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Session of 2026
HOUSE BILL No. 2541
By Committee on Taxation
Requested by Representative A. Smith on behalf of Advantage Capital
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AN ACT concerning economic development; enacting the Kansas rural
business growth program act; establishing a premium tax credit
program to be administered by the secretary of commerce for the
purpose of incentivizing capital investment in rural areas.
Be it enacted by the Legislature of the State of Kansas:
Section 1. Sections 1 through 7, and amendments thereto, shall be
known and may be cited as the Kansas rural business growth program act.
Sec. 2. As used in this act:
(a) "Act" means the Kansas rural business growth program act.
(b) "Affiliate" means an entity that directly, or indirectly through one
or more intermediaries, controls, is controlled by or is under the common
control of another entity. An entity is controlled by another entity if the
controlling entity holds, directly or indirectly, the majority of voting or
ownership interest in the controlled entity or has control over day-to-day
operations of the controlled entity by contract or by law.
(c) "Applicable percentage" means 0% for the first two credit
allowance dates and 15% for the next four credit allowance dates.
(d) (1) "Capital investment" means any equity investment in a rural
fund by a rural investor that:
(A) Is acquired on or after July 1, 2026, and the equity investment
original issuance was solely in exchange for cash;
(B) has 100% of equity investment cash purchase price used by the
rural fund to make qualified investments in eligible businesses located in
Kansas by the second anniversary of the initial credit allowance date; and
(C) is designated by the rural fund as a capital investment and
certified by the department under section 3, and amendments thereto.
(2) Capital investment shall include any capital investment that does
not satisfy the requirements set forth in paragraph (1)(A) if such
investment was a capital investment in the possession of a prior holder.
(e) "Credit allowance date" means the date on which the department
certifies a rural fund's capital investment and each of the five anniversary
dates of such date thereafter.
(f) "Department" means the Kansas department of commerce.
(g) "Eligible business" means a business that at the time of the initial
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qualified investment in the business has fewer than 250 employees and:
(1) Has its principal business operations in a rural area in the state of
Kansas; or
(2) if not located in a rural area, is:
(A) Engaged in North American Industry Classification System
(NAICS) sectors 11, 21, 22, 31-33, 48-49, 62, 811 or 5417; or
(B) determined by the department that such investment will be
beneficial to the rural area and economic growth of the state.
(h) "Principal business operations" means the location where at least
60% of employees of a business work or the location where employees
constituting 60% of the business's payroll works. A business that has
agreed to relocate employees using the proceeds of a qualified investment
to establish the business's principal business operations in a new location
shall be deemed to have the business's principal business operations in
such new location if the business satisfied the requirements of this
paragraph not later than 180 days after receiving a qualified investment.
(i) "Purchase price" means the amount paid to the rural fund that
issues a capital investment, which shall not exceed the amount of capital
investment authority certified under the provisions of section 3, and
amendments thereto.
(j) "Qualified investment" means any investment in an eligible
business or any loan to an eligible business with a stated maturity date of
at least one year after the date of issuance, excluding revolving lines of
credit and senior-secured debt unless the chief executive or similar officer
of the eligible business certifies that the eligible business sought and was
denied similar financing from a depository institution by a rural fund. For
any one eligible business, the maximum amount of investments made in
such business by one or more rural funds, on a collective basis with all of
the businesses' affiliates, with the proceeds of the capital investments, shall
be the greater of 20% of the rural fund's capital investment authority or
$6,500,000, exclusive of investments made with repaid or redeemed
investments or interest or profits realized thereon.
(k) "Rural area" means an area of the state that is not in:
(1) A municipality with a population of more than 50,000 according
to the last decennial census of the United States; or
(2) an urbanized area contiguous and adjacent to a city that has a
population of more than 50,000 inhabitants.
(l) "Rural fund" means a fund certified by the department under the
provisions of section 3, and amendments thereto.
(m) "Rural investor" means any entity that makes a capital investment
in a rural fund.
(n) "Senior-secured debt" means any loan that is secured by a first
mortgage on real estate with a loan-to-value ratio of less than 80%.
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(o) "State tax liability" means the premium tax liability imposed upon
an insurance company pursuant to K.S.A. 40-252, and amendments
thereto, or the retaliatory tax imposed pursuant to K.S.A. 40-253, and
amendments thereto, including any other fee, charge or other penalty
levied pursuant to K.S.A. 40-252 and 40-253, and amendments thereto.
Sec. 3. (a) A rural fund that seeks to have an equity investment
certified as a capital investment eligible for credits authorized under the
provisions of this act shall apply to the department. The department shall
begin accepting applications on and after October 1, 2026. The application
shall include:
(1) The amount of capital investment requested;
(2) a copy of the applicant's or an affiliate of the applicant's licenses
as a rural business investment company under 7 U.S.C. § 2009cc or as a
small business investment company under 15 U.S.C. § 681 and a
certificate executed by an executive officer of the applicant attesting that
such license remains in effect and has not been revoked;
(3) evidence that, as of the date the application is submitted, the
applicant or affiliates of the applicant have invested at least $100,000,000
in nonpublic companies located in counties within the United States with a
population of less than 75,000 according to the 2010 United States
decennial census. Such evidence may be in the form of a list containing
the names of the companies, their location and the amounts invested by the
applicant or affiliates of the applicant, if an officer of the applicant certifies
such list;
(4) a business plan that includes a revenue-impact assessment
projecting state and local tax revenue to be generated by the applicant's
proposed qualified investments prepared by a nationally recognized, third-
party, independent economic forecasting firm using a dynamic economic
forecasting model that analyzes the applicant's business plan over the 10
years following the date that the application is submitted to the
department. Such plan shall include an estimate of the number of jobs
created and jobs retained in this state as a result of the applicant's qualified
investments; and
(5) a nonrefundable application fee of $5,000 payable to the
department.
(b) Within 30 days after the receipt of a completed application, the
department shall grant or deny the application in full or in part. The
department shall deny the application if:
(1) The applicant does not satisfy all the criteria provided under
subsection (a);
(2) the revenue-impact assessment submitted with the application
does not demonstrate that the applicant's business plan will result in a
positive fiscal impact on the state over a 10-year period that exceeds the
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cumulative amount of credits that would be issued to the applicant if the
application was approved; or
(3) the department has already approved the maximum amount of
capital investment authority under Section 4, and amendments thereto.
(c) If the department denies any part of the application, the
department shall inform the applicant of the grounds for such denial. If the
applicant provides any additional information required by the department
or otherwise completes the application within 15 days of the notice of
denial, the application shall be considered complete as of the original date
of submission. If the applicant fails to provide the information or fails to
complete the application within the 15-day period, the application shall
remain denied and must be resubmitted with a new submission date and a
new application fee.
(d) Upon approval of an application, the department shall certify
pursuant to this subsection the proposed equity investment as a capital
investment eligible for credits, subject to limitations provided in section 4,
and amendments thereto. The department shall provide written notice of
the certification to the applicant, which shall include the amount of the
applicant's capital investment authority and a schedule of credits by year
and amount related to the capital investment authority. The department
shall certify capital investments in the order that the application is received
by the department. Applications received on the same day shall be deemed
to have been received simultaneously. For applications that are complete
and received on the same day, the department shall certify applications in
proportionate percentages based upon the ratio of the amount of capital
investment authority requested in all applications.
(e) Any business that is classified as an eligible business at the time
of the initial investment in such business by a rural fund shall remain
classified as an eligible business and may receive follow-on investments
from any rural fund, and such follow-on investments shall be qualified
investments even though such business may not meet the definition of an
eligible business at the time of such follow-on investment.
(f) The secretary of commerce shall remit all moneys received by or
for the secretary from such application fees and collected under this
section to the state treasurer in accordance with the provisions of K.S.A.
75-4215, and amendments thereto. Upon receipt of each such remittance,
the state treasurer shall deposit the entire amount in the state treasury to
the credit of the state general fund.
Sec. 4. (a) The department shall certify capital investment authority
under the provisions of this act in amounts that would not authorize more
than $7,500,000 in credits to be claimed against state tax liability in any
calendar year, excluding any credit amounts carried forward as provided
under section 5(a), and amendments thereto. Within 90 days of the
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applicant receiving notice of certification, the rural fund shall issue the
capital investment to and receive cash in the amount of the certified
amount from a rural investor. At least 10% of the rural investor's capital
investment shall be composed of capital raised by the rural investor
directly or indirectly from sources, including directors, members,
employees, officers and affiliates of the rural investor, other than the
amount invested by the allocatee claiming the credits in exchange for such
allocation of credits. The rural fund shall provide the department with
evidence of the receipt of the cash investment within 95 days of the
applicant receiving notice of certification.
(b) If the rural fund does not receive the cash investment and issue
the capital investment within such time period following receipt of the
certificate notice, the certification shall lapse and the rural fund shall not
issue the capital investment without reapplying to the department for
certification. Lapsed certifications 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
section 3(d), and amendments thereto.
Sec. 5. (a) Upon making a capital investment in a rural fund, a rural
investor shall have an earned and vested right to tax credits against such
entity's state tax liability that my 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
subsequent tax years but shall not be carried back to prior tax years. 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 this section shall be refundable or
transferable.
(c) 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 use in accordance with the provisions
of any agreement among such partners, members or shareholders, and any
such entity shall notify the department of the names of the entities that are
eligible to utilize such credit. Such allocation shall not be considered a
sale. An insurer may transfer a credit under this section to an affiliate of
the insurer that is subject to taxation if the insurer notifies the department
of the transfer and includes with the notification a copy of the transfer
documents.
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(d) The department may recapture credits from a taxpayer that
claimed a credit authorized under this section if:
(1) The rural fund does not invest 100% of the rural fund's capital
investment authority in qualified investments in this state within two years
of the initial credit allowance date. In no event shall more than 20% of
such qualified investments be made in eligible businesses located outside
of a rural area;
(2) the rural fund fails to maintain qualified investments equal to
100% of the rural fund's capital investment authority from the second
anniversary until the sixth anniversary of the credit allowance date, with
80% of such investments maintained in eligible businesses located in rural
areas, except that in no event shall more than 20% of such qualified
investments be located outside of a rural area. For the purposes of this
paragraph, a qualified investment is considered maintained even if the
qualified investment was sold or repaid so long as the rural fund reinvests
an amount equal to the capital returned, recovered or repaid by the rural
fund from the original investment, exclusive of any profits realized, in
other qualified investments in this state within 12 months of receipt of
such capital. Amounts received periodically by a rural fund shall be treated
as maintained 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 maintained 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
section 7, and amendment thereto, or 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 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, and
amendments thereto, 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.
(e) 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 section 3(d), and amendments thereto.
(f) No recapture shall occur until the rural fund has been given notice
of noncompliance and provided six months from the date of such notice to
cure the noncompliance.
(g) A rural fund, before making a qualified investment, may request
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from the department a written opinion as to whether the business in which
the rural fund proposes to invest is an eligible business. The department,
not later than 15 business days after the date of receipt of such request,
shall notify the rural fund of the department's determination. If the
department fails to notify the rural fund of the department's determination
by the 20 th business day, the business in which the rural fund proposes to
invest shall be deemed an eligible business.
(h) An insurance company claiming a credit against state premium
tax or retaliatory tax shall not be required to pay any additional premium
tax, retaliatory tax, fee, charge or other penalty or tax imposed on an
insurer to claim the credit allowed under this act or as a result of claiming
the credit. The credit may fully offset any retaliatory tax imposed.
Sec. 6. No eligible business that receives a qualified investment under
the provisions of this act, or any affiliates of such eligible business, shall
directly or indirectly:
(a) Own or have the right to acquire an ownership interest in a rural
fund or member or affiliate of a rural fund including, but not limited to, a
holder of a capital investment issued by a rural fund; or
(b) loan to or invest in a rural fund or any member or affiliate of a
rural fund, including, but not limited to, a holder of capital investment
issued by a rural fund where the proceeds of such loan or investment are
directly or indirectly used to fund or refinance the purchase of capital
investments under this act.
Sec. 7. (a) Rural funds shall submit a report to the department by June
30 of each calendar year during the compliance period. The report
following the second anniversary of the initial credit allowance date shall
provide documentation as to the investment of 100% of the purchase price
of such capital investment in qualified investments. Unless previously
reported pursuant to this subsection, such reports shall also include:
(1) The name and location of each eligible business receiving a
qualified investment;
(2) bank statements of such rural fund evidencing each qualified
investment;
(3) a copy of the written opinion of the department, as provided in
section 5(f), and amendments thereto, or evidence that such business was
an eligible business at the time of such qualified investment, as applicable;
(4) the number of jobs created and jobs retained as a result of each
qualified investment;
(5) the average salary of positions described in paragraph (4); and
(6) such other information as required by the department.
(b) For all subsequent years, rural funds shall submit an annual report
to the department by June 30 of each calendar year during the compliance
period. The report shall include, but not be limited to, the following:
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(1) The number of jobs created and jobs retained as a result of
qualified investments;
(2) the average annual salary of positions described in paragraph (1);
and
(3) such other information as required by the department.
(c) On or after the sixth anniversary of the credit allowance date, a
rural fund may apply to the department to exit the program and no longer
be subject to provisions of this act. The department shall respond to the
exit application within 15 days of receipt of such application. In evaluating
the exit application, the fact that no credits have been recaptured and the
rural fund has not received a notice of recapture that has not been cured
pursuant to section 5(e), and amendments thereto, shall be sufficient
evidence to prove the rural fund is eligible for exit. The department shall
not unreasonably deny an exit application submitted under this section. If
an exit application is denied, the notice shall include the reasons for the
determination.
Sec. 8. This act shall take effect and be in force from and after its
publication in the statute book.
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