Producers Tax Credit – Oklahoma

The Oklahoma Producers Tax Credit (H.B. 2959) passed in 1996, giving a value added processing tax credit to farmers and ranchers. For every dollar an Oklahoma agricultural producer invests in an agricultural processing venture, they receive a 30% tax credit. Outside investors may invest in facilities, but do not qualify for the tax credit. The credit can be carried for 7 years.

The tax credit went into effect beginning in the 1997 tax year. The incentive was enacted to increase agricultural processing plants, increase venture capital opportunities, and provide additional revenue for Oklahoma ranchers and farmers. Due to the new credit, several new value added facilities are under development. Already operational is the Oklahoma Value-Added Products Cooperative (VAP). The co-op is owned by 750 farmers who run a$19 million plant that produces formed dough products (pizza shells, frozen breads, etc.).

The relevant sections of H.B. 2959 are found in Section 2 of the bill shown below.

THE STATE OF OKLAHOMA

1995 OK H.B. 2959

OKLAHOMA 45TH LEGISLATURE — SECOND REGULAR SESSION (1996)

BY: POPE (CLAY), BONNY,
BEGLEY, BEUTLER,
DEUTSCHENDORF, ERVIN,
HEFNER, HIETT, LEIST,
MADDUX, REESE, TAYLOR,
VOSKUHL, WIDENER,
LANGMACHER, CASE,
CLAUNCH, DANK, O’NEAL,
PETTIGREW, RAMSEY, SEIKEL
AND SMALIGO OF THE HOUSE
AND
PRICE, KERR, MARTIN,
STIPE, CAMPBELL,
GUSTAFSON, BELL, WILLIAMS
(DON), LONG (ED) AND
MUEGGE OF THE SENATE

VERSION: Enacted

VERSION-DATE: June 10, 1996

SYNOPSIS:

AnAct relating to revenue and taxation; amending 68 O.S. 1991, Section 2358, as last amended by Section 15 of Enrolled House Bill No. 2428 of the 2nd Session of the 45th Oklahoma Legislature, which relates to taxable and adjusted gross income; providing income tax exemption for certain investment income of an owner of a new or expanded agricultural commodity processing facility; providing amount of exemption; establishing maximum amount available for exemption; providing for adjustment of investment percentage; authorizing Oklahoma Tax Commission to promulgate rules; permitting certain excess and providing procedure therefor; providing for carryforward of certain unused exemption; defining terms; providing for deduction from income for certain depreciation; providing exception; prohibiting certain duplication of depreciation; authorizing credit against income tax; providing credit for certain investments in certain agricultural processing cooperatives, ventures, or marketing associations; providing amount of credit; imposing maximum amount of direct investment for which credit may be claimed; prohibiting use of credit to reduce income tax liability below certain amount; providing for adjustment of credit percentage; providing certain formula; permitting certain excess and providing procedure therefor; authorizing carryover of income tax credits for certain period; prescribing procedures for claiming of income tax credit; authorizing Oklahoma Tax Commission to prescribe forms; authorizing investigations required for verification of eligibility; providing for adjustments to cost of ownership interests based upon receipt of credit; authorizing reduction of credit amount based upon prior sale or other disposition of ownership interests; requiring report by Oklahoma Tax Commission to Legislature; prohibiting credit under certain circumstances; defining terms; providing for codification; and providing an effective date.

TEXT:

BE IT ENACTED BY THE PEOPLE OF THE STATE OF OKLAHOMA:

…SECTION 2. NEW LAW
A new section of law to be codified in the Oklahoma Statutes as Section 2357.25 of Title 68, unless there is created a duplication in numbering, reads as follows:

A.There shall be allowed a credit against the tax imposed by Section 2355 of Title 68 of the Oklahoma Statutes for direct investments by Oklahoma agricultural producers in Oklahoma producer-owned agricultural processing cooperatives, Oklahoma producer-owned agricultural processing ventures, or Oklahoma producer-owned agricultural processing marketing associations created and designed to develop and advance the production, processing, handling and marketing of agricultural commodities grown, made or manufactured in Oklahoma. For calendar years 1997 and 1998, the amount of the credit shall be thirty percent (30%)of the amount of the investment by the Oklahoma agricultural producer in Oklahoma producer-owned agricultural processing cooperatives, ventures, or marketing associations.

For calendar year 1999, and all subsequent years, the credit percentage, not to exceed thirty percent (30%), shall be adjusted annually so that the total estimate of credits does not exceed One Million Dollars ($1,000,000.00) annually. The formula to be used for the percentage adjustment shall be thirty percent (30%) times One Million Dollars ($1,000,000.00) divided by the credits claimed in the preceding year. In no event shall the credit be claimed more than once by a taxpayer each taxable year.

In the event the total tax credits authorized by this section exceed One Million Dollars ($ 1,000,000.00)in any calendar year, the Oklahoma Tax Commission shall permit any excess over One Million Dollars ($ 1,000,000.00) but shall factor such excess into the percentage adjustment formula for subsequent years.

B.If the credit allowed pursuant to this section exceeds the amount of state income taxes due or if there are no state income taxes due on the income of the taxpayer, the amount of credit allowed but not used in any taxable year may be carried forward as a credit against subsequent income tax liability for a period not exceeding six (6) years following the year in which the investment was originally made.

C.The Oklahoma Tax Commission shall have the authority to prescribe forms for purposes of claiming the credit authorized by this section. The Oklahoma Tax Commission shall be authorized to conduct an investigation of the relevant facts as may be required in order to verify the eligibility of a claimant to receive a credit for any applicable income tax year.

D. 1. For any taxable year during which a taxpayer sells or otherwise disposes of the ownership interest for which a tax credit has previously been allowed to the taxpayer or for which a tax credit will be allowed to the taxpayer for the year in which the sale or other disposition of the ownership interest is made, the taxpayer shall be required to reduce the cost of the ownership interest in the Oklahoma producer-owned agricultural processing cooperative, venture, or marketing association, as reported upon the applicable income tax return, by the amount of the tax credit which has previously been granted or for which the taxpayer is claiming credit if the credit is allowable for the year during which the sale or other disposition is made.

2. If a taxpayer sells or otherwise disposes of an ownership interest in the Oklahoma producer-owned agricultural processing cooperative, venture, or marketing association for which the tax credit authorized by this section may be taken in a taxable year following the year in which the ownership interest in the Oklahoma producer-owned agricultural processing cooperative, venture, or marketing association is sold or otherwise disposed of, the credit authorized by this section shall be reduced to account for the prior sale or other disposition.

E.The Oklahoma Tax Commission, on or before January 31 of each year, shall submit a report regarding the tax credit authorized by this section to the Speaker of the House of Representatives and the President Pro Tempore of the Senate of the Oklahoma Legislature. The report shall summarize the total amount of tax credits claimed and likely to be claimed and allowed pursuant to this section.

F.The tax credit authorized by this section shall not be available or taken for any calendar year during which the claimant of the credit received any incentive payments pursuant to the Oklahoma Quality Jobs Program Act or the Saving Quality Jobs Act.

G. As used in this section:

1."Direct investment" means the payment of money in an Oklahoma producer-owned agricultural processing cooperative, venture, or marketing association or the transfer of any form of economic value, whether tangible or intangible, other than money;

2."Oklahoma producer-owned agricultural processing cooperative" means a legal entity in the nature of a partnership or business undertaking agricultural transactions or agricultural commercial enterprises for mutual profit which are owned and controlled by Oklahoma agricultural producers. An Oklahoma producer-owned agricultural processing cooperative requires a community of interest in the performance of the undertaking, transaction or enterprise, a right to direct and govern the policy in connection therewith and the duty, which may be altered by agreement, to share both in profit and losses. The term does not include a cooperative that provides only, and nothing more than, storage, cleaning, drying, or transportation of agricultural commodities;

3. "Oklahoma producer-owned agricultural processing venture" means a legal entity in the nature of a corporation or company organized to invest in or operate an agricultural commodity processing facility operated primarily for the processing or production of marketable products from agricultural commodities. The term does not include a venture that provides only, and nothing more than, storage, cleaning, drying, or transportation of agricultural commodities;

4."Oklahoma producer-owned agricultural processing marketing association" means a legal entity owned by Oklahoma producers of agricultural commodities and organized to jointly market agricultural commodities, facilitate the marketing process and to promote and stimulate the processing, sales, and marketing of agricultural commodities. The term does not include a marketing association that provides only, and nothing more than, storage, cleaning, drying, or transportation of agricultural commodities;

5. "Oklahoma agricultural producer" means an individual who produces agricultural commodities in this state; and

6."Agricultural commodities" means a farm or ranch product, including but not limited to, wheat, corn, soybeans, cotton, timber, cattle, hogs, sheep, horses, poultry, animals of the families bovidae, cervidae and antilocapridae or birds of the ratite group produced in farming or ranching operations or a product of such crop or livestock in its unmanufactured state such as ginned cotton, wool-dip, maple syrup, milk and eggs, or any other commodity listed under any Industry Group Number under Major Group 20 of Division D of the Standard Industrial Classification (SIC) Manual.

H. For purposes of this section, an agricultural commodity shall be deemed to be produced within this state if it is substantially produced, by any person, partnership, company, association or corporation:

1. Authorized to do and doing business under the laws of this state;

2. Paying all taxes duly assessed; and

3. Domiciled within this state by having a location of production within this state.

SECTION 3. This act shall become effective January 1, 1997.

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