1 STATE OF OKLAHOMA
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2 1st Session of the 58th Legislature (2021)
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3 SENATE BILL 609 By: Hall
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6 AS INTRODUCED
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7 An Act relating to ad valorem tax; amending 68 O.S.
7 2011, Section 2902, as last amended by Section 1,
8 Chapter 258, O.S.L. 2019 (68 O.S. Supp. 2020, Section
8 2902), which relates to exemption for manufacturing
9 facilities; modifying definitions; adjusting certain
9 investment requirement to inflation index; requiring
10 the Oklahoma Tax Commission to publish certain
10 adjustments; providing wage threshold; requiring
11 agreement between certain entities prior to
11 exemption; specifying terms of agreement; prohibiting
12 modification of fair cash value of assets described
12 in agreement; declaring agreement to operate as
13 defense against action to modify fair cash value and
13 depreciation methodology; declaring agreement to be a
14 condition precedent to certain exemption; requiring a
14 copy of agreement to be maintained by certain
15 entities; and providing an effective date.
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18 BE IT ENACTED BY THE PEOPLE OF THE STATE OF OKLAHOMA:
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19 SECTION 1. AMENDATORY 68 O.S. 2011, Section 2902, as
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20 last amended by Section 1, Chapter 258, O.S.L. 2019 (68 O.S. Supp.
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21 2020, Section 2902), is amended to read as follows:
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22 Section 2902. A. Except as otherwise provided by subsection H
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23 of Section 3658 of this title pursuant to which the exemption
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24 authorized by this section may not be claimed, a qualifying
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 1 manufacturing concern, as defined by Section 6B of Article X of the
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2 Oklahoma Constitution, and as further defined herein, shall be
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3 exempt from the levy of any ad valorem taxes upon new, expanded or
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4 acquired manufacturing facilities, including facilities engaged in
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5 research and development, for a period of five (5) years. The
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6 provisions of Section 6B of Article X of the Oklahoma Constitution
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7 requiring an existing facility to have been unoccupied for a period
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8 of twelve (12) months prior to acquisition shall be construed as a
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9 qualification for a facility to initially receive an exemption, and
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10 shall not be deemed to be a qualification for that facility to
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11 continue to receive an exemption in each of the four (4) years
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12 following the initial year for which the exemption was granted.
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13 Such facilities are hereby classified for the purposes of taxation
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14 as provided in Section 22 of Article X of the Oklahoma Constitution.
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15 B. For purposes of this section, the following definitions
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16 shall apply:
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17 1. “Manufacturing facilities” means facilities engaged in the
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18 mechanical or chemical transformation of materials or substances
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19 into new products and except as provided by paragraph 8 of
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20 subsection C of this section shall include:
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21 a. establishments which have received a manufacturer
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22 exemption permit pursuant to the provisions of Section
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23 1359.2 of this title,
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 1 b. facilities, including repair and replacement parts,
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2 primarily engaged in aircraft repair, building and
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3 rebuilding whether or not on a factory basis,
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4 c. establishments primarily engaged in computer services
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5 and data processing as defined under Industrial Group
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6 Numbers 5112 and 5415, and U.S. Industry Number 334611
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7 and 519130 of the NAICS Manual, latest revision, and
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8 which derive at least fifty percent (50%) of their
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9 annual gross revenues from the sale of a product or
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10 service to an out-of-state buyer or consumer, and as
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11 defined under Industrial Group Number 5142 of the
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12 NAICS Manual, latest revision, which derive at least
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13 eighty percent (80%) of their annual gross revenues
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14 from the sale of a product or service to an out-of-
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15 state buyer or consumer. Eligibility as a
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16 manufacturing facility pursuant to this subparagraph
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17 shall be established, subject to review by the
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18 Oklahoma Tax Commission, by annually filing an
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19 affidavit with the Tax Commission stating that the
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20 facility so qualifies and such other information as
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21 required by the Tax Commission. For purposes of
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22 determining whether annual gross revenues are derived
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23 from sales to out-of-state buyers, all sales to the
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 1 federal government shall be considered to be an out-
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2 of-state buyer,
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3 d. for which facilities that the investment cost of the
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4 construction, acquisition or expansion of the
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5 manufacturing facility is Two Hundred Fifty Thousand
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6 Dollars ($250,000.00) Five Hundred Thousand Dollars
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7 ($500,000.00) or more with respect to assets place
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8 into service during calendar year 2022. For
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9 subsequent calendar years, the investment required
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10 shall be increased annually by a percentage equal to
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11 the previous year’s increase in the Consumer Price
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12 Index-All Urban Consumers (“CPI-U”) and such adjusted
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13 amount shall be the required investment cost in order
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14 to qualify for the exemption authorized by this
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15 section. The Oklahoma Department of Commerce shall
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16 determine the amount of the increase, if any, on
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17 January 1 of each year. The Oklahoma Tax Commission
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18 shall publish on its website at least annually the
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19 adjusted dollar amount in order to qualify for the
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20 exemption authorized by this section and shall include
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21 the adjusted dollar amount in any of its relevant
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22 forms or publications with respect to the exemption.
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23 Provided, “investment cost” shall not include the cost
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24 of direct replacement, refurbishment, repair or
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 1 maintenance of existing machinery or equipment, except
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2 that “investment cost” shall include capital
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3 expenditures for direct replacement, refurbishment,
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4 repair or maintenance of existing machinery or
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5 equipment that qualifies for depreciation and/or
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6 amortization pursuant to the Internal Revenue Code of
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7 1986, as amended, and such expenditures shall be
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8 eligible as a part of an “expansion” that otherwise
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9 qualifies under this section, and
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10 e. establishments primarily engaged in distribution as
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11 defined under Industry Numbers 49311, 49312, 49313 and
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12 49319 and Industry Sector Number 42 of the NAICS
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13 Manual, latest revision, and which meet the following
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14 qualifications:
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15 (1) construction with an initial capital investment
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16 of at least Five Million Dollars ($5,000,000.00),
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17 (2) employment of at least one hundred (100) full-
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18 time-equivalent employees, as certified by the
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19 Oklahoma Employment Security Commission,
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20 (3) payment of wages or salaries to its employees at
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21 a wage which equals or exceeds one hundred
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22 seventy-five percent (175%) of the federally
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23 mandated minimum wage one hundred twenty-five
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24 percent (125%) of the average county wage as that
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 1 percentage is determined by the Oklahoma
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2 Department of Commerce based upon the most recent
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3 U.S. Department of Commerce data for the county
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4 where the jobs are located, as certified by the
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5 Oklahoma Employment Security Commission, and
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6 (4) commencement of construction on or after November
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7 1, 2007, with construction to be completed within
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8 three (3) years from the date of the commencement
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9 of construction,
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10 f. facilities engaged in the manufacturing, compounding,
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11 processing or fabrication of materials into articles
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12 of tangible personal property according to the special
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13 order of a customer (custom order manufacturing) by
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14 manufacturers classified as operating in North
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15 American Industry Classification System (NAICS)
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16 Sectors 32 and 33, but does not include such custom
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17 order manufacturing by manufacturers classified in
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18 other NAICS code sectors, and
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19 g. with respect to any entity making an application for
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20 the exemption authorized by this section on or after
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21 January 1, 2022, the establishment making application
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22 for exempt treatment of real or personal property
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23 acquired or improved beginning January 1, 2022, and
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24 for any calendar year thereafter, the entity shall be
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 1 required to pay new direct jobs, as defined by Section
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2 3603 of this title for purposes of the Oklahoma
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3 Quality Jobs Program Act, an average annualized wage
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4 which equals or exceeds:.
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5 (1) One hundred ten percent (110%) of the average
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6 county wage as determined by the Department of
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7 Commerce based on the most recent U.S. Department
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8 of Commerce data for the county in which the new
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9 direct jobs are located. For purposes of this
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10 subparagraph, health care premiums paid by the
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11 applicant for individuals in new direct jobs
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12 shall be included in the annualized wage; or
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13 (2) One hundred percent (100%) of the average county
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14 wage as that percentage is determined by the
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15 Department of Commerce based upon the most recent
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16 U.S. Department of Commerce data for the county
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17 in which the new jobs are located. For purposes
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18 of this subparagraph, health care premiums paid
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19 by the applicant for individuals in new direct
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20 jobs shall not be included in the annualized
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21 wage.
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22 Provided, no average wage requirement otherwise required by this
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23 subparagraph shall exceed Twenty-five Thousand Dollars ($25,000.00),
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24 in any county. This maximum wage threshold shall be indexed and
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 1 modified from time to time based on the latest Consumer Price Index
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2 year-to-date percent change release as of the date of the annual
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3 average county wage data release from the Bureau of Economic
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4 Analysis of the U.S. Department of Commerce. The Oklahoma Tax
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5 Commission shall publish on its website at least annually the
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6 adjusted dollar amounts with respect to the maximum wage threshold
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7 and shall include the adjusted dollar amount in any of its relevant
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8 forms or publications with respect to the exemption authorized by
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9 this section.
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10 Eligibility as a manufacturing facility pursuant to this
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11 subparagraph shall be established, subject to review by the Tax
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12 Commission, by annually filing an affidavit with the Tax Commission
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13 stating that the facility so qualifies and containing such other
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14 information as required by the Tax Commission.
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15 Provided, eating and drinking places, as well as other retail
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16 establishments, shall not qualify as manufacturing facilities for
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17 purposes of this section, nor shall centrally assessed properties.
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18 Eligibility as a manufacturing facility pursuant to this
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19 subparagraph shall be established, subject to review by the Tax
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20 Commission, by annually filing an application with the Tax
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21 Commission stating that the facility so qualifies and containing
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22 such other information as required by the Tax Commission;
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23 2. “Facility” and “facilities”, except as otherwise provided by
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24 this paragraph, means and includes the land, buildings, structures,
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 1 and improvements, machinery, fixtures, equipment and other personal
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2 property used directly and exclusively in the manufacturing process.
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3 Effective January 1, 2022, and for each calendar year thereafter,
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4 for facilities engaged in manufacturing activities defined or
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5 classified in the NAICS Manual under Industry Nos. 311111 through
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6 339999 “facility” and “facilities” means and includes the land,
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7 buildings, structures, improvements, machinery, fixtures, equipment
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8 and other personal property used directly and exclusively in the
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9 manufacturing process; and
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10 3. “Research and development” means activities directly related
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11 to and conducted for the purpose of discovering, enhancing,
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12 increasing or improving future or existing products or processes or
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13 productivity.
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14 C. The following provisions shall apply:
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15 1. A manufacturing concern shall be entitled to the exemption
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16 herein provided for each new manufacturing facility constructed,
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17 each existing manufacturing facility acquired and the expansion of
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18 existing manufacturing facilities on the same site, as such terms
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19 are defined by Section 6B of Article X of the Oklahoma Constitution
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20 and by this section;
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21 2. Except as otherwise provided in paragraph 5 of this
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22 subsection, no manufacturing concern shall receive more than one
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23 five-year exemption for any one manufacturing facility unless the
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24 expansion which qualifies the manufacturing facility for an
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 1 additional five-year exemption meets the requirements of paragraph 4
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2 of this subsection and the employment level established for any
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3 previous exemption is maintained;
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4 3. Any exemption as to the expansion of an existing
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5 manufacturing facility shall be limited to the increase in ad
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6 valorem taxes directly attributable to the expansion;
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7 4. Except as provided in paragraphs 5 and 6 of this subsection,
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8 all initial applications for any exemption for a new, acquired or
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9 expanded manufacturing facility shall be granted only if:
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10 a. there is a net increase in annualized base payroll
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11 over the initial payroll of at least Two Hundred Fifty
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12 Thousand Dollars ($250,000.00) if the facility is
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13 located in a county with a population of fewer than
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14 seventy-five thousand (75,000), according to the most
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15 recent Federal