Location or Expansion

American Indian Lands Tax Credit

Two-thirds of Oklahoma, because of its unique Native American heritage, qualifies for special federal tax treatment. Businesses locating or expanding in these areas benefit by accelerated depreciation of investment and by employment tax credits when employing tribal members or their spouses.

Federal legislation clarifies the location of special American Indian lands in Oklahoma that qualify for related tax credits benefiting new and established businesses in Oklahoma. The tax incentive for businesses locating on former Indian lands expired as of December 31, 2013 awaiting extension by Congress. More than two-thirds of the lands in Oklahoma meet the Internal Revenue Service-qualifying definition of former Indian lands and qualify for accelerated depreciation. Qualifying lands may include previous tribal land which may have been transferred to new ownership.

Oklahoma has the largest percentage of American Indian population in the country. The federal employment tax credit is applicable to businesses located in the qualifying areas that employ enrolled American Indians and their spouses.

For more information, contact Martin Roberts at (405) 815-5262 or martin_roberts@okcommerce.gov.

Benefits

  • Accelerated Federal Property Depreciation Schedule.
  • Federal Employment Tax Credits of up to $4,000 per qualifying employee per year.
  • Savings of up to 35% to 40% in depreciation of equipment.

Depreciation Incentives

The depreciation incentive provides a shorter recovery period of approximately 40% for most non-residential depreciable property. The property must be placed in service during calendar years 1994-2011 and must be used in an active trade or business which includes the rental of real property for such purposes.

This federal tax deferral can substantially increase the after-tax income of businesses. Since Oklahoma taxable income is based on federal taxable income, the depreciation benefit will automatically apply for Oklahoma tax purposes.

In the case of:

The applicable recovery period is:

3-year property

2 years

5-year property

3 years

7-year property

4 years

10-year property

6 years

15-year property

9 years

20-year property

12 years

Non-residential real property (39 years)

22 years

Example

The regular depreciation on a commercial building with a cost of $1 million would be $25,641 annually for 39 years. The accelerated depreciation would be $45,454 annually for 22 years. This would substantially increase the taxpayers’ present value of available dollars.

Employee Credit

The employment tax credit is 20% of increased wages over those paid to qualified individuals in 1993, including health insurance premiums paid by the employer. Wages of individuals eligible for the tax credit may not exceed $30,000, indexed after 1993, and the credit is applicable to new wages of up to $20,000 for years 1994 through 2011. The indexed wage level for 2010 is $45,000. IRS Form 8845 is used for computing and claiming the credit.

Indian Employment Credit Form from the IRS

IRS Application for Change in Accounting Method

Example

Company A has a qualified employee to whom the store pays $15,000 in total wages and health insurance in 1993. In 2011, the company pays the same person $35,000. The credit is computed as follows:

2011 Wage/Health Insurance

$35,000
1993 Wage/Health Insurance $15,000
(Increase)* $20,000
Rate of Credit 20%
Indian Employment Credit $4,000
*Credit applies up to the first $20,000 in increased wages. The maximum credit per employee per year is $4,000.

Earnings Caps for 2010 and previous years:

  • 2000 – $30,000
  • 2001 – $30,000
  • 2002 – $30,000
  • 2003 – $30,000
  • 2004 – $30,000
  • 2005 – $30,000
  • 2006 – $30,000
  • 2007 – $30,000
  • 2008 – $40,000
  • 2009 – $45,000
  • 2010 – $45,000

Disclaimer
The materials contained on this website have been prepared by the Oklahoma Department of Commerce for informational purposes only and do not constitute legal or tax advice. This information is subject to change based on judicial interpretation and legislative action. The application of the information is subject to your unique facts and circumstances. YOU SHOULD NOT ACT UPON ANY INFORMATION CONTAINED IN THESE MATERIALS WITHOUT SEEKING YOUR OWN PROFESSIONAL LEGAL AND TAX ADVICE.