§ 68-3934 — Right to credit against entity's state tax liability –

Carry forward - Recapture. A. Upon making a capital investment in a rural fund, a rural investor shall have a 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 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 that 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 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, change, or transfer. Such allocation shall not be considered a sale for the purpose of this section. C. The Department may recapture credits from a taxpayer that claimed a credit authorized 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 investment 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 areas; 2. The rural fund fails to maintain qualified investments equal to ninety percent (90%) of its capital investment 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 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 investment, 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 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 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 sixth 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 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 meeting and maintaining the objectives established for investment in paragraphs 1 and 2 of this subsection, a rural fund's qualified investments 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 shall 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 afforded six (6) months from the date of such notice to cure the noncompliance.

Legislative History

Added by Laws 2022, c. 354, § 5, eff. Nov. 1, 2022.