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STATE OF OKLAHOMA
2nd Session of the 58th Legislature (2022)
SENATE BILL 1768 By: Howard
AS INTRODUCED
An Act relating to rural business development;
creating the Oklahoma Agribusiness and Rural Jobs
Act; defining terms; allowing for capital investment
into a rural fund; providing for the amount of
credits able to be claimed by a rural investor;
prohibiting the refund or sale of credits; providing
for a rural fund to apply for an equity inve stment
from the Oklahoma Department of Commer ce; providing
for contents of applications; authorizing the
Department to approve or deny application during
certain time frame; providing conditions denying an
application; authorizing certification of capital
investments if application is complete; requiring
rural fund to issue capital investment after certain
time period following certificatio n; allowing the
Department to recapture funds under certain
circumstances; providing rural fund cure p eriod for
recapture after notice is given by Department for
noncompliance; providing for rural fund to exit
program after certain closing date; authorizing
Department to accept exit applications; allowing f or
Department to deny application; providing for
distribution from rural fund after certain time
period; allowing a rural fund to request from the
Department an opinion on potential businesses before
investments; providing for contents of report
compiled by the Department; requiring rural funds to
submit annual report to the Department; providing for
contents of report; providing for promulgation of
rules by the Department; providing for codification;
and providing an effective date .
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BE IT ENACTED BY THE PEOPLE OF THE STATE OF OKLAHOMA:
SECTION 1. NEW LAW A new section of law to be codified
in the Oklahoma Statutes as Section 5090 of Title 74, unless there
is created a duplication in numbering, reads as follows:
A. This act shall be known and may be cited as the "Oklahoma
Agribusiness and Rural Jobs Act".
B. As used in this act:
1. "Affiliate" means an entity that directly, or indirectly
through one or more intermediaries, controls, or is controlled by,
or is under common control with anot her entity. For the purposes of
this act, an entity is controlled by another entity if the
controlling entity holds, direct ly or indirectly, the m ajority
voting or ownership interest in the controlled entity or has control
over the day-to-day operations of the controlled entity by contract
or by law;
2. "Applicable percentage" means zero percent (0%) of the first
two credit allowance dates and fifteen percent (15%) for the next
four credit allowance dates;
3. "Capitol investment" means any entity inve stment in a rural
fund by a rural investor that:
a. is acquired after the effective date of this act as
its original issuance solely in exchange for cash ,
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b. has one hundred percent (100% ) of its cash purchase
price used by the rural fund to make qualified
investments in eligible businesses l ocated in this
state by the second year of the initial credit
allowance date, and
c. is designated by the rural fund as a capital
investment under this act and is certified by the
Department pursuant to subsection E of this section.
This term shall include an y capital investment that
does not meet the provisions of subparagraph a of
paragraph 1 of subsection E of this sec tion if such
investment was a capital investment in the possession
of a prior holder;
4. "Credit allowance date " means the date on which a capital
investment is made and each of the five years of such date
thereafter;
5. "Department" means the Oklahoma Department of Commerce;
6. "Eligible business" means a business that, at the time of
initial qualified investment in the company:
a. has less then two hundred fifty employees, and
b. (1) has its principal business operations in one or
more rural areas in this state, and
(2) produces or provides any goods or services
produced in this state normally used by farmers,
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ranchers, or producers and harvesters of aquatic
products in their business operations, or to
improve the welfare or livelihood of such
persons, or is involved i n the processing and
marketing of agricultural products, farm
supplies, and input suppliers, or is engaged in
agribusiness as defined by the United States
Department of Agriculture, or is engaged in
manufacturing, health care, technology,
transportation, or related services, or if not
engaged in such industries, the Department
determines that such investment will be
beneficial to the rural areas and the economic
growth of the state. A ny business which is
classified as an eligible business at the time of
initial investment in the 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. "Eligible distribution " means:
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a. a distribution of cash to one or more equity owne rs of
a rural investor to fully or partially offset a
projected increased in the ow ner's federal or state
tax liability, including any penalties and interest,
related to the owner's ownership, management, or
operation of the rural investor,
b. a distribution of cas h as payment of interest and
principal on the debt of the ru ral investor or rural
fund, or
c. a distribution of cash related to the reasonable costs
and expenses of forming, syndicating, managing, and
operating the rural investor or the r ural fund, or a
return of equity to affiliates of a rural investor or
rural fund. Such distribu tions may include reasonable
and necessary fees paid for professional services,
including legal and accounting services, related to
the formation and operation of the rural fund and a n
annual management fee that shall not excee d two
percent (2%) of the r ural fund's qualified investment
authority;
8. "Principal business operations " means the location where at
least sixty percent (6 0%) 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
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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
satisfies these requirements no later than one hundred eighty (180)
days after receiving a qualified investment;
9. "Purchase price" means the amount paid to the rural fund
that issues a capital investment which shall not exceed the amount
of capital investment auth ority certified pursuant to subsection E
of this section.
10. "Qualified investment" means any investment in an eligible
business or any loan to an eli gible business with a stated maturity
date of at least one (1) year after the date of issuance, e xcluding
revolving lines of credit and senior secure d debt unless the
eligible business has a credit refusal letter or similar
correspondence from a depository institution or a referral let ter or
similar correspondence from a depository institution referring the
business to a rural fund; prov ided, that with respect to any one
eligible business, the maximum am ount of investments made in s uch
business by one or more rural funds, on a collectiv e basis with all
of the businesses' affiliates, with the proceeds of capita l
investments shall be the greater of twe nty percent (20%) of the
rural fund's capital investment authority or Six Million Five
Hundred Thousand Dollars ($6, 500,000.00), exclusive of investments
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made with repaid or redeemed investments or interest or profits
realized thereon;
11. "Rural area" means any county of this state that has a
population of less than fift y thousand (50,000) according to the
latest decennial census of the Unit ed States;
12. "Rural fund" means an entity certified by the D epartment
under subsection E of this section;
13. "Rural investor" means an entity that ma kes a capital
investment in a rural fund; and
14. "State tax liability" means any liability incurred by any
entity pursuant to Title 36 and Title 68 of the Oklahoma Sta tutes,
or, if such taxes are eliminated or reduced, the term shall also
mean any tax liability imposed on an entity or other person th at had
tax liability under the laws of this s tate.
C. Upon making a capital investment in a rural fund, a rural
investor earns a vested right to a credit against such entity 's
state tax liability that may be utilized on each credit allowance
date of such capital investment in an amount equal to the applicable
percentage for such credit allow ance 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 taxable year as a result
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of the act may be carried forward for use in any subsequent taxable
year. It is the intent of this act that a rur al investor claiming a
credit under this act is not required to pay an additional tax that
may arise as a result of claiming such credit.
D. No credit claimed under this act shall be refundable or
saleable on the open market. Credits earned by or allocat ed to a
partnership, limited liability company, or S corporation may be
allocated to the partners, members, or shareholders of such enti ty
for their direct use in accordance with the provisions of any
agreement among such partner, members, or shareholders, and a rural
fund shall notify the Department of the names of the e ntities that
are eligible to utilize credits pursuant to an allocation of cred its
or a change in allocation of credits or due to a transfer of a
capital investment u pon such allocation, change, or transfer. Such
allocation shall not be considered a sale for purposes of this act.
E. 1. A rural fund that seeks to have an equity investment
certified as a capital investment and is eligible for credits under
this act shall apply to the Department. The Department shall begin
accepting applications within ninety (9 0) days of the effective date
of this act. The rural fund shall include the following:
a. the amount of capital investment requested,
b. a copy of the applicant's or an affiliate of t he
applicant's license as a rural business investment
company under 7 U.S.C. Section 2009cc or as a small
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business investment company under 1 5 U.S.C. Section
681 and a certificate executed by an executive o fficer
of the applicant attesting that such licens e remains
in effect and has not been revoked ,
c. evidence that, as of the date t he application is
submitted, the applicant or affiliates of the
applicant have invested at least One Hundred Million
($100,000,000.00) in nonpublic companies located in
rural areas within the United States,
d. an estimate of the number of jobs that will be created
or retained in this state as a result of the
applicant's qualified investments ,
e. a business plan that includes a re venue impact
assessment projecting state and local tax revenue 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 mo del that
analyzes the applicant's business plan over the ten
(10) years following the date the application is
submitted to the Department, and
f. a nonrefundable application fee of Five Thousand
Dollars ($5,000.00) payable to the Department.
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2. Within thirty (30) days after 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:
a. the application does not satisfy all of the cr iteria
described in paragraph 1 o f this subsection;
b. the revenue impact assessment submitted with the
application does not demonstrate that the applicant 's
business plan will result in a positive economic
impact on this state over a ten -year period that
exceeds the cumulative amount of tax credits that
would be issued to the applicant if the application
were approved, and
c. the Department has already approved the maximum amount
of capital investment authority under paragraph 6 of
this subsection.
If the Department denies any part of the application, it shall
inform the applicant of the grounds for the denial. If the
applicant provides any additional information required by the
Department or otherwise completes its application with fifteen (15)
days of the notice of denial, the application shall be considered
completed as of the original date of the submission. If the
applicant fails to provide the i nformation or fails to complete its
application within the fifte en-day period, the application remains
denied and shall be resubmitted in full with a new submission date.
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3. If the application is complete, the Department shall certify
the proposed equity investment as a c apital investment that is
eligible for credits under this act, subject to the limitations
contained in paragraph 6 of this subsection. The Department shall
provide written notice of the certification to the rural fund.
4. The Department shall certify c apital investments in the
order that the applications were received by the Department.
Applications received on the same day shall be deemed to have be en
received simultaneously.
5. For applications that are complete and received on the same
day, the Department s hall certify applications in proportionate
percentages based upon the ratio of the amount of capital
investments requested in an application to the total amount of
capital investments reques ted in all applications.
6. The Department shall certify One Hund red Million Dollars
($100,000,000.00) in c apital investments pursuant to this act.
7. Within sixty (60) days of the applicant receiving notice of
certification, the rural fund shall issue the capit al investment to
and receive cash in the amount of the cer tified amount from a rural
investor. At least fifty percent (50%) of the rural investor's
capital investment shall be composed of capital raised by the rural
investor from sources, including directors, members, employees,
officers, and affiliates of the r ural investor, other than the
amount of capital invested by the allocatee claiming the tax credits
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in exchange for such allocation of tax credits. The ru ral fund
shall provide the Depar tment with evidence of receipt of the cash
investment within sixty -five (65) days of the applicant receiving
notice of certification. If the r ural fund does not receive the
cash investment and issue the capital investment within such t ime
period following receipt of the certi fication notice, the
certification shall lapse and the rural fund shall not issue the
capital investment without reapplying to the Department for
certification. Lapsed certifications revert to the capital
investment authority and shall be reissued pro rata to applicants
whose capital investments allo cations were reduced pursuant to
paragraph 5 of this subsection and then in accordance with the
application process.
F. 1. The Department may recapture, from a rural investor that
claimed the credit on a tax return, the credit allowed under this
act if:
a. the rural fund does n ot invest one hundred percent
(100%) of its capital investment authority in
qualified investments in this state with in two (2)
years of the closing date, with at least ten percent
(10%) of its capital investment authority initially
invested in eligible businesses engaged in
agribusiness as defined by the United States
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Department of Agriculture and at least ten percent
(10%) of such investment shall be equity investments,
b. the rural fund, after sati sfying subparagraph a of
this paragraph, fails to maintain qualified
investments equal to one hundred p ercent (100%) of its
capital investment authority until the fifth year of
the credit allowance date. For the purposes of this
subsection, a qualified investment is considered
maintained 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 b y
the rural fund from the original investment, exclusive
of any profits reali zed, in other qualified
investments in this state within twel ve (12) months of
the receipt of such capital. Amounts received
periodically by a rural fund shall be treated as
continually invested in qualified investments 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 c apital
returned from qualified investments after the fourth
year of the credit allowance date, and such qualified
investments shall be consid ered held continuously by
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the rural fund through the fifth year of the credit
allowance date,
c. the rural fund, before exiting the program in
accordance with subsection I of this section, m akes 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 this st ate or available for invest ment
in qualified investments or held in cash and other
marketable securities, or
d. the rural fund violates subsection H of this section .
2. Recaptured credits and the related capital investment
authority revert to the Department and shall be re issued pro rata to
applicants whose capital investment allocations were reduced
pursuant to paragraph 5 of subsection E of this section and then in
accordance with the appl ication process.
G. Enforcement of each of the recap ture provisions of paragraph
1 of subsection F of this section sh all be subject to a six -month
cure period. 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 noncompliance.
H. No eligible business that receives a qualified investment
under this act, or any affiliates of s uch eligible business, may
directly or indirectly:
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1. Own or have the right to a cquire 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 the rural
fund; or
2. Loan to or invest in a rural fund or member or affiliate of
a rural fund including, but not limited to, a holder of a c apital
investment issued by a rural fund, where t he proceeds of such loan
or investment are directly or indirectly used to fund or refinance
the purchase of a capital investment under this act.
I. On or after the sixth year of the closing date, a rural fund
may apply to the Department to exit the p rogram and no longer be
subject to regulation under this act. The Department shall respond
to the exit application within thirty (3 0) days of receipt. In
evaluating the exit application, the fact that no credits have been
recaptured and that the rural fund ha s not received a notice of
recapture that has not been cured pursuant to subsection G of this
section 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 this subsection. I f the exit
application is denied, the notice shall include the re asons for the
determination. The state shall received a ten percent (10%) share
of any distributions annually from a rural fund that made a capital
investment, other than the amount in exce ss of equity invested in
the rural fund and tax di stributions made by the rural fund. A
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rural fund shall distribu te all amounts not held in qualified
investments no later than the fourt eenth year of the closing date.
No claimant of credits pursuant to subsection C of this section
shall receive distributions in excess of an amount that would result
in an internal rate of return on capital invested that is more than
twenty percent (20%) if the number of jobs created is:
1. Less than sixty percent (60%) of the projected jobs in the
rural fund's approved business plan, th en the state shall receive a
penalty of ten percent (10%) of the total ta x credits distributed in
the rural fund, or
2. Greater than sixty percent (60% ) but less than eighty
percent (80%) of the projected jobs in the rural fund's approved
business plan, then the state shall receive a penalty of five
percent (5%) of the total tax credits distributed to the rural fund.
J. A rural fund, before making a qualified investme nt, may
request from the Department a written opin ion as to whether the
business in which it proposes t o invest is an eligible business.
The Department, not later than the twentieth 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
which the rural fund proposes to i nvest shall be considered an
eligible business.
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K. 1. Rural funds shall submit a report to the Department
within the first fifteen (15) business days after the second year of
the initial credit allowance date that provides documentation as to
the investment of one hundred p ercent (100%) of the purchase price
of such capital investment in qualified investments. Such report
shall include:
a. the location of each eligible business receiving a
qualified investment,
b. bank statements of such rural fund evidencing each
qualified investment,
c. a copy of the written opinion of the Department set
forth in subsection J of this sec tion or evidence that
such business was an eligible business at the time of
such qualified investment, as applic able,
d. the number of employment positions created and
retained as result of qualified investments,
e. the average annual salary of positions d escribed in
subparagraph d of this paragraph, and
f. such other information required by the Department.
2. Thereafter, rural funds shall submit an annual report to the
Department within forty -five (45) days of the beginning of the
calendar year during the compliance period. The report shall
include, but it not limited to, the following:
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a. the number of employment positions created and
retained as a result of qualified investments,
b. the average annual salary of positions described in
subparagraph a of this paragraph.
L. The Oklahoma Department of Commerce shall promulgate the
rules necessary to implement the provisions of this act.
SECTION 2. This act shall become effective November 1, 2 022.
58-2-3375 MR 1/20/2022 7:28:57 PM