A. If a taxpayer (including a partnership) shall have been required to report his taxable income to the State of Oklahoma for years prior to the effective date of this act, in a manner different than he has been required to report his federal income for the same period of time, and, as a consequence of the differences in reporting income during that period of time, has a different basis of assets for gain or loss through the taking of different amounts for depletion, depreciation or amortization, or shall have a different amount of some prepaid income or deferred expense or other similar balance sheet item, such taxpayer shall be entitled, at his option, to a transitional deduction. The determination of the amount of the deduction shall be made as though an application to change accounting method had been granted and shall include all items subject to adjustment, whether resulting in an increase or decrease in the transitional deduction. Items subject to adjustment shall be only those which:

1. Have been treated differently in determining amounts subject to tax under Oklahoma and federal income tax laws which were applicable in a prior period;

2. Have been an element in determining Oklahoma income subject to tax in periods with respect to which Oklahoma income tax was paid; and

3. Except for the required change in reporting income, would have produced in a subsequent taxable period an adjustment to income subject to tax on account of the differences in federal and Oklahoma tax reporting.

Items subject to adjustment may consist of deductions taken or not taken in prior years, or amounts of income required to be included or excluded in such years, but such items shall be disregarded to the extent it can be shown that the prior treatment of such items had no actual effect on the amount of Oklahoma income tax paid; in making such showing, no items other than the items subject to this transitional adjustment shall be considered.

No net addition to Oklahoma taxable income shall be required by reason of this section, but, at the election of the taxpayer, a deduction in the amount of such net adjustment shall be available as provided below.

B. An affirmative election to use the optional transitional deduction shall be made on the income tax return filed for the first taxable period in which a deduction under this section is allowable, on or before the due date of the return including any extension of time granted in which to file said return or on an amended return. Failure to claim such deduction within three (3) years shall be deemed an election not to claim the optional transitional deduction.

C. The net deduction allowable under this section shall be deductible only in equal amounts of one-third (1/3) each over the first three taxable periods ending after the effective date of this act except that if such net deduction is less than Twenty-five Thousand Dollars ($25,000.00) the deduction shall be allowable in full in the first taxable period after the effective date hereof to the extent of the taxpayer's taxable income and to the second and third taxable period thereafter to the extent not previously taken in the earliest successive taxable year. In no event shall the deduction allowed under this section be carried back or applied against income for years prior to the effective date of this act or carried forward to any taxable year subsequent to the third full taxable year following the effective date hereof.

Added by Laws 1971, c. 137, § 4. Amended by Laws 1971, p. 1042, H.J.R. No. 1026, § 2A2, emerg. eff. June 22, 1971.