Oklahoma § 68-2357.63 - Credit for qualified investment made in Oklahoma small

§ 68-2357.63. Credit for qualified investment made in Oklahoma small

business ventures in conjunction with investment made by qualified

small business capital company.

A. Except as provided in Section 1 of this act, for taxable

years beginning after December 31, 1997, and before January 1, 2012,

there shall be allowed a credit against the tax imposed by Section

2355 or, effective January 1, 2001, Section 2370 of this title or,

effective July 1, 2001, against the tax imposed by Section 624 or

628 of Title 36 of the Oklahoma Statutes, for qualified investment

made in Oklahoma small business ventures in conjunction with

investment in such ventures made by a qualified small business

capital company. No amount of a qualified investment made in

conjunction with investment made by a qualified small business

Oklahoma Statutes - Title 68. Revenue and Taxation

capital company which has not been invested in one or more Oklahoma

small business ventures prior to the effective date of the

moratorium provided for in Section 1 of this act shall be eligible

for any credit otherwise authorized pursuant to this section. No

qualified investment made in conjunction with investment made by a

qualified small business capital company in one or more Oklahoma

small business ventures during the period of the moratorium pursuant

to Section 1 of this act shall be eligible for any credit otherwise

authorized pursuant to this section.

B. The credit provided for in this section shall be twenty

percent (20%) of the qualified investment made in Oklahoma small

business ventures in conjunction with qualified investment in such

ventures made by a qualified small business capital company and

shall be allowed for the taxable year during which the qualified

investment is made in an Oklahoma small business venture. If the

tax credit allowed pursuant to subsection A of this section exceeds

the amount of taxes due or if there are no state taxes due of the

taxpayer, the amount of the claim not used as an offset against the

taxes of a taxable year may be carried forward for a period not to

exceed three (3) taxable years. To qualify for the credit

authorized by this section, a qualified investment shall be:

1. Made by a shareholder, member or partner of a qualified

small business capital company that has made a qualified investment

in an Oklahoma small business venture;

2. Invested in the purchase of equity or near-equity in an

Oklahoma small business venture;

3. Made under the same terms and conditions as the qualified

investment made by the qualified small business capital company; and

4. Limited to the lesser of:

a.

two hundred percent (200%) of any qualified investment

by the taxpayer in the qualified small business

capital company, or

b.

two hundred percent (200%) of the qualified investment

made by the qualified small business capital company

in the Oklahoma small business venture.

C. No taxpayer may claim the credit provided for in this

section for a qualified investment made prior to January 1, 1998.

D. No taxpayer may claim the credit authorized by this section

for the same qualified investment amount for which any credit is

claimed pursuant to either Section 2357.73 or 2357.74 of this title.

E. If a pass-through entity is entitled to a credit under this

section, the pass-through entity shall allocate such credit to one

or more of the shareholders, partners or members of the pass-through

entity; provided, the total of all credits allocated shall not

exceed the amount of the credit to which the pass-through entity is

entitled. The credit may only be claimed for funds borrowed by the

pass-through entity to make a qualified investment if a shareholder,

Oklahoma Statutes - Title 68. Revenue and Taxation

partner or member to whom the credit is allocated has an unlimited

and continuing legal obligation to repay the borrowed funds but the

allocation may not exceed such shareholder’s, partner’s or member’s

pro-rata equity share of the pass-through entity even if the

taxpayer’s legal obligation to repay the borrowed funds is in excess

of such amount. For purposes of the Oklahoma Small Business Capital

Formation Incentive Act, “pass-through entity” means a corporation

that for the applicable tax years is treated as an S corporation

under the Internal Revenue Code, general partnership, limited

partnership, limited liability partnership, trust, or limited

liability company that for the applicable tax year is not taxed as a

corporation for federal income tax purposes.

Added by Laws 1997, c. 167, § 4, eff. Jan. 1, 1998. Amended by Laws

1998, c. 226, § 4, emerg. eff. May 20, 1998; Laws 2000, c. 241, § 2;

Laws 2001, c. 382, § 6, emerg. eff. June 4, 2001; Laws 2004, c. 508,

§ 3, emerg. eff. June 9, 2004; Laws 2005, c. 299, § 4, eff. July 1,

2006; Laws 2006, c. 281, § 9, emerg. eff. June 7, 2006; Laws 2008, c.

440, § 5; Laws 2010, c. 433, § 3.

NOTE: A July 1, 2001, effective date for Laws 2000, c. 241, § 2 was

repealed by Laws 2001, c. 382, § 10, emerg. eff. June 4, 2001.

§68-2357.63A. Requirements for funds invested in Oklahoma small

business ventures - Recapture of credits - Use of near equity or

subordinated debt - Offering material statement.

A. For purposes of claiming any tax credits authorized by

Sections 2357.62 and 2357.63 of Title 68 of the Oklahoma Statutes,

any funds invested in an Oklahoma small business venture shall be

subject to the following requirements:

1. The Oklahoma small business venture must issue its equity

securities or subordinated debt instruments in exchange for a

qualified investment within thirty (30) days of the date as of which

the investment occurs;

2. The qualified small business capital company or any entity

making an investment in conjunction with investment by a qualified

small business capital company pursuant to Section 2357.63 of this

title must reflect the documented qualified investment in the

Oklahoma small business venture as an asset in its accounting

system;

3. The qualified small business capital company shall not make

a qualified investment in an Oklahoma small business venture in

which it has, at any time, more than fifty percent (50%) ownership,

whether directly or indirectly, of the voting interest entitled to

elect the governing board of any Oklahoma small business venture;

4. The qualified small business capital company cannot enter

into any agreement, whether formal or informal, written or

unwritten, the purpose of which is to control, directly or

indirectly, the return of a specific amount of qualified investment

Oklahoma Statutes - Title 68. Revenue and Taxation

by the Oklahoma small business venture to the qualified small

business capital company or the purpose of which is to cause or

require the transfer of such specific amount of qualified investment

to any other entity within five (5) years from the date the

qualified investment is made available to the Oklahoma small

business venture; and

5. The Oklahoma small business venture cannot enter into any

agreement, whether formal or informal, written or unwritten, the

purpose of which is to control, directly or indirectly, the return

of a specific amount of qualified investment to the qualified small

business capital company or the purpose of which is to cause or

require the transfer of such specific amount of qualified investment

to any other entity within five (5) years from the time the

qualified investment is made available to the Oklahoma small

business venture.

B. The Oklahoma Tax Commission shall have the authority to make

an independent determination that any proposed use of monies,

assets, funds or other things of value which are to be used for

purposes of claiming any credits authorized by Sections 2357.62 and

2357.63 of Title 68 of the Oklahoma Statutes are for a legitimate

business purpose of the Oklahoma small business venture and not for

the primary purpose of obtaining the tax credits authorized by such

sections on the basis of activity which does not have substantial

economic profit-based potential.

C. The Tax Commission shall be authorized to recapture the

credits otherwise authorized by the provisions of Sections 2357.62

and 2357.63 of Title 68 of the Oklahoma Statutes according to the

provisions of Section 11 of this act if it finds that the

transaction does not meet the requirements of the Small Business

Capital Formation Incentive Act.

D. The provisions of this section shall not prohibit a

qualified small business capital company from using near equity or

subordinated debt, as those terms are defined by Section 2357.61 of

Title 68 of the Oklahoma Statutes, if the near equity or

subordinated debt is a contractual obligation owed by the Oklahoma

small business venture directly to the qualified small business

capital company and if the agreement governing the obligation

complies with all of the other requirements of this section.

E. The provisions of this section shall not prohibit the

shareholders or partners of a qualified small business capital

company from using near equity or subordinated debt, as those terms

are defined by Section 2357.61 of Title 68 of the Oklahoma Statutes,

if the near equity or subordinated debt is a contractual obligation

owed by the Oklahoma small business venture directly to a

shareholder or partner of a qualified small business capital company

that has invested funds in an Oklahoma small business venture

pursuant to Section 2357.63 of Title 68 of the Oklahoma Statutes and

Oklahoma Statutes - Title 68. Revenue and Taxation

if the agreement governing the obligation complies with all of the

other requirements of this section.

F. Any offering material involving the solicitation of

qualified investments in exchange for equity securities or

subordinated debt instruments of the qualified small business

capital company shall include the following statement:

“Any favorable determination letter obtained from the Oklahoma

Tax Commission does not guarantee the granting of tax credits under

the provisions of the Small Business Capital Formation Incentive

Act. In the event applicable provisions of the Small Business

Capital Formation Incentive Act are violated, the Tax Commission may

require forfeiture of unused tax credits and recapture or repayment

of tax credits as provided by law.”

Added by Laws 2006, c. 281, § 10, emerg. eff. June 7, 2006.

§68-2357.63B. Recapture event - Tax increase due to recaptured

credit amount.

A. As used in this section, “recapture event” means that with

respect to a qualified investment in an Oklahoma small business

venture:

1. The Oklahoma small business venture fails to expend at least

fifty percent (50%) of the proceeds of qualified investments for

acquisition of tangible or intangible assets to be used in the

active conduct of the trade or business or for working capital for

the active conduct of the trade or business of the small business

venture within eighteen (18) months after the qualified investment

is made or within an extension of such period as provided in Section

2357.61 of this title. For purposes of this paragraph, “working

capital” shall not include consulting, brokerage or transaction

fees;

2. The investment in the Oklahoma small business venture is

transferred, withdrawn or otherwise returned within five (5) years;

provided, a “recapture event” shall not include the transfer,

withdrawal or return of an investment as a result of a “market-based

liquidity event”. As used in the Small Business Capital Formation

Incentive Act, a “market-based liquidity event” means that an

Oklahoma small business venture:

a.

sells all or substantially all of its assets to, or is

acquired by share acquisition, share exchange, merger,

consolidation or other similar transaction by another

person or entity other than:

(1) a person or entity controlled by a person that

made a qualified investment in the qualified

small business capital company that provided

funds for use by the Oklahoma small business

venture, or

Oklahoma Statutes - Title 68. Revenue and Taxation

(2)

a person or entity controlled by a person that

made an investment in conjunction with a

qualified investment made by the qualified small

business capital company that provided funds for

use by the Oklahoma small business venture,

b.

conducts an initial public offering of a class of its

equity securities pursuant to the requirements of the

United States Securities and Exchange Commission or

other applicable federal law governing the sale of

securities in interstate commerce,

c.

makes an amortization payment under the terms of a

subordinated debt instrument, or

d.

repays indebtedness from net income as determined in

accordance with generally accepted accounting

principles or proceeds of the sale of assets in the

ordinary course of business; or

3. The Oklahoma Tax Commission finds that the qualified

investment does not meet the requirements of the Small Business

Capital Formation Incentive Act.

B. If a recapture event occurs with respect to a qualified

investment for which a credit authorized by either Section 2357.62

or Section 2357.63 of this title was claimed, the tax imposed

pursuant to the applicable provisions of Title 36 or this title of

the Oklahoma Statutes shall be increased to the extent of the

recaptured credit amount.

C. For purposes of this section, the recapture amount shall be

equal to the sum of:

1. The aggregate decrease in the credits previously allowed to

the taxpayer pursuant to Section 2357.62 or Section 2357.63 of this

title for all prior taxable periods which would have resulted if no

credit had been authorized with respect to the qualified investment;

plus

2. Interest at the rate prescribed by Section 217 of this title

on the amount determined pursuant to paragraph 1 of this subsection

for each prior taxable period for the period beginning on the due

date for filing the applicable report or return for the prior

taxable period.

D. The tax for the taxable period shall be increased pursuant

to this section only with respect to credits which were used to

reduce tax liability. In the case of credits not used to reduce tax

liability, the carryforwards allowed shall be adjusted accordingly.

E. For any transaction that is audited by the Tax Commission

after such credits have been allowed, but which is subsequently

determined to constitute a recapture event, the Tax Commission shall

be required to disallow any and all credits claimed in violation of

the requirements of this section or any other provision of the Small

Business Capital Formation Incentive Act for a period of ten (10)

Oklahoma Statutes - Title 68. Revenue and Taxation

years after the date as of which any applicable tax report or return

utilizing such credits is filed.

F. The provisions of subsection E of this section shall

supersede any other provision of the Uniform Tax Procedure Code or

any other state tax law that would prohibit the disallowance of such

credits based upon an otherwise applicable statute of limitations.

Added by Laws 2006, c. 281, § 11, emerg. eff. June 7, 2006. Amended

by Laws 2008, c. 440, § 6.

§68-2357.63C. Required records to be prepared and maintained.

A. Each qualified small business capital company shall prepare

and maintain on a current basis the following records and make them

available to the Oklahoma Tax Commission upon request:

1. Files for each director and principal of the capital company

including the name, address, social security number or federal

identification number and such other identifying information as the

Tax Commission may require;

2. Records concerning all securities and subordinated debt

issued by the capital company which include:

a.

the type of the security and subordinated debt issued,

b.

the name, address and telephone number of the

investor,

c.

the date of the transaction, and

d.

the total amount of the qualified investment;

3. Records relating to each person making a qualified

investment which shall include the social security number or federal

tax identification number of each investor;

4. Records relating to each Oklahoma small business venture in

which the capital company made a qualified investment which

includes:

a.

the name of the business,

b.

location of the headquarters and principal business

operations of the business,

c.

a description of the type of business in which

engaged,

d.

evidence that the venture meets the definition of an

Oklahoma small business venture,

e.

a copy of any contractual agreement entered into

between the capital company and the venture,

f.

the amount of qualified investment in the venture,

g.

the type of investment along with supporting

documentation,

h.

the date of the investment, and

i.

the source of funds invested;

5. Organizational documents of the qualified small business

capital company and any additional documents relating to the

Oklahoma Statutes - Title 68. Revenue and Taxation

organization or operation of the capital company as requested by the

Tax Commission;

6. Records relating to all capitalization of the capital

company which is not invested in Oklahoma small business ventures;

7. Records relating to all distributions made by the capital

company which includes the date of the distribution, the amount of

the distribution, to whom the distribution was paid, and the purpose

of the distribution; and

8. All other records that may be requested by the Tax

Commission.

B. All records required by this section shall be preserved for

a period of ten (10) years.

Added by Laws 2006, c. 281, § 12, emerg. eff. June 7, 2006.

§68-2357.63D. Rules regarding determination letter procedures.

The Oklahoma Tax Commission shall promulgate rules establishing

procedures under which:

1. A qualified small business capital company may, prior to

making an investment in an Oklahoma small business venture, request

a determination letter from the Tax Commission that a business in

which it proposes to invest is an “Oklahoma small business venture”;

2. A person or entity may request a determination letter that a

company meets the definition of a “qualified small business capital

company”; and

3. A person or entity may request a determination letter that a

transfer of funds meets the definition of a “qualified investment”.

Added by Laws 2006, c. 281, § 13, emerg. eff. June 7, 2006.

§68-2357.63E. Effect of favorable determination letters issued

prior to March 15, 2006 - Credit requirements.

A. Any person or entity that has obtained a favorable

determination letter from the Oklahoma Tax Commission prior to March

15, 2006, regarding the ability to claim or otherwise utilize any of

the tax credits authorized pursuant to the provisions of Section

2357.62 or 2357.63 of Title 68 of the Oklahoma Statutes shall not be

subject to the amendments to the Small Business Venture Capital

Formation Incentive Act made by this legislative measure to qualify

for the tax credits authorized pursuant to the provisions of Section

2357.62 or 2357.63 of this title except as provided in this section.

Notwithstanding any determination letter issued with respect to such

investment, no credit shall be allowed unless:

1. Such qualified investment is made prior to November 1, 2006,

to satisfy a legitimate business purpose of the entity receiving

such investment which is consistent with its organizational

instrument, bylaws or other agreement responsible for the governance

of the business venture;

2. The investor’s funds were at risk; and

Oklahoma Statutes - Title 68. Revenue and Taxation

3. The investment was not made chiefly for the purpose of

reducing tax liability.

B. Any investment in a qualified small business capital company

or an Oklahoma small business venture that occurs on or after

November 1, 2006, shall be subject to all of the provisions of the

Small Business Capital Formation Incentive Act as amended by the

provisions of this legislative measure.

Added by Laws 2006, c. 281, § 14, emerg. eff. June 7, 2006.