Current through Register Vol. XLI, No. 38, September 20, 2024
14.1. By
legislation passed on March 10, 1990 the West Virginia Legislature made the
following finding:
The Legislature finds that the tax credits allowed under
provisions of this article (W. Va. Code '11-13C et seq.) heretofore enacted
have not effectively and efficiently increased employment through investment in
a certain industry segments; that while there has been a significant net
decrease in employment in the coal industry in recent years the amount of
credit being claimed by producers of coal has significantly increased; that the
increasing cost of the credits allowed by this article to coal producers is
eroding the State's ability to reasonably fund essential State services such as
public education, public safety and basic human services; and that this erosion
will continue unless remedial legislation is enacted.
14.2. Construction. - The rule of statutory
construction codified in W. Va. Code '11-13C-12b is replaced by statutory
mandate effective March 10, 1990 with a rule of reasonable construction in
which the burden of proof is on the taxpayer to establish by clear and
convincing evidence that the taxpayer is entitled to the benefits allowed by W.
Va. Code '11-13C et seq.
14.3.
Credit not to be applied against severance taxes.
14.3.1. Notwithstanding any provision in W.
Va. Code '11-13C et seq. to the contrary, no credit shall be allowed against
the taxes imposed by W. Va. Code '11-13A et seq. (the severance tax) for
taxable years ending on or after March 10, 1990 unless one of the transition
rules in W. Va. Code '11-13C-14(c)(2)
applies.
14.3.2. Transition rules.
- The general rule stated in W. Va. Code '11-13C-14(c)(1)
and Section 14.3.1 of these regulations shall not apply:
14.3.2.1. To qualified investment property
placed in service or use prior to March 10, 1990.
14.3.2.2. To property purchased or leased for
business expansion that is placed in service or use on or after March 10, 1990
if at least one of the following clauses applies to such property:
14.3.2.2.a. The new or expanded business
facility was constructed, reconstructed or erected, pursuant to a written
construction contract executed prior to March 10, 1990, as limited to the
provisions of such contract as of such date then binding on the taxpayer, but
only to the extent such new or expanded business facility is placed in service
or use prior to January 1, 1992.
14.3.2.2.b. The new or expanded business
facility which is part of a project described in W. Va. Code '11-13C-4b(a)(1)
was constructed, reconstructed or erected, pursuant to a written construction
contract executed prior to March 10, 1990 as limited to the provisions of such
contract as of such date then binding on the taxpayer: Provided, That only that
portion of the contract price attributable to that percentage of the
construction contract completed prior to January 1, 1992 (determined under
principles set forth in Section 460(b) of the Internal Revenue Code of 1986, as
in effect before March 10, 1990) which is placed in service or use prior to
January 1, 1992 may be treated as property purchased for business expansion
under W. Va. Code '11-13C-6.
14.3.2.2.c. The new or expanded business
facility was purchased or leased pursuant to a written contract executed prior
to March 10, 1990 as limited to the provisions then binding on the taxpayer as
of such date, but only to the extent such new or expanded business facility is
placed in service or use prior to January 1, 1992.
14.3.2.2.d. The machinery or equipment or
other tangible personal property purchased or leased for business expansion at
a new or expanded business facility was purchased or leased by the taxpayer
pursuant to a written contract to purchase or lease identifiable tangible
personal property executed before March 10, 1990, as limited to the provisions
of such written contract then binding on the taxpayer, but only to the extent
the tangible personal property purchased or leased under such contract is
placed in service or use before January 1, 1992: Provided, That when such
tangible personal property is purchased or leased as aforesaid as part of a
project described in subsection 14.3.2.2.b of these regulations, such tangible
personal property must be placed in service or use prior to January 1, 1994, to
be treated as property purchased or leased for business expansion under W. Va.
Code '11-13C-6.
14.3.2.3. Transition Rule 3. - The
general rule provided in paragraph 14.3.1 shall not apply to property purchased
or leased for business expansion that is placed in service or use after March
9, 1990 as a component part of a plan for an integrated project which is
otherwise eligible for super tax credit under W. Va. Code '11-13C-4b,
provided all of the following requirements are satisfied:
14.3.2.3.a. Investment Threshold. - The
taxpayer and other participants in the project, if any, have made investments
aggregating more than ten million ($10,000,000) dollars in property purchased
or leased for business expansion (as defined in W. Va. Code '11-13C-3(b)(19)
prior to enactment of '11-13C-14), prior to March 10, 1990.
14.3.2.3.a.1. This requirement that the
taxpayer and other participants in the project, if any, have made investments
aggregating more than ten million ($10,000,000) dollars prior to March 10,
1990, in "property purchased or leased for business expansion," as defined in
W. Va. Code '11-13C-3(b)(19),
is satisfied if property purchased or leased for business expansion, as defined
in W. Va. Code '11-13C-3(b)(19),
is purchased, or leased, prior to March 10, 1990 and the contract to purchase,
or lease, irrevocably obligates the taxpayer or any other participant in the
project, if any, to purchase, or lease, identifiable property for a sum certain
amount.
14.3.2.3.a.2. Property is
deemed to have been purchased before March 10, 1990 if:
(i) the physical construction, reconstruction
or erection of the property was begun prior to March 10, 1990, or the property
was constructed, reconstructed, erected or acquired pursuant to a written
contract in existence and binding on the purchaser before March 10, 1990; or
(ii) the machinery, equipment or
other tangible personal property was owned by the taxpayer or another
participant in the project, if any, prior to March 10, 1990, or was acquired by
the taxpayer or another participant in the project, if any, pursuant to a
binding purchase contract executed prior to March 10, 1990.
14.3.2.3.a.3. Property is deemed
to have been leased before March 10, 1990 only if the taxpayer or another
participant in the project, if any, took physical possession of the leased
property prior to March 10, 1990, or there was a binding written lease or
contract to lease identifiable tangible personal property in effect prior to
March 10, 1990 for a specified term for specified periodic
consideration.
14.3.2.3.b. Integrated Project Rule. -
Investment aggregating more than ten million ($10,000,000) dollars must have
been made pursuant to a written plan for development of an integrated corporate
project, in one or two phases, over a period of one or more years, which
otherwise qualifies for credit under W. Va. Code '11-13C-4b.
This written plan must have been in existence prior to March 10, 1990 and
provide for the making of additional investments after March 9, 1990, in
furtherance of the plan for an integrated corporate project. The existence of
such a plan is a matter of fact to be determined on a case-by-case basis, the
burden of proof is on the taxpayer to show the interrelationship between the
several phases or parts of the project and the dependency of any subsequent
investment on the qualifying investment of more than ten million ($10,000,000)
dollars.
14.3.2.3.b.1. Existence of a written
plan for development of an integrated corporate project is demonstrated by the
written plan itself. Proof that the written plan existed prior to March 10,
1990 may be demonstrated by corporate minutes of meetings of boards of
directors or shareholders held prior to March 10, 1990 which discuss the plan,
or which authorize the expenditure of more than ten million ($10,000,000)
dollars in "property purchased or leased for business expansion," as defined in
W. Va. Code '11-13C-3(b)(19),
to implement the plan or any integrated phrase or part thereof. The plan's
existence may also be proved from submissions to federal or State regulatory
authorities including, but not limited to, the Federal Energy Regulatory
Commission and the Securities and Exchange Commission, which refer to the
integrated corporate project in sufficient detail or by applications for
financing of the integrated project which describe the project in sufficient
detail.
14.3.2.3.b.1.a. There must be clear,
convincing evidence of an approved corporate plan or other action of the
taxpayer showing positive commitment to the full development of the plan for an
integrated corporate project prior to March 10, 1990.
14.3.2.3.b.1.b. There must be clear,
convincing evidence that development, design or engineering had begun prior to
March 10, 1990 on any Section 11-13C-4b(a)(1) project that encompasses any
thirty-six (36) consecutive month period that begins after March 9, 1990, when
it is claimed that such Section 11-12C-4 b(a)(1) project is an integrated part
or phase of an plan for an integrated corporate project that spans more than
three (3) years.
14.3.2.3.b.2. A plan consists of two
integrated phases or parts when there is clear, convincing evidence that but
for phase one, phase two of the plan would not have been started and completed.
Additionally, a plan is not an integrated plan unless each subsequent phase is
directly in furtherance of and contributes to the primary objective of the
plan. The following criteria is indicative of the existence of an integrated
corporate project:
14.3.2.3.b.2.a. The
investment made prior to March 10, 1990, was made with the expectation of
making additional investment after March 9, 1990 which qualifies a second
Section 11-13C-4 b(a)(1) project under the super tax credit law and that
project is directly related to the pre-March 10, 1990 investment.
14.3.2.3.b.2.b. The two (2) super tax credit
section 11-13C-4 b(a)(1) projects are dependent on or contribute to each
other.
14.3.2.3.b.2.c. The
corporate project is limited to a single "business facility" as defined in W.
Va. Code '11-13C-3(b);
and the "mining operations," as defined in Section 11-13C-3(b) are contained on
contiguous property and are part of a single operating unit. Factors which
indicate that the mining operations are part of a single operating unit are:
14.3.2.3.b.2.c.1. common processing or
treatment plant,
14.3.2.3.b.2.c.2.
common storage and loading facility,
14.3.2.3.b.2.c.3. other common support
facilities, and
14.3.2.3.b.2.c.4.
common supervisory personnel.
14.3.2.3.b.2.d. Notification was given to the
Tax Commissioner, prior to March 10, 1990, that a corporate project consists of
two (2) Section
11-13C-4b(a)(1)
projects.
Business strategy and planning is generally limited to five
(5) year increments. A taxpayer who applies for super tax credit under this
third transition rule for more than one Section
11-13C-4b(a)(1)
project that begins after March 9, 1990, must present clear and convincing
evidence of significant economic loss should taxpayer's investment in such
project not be eligible for super tax credit that offsets the severance tax
imposed by W. Va. Code '11-13A et seq.
The following example demonstrates the intent of this
paragraph 14.3.2.3.b.2.
Example: XYZ Coal Company has written plan to develop its
Rocky Mountain Coal Project. Phase I consists of assembling (by purchase or
lease) the coal lands necessary to economically sustain coal production once
all phases of the project are completed; obtaining necessary State and federal
permits; obtaining necessary financing and doing anything else that may be
necessary to move into phase II. Phase II consists of developing and operating
one or more strip mines on the project site. This includes development of
access roads and a coal loading facility. During this phase anything else
necessary to move into phase III is done. Phase III consists of construction,
or development, and operation of the following on project land previously
stripped:
(1) a coal preparation plant
incorporating the most current coal preparation technology;
(2) unitrain coal loading
facilities;
(3) three deep mines;
and
(4) all related facilities.
Under these facts, this is an integrated multiphase
project.
14.3.2.3.b.3. An integrated project is
otherwise eligible for super tax credit, under W. Va. Code '11-13C-4b, to the
extent the entire project, or any phase thereof, qualifies for credit under W.
Va. Code '11-13C-4b. In order to qualify for super tax credit, there must be
both investment in property purchased or leased for business expansion and the
creation of at least fifty (50) new jobs by the taxpayer or any other
participant in the project as a direct result of that investment. Because a
Section 11-13C-4b(a)(1) multi-year project is limited to qualified investment
property placed in service or use during any three (3) successive tax years
that directly results in the creation of at least fifty (50) new jobs filled by
new employees, a multi-year integrated corporate project is only eligible for
super tax credit benefits to the extent that one or more portions of the
integrated project satisfies the Section 11-13C-4b(a)(1) requirements. The
following examples illustrate the meaning of this rule.
Example 1. Prior to March 10, 1990, XYZ Coal Company
(Taxpayer) made investment in property purchased or leased for its Rocky
Mountain Coal Project aggregating more than ten million ($10,000,000) dollars.
All of that property was placed in service during calendar years 1987, 1988 and
1989. As a direct result of that investment hundred (100) new jobs were created
and filled by new employees during that period. XYZ Coal Company timely applied
to the Tax Commissioner for certification of this phase of its integrated
project. Certification was granted and XYZ Coal Company began taking the super
tax credit. During calendar year 1990, XYZ Coal Company timely filed with the
Tax Commissioner notice of claim to super tax credit under the Section
11-13C-14(c) transition rules. In 1991, Taxpayer placed in service project
property valued at two hundred fifty thousand ($250,000) dollars and created
five new jobs. During calendar years 1992, 1992 and 1994. The property placed
in service during 1990 is not eligible for super tax credit because it did not
result in the creation of at least fifty (50) new jobs. While Taxpayer could
have grouped the years 1991, 1992 and 1993 together as a Section 11-13C-14
b(a)(1) project, it would not have been allowed to claim super tax credit for
the five million ($5,000,000) dollars of project property placed in service in
calendar year 1994 which resulted in the creation of twenty-five (25) new jobs.
For this reason, Taxpayer elected to treat the years 1992-1994 as a section
11-13C-4 b(a)(1) project rather than the years 1991-1993. During calendar year
1995, Taxpayer placed in service additional Rocky Mountain Coal project
property valued one million ($1,000,000) dollars which created ten (10) new
jobs. No super tax credit benefits are allowable with respect to the investment
placed in service during 1995.
Example 2: Same facts as in Example 1, except that during
1991 XYZ Coal Company placed in service a new strip mine that is not part of
its Rocky Mountain Coal Project. Property placed in service is valued at seven
hundred fifty thousand ($750,000) dollars and fifty-five (55) new jobs were
created. Because the new mine is not a part of the Rocky Mountain Coal Project,
super tax credit for that investment may not be used to offset severance taxes
on coal produced from that strip mine. Super tax credit may be applied against
other taxes directly attributable to that mine, in accordance with the
remaining provisions of W. Va. Code '11-13C-5.
14.3.2.3.c. New
Business Facility Rule. - The portion of the integrated project constructed,
purchased, or leased, after March 9, 1990 must satisfy the definition "new
business facility" codified in W. Va. Code '11-13C-14(e)(3).
14.3.2.3.d. New Jobs Rule. - The new jobs
created by the project after March 9, 1990 must be filled by "new employees" as
defined in W. Va. Code '11-13C-14(e)(4).
14.3.3. Notice of claim
under transition rules.
14.3.3.1. Notice
required. - Any person intending to assert a claim for credit based in whole or
in part on application of the transition rules in W. Va. Code '11-13C-14(c)(2)(B)
or (C) must have filed written notice of such
intention with the Tax Commissioner on or before July 1, 1990. In the case of a
multiparticipant project, this notice may have been filed by the managing
project participant on behalf of all participants in such project. Such notice
shall have been in a form prescribed by the Tax Commissioner and all
information required by such form shall have been provided.
14.3.3.2. Failure to file notice. - If any
person fails to timely file the notice required by W. Va. Code '11-13C-14(c)(3),
such person shall be precluded from claiming credit under W. Va. Code '11-13C
et seq. for such investment.
14.4. Treatment of successor project
participants. - Whenever a participant in a project certified under W. Va. Code
'11-13C-4b(a)(2)
or (3) is replaced by another participant in
that project on or after March 10, 1990, the tax credits available to such
successor participant as a result of the transfer shall not exceed the amount
of credits that would have been available to the predecessor participant had
the transfer to the successor participant not occurred: Provided, That if the
project plan provides for annual recalculation of the division of the credit
allowable for each year among the participants in the project in order to
maximize the collective use of such credit by the project participants, or for
any other purpose, then the credit available to the successor participant as a
result of the transfer shall be limited each year to the amount of credit
actually used by the predecessor participant to offset taxes for the taxable
year immediately preceding the taxable year in which such participant's
obligations or interest in the project, as described in the project plan
certified by the Tax Commissioner, passed to the successor participant in the
project.
14.5. The following terms
are defined or redefined on and after March 10, 1990 for purposes of the
business investment and jobs expansion tax credit:
14.5.1. "Construction contract." - For
definition, refer to Section 3 of these regulations.
14.5.2. "Excluded property." - For
definition, refer to Section 3 of these regulations.
14.5.3. "New business facility." - For
definition, refer to Section 3 of these regulations.
14.5.4. "New employee." - The terms
"full-time employee" and "permanent employment" are defined under this heading.
For definition, refer to Section 3 of these regulations.
14.5.5. "Leased property." - For definition,
refer to Section 3 of these regulations.
14.5.6. "Small business." - For definition,
refer to Section 3 and Section 7a of these regulations.
14.5.7. "Annual payroll." - For definition,
refer to Section 3 and Section 7a of these regulations.
14.5.8. "Annual gross receipts." - For
definition, refer to Section 3 and Section 7a of these regulations.
14.5.9. "Affiliates." - For definition, refer
to Section 7a of these regulations.
14.5.10. "Concern." - For definition, refer
to Section 7a of these regulations.
14.6. Application for credit required.
14.6.1. Application required. -
Notwithstanding any provision of W. Va. Code '11-13C et seq. to the contrary,
no credit shall be allowed or applied under W. Va, Code '11-13C et seq. for any
qualified investment property placed in service or use on or after January 1,
1990 until the person asserting a claim for the allowance of credit under W.
Va. Code '11-13C et seq. makes written application to the Tax Commissioner for
allowance of credit as provided in W. Va. Code '11-13C-14(f)
and receives written acknowledgement of its receipt from Tax Commissioner:
Provided, That in the case of a multiparticipant project this notice may be
filed by the managing project participant on behalf of all participants in that
project. An application for credit shall be filed no later than the last day of
the due date, without extensions, for filing the tax returns required under W.
Va. Code ''11-21 or 11-24 et seq. for the taxable year in which the property to
which the credit relates is placed in service or use and all information
required by such form shall be provided.
14.6.2. Failure to file. - The failure to
timely apply for the credit in accordance with Section 14.6.1 of these
regulations shall result in the forfeiture of fifty percent (50%) of the annual
credit allowance otherwise allowable under W. Va. Code '11-14 et seq. This
penalty shall apply annually until such application is filed.
14.6.2.1. For purposes of this section, the
penalty of fifty percent (50%) of the annual credit allowance otherwise
allowable under W. Va. Code '11-14 et seq. means that the amount of the actual
decrease in the taxpayer's tax liability which would result from application of
the credit, if the penalty were not imposed shall be eliminated in the amount
of fifty percent (50%), i.e., the actual tax liability shall increase by fifty
percent (50%) of the amount of offset which would have been available had the
penalty not been applied.
14.7. These regulations are issued pursuant
to the mandate of W. Va. Code '11-13C-14(g).
14.8. Studies and reviews. - The Tax
Commissioner shall review the accounts of all taxpayers who are currently
claiming tax credits under W. Va. Code '11-13C et seq. for the purpose of
ensuring that such credits are being claimed only in accordance with W. Va.
Code '11-13C et seq. The Tax Commissioner shall report his findings and
conclusions based on such reviews at the 1991 regular session of the
Legislature along with recommendations for any further legislative change:
Provided, That the confidentiality of all taxpayers and taxpayer information
shall be preserved in such report and that this report shall in no way be
deemed to affect future enforcement of W. Va. Code '11-13C-14.
14.9. Effective date.
14.9.1. Except as otherwise expressly
provided in W. Va. Code '11-13C-14,
the provisions of W. Va, Code '11-13C-14
shall apply to property placed in service or use on or after March 10, 1990,
notwithstanding any provision of prior law which may be in conflict with W. Va.
Code '11-13C-14.
In the case of any such ambiguity, the provisions of W. Va. Code '11-13C-14
shall control resolution of such ambiguity.
14.9.2. The date of passage of W. Va. Code
'11-13C-14 is March 10, 1990.
