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Texas School District Sues SandRidge; Is Oklahoma’s Tax-Free Weekend Still Worth It?

SandRidge Energy headquarters in Oklahoma City.
Brent Fuchs
The Journal Record
SandRidge Energy headquarters in Oklahoma City.

It’s been a rocky year for Oklahoma City’s SandRidge Energy.

The company started 2016 learning it would be delisted from the New York Stock Exchange, and had to shut down many oil and gas wells in northwest Oklahoma due to seismic directives by the Corporation Commission.

SandRidge laid off 150 employees in Oklahoma City in April, and a month later formally declared Chapter 11 bankruptcy.

Now it’s facing a lawsuit from the Fort Stockton Independent School District in southwest Texas. The primarily rural community along Interstate 10 - roughly halfway between El Paso and San Antonio – claims SandRidge intentionally misrepresented the value of its assets in Pecos County.

“In Texas, all personal property, all tangible property - which would include proved reserves, unproved reserves, equipment that's on the ground - all those things are assessed an ad valorem tax. They are taxed on their value,” said The Journal Record’s editor Ted Streuli. “Part of the Texas funding mechanism is that ad valorem taxes are really the critical component in funding the school districts.”

FSISD says in the lawsuit that it compared the valuation of SandRidge’s assets in Pecos County and the property tax liability to the quantity of proved reserves SandRidge provided to the Energy Information Administration dating back to 2003, according to The Journal Record:

The FSISD pointed out that in reports to the EIA, a company is required to list only the quantity of proved reserves, whereas taxable also includes all unproved reserves and equipment. Based on reported proved reserves, the school district estimated the value of other assets. In 2008 alone, the plaintiff argued, SandRidge’s proven reserves were worth $11.8 billion, while the district collected a total of all taxable property for all taxpayers in the district of just $1.4 billion. The lawsuit also alleges that SandRidge went out of its way to prevent the school district from putting liens on the property. “FSISD believes that SandRidge has deliberately attempted to prevent FSISD from securing its claim through tax liens by transferring the assets that would be subject to those liens to a third party shortly before SandRidge’s bankruptcy,” the plaintiff said in the complaint. The school district questioned the valuations in a Nov. 13, 2014 letter to SandRidge, and on Feb. 9, 2015 sent a demand letter for more than $2.9 billion, which FSISD claimed was the estimated value of ad valorem taxes underpaid by SandRidge and due FSISD for the period 2005-2011, inclusive of penalties and interest.

As we’ve reported, SandRidge declared Chapter 11 bankruptcy in May, and Streuli says this new wrinkle is a curveball at best, and a major setback at worst.

“It was a prepackaged bankruptcy, meaning the debtors had pretty much agreed to what they were going to do, which should be more or less rubber-stamped from the bankruptcy court judge,” Streuli said. “This is a huge amount of money to suddenly throw into the mix of debt that the creditors claim SandRidge owes. So it's going to take the bankruptcy court awhile to sort this out.”

Shoppers walk through the Outlet Shoppes at Oklahoma City on Wednesday.
Credit Brent Fuchs / The Journal Record
The Journal Record
Shoppers walk through the Outlet Shoppes at Oklahoma City on Wednesday.

In The Current Budget Climate, Has Tax-Free Weekend Outlived Its Usefulness?

Oklahoma’s annual sales tax holiday officially got underway at 12:01 a.m. Friday. It’s designed to encourage spending and provide a little relief to consumers doing their back-to-school shopping.

In 2015, Oklahoma did not collect an estimated $7.4 million during the three-day holiday. Since 2008, several states have actually stopped participating in tax-free weekends, but Streuli says even with Oklahoma’s current budget crisis, there’s little serious talk of this state following suit.

“What's been argued is that really it's just a state giveaway. They don't get to collect that sales tax, but it doesn't really do anything to increase sales. Everybody would buy all that same merchandise anyway, they just might not buy it all on that one weekend,” Streuli said.

State Sen. Don Barrington, R-Lawton, authored Oklahoma’s original sales tax holiday bill a decade ago. His southwest Oklahoma district borders Texas, and he told The Journal Record’s Molly Fleming one of his concerns was losing business to the Lone Star State:

“When they’re staying at home to shop, they’re buying gas to get downtown,” he said. “They’re staying in town to eat, so they’re spending their money locally.” He said he knows the weekend is criticized because the state loses the sales tax money, but he thinks people need that financial break. “I think retailers appreciate it because it brings people in the stores,” he said. “It’s one of those things that – not all people understand this – but people appreciate any tax relief they can get at all, especially when they’re getting clothes and school supplies going back to school.”

But Streuli says a study by the Tax Foundation found that even with this 72-hour economic stimulus, the state doesn’t really make up that lost tax revenue. Most consumers average about a 4-7 percent savings.

“Politicians claim that sales tax holidays largely pay for themselves through increased economic activity and new collections,” states the research paper. “But experience shows that the claims of economic stimulus, increased revenue, and consumer savings are greatly exaggerated. States see little net economic activity as a result of sales tax holidays; the holidays instead represent a costly-to-administer revenue loss for the government.” [Senate Budget Committee Chairman Mike] Mazzei said the tax holiday makes Oklahoma more competitive with its bordering states. “It’s shown tremendous gains in retail activity,” he said. “We never considered changing that incentive program during the last session.”

The Business Intelligence Report is a collaborative news project between KGOU and The Journal Record.

As a community-supported news organization, KGOU relies on contributions from readers and listeners to fulfill its mission of public service to Oklahoma and beyond. Donate online, or by contacting our Membership department.

The Journal Record is a multi-faceted media company specializing in business, legislative and legal news. Print and online content is available via subscription.

Brian Hardzinski is from Flower Mound, Texas and a graduate of the University of Oklahoma. He began his career at KGOU as a student intern, joining KGOU full time in 2009 as Operations and Public Service Announcement Director. He began regularly hosting Morning Edition in 2014, and became the station's first Digital News Editor in 2015-16. Brian’s work at KGOU has been honored by Public Radio News Directors Incorporated (PRNDI), the Oklahoma Association of Broadcasters, the Oklahoma Associated Press Broadcasters, and local and regional chapters of the Society of Professional Journalists. Brian enjoys competing in triathlons, distance running, playing tennis, and entertaining his rambunctious Boston Terrier, Bucky.
Ted Streuli is the editor of The Journal Record, a weekday newspaper and online publisher of business, political and legal news for Oklahoma. He regularly reports for the Business Intelligence Report, heard each week on KGOU.
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