Aerospace tax credit facing some scrutiny

Vic Bird

OKLAHOMA CITY — A popular tax credit designed to attract top-notch aerospace engineers is facing scrutiny after some employees are abruptly discovering they don’t qualify under its exacting accreditation standards.

In recent months, the law has faced at least one legal challenge from a disgruntled engineer. And some observers warn its selection criteria could create constitutional questions because it chooses between similarly situated candidates.

Still, supporters of the tax program note thousands of aerospace engineers have successfully claimed the incentive. It offers a $5,000 credit for qualified aerospace employees who hold a degree in engineering from programs accredited by the Engineering Accreditation Commission of the Accreditation Board for Engineering and Technology, better known as ABET. The nonprofit promises that science, computing and engineering programs meet its quality standards.

The credit is granted each year for up to five years, according to Oklahoma Tax Commission.

In tax year 2017, Oklahomans filed nearly 2,400 tax returns claiming a combined $17.6 million in the incentive, according to OTC data. The state paid $7.4 million. The rest of the tax liability rolled over to future years.

The credit has had an estimated economic impact of $1.5 billion to $2 billion, said Vic Bird, director of Oklahoma Aeronautics Commission. He wrote the original legislation creating the credit.

Since the law went into effect a decade ago, Bird said he’s probably fielded only a handful of complaints. Prospective employees easily can find out if their particular program is accredited under Oklahoma’s standard, he said.

Bird said there are a lot of accrediting agencies, but Oklahoma chose “the gold standard so far as engineering programs to ensure credibility.” Requiring qualified engineers hold degrees from specifically accredited programs helps the state better regulate its incentive program, he said.

“I think by and large it’s been a small number (of issues), and it’s certainly nothing we’re hiding or making tricky,” he said. “It’s in the law. The aerospace employers are aware of it.”

But the credit has caused confusion, consternation and even litigation.

Last month, Oklahoma’s Court of Civil Appeals weighed in on a lawsuit filed by an aerospace engineer who filed for the credit as an employee of Tulsa’s Lufthansa Technik Component Services.

Hazem Mahmoud, of Tulsa, sued Oklahoma Tax Commission after it denied him use of the credit because neither of his aerospace engineering degrees qualified under the state’s credentialing requirements. He holds an undergraduate engineering degree from Egypt’s Cairo University and a master’s degree from Concordia University in Montreal, according to the lawsuit.

Mahmoud couldn’t be reached for comment.

The justices ruled Mahmoud didn’t qualify for the credit, but Judge W. Keith Rapp issued an opinion admonishing the Legislature to amend the credit to accommodate graduates of all academic institutions that have accredited degrees in aerospace engineering — not just those accredited under ABET.

“Modification of the statute would provide equal access for graduates of qualified institutions outside the United States,” Rapp wrote.

It also would recognize the accomplishment of foreign university graduates in successful aerospace programs, he said.

“Having been exposed to the aerospace industry, its early pioneers and highly qualified foreign university graduates, it is my opinion the statute would have prevented many notable aerospace giants from claiming the tax credit while employed in this state,” Rapp wrote.

Tony Mastin, former OTC executive director, said the accreditation requirement recognizes very few degrees outside the United States.

“It’s caused a lot of frustration for employees when they move to Oklahoma and take a job in the sector expecting to get that credit. (But) because they don’t have the right degree from the right university, they don’t get it for whatever reason,” he said.

Mastin said at one point he was curious how many times the issue had arisen. However, he couldn’t find statistics about who was denied the credit, why and how many of those resulted from having the wrong degree.

“If the overall goal is to move these type of employees into the state, where they got their degree really isn’t relevant,” Mastin said.

The credit also raises constitutional questions when there are people similarly situated but one gets the credit and the other doesn’t, said Mastin, who now works as an attorney.

Lawmakers also just adopted the same accreditation criteria for a tax incentive program for software and cybersecurity engineers, Mastin said

He expects there probably will be future litigation as the number of people claiming credits will continue to grow.

State Rep. Jacob Rosecrants, D-Norman, said he first became aware of an issue with the aerospace tax credit after a constituent complained. She said she was denied the tax benefit because her graduate engineering program didn’t have the correct accreditation.

The woman moved to Oklahoma with the expectation of getting the credit. She also unsuccessfully fought state officials over the denial.

“We thought it was silly because you’re even more qualified than an undergraduate,” he said. “My exasperation is real on this one.”

He said Norman lawmakers are considering filing legislation that would improve the measure by allowing not just undergraduate accredited programs, but graduate ones as well.

But after spending hours researching and talking to experts about the issue, Rosecrants said he doesn’t know what standards other than accreditation the state could use to regulate its employee incentive program.

The aerospace industry is now the state’s No. 2 industry, behind oil and gas, so things are working, people are taking jobs in the sector and claiming the credits, he said.

But Rosecrants said it certainly looks bad when someone moves to the state with the expectation of getting the credit only to get rejected.

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