Oklahoma § 68-2357.74 - Credit for investment made in rural small business

§ 68-2357.74. Credit for investment made in rural small business

ventures in conjunction with investment made by qualified rural

small business capital company.

A. Except as provided in Section 4 of this act, for taxable

years beginning after December 31, 2000, 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

Oklahoma Statutes - Title 68. Revenue and Taxation

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

made in Oklahoma rural small business ventures in conjunction with

investment in such ventures made by a qualified rural small business

capital company. No amount of a qualified investment made in

conjunction with investment made by a qualified rural small business

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

rural small business ventures prior to the effective date of the

moratorium provided for in Section 4 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 rural small business capital company in one or more

Oklahoma rural small business ventures during the period of the

moratorium pursuant to Section 4 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 thirty

percent (30%) of the qualified investment made in Oklahoma rural

small business ventures in conjunction with qualified investment in

such ventures made by a qualified rural small business capital

company and shall be allowed for the taxable year during which the

qualified investment is made in an Oklahoma rural 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 or partner of a qualified rural small

business capital company that has made a qualified investment in an

Oklahoma rural small business venture;

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

Oklahoma rural small business venture;

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

investment made by the qualified rural 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 rural small business

capital company, or

b.

two hundred percent (200%) of the qualified investment

made by the qualified rural small business capital

company in the Oklahoma rural small business venture.

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

section for qualified investment made prior to January 1, 2001.

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 2357.62 or 2357.63 of this title.

Oklahoma Statutes - Title 68. Revenue and Taxation

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 also be claimed for funds borrowed by the

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

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 Rural Venture 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 2000, c. 339, § 4, eff. Jan. 1, 2001. Amended by Laws

2001, c. 382, § 9, emerg. eff. June 4, 2001; Laws 2004, c. 508, § 6,

emerg. eff. June 9, 2004; Laws 2005, c. 299, § 6, eff. July 1, 2006;

Laws 2006, c. 281, § 20, emerg. eff. June 7, 2006; Laws 2008, c.

440, § 9; Laws 2010, c. 433, § 6.

§68-2357.74A. Requirements for funds invested in rural 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 2357.73 and 2357.74 of Title 68 of the Oklahoma Statutes,

any funds invested in an Oklahoma rural small business venture shall

be subject to the following requirements:

1. The Oklahoma rural 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 rural small business capital company or any

entity making an investment in conjunction with investment by a

qualified rural small business capital company pursuant to Section

2357.74 of Title 68 of the Oklahoma Statutes must reflect the

documented qualified investment in the Oklahoma rural small business

venture as an asset in its accounting system;

3. The qualified rural 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 rural small business

Oklahoma Statutes - Title 68. Revenue and Taxation

venture in which a qualified investment is to be made by the

qualified rural small business capital company;

4. The qualified rural 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

by the Oklahoma rural small business venture to the qualified rural

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 of the date the

qualified investment is made available to the Oklahoma rural small

business venture; and

5. The Oklahoma rural 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 rural

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 of the date the

qualified investment is made available to the Oklahoma rural 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 2357.73 and

2357.74 of Title 68 of the Oklahoma Statutes are for a legitimate

business purpose of the Oklahoma rural 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 2357.73

and 2357.74 of Title 68 of the Oklahoma Statutes according to the

provisions of Section 22 of this act if it finds that the

transaction does not meet the requirements of the Rural Venture

Capital Formation Incentive Act.

D. The provisions of this section shall not prohibit a

qualified rural small business capital company from using near

equity or subordinated debt, as those terms are defined by Section

2357.72 of Title 68 of the Oklahoma Statutes, if the near equity or

subordinated debt is a contractual obligation owed by the Oklahoma

rural small business venture directly to the qualified rural 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 rural small business capital

Oklahoma Statutes - Title 68. Revenue and Taxation

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

are defined by Section 2357.72 of Title 68 of the Oklahoma Statutes,

if the near equity or subordinated debt is a contractual obligation

owed by the Oklahoma rural small business venture directly to a

shareholder or partner of a qualified rural small business capital

company that has invested funds in an Oklahoma rural small business

venture pursuant to Section 2357.74 of Title 68 of the Oklahoma

Statutes and 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 Rural Venture Capital Formation Incentive Act.

In the event applicable provisions of the Rural Venture 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, § 21, emerg. eff. June 7, 2006.

§68-2357.74B. 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 rural small

business venture:

1. The Oklahoma rural 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 rural small

business venture within eighteen (18) months after the qualified

investment is made or within an extension of such period as provided

in Section 2357.72 of this title. For purposes of this paragraph,

“working capital” shall not include consulting, brokerage or

transaction fees;

2. The investment in the rural 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 Rural Venture Capital Formation

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

Oklahoma rural small business venture:

a.

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

acquired by share acquisition, share exchange, merger,

Oklahoma Statutes - Title 68. Revenue and Taxation

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

rural small business capital company that

provided funds for use by the Oklahoma rural

small business venture, or

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

made an investment in conjunction with a

qualified investment made by the qualified rural

small business capital company that provided

funds for use by the Oklahoma rural 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 Rural Venture

Capital Formation Incentive Act.

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

investment for which a credit authorized by either Section 2357.73

or Section 2357.74 of this title has been claimed, the tax imposed

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

the Oklahoma Statutes against which the credit has been claimed

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 2357.73 or Section 2357.74 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

Oklahoma Statutes - Title 68. Revenue and Taxation

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 Rural

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

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.

G. Notwithstanding any other provision of this section, a

recapture event shall not occur with respect to qualified

investments made by a qualified rural small business capital company

that is also licensed as a rural business investment company under 7

U.S.C., Section 2009cc et seq., or any successor statute, at the

time of the qualified investment. The qualified rural small

business capital company shall include in its annual report proof of

a valid license under the federal statute.

Added by Laws 2006, c. 281, § 22, emerg. eff. June 7, 2006. Amended

by Laws 2008, c. 440, § 10.

§68-2357.74C. Required records to be prepared and maintained.

A. Each qualified rural 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 issued by the capital

company which include:

a.

the type of the security 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 rural small business

venture in which the capital company made a qualified investment

which includes:

a.

the name of the business,

Oklahoma Statutes - Title 68. Revenue and Taxation

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 rural 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 the funds invested;

5. Organizational documents of the qualified rural small

business capital company and any additional documents relating to

the 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 rural 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, § 23, emerg. eff. June 7, 2006.

§68-2357.74D. Rules regarding determination letter procedures.

A. The Oklahoma Tax Commission shall promulgate rules

establishing procedures under which:

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

to making an investment in an Oklahoma rural small business venture,

request a determination letter from the Tax Commission that a

business in which it proposes to invest is an “Oklahoma rural small

business venture”;

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

company meets the definition of a “qualified rural 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, § 24, emerg. eff. June 7, 2006.

§68-2357.74E. Effect of favorable determination letters issued

prior to March 15, 2006 - Credit requirements.

Oklahoma Statutes - Title 68. Revenue and Taxation

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

2357.73 or 2357.74 of Title 68 of the Oklahoma Statutes shall not be

subject to the amendments to the Rural Capital Formation Incentive

Act made by this legislative measure to qualify for the tax credits

authorized pursuant to the provisions of Section 2357.73 or 2357.74

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

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

reducing tax liability.

B. Any investment in a qualified rural small business capital

company or an Oklahoma rural small business venture that occurs on

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

of the Rural Venture Capital Formation Incentive Act as amended by

the provisions of this legislative measure.

Added by Laws 2006, c. 281, § 25, emerg. eff. June 7, 2006.