Title 68, Section 2357.32 (Repealed R&D Credit)

Oklahoma Title 68, Section 2357.32 was a cornerstone of the state’s industrial policy designed to incentivize technological investment, but it was repealed in 2013 to streamline the tax code and transition toward performance-based rebates. Taxpayers must now distinguish this defunct general credit from surviving specialized provisions, such as the zero-emission electricity credit and the contemporary research and development rebate program.

The legislative trajectory of Oklahoma’s research and development (R&D) incentives reflects a broader shift from broad-based tax credits to targeted, monitored, and capped incentive programs. The repeal of Section 2357.32, which occurred via House Bill 2308 in the 2013 legislative session, was part of a significant fiscal reform effort to eliminate underperforming tax expenditures. While the specific section was removed from the active tax code effective January 1, 2014, its legacy continues to influence Oklahoma tax policy, particularly through its related subsections and the administrative rules that govern the transition from credits to rebates. To understand the meaning of the repealed Section 2357.32, one must look at it not as a standalone law, but as the predecessor to a complex ecosystem of technological and energy-related incentives that includes Sections 2357.32A (zero-emission facilities) and 2357.32B (small wind turbine manufacturing).

Statutory Framework and the History of Repeal

The Oklahoma Tax Code historically utilized Section 2357.32 as a primary mechanism for encouraging businesses to invest in research-intensive infrastructure. The repeal of this section was not a rejection of R&D as an economic driver, but rather a pivot toward the Oklahoma Quality Jobs Program and other mechanisms that the legislature deemed more efficacious for tracking return on investment.

The Impact of House Bill 2308 (2013)

House Bill 2308 was the definitive legislative action that ended the tenure of several key tax credits, including Section 2357.32. This bill targeted a wide array of incentives that were either perceived as redundant or failing to meet the rigorous standards established by the Incentive Evaluation Commission.

The repeal was comprehensive, affecting not just the ability to generate new credits but also modifying the carryforward landscape for many taxpayers. Businesses that had established credits prior to the January 1, 2014, deadline were generally allowed to maintain their carryover rights, provided they met the documentation standards of the Oklahoma Tax Commission (OTC).

The Evolution of Subsection 2357.32A: Zero-Emission Facilities

Following the repeal of the general 2357.32 credit, the focus of Oklahoma’s high-tech incentive policy shifted toward Section 2357.32A, which specifically targets the production and sale of electricity from zero-emission facilities. This statute defines zero-emission facilities as those using renewable resources such as wind, moving water, the sun, or geothermal energy.

The mechanics of Section 2357.32A illustrate the sophisticated nature of Oklahoma’s surviving high-tech incentives. Unlike the simpler 2357.32 credit, 2357.32A includes:

1. Tiered Credit Amounts: Facilities placed in service between 2003 and 2007 received a higher credit ($0.0075 per kWh) than those placed in service after 2007 ($0.0050 per kWh).
2. Refundability Elections: Since 2014, taxpayers can elect to receive a direct refund of the credit at 85% of its face value if they do not have sufficient tax liability to utilize the full amount.
3. Transferability: The credits are considered a property right and can be sold or transferred to other taxpayers who have an actual or anticipated income tax liability.

The Sunset of Subsection 2357.32B: Small Wind Turbine Manufacturing

While Section 2357.32A remains active, another branch of the 2357.32 family, Section 2357.32B, recently met its end. This section provided a credit for Oklahoma manufacturers of advanced small wind turbines, defined as upwind, furling turbines with a rated capacity between 1 kw and 50 kw.

The 2025 legislative session saw the passage of HB 1205, which officially repeals Section 2357.32B effective November 1, 2025. This repeal follows a similar logic to the original 2357.32 repeal: the elimination of niche credits that have served their intended developmental purpose or have been superseded by broader industry trends. The OTC has already begun the process of revoking administrative rules (such as Rule 710:50-15-92) associated with this sunsetted credit.

Oklahoma Tax Commission Guidance and Administrative Rules

The Oklahoma Tax Commission (OTC) serves as the primary regulatory body for interpreting the application of tax laws, including repealed sections that still carry residual carryover balances. Guidance from the OTC is primarily found in the Oklahoma Administrative Code (OAC), specifically under Title 710, Chapter 50.

Rule 710:50-15-105: Research and Development New Jobs Credit

Although the general R&D credit under 2357.32 was repealed, a related provision, the Research and Development New Jobs Credit (Section 54006), was also a casualty of the 2013 fiscal tightening. Rule 710:50-15-105 provided the framework for this credit, which required taxpayers to provide Form 563 and demonstrate a net increase in R&D personnel.

The OTC continues to provide instructions for businesses carrying forward these credits. The key requirement is that the research must qualify under federal standards set forth in Section 41 of the Internal Revenue Code (IRC). This federal-state coupling means that any OTC audit of a legacy R&D credit will fundamentally rely on the federal Four-Part Test.

Rule 710:50-15-113: Biomedical and Cancer Research Credits

A significant portion of Oklahoma’s current research-related tax guidance is dedicated to donations to research institutes. Unlike the repealed Section 2357.32 which focused on a business’s internal investment, Rule 710:50-15-113 allows for a 50% tax credit for donations made to qualified independent biomedical research institutes or qualified cancer research institutes.

The OTC has established strict definitions for these entities:

• Qualified Cancer Research Institute: Must be an IRC tax-exempt organization with a primary focus on raising cancer clinical care standards in Oklahoma through peer-reviewed research. It must receive at least $4,000,000 in National Cancer Institute (NCI) funding annually.
• Qualified Independent Biomedical Research Institute: Must be a 501(c)(3) organization focusing on basic biomedical research, having its own employees and board of directors, and receiving at least $15,000,000 in National Institutes of Health (NIH) funding annually.

The credit is capped at $1,000 for individuals or $2,000 for married couples filing jointly. Taxpayers must provide a copy of a canceled check or receipt as proof of the donation when filing Form 511-CR.

Administrative Procedures for Transferable Credits

One of the most complex aspects of OTC guidance involves the transfer of credits established under Sections like 2357.32A. Rule 710:50-15-113 and related rules emphasize that transferred credits must be reported on OTC Form 569. Failure to file this form results in the immediate denial of the credit.

The transfer process requires a joint filing by the transferor and transferee within 30 days of the transfer agreement. The agreement must contain:

1. Names and Taxpayer Identification Numbers (TINs) of both parties.
2. The exact amount of the credit being transferred.
3. The year the credit was originally generated.
4. The tax year or years for which the credit may be claimed by the transferee.

The Modern Alternative: The Oklahoma R&D Rebate Program (SB 324)

In 2025, Oklahoma re-entered the R&D incentive space, not with a tax credit like the repealed Section 2357.32, but with a rebate program. SB 324 created the Research and Development Rebate Program to fill the vacuum left by previous repeals.

Mechanics of the 5% Rebate

The new program is administered by the Oklahoma Department of Commerce rather than the Tax Commission. It provides a 5% rebate on qualified research expenditures (QREs) incurred in Oklahoma. This program is fundamentally different from a tax credit in its fiscal structure:

The rebate is paid on a first-come, first-served basis, and applications must be submitted to the Department of Commerce by December 31 of the year following the expenditure. Documentation must include filed tax returns and proof of in-state activity.

Application of the Law: The Four-Part Test in Oklahoma

Because both the legacy R&D credits and the new rebate program rely on the federal definition of qualified research, the Four-Part Test is the primary legal standard for determining eligibility.

Part 1: Technological in Nature

The research must fundamentally rely on the principles of physical or biological science, engineering, or computer science. Activities based on aesthetics, social sciences, or marketing do not qualify.

Part 2: Permitted Purpose

The activity must be intended to develop a new business component or improve the functionality, performance, reliability, or quality of an existing one. In the context of the repealed 2357.32 credit, this often meant investments in manufacturing equipment that allowed for more precise engineering.

Part 3: Elimination of Uncertainty

The research must be conducted to discover information that would eliminate a technical uncertainty regarding the capability, method, or design of the business component. General business uncertainty—such as whether a product will sell—is excluded.

Part 4: Process of Experimentation

Substantially all of the research activities must constitute a process of experimentation, which typically involves the evaluation of alternatives through modeling, simulation, or trial-and-error.

Transition and Carryover Rules

The meaning of a repealed section like 2357.32 is often found in the saving clauses that allow for the continued use of credits earned before the repeal date. The OTC provides specific guidance on these carryovers to ensure that taxpayers do not lose the value of investments made under the prior law.

General Carryover Durations

Oklahoma tax credits typically have specific carryover windows. If a credit is not used within this window, it expires.

The 2013 repeal of Section 2357.32 preserved the carryover rights for those who had already qualified for the credit. However, these credits are now reaching their final years of eligibility. A credit earned in 2013, for instance, would generally expire after the 2023 tax year if not fully utilized.

The 85% Refundability Election for Zero-Emission Credits

Under 68 O.S. § 2357.32A, a unique provision allows for a partial refund. If a taxpayer has unused credits, they can make an irrevocable election to not carry them forward and instead receive a refund at 85% of the credit’s value. This is often the preferred route for large wind farm operators who may not have enough Oklahoma income tax liability to use the millions of dollars in credits they generate annually.

The OTC requires the completion of Form 578 to claim this refundable credit. The instructions for Form 578 detail the calculation:

1. Enter the total credit for electricity generated during the tax year.
2. Subtract the amount claimed as a nonrefundable credit on Form 511-CR.
3. The remainder (the face amount) is multiplied by 85%.

Example of Application: Legacy Carryover vs. Modern Rebate

To provide a concrete example of how these laws interact, consider Oklahoma Tech Solutions, a hypothetical firm that has operated in the state since 2010.

Phase 1: The Legacy Credit (2012)

In 2012, Oklahoma Tech Solutions invested $500,000 in a new laboratory facility. Under the then-active Section 2357.32, they qualified for an investment credit.

• Investment: $500,000
• Credit Rate: 2% (Standard rate for high-tech investment at the time)
• Credit Generated: $10,000
• 2012 Tax Liability: $4,000
• 2012 Utilization: $4,000
• Carryforward to 2013: $6,000

When Section 2357.32 was repealed in 2013, the $6,000 carryforward remained on the company’s books. They continued to use this credit to offset their state taxes until it was exhausted in 2018.

Phase 2: The Modern Rebate (2025)

In 2025, the same company spends $500,000 on Qualified Research Expenses (QREs), specifically on the wages of software engineers developing a new AI-driven cybersecurity protocol.

1. Federal Claim: They claim the Federal R&D Credit on IRS Form 6765, which provides a federal tax reduction.
2. State Application: They apply for the Oklahoma R&D Rebate via the Department of Commerce.
3. Calculation: $500,000 (QRE) × 0.05 (Rebate Rate) = $25,000.
4. Result: Instead of a $10,000 credit that can only be used if they have a tax bill, they receive a $25,000 cash rebate from the state, provided the program’s $20 million cap hasn’t been reached.

The Future of R&D Incentives in Oklahoma

The trajectory of Section 2357.32 and its successors indicates a future where Oklahoma incentives are highly specific and subject to recapture if they do not meet public policy goals.

The Green Energy Subsidy Recapture Tax Act

A significant development in the post-2357.32 era is the Green Energy Subsidy Recapture Tax Act (SB 239/SB 324), which establishes a tax on electricity production from zero-emission facilities equal to the amount of the federal production tax credit they could claim. This represents a clawback mechanism, where the state attempts to capture some of the federal subsidies provided to industries that also benefit from state credits like 2357.32A.

This Act defines zero-emission facility by referencing Section 2357.32A, further solidifying that statute as the primary successor to the repealed energy-related portions of the original 2357.32. Owners of these facilities must report and pay this tax monthly, with the OTC developing electronic reporting systems to facilitate compliance.

Strategic Takeaways for Businesses

Taxpayers operating in Oklahoma’s high-tech and energy sectors should consider the following:

• Differentiate Between Credits: Do not confuse the repealed 2357.32 (general investment) with the active 2357.32A (zero-emission production).
• Documentation is Paramount: For both legacy carryovers and new rebates, the OTC and Department of Commerce require contemporaneous records that satisfy federal IRC § 41 standards.
• Monitor the Sunset: With 2357.32B (small wind) sunsetting in 2025, companies in that niche must ensure their final production runs are documented before the November 1 deadline.
• Form Compliance: The filing of Form 569 for any transferred or allocated credit is a non-negotiable requirement for OTC approval.

Final Thoughts: The Shift to a Capped, Rebate-Based Economy

The repeal of Title 68, Section 2357.32 marks the transition of Oklahoma from a tax credit entitlement state to a strategic rebate state. While the original R&D credit provided a predictable, if sometimes under-monitored, reduction in tax liability, the modern framework of SB 324 rebates and the specialized 2357.32A production credits offers greater liquidity for businesses while providing the state with more control over its fiscal outlays.

For professional peers and tax directors, the meaning of 2357.32 is now primarily historical and evidentiary. It serves as the baseline from which all modern Oklahoma research and energy incentives have evolved. Understanding its repeal is essential for auditing legacy tax positions, but navigating the current landscape requires a dual focus on the Department of Commerce’s rebate rules and the OTC’s increasingly stringent administrative code regarding credit transferability and refundability. As the state moves toward the 2030s, the One Big Beautiful Bill Act and other deregulation efforts may further shift these incentives, but the core reliance on federal research standards as the gateway for state benefits appears to be a permanent fixture of the Oklahoma revenue system.

The fiscal architecture of Oklahoma has essentially traded the broad, uncapped potential of Section 2357.32 for a more disciplined, $20 million capped rebate system that prioritizes cash flow for innovative firms over passive tax reductions for established manufacturers. This transformation ensures that the state’s Green Energy and High Tech monikers are backed by a tax code that is both competitive and fiscally responsible.