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STATE OF OKLAHOMA
2nd Session of the 58th Legislature (2022)
COMMITTEE SUBSTITUTE
FOR
HOUSE BILL NO. 4085 By: Wallace
COMMITTEE SUBSTITUTE
An Act relating to revenue and taxation; cr eating the
Oklahoma Rural Jobs Act; defining terms; establishing
requirements; establishing application process;
providing for a tax credit; establishing an
authorization amount limit; establishing investment
requirements; allowing for lapse in certificati on
creating a credit; allowing for tra nsfer of credit;
providing for recapture of credits; determining how
recaptured credits are to be allocated; creating a
program exit process; creating ownership limitations;
creating reporting requirements; establishing a
sunset date; providing for codification; and
providing an effective date.
BE IT ENACTED BY THE PEOPLE OF THE STATE OF OKLA HOMA:
SECTION 1. NEW LAW A new section of law to be codified
in the Oklahoma Statutes as Sec tion 3930 of Title 68, unless there
is created a duplication in numbering, reads as follows:
This act shall be known and may be cited as the "Oklahoma Rural
Jobs Act".
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SECTION 2. NEW LAW A new section o f law to be codified
in the Oklahoma Statutes as Sec tion 3931 of Title 68, unless there
is created a duplication in numbering, rea ds as follows:
As used in this act:
1. "Affiliate" means an entity that directly, or indirectly
through one or more intermedi aries, controls, or is controlled by,
or is under the common control with another entity. An entity is
controlled by another entity if the controlling entity holds,
directly or indirectly , the majority of voting or ownershi p interest
in the controlled entity or has control over day -to-day operations
of the controlled entity by contract or by law;
2. "Applicable percentage " means zero percent (0%) for the
first two credit allowance dates, and fifteen percent (15%) for the
next four credit allowance dates;
3. "Capital investment" means any equity investment in a rural
fund by a rural investor which:
a. is acquired after the effective date of this act at
its original issuance solely in exchange for cash,
b. has one hundred percent (100%) of its cash purchase
price used by the rural fund to make qualified
investments in eligible businesses located in this
state by the third anniv ersary of the initial credit
allowance date, and
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c. is designated by the rural fund as a capital
investment under this act and is cer tified by the Tax
Commission under the provisions of Section 3 of this
act. This shall include any capital investment that
does not meet the provisions of paragraph 1 of
subsection A of Section 3 of this act, if such
investment was a capital investment in the hands of a
prior holder;
4. "Commission" means the Oklahoma Tax Commission;
5. "Credit allowance date" means the date on which the Tax
Commission certifies a rural fund's capital investment and each of
the five anniversary dates of such date thereafter;
6. "Eligible business" means a business that, at the t ime of
the initial qualified investment in the business:
a. has fewer than two hundred fifty (250) employees, and
b. has its principal business oper ations in the state.
Any business which is class ified as an eligible business at the
time of the initial investment in such business by a rural fund
shall remain classified as an eligible business and may receive
follow-on investments from any rural fund, and such follow-on
investments shall be qualified investments even though such business
may not meet the definition of an eligible business at the time of
such follow-on investment;
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7. "Principal business operations" means the location where at
least sixty percent (60%) of a business's employees work or where
employees who are paid at least sixty percent (60%) of such
business's payroll work if a majority of such employees r eside in
Oklahoma during such employment. A business that has agreed to
relocate employees using the proceeds of a qualified investment to
establish its principal business operations in a new location shall
be deemed to have its principal business operations in such new
location if it satisfied the requirements of th is paragraph no later
than one hundred eight y (180) days after receiving a qualified
investment;
8. "Purchase price" means the amount pai d to the rural fund
that issues a capital investment which shall not exceed the amount
of capital investment authority certified under the provisions of
Section 3 of this act;
9. "Qualified investment" means any investment in an eligible
business or any loan to an eligible business with a stated maturity
date of at least one (1) year after the date of issuance, ex cluding
revolving lines of credit and senior -secured debt unless the chief
executive or similar officer of the eligible business certifies that
the eligible business sought and was denied similar financing from a
depository instituti on, by a rural fund; provided that, with respect
to any one eligible business, the maximum amount of investments made
in such business by on e or more rural funds, on a collective basis
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with all of the businesses' affiliates, with the proceeds of the
capital investments shall be the greater of twenty percent (20%) of
the rural fund's capital investment authority or Six Million Five
Hundred Thousand Dollars ($6,500,000.00), exclusive of investments
made with repaid or redeemed investments or interest or profits
realized thereon;
10. "Rural area" means any county of this state that has a
population of less than seventy-five thousand (75,000) or an y city
or town of this stat e that has a population not to exceed seven
thousand (7,000) accordi ng to the 2020 Federal Decennial Census of
the United States;
11. "Rural fund" means an entity certified by the Tax
Commmission under the provisions of Section 3 of this act;
12. "Rural investor" means an entity that makes a capital
investment in a rural fund;
13. "Senior-secured debt" means any loan that is secured by a
first mortgage on real estate with a loan-to-value ratio of less
than eighty percent (80%); and
14. "State tax liability" means any liability incurred by any
entity subject to the state income tax imposed under Title 68 of the
Oklahoma Statutes or an insurance company paying an an nual tax on
its gross premium receipts, including retaliatory tax, or other
financial institution paying taxes to the state or any political
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subdivision of the state under provisions of Title 68 or Title 19 of
the Oklahoma Statutes .
SECTION 3. NEW LAW A new section of law to be codified
in the Oklahoma Statutes as Sec tion 3932 of Title 68, unless there
is created a duplication in numbering, rea ds as follows:
A. A rural fund that seeks to have an equity investment
certified as a capital investment eligible for credits authorized
under the provisions of this act shall apply to the Tax Commission.
The Commission shall begin accepting applications within ninety (90)
days of the effective date of this act. The application shall
include:
1. The amount of capital investment requested;
2. A copy of the applicant 's or an affiliate of the applicant's
licenses as a rural business investment company under 7 U.S.C.,
Section 2009cc or as a small business investment company under 15
U.S.C., Section 681, and a certificate executed by an executive
officer of the applicant attesting t hat such license remains in
effect and has not be en revoked;
3. Evidence that, as of the date the application is submitted,
the applicant or affiliates of the applicant have invested at least
One Hundred Million Dollars ($100,000,000.00) in nonpublic companies
located in counties within the United States with a population of
less than seventy-five thousand (75,000) according to the 2010
Federal Decennial Census of the United States;
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4. A business plan that includes a rev enue-impact assessment
projecting state and local tax revenue to be generated by the
applicant's proposed qualified investment s, prepared by a nationally
recognized, third-party, independent economic forecasting firm using
a dynamic economic forecasting model that analyzes the applicant's
business plan over the ten (10) years following the date the
application is submitted to the Tax Commission. Such plan shall
include an estimate of the number of jobs create d and jobs retained
in this state as a result of the applica nt's qualified investments;
and
5. A nonrefundable application fee of Five Thousand Dollars
($5,000.00) payable to the Tax Commission.
B. Within thirty (30) days after the receipt of a completed
application, the Tax Commission shall grant or deny the application
in full or in part. The Tax Commission shall deny the applic ation
if:
1. The applicant does not satisfy all the c riteria provided
under subsection A of this section;
2. The revenue-impact assessment submitted with the application
does not demonstrate that the applicant 's business plan will result
in a positive fiscal impact on the state over a ten -year period that
exceeds the cumulative amount of tax credits that would be issued to
the applicant if the application was approved; or
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3. The Tax Commission has already approved the maximum amount
of capital investment authority under Section 4 of this act.
C. If the Tax Commission denies any part of the application, it
shall inform the applicant of the gr ounds for such denial. If the
applicant provides any additional informa tion required by the
Commission or otherwise completes its application within fifteen
(15) days of the notice of deni al, the application shall be
considered complete as of the original date of submission. If the
applicant fails to provide the in formation or fails to complete its
application within the fifteen-day period, the application shal l
remain denied and must be r esubmitted with a new submission date and
a new application fee.
D. Upon approval of an application, the Tax Commission shall
certify the proposed equity investment as a capital investment
eligible for credits under this act, subject to limitations laid out
in Section 4 of this act. The Tax Commission shall provide writte n
notice of the certification to the applicant which shall include the
amount of the applicant's capital investment authority. The Tax
Commission shall certify capital investments in the order that the
applications are received by the Commission. Applications received
on the same day shall be de emed to have been received
simultaneously. For applications that are complete and recei ved on
the same day, the Tax Commission shall certify applications in
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proportionate percentages based upon the ratio of the amount of
capital investment authority requested in a ll applications.
SECTION 4. NEW LAW A new section of law to be codified
in the Oklahoma Statutes as Sec tion 3933 of Title 68, unless there
is created a duplication in numbering, reads as follows:
A. The Tax Commission shall certify capital inv estment
authority under the provisions of this act in amounts that would not
authorize more than Fifteen Million Dollars ($15,000,000.00) in
state tax credits to be claimed against state tax liability in any
fiscal year, excluding any credit amounts carried forward as
provided under subsection A of Section 5 of this act. Within ninety
(90) days of the applicant re ceiving notice of certification, t he
rural fund shall issue the capital investment to, and receive cash
in the amount of the certified amount from a rural investor. At
least ten percent (10%) of the rural investor's capital investment
shall be composed of capital raised by the rural investor directly
or indirectly from sources, including directors, members, employees,
officers, and affiliates of the rural investor, other than the
amount invested by the allocatee claiming the tax credits in
exchange for such allocation of tax credits. The rural fund shall
provide the Tax Commission with evidence of the receipt of the cash
investment within nine ty-five (95) days of the applicant receiving
notice of certification.
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B. If the rural fund does not receive the cash investment and
issue the capital investment within such time period following
receipt of the certificate notice, the certifica tion shall lapse and
the rural fund shall not issue the capital investment without
reapplying to the Tax Commission for certification. Lapsed
certifications shall revert to the Tax Commission and shall be
reissued pro rata to applicants whose capital investment allocations
were reduced in accordance with the application process provided
under subsection D of Section 3 of this act.
C. A rural fund, before making a qualified investment, may
request from the Tax Commission a written opinion as to whether the
business in which it proposes to invest is an eligible business.
The Commission, no later than twenty (20) days after the date of
receipt of such request, shall notify the rural fund of its
determination. If the Tax Commission fails to notify the rural fund
of its determination by the thirtieth business day, the business in
which the rural fund proposes to invest shall be de emed an eligible
business.
D. For tax years beginning on or after January 1, 20 23, the
total amount of credits autho rized by this section used to offset
tax shall be adjusted annually to limit the annual amount of credits
to Fifteen Million Dollars ($15,000,000.00). The Tax Commi ssion
shall annually calculate and publish a percentage by w hich the
credits authorized by this section shall be reduced so the to tal
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amount of credits used to offset tax does not exceed Fifteen Million
Dollars ($15,000,000.00) per year. The formula to be used for the
percentage adjustment shall be Fifteen Million Dollars
($15,000,000.00) divided by the credits used to offset tax in the
second preceding year.
E. Pursuant to subsection D of this section, in the event the
total tax credits authorized by this section exceed Fifteen Million
Dollars ($15,000,000.00) in any calendar year, the Tax Commission
shall permit any excess over Fifteen Million Dollars
($15,000,000.00) but shall factor such excess into the percentage
adjustment formula for subsequent y ears.
SECTION 5. NEW LAW A new section of law to be codified
in the Oklahoma Statutes as Sec tion 3934 of Title 68, unless there
is created a duplication in numbering, rea ds as follows:
A. Upon making a capital investment in a rural fund, a rural
investor shall have a credit against such entity's state tax
liability that may be utilized on each c redit allowance date of such
capital investment in an amount equal to the applicable percentage
for such credit allowance date multiplied by the purchase price paid
to the rural fund for the capital investment. The amount of the
credit claimed by a rural investor shall not exceed the amount of
such entity's state tax liability for the tax year for which the
credit is claimed. Any amount of credit that a rural investor is
prohibited from claiming in a tax year as a result of this section
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may be carried forward for use in any of the five (5) subsequent tax
years, but shall not be carried back to prior tax years. It is the
intent of this act that a rural investor claiming a credit under
this act is not required to pay any additional tax that may arise as
a result of claiming such credit.
B. No credit claimed under the provisions of t his act shall be
refundable or saleable on the open market. Credits earned by or
allocated to a partnership, limited liability company, or S-
corporation may be allocated to the partners, members, or
shareholders of such entity for their direct use in ac cordance with
the provisions of any agreeme nt among such partners, members, or
shareholders, and a rural fund shall notify the Tax Commission of
the names of the entities that are eligible to utilize transfer of a
capital investment upon such allocation, chang e or transfer. Such
allocation shall not be considered a sale for the purpose of this
section.
C. The Oklahoma Tax Commission shall recapture credits from a
taxpayer that claimed a credit aut horized under this section if:
1. The rural fund does not invest sixty percent (60%) of its
capital investment authority in qualified investment s in this state
within two (2) years of the credit allowance date , and one hundred
percent (100%) of its capita l investment authority in qualified
investments in this state within three (3) years of the credit
allowance date; provided that at least seventy percent (70%) of
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these initial qualified investments must be made in eligible
businesses located in rural are as;
2. The rural fund fails to maintain qualified investment s equal
to ninety percent (90%) of its capital investment authority from the
third anniversary until the sixth anniversary of the credit
allowance date, with seventy percent (70%) of such investme nts
maintained in eligible businesses located in rural areas. For each
year the rural fund fails to maintain such investments, the Tax
Commission shall recapture an amount of such year's allowed credits
equal to the percentage difference between ninety pe rcent (90%) of a
rural fund's capital investment authority and the actual amount of
qualified investments maintained for such year. For the purposes of
this subsection, a qualified investment is considered even if the
qualified investment was sold or repaid so long as the rural fund
reinvests an amount equal to the capital returned or recovered or
repaid by the rural fund from the original investment, exclusi ve of
any profits realized, in other qualified investments in this state
within twelve (12) months of receipt of such capital. Amounts
received periodically by a rural fund shall be treated as
continually invested in qualified investment s if the amounts are
reinvested in one or more qualified investments by the end of the
following calendar year. A rural fund shall not be required to
reinvest capital returned from qualified investment s after the fifth
anniversary of the credit allowance date , and such qualified
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investments shall be considered held continuously by the rural fund
through the sixth anniversary of the credit allowance date;
3. Prior to the earlier of a ) exiting the program in accordance
with this act or b) thirty (30) days after the sixt h anniversary of
the credit allowance date, the rural fund makes a distribution or
payment that results in the rural fund having less than one hundred
percent (100%) of its capital investment authority invested in
qualified investment s in the state or held in c ash or other
marketable securities; or
4. The rural fund violates the provisions of Section 6 of this
act, in which case the Tax Commission shall recapture an amount
equal to the amount of the rural fund's capital investment authority
found to be in violation o f such provisions.
For the purposes of meeting and maintaining the objectives
established for investment in paragraphs 1 and 2 of this subsection,
a rural fund's qualified investment s shall be multiplied by a factor
of one and one-quarter (1 1/4) in counties with less than thirty
thousand (30,000) in population and more than thirteen thousand
(13,000) in population and shall be multiplied by a factor of one
and one-half (1 1/2) in counties with a population of thirteen
thousand (13,000) or less.
D. Recaptured credits and related capital investment authority
shall revert to the Tax Commission and shall be reissued pro rata to
applicants whose capital investment allocations were reduced in
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accordance with the applica tion process provided under subsection D
of Section 3 of this act.
E. No recapture shall occur until the rural fund has been given
notice of noncompliance and afforded six (6) mont hs from the date of
such notice to cure the noncompliance.
SECTION 6. NEW LAW A new section of law to be codified
in the Oklahoma Statutes as Section 3935 of Title 68, unless there
is created a duplication in numbering, reads as follows:
A. No eligible business that receives a qualified investment
under the provisions of act, or any affiliates or such eligible
business, shall directly or indirectly:
1. Own or have the right to acquire an ownership interest in a
rural fund or member or affiliate of a rural fund, including, but
not limited to, a holder of a capital investment issued by a rural
fund; or
2. Loan to or invest in a rural fund or any member or affiliate
of a rural fund, including but not limited to, a holder of capital
investment issued by a rural fund, where the proceeds of such loan
or investment are directly or indirectly used to fund or refinance
the purchase of capital investments under this act.
SECTION 7. NEW LAW A new section of law to be codi fied
in the Oklahoma Statutes as Sec tion 3936 of Title 68, unless there
is created a duplication in numbering, rea ds as follows:
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A. Rural funds shall submit a report to the Tax Commission
within the first fifteen (15) business days after the second and
third anniversary of the initial credit allowance date. The report
following the second anniversary shall provide documentation as to
the investment of sixty percent (60%) of the purchase price of such
capital investment in qualified investments. The report following
the third anniversary shall provide documentation as to the
investment of one hundred percent (100%) of the pur chase price of
such capital investment in qualified investments. Unless previously
reported pursuant to this subsection, such report s shall also
include:
1. The name and location of each eligible business receiving a
qualified investment;
2. Bank statements of such rural fund evidencing each qualified
investment;
3. A copy of the writte n opinion of the Tax Commission, as
provided in subsection C of Section 4 of this act, or evidence that
such business was an eligible business at the time of such qualified
investment, as applicable;
4. The number of jobs created and jobs retained as a result of
each qualified investment;
5. The average salary of positions described in paragraph 4 of
this paragraph; and
6. Such other information as required by the Tax Commission.
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B. For all subsequent years, rural funds shall submit an annual
report to the Tax Commission within ninety (90) days of the
beginning of the calendar year during the compliance period. The
report shall include , but is not limited to the following :
1. The number of jobs created and jobs retained as a result of
qualified investments;
2. The average annual salary of positions described in
paragraph 1 of this subsection; and
3. Such other information as required by the Tax Commission.
C. On or after the sixth anniversary of the credit allowance
date, a rural fund may apply to the Tax Commission to exit the
program and no longe r be subject to the regulation hereunder. The
Tax Commission shall respond to the exit application within fifteen
(15) days of receipt. In evaluating the exit application , the fact
that no credits have been recaptured and that the rural fund has not
received a notice of recapture that has not been cured pursuant to
subsection E of Section 5 of this act shall be sufficient evidence
to prove that the rural fund is eligible for exit. The Tax
Commission shall not unreasonably deny an exit application submitted
under this section. If an exit application is denied, the notice
shall include the reasons for the determ ination.
SECTION 8. NEW LAW A new section of law to be co dified
in the Oklahoma Statutes as Section 3937 of Title 68, unless there
is created a duplication in numbering, rea ds as follows:
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The Tax Commission shall not accept new applications for tax
credits authorized under this act after December 1, 2032.
SECTION 9. This act shall become effective November 1, 2022.
58-2-10956 JM 03/02/22