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SENATE FLOOR VERSION
April 13, 2022
COMMITTEE SUBSTITUTE
FOR ENGROSSED
HOUSE BILL NO. 4085 By: Wallace, Dempsey, and Lowe
(Dick) of the House
and
Howard and Jech of the
Senate
[ revenue and taxation - Oklahoma Rural Jobs Act -
application process - tax credit - program exit process
- sunset date - codification - effective date ]
BE IT ENACTED BY THE PE OPLE OF THE STATE OF OKLAHOMA:
SECTION 1. NEW LAW A new section o f law to be codified
in the Oklahoma Statutes as Section 3930 of Title 68, unless there
is created a duplicat ion in numbering, reads as follows:
This act shall be known a nd may be cited as the "Oklahoma Rural
Jobs Act".
SECTION 2. NEW LAW A new section of law to be co dified
in the Oklahoma Statutes as Section 3931 of Title 68, unless there
is created a duplication in numberin g, reads as follows:
As used in this act:
1. "Affiliate" means an entity that directly, or indirectly
through one or more intermedia ries, controls, or is controlled by,
or is under the common control with another entity. An entity is
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controlled by anothe r entity if the controll ing 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 eff ective 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
c. is designated by the rural fund as a capital
investment under this act and is cert ified by the
Department 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;
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4. "Credit allowance date" means the date on which the
Department certifies a rural fund's capital investment and each of
the five anniversary dates of such date thereafter;
5. "Department" means the Oklahoma Department of Commerce;
6. "Eligible business" means a business that, at the time of
the initial qualifie d investment in the business:
a. has fewer than two hundred fifty employees, and
b. has its principal business oper ations in the state.
Any business which is classified 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;
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. 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 this paragraph no later than one
hundred eighty (180) days after receiving a qualified investment;
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8. "Purchase price" means the amount paid 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, excluding
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 basi s
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 investme nts
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 state that has a populatio n not to exceed seven
thousand (7,000) accordi ng to the 2020 Federal Decennial Census of
the United States;
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11. "Rural fund" means an entity certified by the Department
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 inc urred by any
entity subject to the state income tax imposed under Title 68 of the
Oklahoma Statutes or an insurance company paying an annual tax on
its gross premium receipts including retaliatory tax, or other
financial institution paying taxes to the sta te or any political
subdivision of the state under provisions of Title 68 or Title 19 of
the Oklahoma Statutes or an express company which pays an annual tax
on its gross receipts in the state.
SECTION 3. NEW LAW A new section of la w to be codified
in the Oklahoma Statutes as Sec tion 3932 of Title 68, unless there
is created a duplica tion 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 a uthorized
under the provisions of this act shall apply to the D epartment. The
Department shall begin accepting applications within ninety (90)
days of the effective date of this act. The application shall
include:
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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 e xecutive
officer of the applicant attesting t hat such license remains in
effect and has not been 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 p opulation of
less than seventy-five thousand (75,000) according to the 2010
Federal Decennial Census of the United States;
4. A business plan that includes a revenue-impact assessment
projecting state and local tax rev enue to be generated by the
applicant's proposed qualified investments, 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 t he Department. Such plan shall include
an estimate of the number of jobs create d and jobs retained in this
state as a result of the applicant's qualified investments; and
5. A nonrefundable application fee of Five Thousand Dollars
($5,000.00) payable to the Department.
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B. Within thirty (30) days after the receipt of a completed
application, the Department shall grant or deny the application in
full or in part. The Department shall deny the application 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 ove r 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
3. The Department has already approved the maximum amount of
capital investment authority under Section 4 of this act.
C. If the Department denies any part of the application, it
shall inform the applicant of the gr ounds for such denial. If the
applicant provides any additional information required by the
Department or otherwi se completes its application within f ifteen
(15) days of the notice of denial, the application shall be
considered complete as of the original date of submission. If the
applicant fails to provide the information or fails to complete its
application within the fifteen-day period, the application shall
remain denied and must be resubmitted with a new submission date and
a new application fee.
D. Upon approval of an application, the Dep artment shall
certify the proposed equity investment as a capital investment
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eligible for credits under this act, subject to limitations laid out
in Section 4 of this act. The Department shall provide written
notice of the certification to the applicant which shall include the
amount of the applicant's capital investment authority. The
Department shall certify capital investments in the order that the
application is received by the Department. Applications received on
the same day shall be deemed to have been received simultaneously.
For applications that are complete and received on the same day, the
Department shall certify applications in proportionate percentages
based upon the ratio of the amount of capital investment authority
requested in all applications.
SECTION 4. NEW LAW A new section of la w to be codified
in the Oklahoma Statu tes as Section 3933 of Title 68, unless there
is created a duplication in numbering, reads as follows:
A. The Department shall certify capital inv estment authority
under the provisions of this act in amounts that woul d not authorize
more than Fifteen Million Dollars ($15,000,000.00) in state tax
credits to be claimed against state tax liability in any cal endar
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 receiving notice of certifi cation, the 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
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composed of capital raised by the rural investor directly or
indirectly from sources including directors, mem bers, employees,
officers, and affiliates of the rural investor, other than the
amount invested by the allocatee cl aiming the tax credits in
exchange for such allocation of tax credit s. The rural fund shall
provide the Department with evidence of the recei pt of the cash
investment within nine ty-five (95) days of the applicant receiving
notice of certification.
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 certification shall lapse and
the rural fund shall not issue the capital investment without
reapplying to the Department for certificati on. Lapsed
certifications shall revert to the Department 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 Department a written opinion as to whether th e
business in which it proposes to invest is an eligible business.
The Department, no later than fifteen (15) business day after the
date of receipt of such request, shall notify the rural fund of its
determination. If the Department fails to notify the rural fund of
its determination by the twentieth business day, the business in
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which the rural fund proposes to invest shall be deemed an eligible
business.
SECTION 5. NEW LAW A new section of law to be codified
in the Oklahoma Stat utes as Section 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 vested right to a credit against such entity's
state tax liability t hat 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 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 tha t 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 this 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
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shareholders of such entity for their direct use in accordance with
the provisions of any agreement among such partners, members, or
shareholders, and a rural fund shall notify the Department of the
names of the entities that are eligible to utilize transfer of a
capital investment upon such allocation, ch ange, or transfer. Such
allocation shall not be considered a sale for the purpose of this
section.
C. The Department may recapture credits from a taxpay er that
claimed a credit authoriz ed under this section if:
1. The rural fund does not invest sixty percent (60%) of its
capital investment authority in qualified investments in this state
within two (2) years of the credit allowance date , and one hundred
percent (100%) of its capital inv estment authority in qualified
investments in this state within three (3) years of the credit
allowance date; provided, that at least seventy percent (70%) of
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 invest ment authority from the
third anniversary until the sixth anniversary of the credit
allowance date, with seventy percent (70%) of such investments
maintained in eligible businesses located in rural areas. For each
year the rural fund fails to maintain such investments, the
Department may recapture an amount of such year's allowed credits
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equal to the percentage difference between ninety percent (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 investmen t, exclusive 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 investments after the fifth
anniversary of the credit allowance date , and such qualified
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 exiting the program in accordance
with this act or 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 investments in the state or held in cash or other
marketable securities; or
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4. The rural fund violates the provisions of Section 6 of this
act, in which case the Department may recapture an amount equal to
the amount of the rural fund's capital investment authority found to
be in violation of such provisions.
For the purposes of m eeting 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 sh all 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 Department 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.
E. No recapture shall occur until the rural fund has been given
notice of noncompliance and affor ded six (6) months from the date of
such notice to cure the noncompl iance.
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 numberi ng, reads as follows:
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No eligible business that receives a qualified investment under
the provisions of this act, or any affiliates or such eligible
business, shall directly or in directly:
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 hold er 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 codified
in the Oklahoma Statutes as Sec tion 3936 of Title 68, unless there
is created a duplication in numbering, rea ds as follows:
A. Rural funds shall submit a report to the Department 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 purchase price of
such capital investment in qualified investments. Unless previously
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reported pursuant to this subsection, such reports shall also
include:
1. The name and location of ea ch eligible business receiving a
qualified investment;
2. Bank statements of such rural fund evidencing each qualified
investment;
3. A copy of the written opinion of the Department, as p rovided
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 Depart ment.
B. For all subsequent years, rural funds shall submit an annual
report to the Department 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 Department.
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C. On or after the sixth anniversary of the credit allowance
date, a rural fund may apply to the Department to exit the program
and no longer be subject to the regulation hereunder. The
Department shall res pond to the exit application within f ifteen (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 Department
shall not unreasonably deny an exit application submitted under thi s
section. If an exit application is denied, the notice shall include
the reasons for the determination.
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, reads as follows:
The Department shall accept no new applications for tax credits
authorized under this act after December 1, 2032.
SECTION 9. This act shall become eff ective November 1, 2022.
COMMITTEE REPORT BY: COMMITTEE ON APPROPRIATIONS
April 13, 2022 - DO PASS AS AMENDED