehicles could have, it responded by issuing an emergency rule that excluded street-legal electric cars from the tax credit if they looked like golf carts. 1 The rule was withdrawn following taxpayer outrage and suits filed by electric car dealerships. The OTC, however, has issued letter rulings that appear consistent with the new policy of the withdrawn rule, limiting credits based on appearance. While customers and dealers hold out hope for a favorable holding in suits pending against the OTC, the Oklahoma Legislature is currently contemplating its own set of fixes that is even less tax credit-friendly than the OTC s controversial new policy. Teeing Up the Controversy Statute. For tax years beginning before January 1, 2015, Oklahoma s alternative-fuel vehicle tax credit statute provides a one-time 50 percent income tax credit on the purchase of qualified electric motor vehicle property. 2 The term qualified electric motor vehicle property means: a motor vehicle originally equipped to be propelled only by electricity; provided, if a motor vehicle is also equipped with an internal combustion engine, then such vehicle shall be considered qualified electric motor vehicle property only to the extent of the portion of the basis of such motor vehicle which is attributable to the propulsion of the vehicle by electricity. The term qualified electric motor vehicle property shall not apply to vehicles known 1 On September 17, 2009, the OTC issued Emergency Rule 710: discussed below. 2 Okla. Stat. tit. 68, (A), (D). The version of the statute in place before 2010 had minor variations that have no bearing on the discussion in this article.

2 as golf carts, go-carts and other motor vehicles which are manufactured principally for use off the streets and highways. 3 Emergency Rule. On September 17, 2009, the OTC issued Emergency Rule 710: , providing that electric vehicles with a body configuration more akin to that of a typical golf cart or go-cart are not eligible for the state income tax credit for electric vehicles. Specifically, Emergency Rule 710: (c) states that the credit for qualified electric vehicle property does not apply to: vehicles known as golf carts, go-carts, or other motor vehicles which are manufactured principally for use off the streets and highways. The exclusion includes vehicles that have a body configuration more akin to that of a typical golf cart or go-cart rather than a traditional passenger automobile and vehicles that are principally designed and manufactured for sporting or recreational purposes. The fact that a vehicle is street legal is not determinative of qualification for the credit. The capability of incidental road use by a vehicle shall not qualify the vehicle for the credit. According to OTC spokeswoman Paula Ross, the new rule further clarifies our policy that the credit may not be claimed for golf carts and other vehicles primarily produced for sporting or recreational purposes regardless of whether the vehicle is street legal for incidental use. 4 The OTC claims it issued the emergency rule so that taxpayers would understand the State s credit prior to purchasing such a vehicle and not learn of an excluded credit when filing their state taxes next year. Given that as late as August 2009, customers and dealers were informed by the OTC that their street-legal golf cart-like vehicles qualified for the credit, 5 the OTC s insistence that the emergency rule was not a change in policy (merely a clarification) is hard to digest. The new rule not only changed course, it also leads down an unclear path to determine the models that would be deemed by the OTC to have a body configuration more akin to that of a typical golf cart or go-cart. The uncertainty created by the rule adversely affected the entire electric car market in Oklahoma. Emergency Rule Withdrawn. On October 1, 2009, the OTC withdrew the rule, stating that the purpose of the withdrawn emergency rule was to clarify the standards for qualifying for 3 Okla. Stat. tit. 68, (C) (emphasis added). The version of the statute in place before 2010 had minor variations that have no bearing on the discussion in this article. 4 See OTC News Release (Sept. 17, 2009). 5 See (includes copies of various correspondence from the OTC dated before September 2009 regarding the application of tax credits to vehicles that apparently no longer qualify for tax credits according to letter rulings issued by the OTC in October 2009) (all web sites herein last visited Mar. 9, 2010)

3 the new income tax credit, but the withdrawn emergency rule did not achieve that purpose. 6 While the withdrawal may at first have seemed like a victory for street-legal golf cart-loving Oklahomans, the OTC seems determined to continue applying the policy change set forth in the withdrawn emergency rule. Lost in the Rough The OTC Continues on Its New Path Following the withdrawal of the emergency rule, the Tax Policy Division began issuing letter rulings on the qualifications of specific electric vehicles for the state credit, which are posted online at To date, letter rulings have been issued regarding 23 different makes of electric cars. Upon review of the letter rulings, it appears that the OTC took a mulligan, continuing to apply the policy in its emergency rule to determine whether an electric car qualifies for the tax credit. While the letter rulings do not clearly state why one make or model qualifies for the credit over another, the appearance of the vehicle seems the primary distinction a distinction the OTC did not make as late as August 2009, 7 and a distinction not required by the tax credit statute. For example, the GEM e2, 8 which has an open frame (doors are optional) and two forward-facing seats, qualifies for the credit, 9 while the Tomberlin E-Merge E2, 10 which has an open frame and similar engineering, mechanical safety, and performance specifications (according to Ada Electric Cars), does not qualify for the credit. 11 Except for the fact that one vehicle looks more like a golf cart than the other, there is apparently no meaningful distinction. GEM e2 Tomberlin E-Merge E2 6 See Tax Commission Withdraws Rule on Electric Car Tax Credit, STATE TAX NOTES, p. 89 (Oct. 12, 2009). 7 See Footnote 5. 8 Pictured at 9 Okla. Letter Ruling (Oct. 7, 2009). 10 Pictured at 11 Okla. Letter Rulings and (Oct. 7, 2009)

4 Because the OTC changed direction midway through 2009, both consumers and dealers have been left in limbo while the matter remains unsettled by the courts and it may continue to remain unsettled until a party with standing files suit in a court with proper jurisdiction or the legislature addresses the matter. Ada Approach Shot Dealers File Suit Against the OTC On September 23, 2009, Ada Electric Cars filed suit against the OTC in Garfield County, Oklahoma, protesting the OTC s emergency rule and abuse of power. On October 28, 2009, District Judge Hladik issued an injunction preventing the OTC from denying tax credits to taxpayers purchasing low-speed electric vehicles listed in the court s ruling. 12 The OTC appealed the decision to the Oklahoma Supreme Court, which on December 14, 2009, issued a writ of prohibition against District Judge Hladik, finding that the judge lacked subject-matter jurisdiction and that the venue was improper. According to spokesperson Paula Ross, the OTC was pleased the court ruled so we could continue administering the law. We don t make the law; we administer the law. 13 Ross recommends that [i]f a car is not on the eligibility list and an Oklahoma taxpayer does feel like it should be eligible, they can put it on their tax return.... If we deny it, Oklahoma taxpayers will have a remedy to protest. 14 In other words, you can plug in your recently purchased electric car for credit and play through. On December 22, 2009, Ada Electric Cars filed suit against the OTC in Oklahoma County, Oklahoma (Case No. CJ ), which is still pending. While the Oklahoma Supreme Court focused on which court has property jurisdiction, the more important issue may be whether the petitioners have standing to file suit in the first place. The person best positioned to challenge the OTC s policy would seem to be a purchaser of an electric car who challenges the OTC s denial of the tax credit claimed on the purchaser s tax return. Now that the public outcry has raised awareness that certain low-cost, street-legal golf carts have been practically free in Oklahoma, a state legislative fix may arrive before the courts finally address the matter. Ground Under Repair Proposed Legislative Fixes Proposed state legislation includes two options: (1) HB 2293, which would eliminate the tax credit for qualified electric motor vehicle property altogether, and (2) the inelegantly drafted HB 3044, which would keep the 50 percent credit but provides that the credit cannot exceed 40 percent of the value when combined with the federal credit. HB 3044 would also adopt some of the emergency-rule language, including the fact that a vehicle is street legal is not determinative of qualification for the credit and capability of incidental road use with a vehicle 12 See Ada Electric Cars, L.L.C. v. Oklahoma Tax Commission, Case No. CJ (Garfield Cty., Okla. Distr. Ct. Oct. 28, 2009). 13 See Tax Credit Fight Frustrates Electric Vehicle Owners, Kathy Toppins, EDMOND SUN (Dec. 18, 2009). 14 Id

5 shall not qualify the vehicle for the credit. Both HB 3044 and HB 2293 are currently in committee. The green fees are yet to be determined. Fore! This article is reprinted from the State Tax Return, a Jones Day monthly newsletter reporting on recent developments in state and local tax. Requests for a subscription to the State Tax Return or permission to reproduce this publication, in whole or in part, or comments and suggestions should be sent to Christa Smith ( ) in Jones Day s Dallas Office, 2727 N. Harwood, Dallas, Texas or StateTaxReturn@jonesday.com. Jones Day All Rights Reserved. No portion of the article may be reproduced or used without express permission. Because of its generality, the information contained herein should not be construed as legal advice on any specific facts and circumstances. The contents are intended for general information purposes only